ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2022
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-40170
TERRAN ORBITAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
98-1572314 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer |
|
6800 Broken Sound Parkway NW, Suite 200 Boca Raton, 33487 (561) 988-1704 |
|
|
(Address of principal executive offices, including zip code, Registrant's telephone number, including area code) |
|
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbols |
|
Name of each exchange on which registered |
Common stock, par value $0.0001 per share |
|
LLAP |
|
New York Stock Exchange |
Warrants to purchase one share of common stock, each at an exercise price of $11.50 per share |
|
LLAP WS |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☒ |
Emerging growth company |
|
☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 9, 2022, the registrant had 137,295,455 shares of common stock, $0.0001 par value per share, outstanding.
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TERRAN ORBITAL CORPORATION
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share amounts)
|
|
|
|
|
|
|
||
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
76,654 |
|
|
$ |
27,325 |
|
Accounts receivable, net of allowance for credit losses of $883 and $945 |
|
|
18,626 |
|
|
|
3,723 |
|
Contract assets, net |
|
|
3,609 |
|
|
|
2,757 |
|
Inventory |
|
|
9,191 |
|
|
|
7,783 |
|
Prepaid expenses and other current assets |
|
|
6,258 |
|
|
|
57,639 |
|
Total current assets |
|
|
114,338 |
|
|
|
99,227 |
|
Property, plant and equipment, net |
|
|
38,334 |
|
|
|
35,530 |
|
Other assets |
|
|
17,316 |
|
|
|
639 |
|
Total assets |
|
$ |
169,988 |
|
|
$ |
135,396 |
|
Liabilities, mezzanine equity and shareholders' deficit: |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
$ |
7,515 |
|
|
$ |
14 |
|
Accounts payable |
|
|
10,833 |
|
|
|
9,366 |
|
Contract liabilities |
|
|
24,204 |
|
|
|
17,558 |
|
Reserve for anticipated losses on contracts |
|
|
965 |
|
|
|
886 |
|
Accrued expenses and other current liabilities |
|
|
13,082 |
|
|
|
76,136 |
|
Total current liabilities |
|
|
56,599 |
|
|
|
103,960 |
|
Long-term debt |
|
|
94,929 |
|
|
|
115,134 |
|
Warrant liabilities |
|
|
35,616 |
|
|
|
5,631 |
|
Other liabilities |
|
|
16,995 |
|
|
|
2,028 |
|
Total liabilities |
|
|
204,139 |
|
|
|
226,753 |
|
|
|
|
|
|
|
|||
Mezzanine equity: |
|
|
|
|
|
|
||
Redeemable convertible preferred stock - authorized zero and 20,526,878 shares of $0.0001 par value as of March 31, 2022 and December 31, 2021, respectively; issued and outstanding shares of zero and 10,947,686 as of March 31, 2022 and December 31, 2021, respectively |
|
|
- |
|
|
|
8,000 |
|
Shareholders' deficit: |
|
|
|
|
|
|
||
Preferred stock - authorized 50,000,000 and zero shares of $0.0001 par value as of March 31, 2022 and December 31, 2021, respectively; zero issued and outstanding |
|
|
- |
|
|
|
- |
|
Common stock - authorized 300,000,000 and 151,717,882 shares of $0.0001 par value as of March 31, 2022 and December 31, 2021, respectively; issued and outstanding shares of 137,295,455 and 78,601,283 as of March 31, 2022 and December 31, 2021, respectively |
|
|
14 |
|
|
|
8 |
|
Additional paid-in capital |
|
|
234,384 |
|
|
|
97,737 |
|
Accumulated deficit |
|
|
(268,560 |
) |
|
|
(197,066 |
) |
Accumulated other comprehensive income (loss) |
|
|
11 |
|
|
|
(36 |
) |
Total shareholders' deficit |
|
|
(34,151 |
) |
|
|
(99,357 |
) |
Total liabilities, mezzanine equity and shareholders' deficit |
|
$ |
169,988 |
|
|
$ |
135,396 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
2
TERRAN ORBITAL CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
(In thousands, except share and per share amounts)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Revenue |
|
$ |
13,120 |
|
|
$ |
10,494 |
|
Cost of sales |
|
|
15,953 |
|
|
|
9,734 |
|
Gross (loss) profit |
|
|
(2,833 |
) |
|
|
760 |
|
Selling, general, and administrative expenses |
|
|
30,217 |
|
|
|
6,673 |
|
Loss from operations |
|
|
(33,050 |
) |
|
|
(5,913 |
) |
Interest expense, net |
|
|
2,923 |
|
|
|
907 |
|
Loss on extinguishment of debt |
|
|
23,141 |
|
|
|
70,667 |
|
Change in fair value of warrant and derivative liabilities |
|
|
11,853 |
|
|
|
(34 |
) |
Other expense |
|
|
403 |
|
|
|
15 |
|
Loss before income taxes |
|
|
(71,370 |
) |
|
|
(77,468 |
) |
Provision for income taxes |
|
|
2 |
|
|
|
28 |
|
Net loss |
|
|
(71,372 |
) |
|
|
(77,496 |
) |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
||
Foreign currency translation adjustments |
|
|
47 |
|
|
|
(58 |
) |
Total comprehensive loss |
|
$ |
(71,325 |
) |
|
$ |
(77,554 |
) |
Weighted-average shares outstanding - basic and diluted |
|
|
83,643,940 |
|
|
|
71,431,259 |
|
Net loss per share - basic and diluted |
|
$ |
(0.85 |
) |
|
$ |
(1.08 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TERRAN ORBITAL CORPORATION
(In thousands, except share amounts)
Three Months Ended March 31, 2022 |
|
|||||||||||||||||||||||||||||||||||
|
Mezzanine Equity |
|
|
|
Shareholders' Deficit |
|
||||||||||||||||||||||||||||||
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Shares |
|
|
Amounts |
|
|
|
Shares |
|
|
Amounts |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Non-controlling |
|
|
Total |
|
|||||||||
Balance as of December 31, 2021 |
|
396,870 |
|
|
$ |
8,000 |
|
|
|
|
2,849,414 |
|
|
$ |
- |
|
|
$ |
97,745 |
|
|
$ |
(197,066 |
) |
|
$ |
(36 |
) |
|
$ |
- |
|
|
$ |
(99,357 |
) |
Retroactive application of reverse recapitalization |
|
10,550,816 |
|
|
|
— |
|
|
|
|
75,751,869 |
|
|
|
8 |
|
|
|
(8 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of December 31, 2021 - Recast |
|
10,947,686 |
|
|
$ |
8,000 |
|
|
|
|
78,601,283 |
|
|
$ |
8 |
|
|
$ |
97,737 |
|
|
$ |
(197,066 |
) |
|
$ |
(36 |
) |
|
$ |
- |
|
|
$ |
(99,357 |
) |
Adoption of accounting standard, net of tax |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(122 |
) |
|
|
— |
|
|
|
— |
|
|
|
(122 |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(71,372 |
) |
|
|
— |
|
|
|
— |
|
|
|
(71,372 |
) |
Other comprehensive income, net of tax |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47 |
|
|
|
— |
|
|
|
47 |
|
Conversion of redeemable convertible preferred stock into common stock |
|
(10,947,686 |
) |
|
|
(8,000 |
) |
|
|
|
10,947,686 |
|
|
|
1 |
|
|
|
7,999 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,000 |
|
Net settlement of liability-classified warrants into common stock |
|
— |
|
|
|
— |
|
|
|
|
694,873 |
|
|
|
— |
|
|
|
7,616 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,616 |
|
Net settlement of equity-classified warrants into common stock |
|
— |
|
|
|
— |
|
|
|
|
22,343,698 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock in connection with the Tailwind Two Merger and PIPE Investment, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
|
16,114,695 |
|
|
|
2 |
|
|
|
6,926 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,928 |
|
Issuance of common stock in connection with financing transactions, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
|
4,325,000 |
|
|
|
1 |
|
|
|
40,733 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,734 |
|
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
11,007 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,007 |
|
Issuance of contingently issuable common stock |
|
— |
|
|
|
— |
|
|
|
|
4,095,569 |
|
|
|
— |
|
|
|
44,887 |
|
|
|
|
|
|
|
|
|
|
|
|
44,887 |
|
|||
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
17,335 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,335 |
|
Exercise of stock options |
|
— |
|
|
|
— |
|
|
|
|
172,651 |
|
|
|
— |
|
|
|
146 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
146 |
|
Balance as of March 31, 2022 |
|
— |
|
|
$ |
- |
|
|
|
|
137,295,455 |
|
|
$ |
14 |
|
|
$ |
234,384 |
|
|
$ |
(268,560 |
) |
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
(34,151 |
) |
3
TERRAN ORBITAL CORPORATION
Condensed Consolidated Statements of Shareholders’ Deficit (Unaudited)
(In thousands, except share amounts)
Three Months Ended March 31, 2021 |
|
|||||||||||||||||||||||||||||||||||
|
Mezzanine Equity |
|
|
|
Shareholders' Deficit |
|
||||||||||||||||||||||||||||||
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Shares |
|
|
Amounts |
|
|
|
Shares |
|
|
Amounts |
|
|
Additional |
|
|
Accumulated |
|
|
Accumulated Other |
|
|
Non-controlling |
|
|
Total |
|
|||||||||
Balance as of December 31, 2020 |
|
396,870 |
|
|
$ |
8,000 |
|
|
|
|
2,439,634 |
|
|
$ |
- |
|
|
$ |
7,454 |
|
|
$ |
(58,084 |
) |
|
$ |
(204 |
) |
|
$ |
23,743 |
|
|
$ |
(27,091 |
) |
Retroactive application of reverse recapitalization |
|
10,550,816 |
|
|
|
— |
|
|
|
|
64,857,839 |
|
|
|
7 |
|
|
|
(7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of December 31, 2020 - Recast |
|
10,947,686 |
|
|
$ |
8,000 |
|
|
|
|
67,297,473 |
|
|
$ |
7 |
|
|
$ |
7,447 |
|
|
$ |
(58,084 |
) |
|
$ |
(204 |
) |
|
$ |
23,743 |
|
|
$ |
(27,091 |
) |
Net loss |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(77,496 |
) |
|
|
— |
|
|
|
— |
|
|
|
(77,496 |
) |
Other comprehensive income, net of tax |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110 |
|
|
|
— |
|
|
|
110 |
|
Issuance of common stock in exchange for non-controlling interest, |
|
— |
|
|
|
— |
|
|
|
|
10,704,772 |
|
|
|
1 |
|
|
|
23,310 |
|
|
|
— |
|
|
|
— |
|
|
|
(23,743 |
) |
|
|
(432 |
) |
Issuance of warrants, net of issuance costs |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
66,060 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
66,060 |
|
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
168 |
|
Exercise of stock options |
|
— |
|
|
|
— |
|
|
|
|
164,352 |
|
|
|
— |
|
|
|
19 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19 |
|
Balance as of March 31, 2021 |
|
10,947,686 |
|
|
$ |
8,000 |
|
|
|
|
78,166,597 |
|
|
$ |
8 |
|
|
$ |
97,004 |
|
|
$ |
(135,580 |
) |
|
$ |
(94 |
) |
|
$ |
- |
|
|
$ |
(38,662 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TERRAN ORBITAL CORPORATION
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
846 |
|
|
|
671 |
|
Non-cash interest expense |
|
|
1,215 |
|
|
|
889 |
|
Share-based compensation expense |
|
|
17,335 |
|
|
|
168 |
|
Provision for losses on receivables and inventory |
|
|
169 |
|
|
|
444 |
|
Loss on extinguishment of debt |
|
|
23,141 |
|
|
|
70,667 |
|
Change in fair value of warrant and derivative liabilities |
|
|
11,853 |
|
|
|
(34 |
) |
Amortization of operating right-of-use assets |
|
|
305 |
|
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
(15,002 |
) |
|
|
(226 |
) |
Contract assets |
|
|
(928 |
) |
|
|
(785 |
) |
Inventory |
|
|
(1,550 |
) |
|
|
998 |
|
Prepaid expenses and other current assets |
|
|
(1,384 |
) |
|
|
216 |
|
Accounts payable |
|
|
2,134 |
|
|
|
2,202 |
|
Contract liabilities |
|
|
6,708 |
|
|
|
728 |
|
Reserve for anticipated losses on contracts |
|
|
79 |
|
|
|
(52 |
) |
Accrued expenses and other current liabilities |
|
|
4,032 |
|
|
|
1,047 |
|
Accrued interest |
|
|
(4,803 |
) |
|
|
- |
|
Other, net |
|
|
(2,078 |
) |
|
|
15 |
|
Net cash used in operating activities |
|
|
(29,300 |
) |
|
|
(548 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment |
|
|
(4,030 |
) |
|
|
(2,422 |
) |
Net cash used in investing activities |
|
|
(4,030 |
) |
|
|
(2,422 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from long-term debt |
|
|
35,942 |
|
|
|
47,481 |
|
Proceeds from warrants and derivatives |
|
|
42,247 |
|
|
|
2,519 |
|
Proceeds from Tailwind Two Merger and PIPE Investment |
|
|
58,424 |
|
|
|
- |
|
Proceeds from issuance of common stock |
|
|
14,791 |
|
|
|
- |
|
Repayment of long-term debt |
|
|
(27,171 |
) |
|
|
(4 |
) |
Payment of issuance costs |
|
|
(41,681 |
) |
|
|
(5,667 |
) |
Proceeds from exercise of stock options |
|
|
135 |
|
|
|
19 |
|
Net cash provided by financing activities |
|
|
82,687 |
|
|
|
44,348 |
|
|
|
|
|
|
|
|
||
Effect of exchange rate fluctuations on cash and cash equivalents |
|
|
(28 |
) |
|
|
(66 |
) |
|
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
|
49,329 |
|
|
|
41,312 |
|
Cash and cash equivalents at beginning of period |
|
|
27,325 |
|
|
|
12,336 |
|
Cash and cash equivalents at end of period |
|
$ |
76,654 |
|
|
$ |
53,648 |
|
|
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Purchases of property, plant and equipment not yet paid |
|
$ |
211 |
|
|
$ |
111 |
|
Non-cash interest capitalized to property, plant and equipment |
|
|
555 |
|
|
|
121 |
|
Depreciation and amortization capitalized to construction in process |
|
|
77 |
|
|
|
- |
|
Issuance costs not yet paid |
|
|
5,983 |
|
|
|
2,361 |
|
Non-cash exchange and extinguishment of long-term debt |
|
|
40,432 |
|
|
|
36,859 |
|
Issuance of common stock in exchange for non-controlling interest |
|
|
- |
|
|
|
23,743 |
|
Conversion of redeemable convertible preferred stock into common stock |
|
|
8,000 |
|
|
|
- |
|
Net settlement of liability-classified warrants into common stock |
|
|
7,616 |
|
|
|
— |
|
Net settlement of equity-classified warrants into common stock |
|
|
(2 |
) |
|
|
- |
|
Non-cash issuance of common stock in connection with PIPE Investment |
|
|
10,060 |
|
|
|
— |
|
Non-cash issuance of common stock in connection with financing transactions |
|
|
26,304 |
|
|
|
- |
|
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
|
11,007 |
|
|
|
— |
|
Issuance of contingently issuable common stock |
|
|
44,887 |
|
|
|
- |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1 Organization and Summary of Significant Accounting Policies
Organization and Business
Terran Orbital Corporation, formerly known as Tailwind Two Acquisition Corp. (“Tailwind Two”), together with its wholly-owned subsidiaries (the “Company”), is a leading manufacturer of small satellites primarily serving the United States (“U.S.”) aerospace and defense industry. Through its subsidiary Tyvak Nano-Satellite Systems, Inc. (“Tyvak”), the Company provides end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and in-orbit support to meet the needs of its customers. The Company accesses the international market through both Tyvak and its Torino, Italy based subsidiary, Tyvak International S.R.L. (“Tyvak International”). Through its subsidiary PredaSAR Corporation (“PredaSAR”), the Company is developing what it believes will be the world's largest, most advanced NextGen Earth observation constellation to provide near persistent, near real-time Earth imagery.
Tailwind Two Merger
Prior to March 25, 2022, Tailwind Two was a publicly listed special purpose acquisition company incorporated as a Cayman Islands exempted company. On March 25, 2022, Tailwind Two acquired Terran Orbital Operating Corporation, formerly known as Terran Orbital Corporation (“Legacy Terran Orbital”) (the “Tailwind Two Merger”). In connection with the Tailwind Two Merger, Tailwind Two filed a notice of deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, resulting in Tailwind Two becoming a Delaware corporation and changing its name from Tailwind Two to Terran Orbital Corporation. The Tailwind Two Merger resulted in Legacy Terran Orbital becoming a wholly-owned subsidiary of Terran Orbital Corporation.
As a result of the Tailwind Two Merger, all of Legacy Terran Orbital's issued and outstanding common stock was converted into shares of Terran Orbital Corporation's common stock using an exchange ratio of 27.585 shares of Terran Orbital Corporation's common stock per each share of Legacy Terran Orbital's common stock. In addition, Legacy Terran Orbital's convertible preferred stock and certain warrants were exercised and converted into shares of Legacy Terran Orbital's common stock immediately prior to the Tailwind Two Merger, and in turn, were converted into shares of Terran Orbital Corporation's common stock as a result of the Tailwind Two Merger. Further, in connection with the Tailwind Two Merger, Legacy Terran Orbital's share-based compensation plan and related share-based compensation awards were cancelled and exchanged or converted, as applicable, with a new share-based compensation plan and related share-based compensation awards of Terran Orbital Corporation.
While Legacy Terran Orbital became a wholly-owned subsidiary of Terran Orbital Corporation, Legacy Terran Orbital was deemed to be the acquirer in the Tailwind Two Merger for accounting purposes. Accordingly, the Tailwind Two Merger was accounted for as a reverse recapitalization, in which case the condensed consolidated financial statements of the Company represent a continuation of Legacy Terran Orbital and the issuance of common stock in exchange for the net assets of Tailwind Two recognized at historical cost and no recognition of goodwill or other intangible assets. Operations prior to the Tailwind Two Merger are those of Legacy Terran Orbital and all share and per-share data included in these condensed consolidated financial statements have been retroactively adjusted to give effect to the Tailwind Two Merger. In addition, the number of shares subject to, and the exercise price of, the Company’s outstanding options and warrants were adjusted to reflect the Tailwind Two Merger. The treatment of the Tailwind Two Merger as a reverse recapitalization was based upon the pre-merger shareholders of Legacy Terran Orbital holding the majority of the voting interests of Terran Orbital Corporation, Legacy Terran Orbital's existing management team serving as the initial management team of Terran Orbital Corporation, Legacy Terran Orbital's appointment of the majority of the initial board of directors of Terran Orbital Corporation, and Legacy Terran Orbital's operations comprising the ongoing operations of the Company.
In connection with the Tailwind Two Merger, approximately $29 million of cash and marketable securities held in trust, net of redemptions by Tailwind Two's public shareholders, became available for use by the Company as well as proceeds received from the contemporaneous sale of common stock in connection with the closing of a PIPE investment with a contractual amount of $51 million (the “PIPE Investment”). In addition, the Company received additional proceeds from the issuance of debt contemporaneously with the Tailwind Two Merger. The aggregate cash raised will be used for general corporate purposes, the partial paydown of debt, the payment of transaction costs and the payment of other costs directly or indirectly attributable to the Tailwind Two Merger.
Beginning on March 28, 2022, the Company's common stock and public warrants began trading on the New York Stock Exchange (the “NYSE”) under the symbols “LLAP” and “LLAP WS,” respectively.
6
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Further information regarding the Tailwind Two Merger is included in the respective notes that follow.
Basis of Presentation and Significant Accounting Policies
The preparation of the condensed consolidated financial statements in accordance with generally accepted accounting principles in the U.S. (“GAAP”) requires the Company to select accounting policies and make estimates that affect amounts reported in the condensed consolidated financial statements and the accompanying notes. The Company’s estimates are based on the relevant information available at the end of each period. Actual results could differ materially from these estimates under different assumptions or market conditions.
The condensed consolidated financial statements included herein are unaudited, but in the opinion of management, they include all adjustments, consisting of normal recurring adjustments, necessary to summarize fairly the Company’s financial position, results of operations, and cash flows for the interim periods presented. The interim results reported in these condensed consolidated financial statements should not be taken as indicative of results that may be expected for future interim periods or the full year. For a more comprehensive understanding of the Company and its interim results, these condensed consolidated financial statements should be read in conjunction with Legacy Terran Orbital’s audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in the registration statement on Form S-1 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 22, 2022 (the “Form S-1”).
The Company’s accounting policies used in the preparation of these condensed consolidated financial statements do not differ from those used for the annual consolidated financial statements of Legacy Terran Orbital, unless otherwise noted. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements of Legacy Terran Orbital as of that date but does not include all the footnote disclosures from the annual consolidated financial statements.
The condensed consolidated financial statements include the accounts of Terran Orbital Corporation and its subsidiaries, and have been prepared in U.S. dollars in accordance with GAAP. All intercompany transactions have been eliminated.
COVID-19 Pandemic
During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become increasingly widespread across the globe. The COVID-19 Pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets.
The COVID-19 Pandemic has contributed to a worldwide shortage of electronic components which has resulted in longer than historically experienced lead times for such electronic components. The reduced availability to receive electronic components used in the Company’s operations has negatively affected its timing and ability to deliver products and services to customers as well as increased its costs in recent periods. The Company considered the emergence and pervasive economic impact of the COVID-19 Pandemic in its assessment of its financial position, results of operations, cash flows, and certain accounting estimates as of and for the three months ended March 31, 2022. Due to the evolving and uncertain nature of the COVID-19 Pandemic, it is possible that the effects of the COVID-19 Pandemic could materially impact the Company’s estimates and condensed consolidated financial statements in future reporting periods.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less from the time of purchase.
7
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following as of the dates presented:
|
|
|
|
|
|
|
||
(in thousands) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Deferred debt commitment costs |
|
$ |
- |
|
|
$ |
46,632 |
|
Deferred equity issuance costs |
|
|
- |
|
|
|
6,085 |
|
Deferred cost of sales |
|
|
1,585 |
|
|
|
2,950 |
|
Other current assets |
|
|
4,673 |
|
|
|
1,972 |
|
Prepaid expenses and other current assets |
|
$ |
6,258 |
|
|
$ |
57,639 |
|
Deferred debt commitment costs relate to warrants and other consideration transferred in association with a financing arrangement entered into in anticipation of the Tailwind Two Merger. The deferred debt commitment costs were reclassified to discount on debt and deferred issuance costs in connection with the issuance of the associated debt in March 2022. Refer to Note 5 “Debt” and Note 6 “Warrants and Derivatives” for further discussion.
Deferred equity issuance costs relate to direct and incremental legal, accounting, and other transaction costs incurred in connection with the Tailwind Two Merger. Upon closing of the Tailwind Two Merger, the deferred equity issuance costs were reclassified as a reduction to additional paid-in capital. Payments associated with deferred equity issuance costs are reflected in payment of issuance costs in the condensed consolidated statements of cash flows.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of the dates presented:
|
|
|
|
|
|
|
||
(in thousands) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Current warrant and derivative liabilities(1) |
|
$ |
- |
|
|
$ |
68,518 |
|
Payroll-related accruals |
|
|
8,547 |
|
|
|
5,771 |
|
Current operating lease liabilities |
|
|
834 |
|
|
|
- |
|
Accrued interest |
|
|
298 |
|
|
|
- |
|
Other current liabilities |
|
|
3,403 |
|
|
|
1,847 |
|
Accrued expenses and other current liabilities |
|
$ |
13,082 |
|
|
$ |
76,136 |
|
(1) Refer to Note 6 “Warrants and Derivatives” for further discussion.
Research and Development
Research and development includes materials, labor, and overhead allocations attributable to the development of new products and solutions and significant improvements to existing products and solutions. Research and development costs are expensed as incurred and recognized in selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. Research and development expense was $1.9 million and $340 thousand during the three months ended March 31, 2022 and 2021, respectively.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
The majority of the Company’s cash and cash equivalents are held at major financial institutions. Certain account balances exceed the Federal Deposit Insurance Corporation insurance limits of $250,000 per account. As a result, there is a concentration of credit risk
8
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
related to amounts in excess of the insurance limits. The Company regularly monitors the financial stability of these financial institutions and believes that there is no exposure to any significant credit risk in cash and cash equivalents.
Concentrations of credit risk with respect to accounts receivable are limited because the Company performs credit evaluations, sets credit limits, and monitors the payment patterns of its customers.
The table below presents individual customers who accounted for more than 10% of the Company’s revenue for the periods presented:
|
|
Three Months Ended March 31, |
||
|
|
2022 |
|
2021 |
Customer A |
|
77% |
|
37% |
Customer B |
|
1% |
|
16% |
Total |
|
78% |
|
53% |
The table below presents individual customers who accounted for more than 10% of the Company’s accounts receivable, net of allowance for credit losses, as of the dates presented:
|
|
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
Customer A |
|
82% |
|
14% |
Customer B |
|
6% |
|
32% |
Customer C |
|
3% |
|
13% |
Customer D |
|
2% |
|
19% |
Customer E |
|
2% |
|
10% |
Total |
|
95% |
|
88% |
Recently Adopted Accounting Pronouncements
Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument, and related amendments, introduces new guidance which makes substantive changes to the accounting for credit losses. This guidance introduces the current expected credit losses model (“CECL”) which applies to financial assets subject to credit losses and measured at amortized cost, as well as certain off-balance sheet credit exposures. The CECL model requires an entity to estimate credit losses expected over the life of an exposure, considering information about historical events, current conditions, and reasonable and supportable forecasts and is generally expected to result in earlier recognition of credit losses. The Company adopted this guidance on January 1, 2022 using the modified retrospective approach and recognized a cumulative effect adjustment to the opening balance of accumulated deficit with no restatement of comparative periods. The impact of adoption was not material.
Lease Accounting
ASU 2016-02, Leases (Topic 842), and related amendments, requires lessees to recognize a right-of-use asset and lease liability for substantially all leases and to disclose key information about leasing arrangements. The Company adopted the guidance on January 1, 2022 using the optional transition method, which allowed the Company to apply the guidance at the adoption date and recognize a cumulative effect adjustment to the opening balance of accumulated deficit in the period of adoption with no restatement of comparative periods. The Company has also elected to apply the package of transitional practical expedients under which the Company did not reassess prior conclusions about lease identification, lease classification, and initial direct costs of existing leases as of the date of adoption. Additionally, the Company has elected the practical expedients to not separate non-lease components from lease components. The Company did not elect to apply the practical expedient related to short-term lease recognition exemption.
Upon transition to the guidance as of the date of adoption, the Company recognized operating lease liabilities on the condensed consolidated balance sheets with a corresponding amount of right-of-use assets, net of amounts reclassified from other assets and liabilities as specified by the guidance. The adoption did not have a material effect on the condensed consolidated statements of operations and comprehensive loss or cash flows. Refer to Note 15 “Leases” for further discussion.
9
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The net impact of the adoption to the condensed consolidated balance sheet was as follows:
(in thousands) |
|
December 31, 2021 |
|
|
Lease Standard Adoption Adjustment |
|
|
January 1, 2022 |
|
|||
Assets |
|
|
|
|
|
|
|
|
|
|||
Other assets |
|
$ |
639 |
|
|
$ |
6,550 |
|
|
$ |
7,189 |
|
|
|
|
|
|
|
|
|
|
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|||
Accrued expenses and other current liabilities |
|
|
76,136 |
|
|
|
166 |
|
|
|
76,302 |
|
Other liabilities |
|
|
2,028 |
|
|
|
6,384 |
|
|
|
8,412 |
|
Note 2 Revenue and Receivables
The Company applies the following five steps in order to recognize revenue from contracts with customers: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.
At contract inception, the Company assesses whether the goods or services promised within the contract represent a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation on a relative basis using the best estimate of the stand-alone selling price of each performance obligation, which is estimated using the expected-cost-plus-margin approach. Generally, the Company’s contracts with customers are structured such that the customer has the option to purchase additional goods or services. Customer options to purchase additional goods or services do not represent a separate performance obligation as the prices for such options reflect the stand-alone selling prices for the additional goods or services. The majority of the Company’s contracts with customers have a single performance obligation.
The Company recognizes the transaction price allocated to the respective performance obligation as revenue as the performance obligation is satisfied. The majority of the Company's contracts with customers relate to the creation of specialized assets that do not have alternative use and entitle the Company to an enforceable right to payment for performance completed to date. Accordingly, the Company generally measures progress towards the satisfaction of a performance obligation over time using the cost-to-cost input method.
Payments for costs not yet incurred or for costs incurred in anticipation of providing a good or service under a contract with a customer in the future are included in prepaid expenses and other current assets on the condensed consolidated balance sheets.
Estimate-at-Completion (“EAC”)
As the majority of the Company’s revenue is recognized over time using the cost-to-cost input method, the recognition of revenue and the estimate of cost-at-completion is complex, subject to many variables and requires significant judgment.
EAC represents the total estimated cost-at-completion and is comprised of direct material, direct labor and manufacturing overhead applicable to a performance obligation. There is a company-wide standard and periodic EAC process in which the Company reviews the progress and execution of outstanding performance obligations. As part of this process, the Company reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include the Company’s judgment about the ability and cost to achieve the schedule (e.g., the number and type of milestone events), technical requirements (e.g., a newly-developed product versus a mature product) and other contract requirements. The Company must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support
10
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
cost allocations), execution by subcontractors, the availability and timing of funding from customers and overhead cost rates, among other variables.
Based on the results of the periodic EAC process, any adjustments to revenue, cost of sales, and the related impact to gross profit are recognized on a cumulative catch-up basis in the period they become known. These adjustments may result from positive program performance, and may result in an increase in gross profit during the performance of individual performance obligations, if it is determined the Company will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations or realizing related opportunities. Likewise, these adjustments may result in a decrease in gross profit if it is determined the Company will not be successful in mitigating these risks or realizing related opportunities. A significant change in one or more of these estimates could affect the profitability of one or more of the Company’s performance obligations.
Contract modifications often relate to changes in contract specifications and requirements. Contract modifications are considered to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the Company’s contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue either as an increase in or a reduction of revenue on a cumulative catch-up basis.
Some of the Company’s long-term contracts contain award fees, incentive fees, or other provisions that can either increase or decrease the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. Variable consideration is estimated at the most likely amount to which the Company is expected to be entitled. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current, and forecasted) that is reasonably available. The unfunded portion of enforceable contracts are accounted for as variable consideration.
Disaggregation of Revenue
Below is a summary of the Company’s accounting by type of revenue:
11
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The following tables presents the Company’s disaggregated revenue by offering and customer type for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Mission support |
|
$ |
12,770 |
|
|
$ |
8,747 |
|
Launch support |
|
|
36 |
|
|
|
692 |
|
Operations |
|
|
192 |
|
|
|
644 |
|
Studies, design and other |
|
|
122 |
|
|
|
411 |
|
Revenue |
|
$ |
13,120 |
|
|
$ |
10,494 |
|
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
U.S. Government contracts |
|
|
|
|
|
|
||
Fixed price |
|
$ |
8,492 |
|
|
$ |
5,478 |
|
Cost-plus fee |
|
|
2,272 |
|
|
|
676 |
|
|
|
|
10,764 |
|
|
|
6,154 |
|
|
|
|
|
|
|
|
||
Foreign government contracts |
|
|
|
|
|
|
||
Fixed price |
|
|
556 |
|
|
|
543 |
|
|
|
|
|
|
|
|
||
Commercial contracts |
|
|
|
|
|
|
||
Fixed price, U.S. |
|
|
1,650 |
|
|
|
2,192 |
|
Fixed price, International |
|
|
150 |
|
|
|
1,577 |
|
Cost-plus fee |
|
|
- |
|
|
|
28 |
|
|
|
|
1,800 |
|
|
|
3,797 |
|
|
|
|
|
|
|
|
||
Revenue |
|
$ |
13,120 |
|
|
$ |
10,494 |
|
For contracts in which the U.S. Government is the ultimate customer, the Company follows U.S. Government procurement and accounting standards in assessing the allowability and the allocability of costs to contracts. Due to the significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if different assumptions were used or if the underlying circumstances were to change. The Company monitors the consistent application of its critical accounting policies and compliance with contract accounting. Business operations personnel conduct periodic contract status and performance reviews. When adjustments in estimated contract revenues or costs are determined, any material changes from prior estimates are included in earnings in the current period. Also, regular and recurring evaluations of contract cost, scheduling and technical matters are performed by Company personnel who are independent from the business operations personnel performing work under the contract. Costs incurred and allocated to contracts with the U.S. Government are subject to audit by the Defense Contract Audit Agency for compliance with regulatory standards.
Remaining Performance Obligations
Revenue from remaining performance obligations is calculated as the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period on executed contracts, including both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts. Remaining performance obligations exclude contracts in which the Company recognizes revenue in proportion to the amount it has the right to invoice for services performed and does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts.
As of March 31, 2022, the Company had approximately $221.8 million of remaining performance obligations. The Company estimates that approximately 98% of the remaining performance obligations as of March 31, 2022 will be completed and recognized as revenue by , with the rest thereafter.
12
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Contract Assets and Contract Liabilities
For each of the Company’s contracts with customers, the timing of revenue recognition, customer billings, and cash collections results in a net contract asset or liability at the end of each reporting period.
Fixed-price contracts are typically billed to the customer either using progress payments, whereby amounts are billed monthly as costs are incurred or work is completed, or performance-based payments, which are based upon the achievement of specific, measurable events or accomplishments defined and valued at contract inception. Cost-type contracts are typically billed to the customer on a monthly or semi-monthly basis.
Contract assets
Contract assets relate to instances in which revenue recognized exceeds amounts billed to customers. Contract assets are reclassified to accounts receivable when the Company has an unconditional right to the consideration and bills the customer. Contract assets are classified as current and non-current based on the estimated timing in which the Company will bill the customer. Contract assets are not considered to include a significant financing component as the payment terms are intended to protect the customer in the event the Company does not perform on its obligations under the contract.
The Company records an allowance for credit losses against its contract assets for amounts not expected to be recovered. The allowance is recognized at inception and is reassessed each reporting period. The allowance for credit losses on contract assets was not material for the periods presented.
The following is a summary of contract assets, net, recognized in the condensed consolidated balance sheets as of the dates presented:
(in thousands) |
|
March 31, 2022 |
|
|
January 1, 2022(1) |
|
||
Contract assets, gross |
|
$ |
3,685 |
|
|
$ |
2,757 |
|
Allowance for credit losses |
|
|
(76 |
) |
|
|
(82 |
) |
Contract assets, net |
|
$ |
3,609 |
|
|
$ |
2,675 |
|
(1) Balances reflected are subsequent to the adoption of CECL on January 1, 2022.
As of March 31, 2022 and December 31, 2021, all contract assets were classified as current assets.
There were no material impairments of contract assets during the three months ended March 31, 2022 or 2021.
Contract liabilities
Contract liabilities relate to advance payments and billings in excess of revenue recognized. Contract liabilities are recognized into revenue as the Company satisfies the underlying performance obligations. Contract liabilities are classified as current and non-current based on the estimating timing in which the Company will satisfy the underlying performance obligations. Contract liabilities are not considered to include a significant financing component as they are generally utilized to procure materials needed to satisfy a performance obligation or are used to ensure the customer meets contractual requirements.
As of March 31, 2022 and December 31, 2021, all contract liabilities were classified as current liabilities.
During the three months ended March 31, 2022 and 2021, the Company recognized revenue of $9.6 million and $7.2 million, respectively, that was previously included in the beginning balance of contract liabilities.
Accounts Receivable
Accounts receivable represent unconditional rights to consideration due from customers in the ordinary course of business and are generally due in one year or less. Accounts receivable are recorded at amortized cost less an allowance for credit losses, which is based on the Company’s assessment of the collectability of its accounts receivable. The Company reviews the adequacy of the allowance for
13
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
credit losses by considering the age of each outstanding invoice and the collection history of each customer. Accounts receivable that are deemed uncollectible are charged against the allowance for credit losses when identified.
Receivables from products and services for which the U.S. Government is the ultimate customer included in accounts receivable was $16.3 million and $2.1 million as of March 31, 2022 and December 31, 2021, respectively.
The following table presents changes in the allowance for credit losses for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
|
2022 |
|
|
2021 |
|
||
Beginning balance |
|
$ |
(945 |
) |
|
$ |
(635 |
) |
Adoption of CECL |
|
|
(39 |
) |
|
|
- |
|
Provision for credit losses |
|
|
(26 |
) |
|
|
(99 |
) |
Write-offs |
|
|
127 |
|
|
|
3 |
|
Ending balance |
|
$ |
(883 |
) |
|
$ |
(731 |
) |
Reserve for Anticipated Losses on Contracts
When the estimated cost-at-completion exceeds the estimated revenue to be earned for a performance obligation, the Company records a reserve for the anticipated losses in the period the loss is determined. The reserve for anticipated losses on contracts is presented as a current liability in the condensed consolidated balance sheets and as a component of cost of sales in the condensed consolidated statements of operations and comprehensive loss in accordance with ASC 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts.
During the three months ended March 31, 2022, the Company increased the reserve for anticipated losses on contracts by $79 thousand. During the three months ended March 31, 2021, the Company decreased the reserve for anticipated losses on contracts by $52 thousand.
Note 3 Inventory
Inventory consists of parts and sub-assemblies that are ultimately consumed in the manufacturing and final assembly of satellites. When an item in inventory has been identified and incorporated into a specific satellite, the cost of the sub-assembly is charged to cost of goods sold in the condensed consolidated statements of operations and comprehensive loss. Inventory is measured at the lower of cost or net realizable value. The cost of inventory includes direct material, direct labor and manufacturing overhead and is determined on a first-in-first-out basis. Inventory is presented net of an allowance for losses associated with excess and obsolete items, which is estimated based on the Company’s current knowledge with respect to inventory levels, planned production and customer demand.
Note 4 Property, Plant and Equipment, net
Property, plant and equipment, net is stated at historical cost less accumulated depreciation. Cost for company-owned satellite assets includes amounts related to design, construction, launch and commission. Cost for ground stations includes amounts related to construction and testing. Interest is capitalized on certain qualifying assets that take a substantial period of time to develop for their
14
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
intended use. Depreciation expense is calculated using the sum-of-the-years’ digits or straight-line method over the estimated useful lives of the related assets as follows:
Machinery and equipment |
|
5-7 years |
Satellites |
|
3-5 years |
Ground station equipment |
|
5-7 years |
Office equipment and furniture |
|
5-7 years |
Computer equipment and software |
|
3-5 years |
Leasehold improvements |
|
Shorter of the estimated useful life or remaining lease term |
The determination of the estimated useful life of satellites involves an analysis that considers design life, random part failure probabilities, expected component degradation and cycle life, predicted fuel consumption and experience with satellite parts, vendors and similar assets.
Depreciation expense was $846 thousand and $671 thousand during the three months ended March 31, 2022 and 2021, respectively. Repairs and maintenance expenditures are expensed when incurred.
The gross carrying amount, accumulated depreciation and net carrying amount of property, plant and equipment, net as of the dates presented were as follows:
|
|
|
|
|
|
|
||
(in thousands) |
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
Machinery and equipment |
|
$ |
7,595 |
|
|
$ |
7,607 |
|
Satellites |
|
|
2,209 |
|
|
|
2,209 |
|
Ground station equipment |
|
|
1,944 |
|
|
|
1,944 |
|
Office equipment and furniture |
|
|
2,292 |
|
|
|
2,239 |
|
Computer equipment and software |
|
|
141 |
|
|
|
142 |
|
Leasehold improvements |
|
|
8,911 |
|
|
|
8,533 |
|
Construction in process |
|
|
26,959 |
|
|
|
23,647 |
|
Property, plant and equipment, gross |
|
|
50,051 |
|
|
|
46,321 |
|
Accumulated depreciation |
|
|
(11,717 |
) |
|
|
(10,791 |
) |
Property, plant and equipment, net |
|
$ |
38,334 |
|
|
$ |
35,530 |
|
Construction in process included company-owned satellites, ground station equipment and machinery not yet placed into service.
The Company reviews property, plant and equipment, net for impairment whenever events or changes in business circumstances indicate that the net carrying amount of an asset or asset group may not be fully recoverable. The Company groups assets at the lowest level for which cash flows are separately identified. Recoverability is measured by a comparison of the net carrying amount of the asset group to its expected future undiscounted cash flows. If the expected future undiscounted cash flows of the asset group are less than its net carrying amount, an impairment loss is recognized based on the amount by which the net carrying amount exceeds the fair value less costs to sell. The calculation of the fair value less costs to sell of an asset group is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
There were no impairments of property, plant and equipment during the three months ended March 31, 2022 and 2021.
15
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 5 Debt
Long-term debt as of the presented dates was comprised of the following:
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Issued |
|
Maturity |
|
Interest Rate |
|
Interest Payable |
|
March 31, 2022 |
|
December 31, 2021 |
Francisco Partners Facility |
|
November 2021 |
|
April 2026 |
|
9.25% |
|
Quarterly |
|
$120,023 |
|
$30,289 |
Senior Secured Notes due 2026(1) |
|
March 2021 |
|
April 2026 |
|
9.25% and 11.25% |
|
Quarterly |
|
56,267 |
|
94,686 |
PIPE Investment Obligation |
|
March 2022 |
|
December 2025 |
|
N/A |
|
N/A |
|
28,125 |
|
- |
Finance leases |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
49 |
|
53 |
Unamortized deferred issuance costs |
(2,115) |
|
(761) |
|||||||||
Unamortized discount on debt |
(99,905) |
|
(9,119) |
|||||||||
Total debt |
|
|
|
|
|
|
|
|
|
102,444 |
|
115,148 |
Current portion of long-term debt |
7,515 |
|
14 |
|||||||||
Long-term debt |
|
|
|
|
|
|
|
|
|
$94,929 |
|
$115,134 |
(1) - Includes the Lockheed Martin Rollover Debt and Beach Point Rollover Debt, each as defined below.
N/A - Not meaningful or applicable
Significant changes in the Company’s debt during the three months ended March 31, 2022 were as follows:
Francisco Partners Facility
On March 9, 2022, the Company amended the note purchase agreement (the “FP Note Purchase Agreement”) governing the issuance and sale of senior secured notes due on November 24, 2026 (the “Francisco Partners Facility”) to, among other things, (i) increase the principal amount of senior secured notes that may be issued under the FP Note Purchase Agreement to up to $154 million, (ii) increase the second tranche of the Francisco Partners Facility (the “Delayed Draw Notes”) to $24 million of senior secured notes, and (iii) accelerate the funding of the Delayed Draw Notes. The Delayed Draw Notes were issued net of a $4 million original issue discount and resulted in proceeds received of $20 million, of which $8.6 million was allocated to proceeds from debt and $11.4 million was allocated to proceeds from warrants and derivatives in the condensed consolidated statements of cash flows. The Company reclassified deferred debt commitment costs of $13.2 million to discount on debt and $137 thousand to deferred issuance costs related to the issuance of the Delayed Draw Notes. The Company incurred an incremental $208 thousand of deferred issuance costs related to the issuance of the Delayed Draw Notes.
On March 25, 2022, the Company further amended the FP Note Purchase Agreement to, among other things, (i) decrease the principal amount of senior secured notes that may be issued under the Francisco Partners Facility to up to $119 million, (ii) amend certain existing covenants, as described below, (iii) add an additional covenant, as described below, (iv) revise the maturity date to April 1, 2026, and (v) change the timing of quarterly interest payments to May 15th, August 15th, November 15th and February 15th of each calendar year, with the first such interest payment required to be made on May 15, 2022. As consideration for the amendment on March 25, 2022, Francisco Partners received an additional 1.9 million shares of Terran Orbital Corporation's common stock in connection with the Tailwind Two Merger. Upon closing of the Tailwind Two Merger, the Company issued $65 million of senior secured notes as the third tranche of the Francisco Partners Facility (the “Conditional Notes”). The Conditional Notes were issued net of a $5 million original issue discount and resulted in proceeds received of $60 million, of which $14.4 million was allocated to proceeds from debt, $30.8 million was allocated to proceeds from warrants and derivatives, and $14.8 million was allocated to proceeds from the issuance of common stock in the condensed consolidated statements of cash flows. The Company reclassified deferred debt commitment costs of $32.8 million to discount on debt and $509 thousand to deferred issuance costs upon the issuance of the Conditional Notes. The Company incurred an incremental $851 thousand of issuance costs related to the issuance of the Conditional Notes, of which $641 thousand was allocated to debt and $210 thousand was allocated to equity.
As part of the amendment on March 25, 2022, the liquidity maintenance financial covenant of the Francisco Partners Facility was modified to require that as of the last day of each fiscal quarter, the Company must have an aggregate amount of unrestricted cash and cash equivalents of at least (i) $20 million in the case of the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30,
16
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
2022, (ii) $10 million in the case of the fiscal quarter ending December 31, 2022 and (iii) $20 million plus 15% of certain aggregate funded indebtedness of the Company in the case of each fiscal quarter thereafter. In addition, a new covenant was added requiring the Company to at least break even on an EBITDA basis (as defined in the FP Note Purchase Agreement) by December 31, 2023, subject to certain extensions.
As of March 31, 2022 and December 31, 2021, approximately $1.0 million and $289 thousand of contractual interest was included in the outstanding principal balance of the Francisco Partners Facility, respectively.
Senior Secured Notes due 2026
On March 8, 2021, the Company issued $87 million aggregate principal amount of senior secured notes due April 1, 2026 (the “Senior Secured Notes due 2026”) which resulted in gross proceeds of $50 million from Lockheed Martin Corporation (“Lockheed Martin”) and the exchange and extinguishment of $37 million then outstanding convertible notes. The loss on extinguishment of debt totaled $70.6 million and primarily related to the recognition of warrants issued at fair value. The Company allocated $47.5 million of the proceeds received to the Senior Secured Notes due 2026 and the remainder of the proceeds were allocated to warrants issued upon funding of the Senior Secured Notes due 2026 in the condensed consolidated statements of cash flows. Refer to Note 6 “Warrants and Derivatives” for further discussion regarding warrants.
On March 25, 2022, the Senior Secured Notes due 2026 were impacted as follows:
Exchange of Debt for Equity
In connection with the PIPE Investment, two holders of the Senior Secured Notes due 2026 agreed to, in substance, exchange the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with any residual amounts settled in cash, resulting in a loss on extinguishment of debt of $727 thousand related to $4.6 million carrying amount of Senior Secured Notes due 2026 on March 25, 2022. The consideration transferred as part of the extinguishment included common stock with a fair value of $4.6 million and a cash payment of $703 thousand, of which $293 thousand represents financing cash flows related to the repayment of debt and $410 thousand represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows.
Rollover Debt
On March 25, 2022, the note purchase agreement governing the Senior Secured Notes due 2026 was amended to, among other things, (i) set the amount of senior secured notes that will remain outstanding with Lockheed Martin subsequent to the Tailwind Two Merger to $25 million (the “Lockheed Martin Rollover Debt”), (ii) increase and set the amount of senior secured notes that will remain outstanding with Beach Point Capital ("Beach Point") subsequent to the Tailwind Two Merger to $31.3 million (the “Beach Point Rollover Debt”), (iii) set the terms of the Lockheed Martin Rollover Debt and the Beach Point Rollover Debt to have substantially similar terms as the terms in the Francisco Partners Facility, excluding call protection and the Beach Point Rollover Debt bearing interest at 11.25% (9.25% of which is payable in cash and 2.0% of which is payable in kind), and (iv) cause the Beach Point Rollover Debt to be subordinated in right of payment to the Francisco Partners Facility.
In connection with the Tailwind Two Merger, the Company partially extinguished Lockheed Martin's portion of the Senior Secured Notes due 2026, resulting in a gain on extinguishment of debt of $1.8 million related to $32.6 million carrying amount, inclusive of an unamortized premium, of Senior Secured Notes due 2026 on March 25, 2022. The consideration transferred as part of the partial extinguishment included a cash payment of $30.8 million, of which $25 million represents financing cash flows related to the repayment of debt and $5.8 million represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows. In addition, the Lockheed Martin Rollover Debt represents a modification of Lockheed Martin's portion of the Senior Secured Notes due 2026. The Company expensed $323 thousand of third-party expenses related to the modification.
In connection with the PIPE Investment and the amendment on March 25, 2022, Beach Point agreed to, in substance, exchange a portion of the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with the remainder representing the Beach Point Rollover Debt. As consideration for the amendment on March 25, 2022, Beach Point received an additional 2.4 million shares of Terran Orbital Corporation's common stock as part of the Tailwind Two Merger. Accordingly, Beach Point's portion of the Senior Secured Notes due 2026 was deemed to have been extinguished for the issuance of the Beach Point Rollover Debt and common
17
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
stock of Terran Orbital Corporation, resulting in a loss on extinguishment of debt of $24.2 million related to $38.6 million carrying amount of Senior Secured Notes due 2026 on March 25, 2022. The consideration transferred as part of the extinguishment included common stock with a fair value of $31.8 million and the Beach Point Rollover Debt with a fair value of $31 million. The Company incurred $328 thousand of third-party expenses related to the Beach Point Rollover Debt, of which $178 thousand was allocated to debt and $151 thousand was allocated to equity.
PIPE Investment Obligation
An affiliate of a director and shareholder of the Company invested $30 million as part of the PIPE Investment (the "Insider PIPE Investment"). The subscription agreement for the Insider PIPE Investment included a provision that obligates the Company to pay the affiliate a quarterly fee of $1.875 million for sixteen quarters beginning with the period ending March 31, 2022 (the “PIPE Investment Obligation”). The first four quarterly payments are to be paid in cash and the remaining payments are to be paid, at the Company's option, in cash or common stock of the Company, subject to subordination to and compliance with the Company's debt facilities. The PIPE Investment Obligation represents a liability within scope of ASC 480, Distinguishing Liabilities from Equity, (“ASC 480”) with subsequent measurement within scope of ASC 835, Interest (“ASC 835”).
The Insider PIPE Investment resulted in proceeds received of $30 million, of which $13 million was allocated to proceeds from debt and $17 million was allocated to proceeds from PIPE Investment in the condensed consolidated statements of cash flows based on relative fair value. The Company incurred $259 thousand of issuance costs related to the Insider PIPE Investment, of which $112 thousand was allocated to debt and $147 was allocated to equity.
Note 6 Warrants and Derivatives
The Company’s warrants and derivatives consist of freestanding financial instruments issued in connection with the Company’s debt and equity financing transactions. The Company does not have any derivatives designated as hedging instruments.
For each freestanding financial instrument, the Company evaluates whether it represents a liability-classified financial instrument within the scope of ASC 480, or either a liability-classified or equity-classified financial instrument within the scope of ASC 815, Derivatives and Hedging (“ASC 815”).
Warrants and derivatives classified as liabilities are recognized at fair value in the condensed consolidated balance sheets and are remeasured at fair value as of each reporting period with changes in fair value recorded in the condensed consolidated statements of operations and comprehensive loss. Warrants and derivatives classified as equity are recognized at fair value in additional paid-in capital in the condensed consolidated balance sheets and are not subsequently remeasured.
Liability-classified Warrants and Derivatives
The fair values of liability-classified warrants recorded in warrant liabilities on the condensed consolidated balance sheets as of the presented dates were as follows:
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares as of |
|
|
Issuance |
|
Maturity |
|
Exercise Price |
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||||
Inducement Warrants |
|
|
- |
|
|
March 2021 |
|
March 2041 |
|
$ |
0.01 |
|
|
$ |
— |
|
|
$ |
5,631 |
|
Public Warrants |
|
|
11,499,960 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
5,750 |
|
|
|
- |
|
Private Placement Warrants |
|
|
7,800,000 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
3,900 |
|
|
|
- |
|
FP Combination Warrants |
|
|
8,291,704 |
|
|
March 2022 |
|
March 2027 |
|
$ |
10.00 |
|
|
|
25,966 |
|
|
|
- |
|
Warrant liabilities |
|
|
27,591,664 |
|
|
|
|
|
|
|
|
|
$ |
35,616 |
|
|
$ |
5,631 |
|
|
18
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The fair values of liability-classified warrants and derivatives recorded in accrued expenses and other current liabilities on the consolidated balance sheets as of the presented dates were as follows:
(in thousands) |
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
FP Pre-Combination Warrants |
|
|
|
$ |
— |
|
|
$ |
2,546 |
|
Pre-Combination Warrants |
|
|
|
|
- |
|
|
|
849 |
|
FP Combination Warrants |
|
|
|
|
- |
|
|
|
27,682 |
|
Combination Warrants |
|
|
|
|
- |
|
|
|
7,602 |
|
FP Combination Equity |
|
|
|
|
- |
|
|
|
24,110 |
|
Combination Equity |
|
|
|
|
- |
|
|
|
5,729 |
|
Current warrant and derivative liabilities |
|
|
|
$ |
— |
|
|
$ |
68,518 |
|
The changes in fair value of liability-classified warrants and derivatives during the three months ended March 31, 2022 were as follows:
(in thousands) |
|
Current Warrant |
|
|
Warrant |
|
|
Total |
|
|||
Beginning balance |
|
$ |
68,518 |
|
|
$ |
5,631 |
|
|
$ |
74,149 |
|
Initial recognition from Tailwind Two Merger |
|
|
- |
|
|
|
13,124 |
|
|
|
13,124 |
|
Change in in fair value of warrant and derivative liabilities |
|
|
13,342 |
|
|
|
(1,489 |
) |
|
|
11,853 |
|
Reclassification of current warrant and derivative liabilities to warrant liabilities |
|
|
(25,966 |
) |
|
|
25,966 |
|
|
|
- |
|
Reclassification of liability-classified warrants and derivatives to equity-classified |
|
|
(11,007 |
) |
|
|
- |
|
|
|
(11,007 |
) |
Net settlement of liability-classified warrants into common stock |
|
|
- |
|
|
|
(7,616 |
) |
|
|
(7,616 |
) |
Issuance of contingently issuable shares |
|
|
(44,887 |
) |
|
|
- |
|
|
|
(44,887 |
) |
Ending balance |
|
$ |
- |
|
|
$ |
35,616 |
|
|
$ |
35,616 |
|
Inducement Warrants
During the three months ended March 31, 2021, warrants issued by Legacy Terran Orbital in connection with the issuance of the Senior Secured Notes due 2026 (the “Inducement Warrants”) were recognized at a fair value of $4.4 million in the condensed consolidated balance sheets, of which $2.5 million were recognized as discount on debt from the issuance of the Senior Secured Notes due 2026 and $1.9 million were recognized as a component of loss on extinguishment of debt in connection with the extinguishment of convertible notes. The change in fair value of the Inducement Warrants was not material during the three months ended March 31, 2021.
As part of the Tailwind Two Merger, all of the Inducement Warrants were ultimately net settled into approximately 695 thousand shares of Terran Orbital Corporation’s common stock. As a result of the net settlement of the Inducement Warrants, the Company reclassified the fair value of the Inducement Warrants as of the Tailwind Two Merger of $7.6 million to additional paid-in capital.
Francisco Partners Warrants and Derivatives
As part of the Francisco Partners Facility, the Company issued warrants to Francisco Partners in November 2021 to purchase 1.5% of the fully diluted shares of Legacy Terran Orbital’s common stock (the “FP Pre-Combination Warrants”). The FP Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
As additional consideration for the Francisco Partners Facility in November 2021, the Company committed to the issuance of (i) an equity grant package equal to 1.5% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger, plus an additional one million shares of Terran Orbital Corporation's common stock (the “FP Combination Equity”), and (ii) warrants to purchase 5.0% of the Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share,
19
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
redeemable at the option of Francisco Partners for $25 million on the third anniversary of the closing of the Tailwind Two Merger, and expiring on March 25, 2027 (the “FP Combination Warrants”).
The FP Combination Equity and the FP Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 3.3 million shares of the Company's common stock were issued related to the FP Combination Equity, resulting in the reclassification of the fair value of the FP Combination Equity as of the Tailwind Two Merger of $36.4 million to additional paid-in capital. In addition, approximately 8.3 million warrants were issued related to the FP Combination Warrants, resulting in the reclassification of the FP Combination Warrants to warrant liabilities on the condensed consolidated balance sheets.
Pre-Combination and Combination Warrants and Derivatives
Upon initial funding of the Francisco Partners Facility and in connection with the amendment to the Senior Secured Notes due 2026 note purchase agreement in November 2021, the Company issued warrants to each of Lockheed Martin and Beach Point to purchase 0.25% of the fully diluted shares of Legacy Terran Orbital’s common stock on the same valuation and terms and conditions as the FP Pre-Combination Warrants (the “Pre-Combination Warrants”). The Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
In November 2021, the Company committed to issue to each of Lockheed Martin and Beach Point (i) an equity grant package equal to 0.25% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger (the “Combination Equity”), and (ii) warrants to purchase 0.83333% of Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share expiring on March 25, 2027 (the “Combination Warrants”).
The Combination Equity and the Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 774 thousand shares of the Company's common stock were issued related to the Combination Equity, resulting in the reclassification of the fair value of the Combination Equity as of the Tailwind Two Merger of $8.5 million to additional paid-in capital. In addition, approximately 2.8 million warrants were issued related to the Combination Warrants, resulting in the reclassification of the fair value of the Combination Warrants as of the Tailwind Two Merger of $11 million to additional paid-in capital as the Combination Warrants now represent equity-classified financial instruments.
Public Warrants
As part of the Tailwind Two Merger, the Company assumed outstanding warrants giving the holders the right to purchase an aggregate of 11.5 million shares of the Company's common stock for $11.50 per share (the “Public Warrants”). The Public Warrants became exercisable on April 24, 2022, 30 days after the completion of the Tailwind Two Merger, and will expire five years from the completion of the Tailwind Two Merger.
The Company will not be obligated to deliver any shares of common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise unless a registration statement with respect to the shares underlying the warrants is then effective and a related prospectus is current, unless a valid exemption from registration is available. No Public Warrant will be exercisable for cash or on a cashless basis and the Company will not be obligated to issue shares upon exercise of a Public Warrant unless the underlying shares have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. On April 22, 2022, the Company filed the Form S-1 with the SEC for, among other transactions, the registration of the shares of common stock issuable by the Company upon exercise of the Public Warrants. The Form S-1 has not yet been declared effective by the SEC.
Once the Public Warrants become exercisable, the Company may redeem the outstanding warrants when the price per share of the Company’s common stock equals or exceeds $18.00 as follows:
20
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
In addition, once the Public Warrants become exercisable, the Company may redeem the outstanding warrants when the price per share of the Company’s common stock equals or exceeds $10.00 as follows:
If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption, as described above, the Company will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Public Warrants will not be adjusted for issuances of common shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants.
Private Placement Warrants
As part of the Tailwind Two Merger, the Company assumed outstanding warrants that were previously issued in a private placement and that give the holders thereof the right to purchase an aggregate of 7.8 million shares of the Company's common stock for $11.50 per share (the “Private Placement Warrants”). The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the common shares issuable upon their exercise will not be transferable, assignable or salable until 30 days after the completion of the Tailwind Two Merger. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. During April 2022, the Company filed a registration statement for the registration of the Private Placement Warrants and the shares of common stock issuable upon exercise of the Private Placement Warrants.
Equity-classified Warrants
Detachable Warrants
During the three months ended March 31, 2021, warrants issued by Legacy Terran Orbital in connection with the extinguishment of convertible notes (the “Detachable Warrants”) were recognized at a fair value of $68.4 million in additional paid-in capital in the condensed consolidated balance sheets and as a component of loss on extinguishment of debt in the condensed consolidated statements of operations and comprehensive loss. The issuance costs related to the Detachable Warrants totaled $2.3 million and were recognized in additional capital in the consolidated balance sheets and as financing cash flows in the consolidated statements of cash flows.
21
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
As part of the Tailwind Two Merger, all of the Detachable Warrants were ultimately net settled into approximately 22.3 million shares of the Terran Orbital Corporation’s common stock.
Note 7 Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market, or if none exists, the most advantageous market, for the specific asset or liability at the measurement date (the exit price). The fair value is based on assumptions that market participants would use when pricing the asset or liability. The fair values are assigned a level within the fair value hierarchy, depending on the source of the inputs into the calculation, as follows:
The carrying amounts of cash and equivalents, accounts receivable, contract assets, contract liabilities, and accounts payable approximate fair values due to the short-term maturities of these financial instruments.
Warrant and Derivative Liabilities
As a result of the Tailwind Two Merger, the fair value measurements related to warrants and derivatives during the three months ended March 31, 2022 were primarily based on the quoted market price of Terran Orbital Corporation's common stock and Public Warrants.
The final fair values of the Inducement Warrants, Combination Equity and FP Combination Equity were based on the number of shares of Terran Orbital Corporation common stock issued as part of the Tailwind Two Merger and the price per share of Terran Orbital Corporation's common stock as of the Tailwind Two Merger and represent Level 1 fair value measurements.
The fair value of the Public Warrants was based on the quoted market price of the Public Warrants as of each valuation date and represents a Level 1 fair value measurement. As the Private Placement Warrants are similar to the Public Warrants, the fair value of the Private Placement Warrants was based on the quoted market price of the Public Warrants as of each valuation date and represents a Level 2 fair value measurement.
The fair values of the Combination Warrants and FP Combination Warrants were derived using the Black-Scholes option pricing model and a lattice model, respectively, with the following significant inputs and assumptions as of the valuation date: (i) the price per share of Terran Orbital Corporation's common stock, (ii) the exercise price, (iii) the risk-free interest rate, (iv) the dividend yield, (v) the contractual term, and (vi) the estimated volatility. In addition, as a result of the FP Combination Warrants put feature, the valuation also considers counterparty credit spread based on an estimated credit rating of CCC and below. The resulting fair values represent Level 3 fair value measurements.
Long-term Debt
The following table presents the total net carrying amount and estimated fair value of the Company’s long-term debt instruments, excluding finance leases, as of the dates presented:
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||||||||||
(in thousands) |
|
Carrying Amount |
|
|
Fair Value |
|
|
Carrying Amount |
|
|
Fair Value |
|
||||
|
|
$ |
91,264 |
|
|
$ |
173,524 |
|
|
$ |
115,095 |
|
|
$ |
124,221 |
|
PIPE Investment Obligation |
|
|
11,131 |
|
|
|
25,075 |
|
|
|
- |
|
|
|
- |
|
22
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
As of March 31, 2022, the fair value of the Company's long-term debt related to the Francisco Partners Facility, Lockheed Martin Rollover Debt, and Beach Point Rollover Debt was estimated using a lattice model with the following significant inputs and assumptions: (i) time to maturity, (ii) coupon rate, (iii) discount rate based on an estimated credit rating of CCC and below, (iv) risk-free interest rate, and (v) contractual features such as prepayment options, call premiums and default provisions. The fair value of long-term debt related to the PIPE Investment Obligation was estimated using the discounted cash flow valuation method applied to the sixteen quarterly payments using a discount rate based on a risk-free rate derived from constant maturity yields ranging plus a credit risk derived from an estimated credit rating of CCC and below. The resulting fair values represent Level 3 fair value measurements.
Note 8 Mezzanine Equity and Shareholders’ Deficit
Significant changes in the Company’s mezzanine equity and shareholders’ deficit during the three months ended March 31, 2022 were as follows:
Common Stock
Subsequent to the Tailwind Two Merger, the Company is authorized to issue up to 300 million shares of common stock with a par value of $0.0001 per share. Each share of common stock entitles the shareholder to one vote.
The Company issued 11 million shares of common stock in exchange for the net assets of Tailwind Two recognized at historical cost in connection with the Tailwind Two Merger and issued 5.1 million shares of common stock in connection with the PIPE Investment. The Tailwind Two Merger and PIPE Investment resulted in allocated cash proceeds of $58.4 million with aggregate allocated third-party issuance costs of $48.4 million and the assumption of the Public Warrants and Private Placement Warrants with an aggregate fair value of $13.1 million.
PredaSAR Merger
During the three months ended March 31, 2021, the Company entered into an agreement with non-controlling interest holders of convertible preferred stock in PredaSAR (the “Series Seed Preferred Stock”) to exchange all of the shares of the Series Seed Preferred Stock for shares of the Legacy Terran Orbital’s common stock (the “PredaSAR Merger”). The PredaSAR Merger resulted in the issuance of 10.7 million shares of common stock.
The PredaSAR Merger resulted in PredaSAR becoming a wholly-owned subsidiary of Legacy Terran Orbital. Accordingly, non-controlling interest was reclassified to additional paid-in capital in the condensed consolidated balance sheets. The issuance costs related to the PredaSAR Merger totaled $432 thousand and were recognized in additional paid-in capital in the condensed consolidated balance sheets and as financing cash flow in the condensed consolidated statements of cash flow.
Preferred Stock
Subsequent to the Tailwind Two Merger, the Company is authorized to issue up to 50 million shares of preferred stock with a par value of $0.0001 per share. There were no shares of preferred stock issued and outstanding as of March 31, 2022.
As part of the Tailwind Two Merger, all of the convertible preferred stock of Legacy Terran Orbital (the “Series A Preferred Stock”) was ultimately converted into approximately 10.9 million shares of Terran Orbital Corporation’s common stock. As a result of the conversion of the Series A Preferred Stock, the Company reclassified the amount of Series A Preferred Stock to additional paid-in capital.
Note 9 Share-Based Compensation
Prior to the Tailwind Two Merger, Legacy Terran Orbital maintained the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “2014 Plan”). During January 2022, the 2014 Plan was amended to authorize the issuance of no more than 941,355 shares of Legacy Terran Orbital’s common stock, which represents 25,967,343 shares of Terran Orbital Corporation’s common stock on a converted basis.
23
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
In connection with the Tailwind Two Merger, the Company terminated the 2014 Plan and adopted the Terran Orbital Corporation 2021 Omnibus Incentive Plan (the “2021 Plan”). All of the outstanding share-based compensation awards granted under the 2014 Plan were cancelled and substituted for awards under the 2021 Plan in the same form and on substantially the same terms and conditions. The 2021 Plan authorizes the issuance of no more than 13,729,546 shares of Terran Orbital Corporation's common stock pursuant to awards under the 2021 Plan. The number of authorized shares issuable under the 2021 Plan is subject to an annual increase on the first day of each calendar year during the term of the 2021 Plan, equal to the lesser of (i) 3% of the aggregate number of shares of Terran Orbital Corporation’s common stock outstanding on the final day of the immediately preceding calendar year and (ii) such smaller number of shares of Terran Orbital Corporation’s common stock as determined by the Company’s board of directors. Further, under the 2021 Plan, the number of authorized shares issuable under the 2021 Plan may be adjusted in case of changes to capitalization or other corporate events. As of March 31, 2022, there were approximately 23 million shares of Terran Orbital’s common stock underlying outstanding awards, which were cancelled under the 2014 Plan and substituted for awards under the 2021 Plan. The shares underlying such substituted awards are incremental to, and do not count against, the authorized share pool of the 2021 Plan.
Share-based compensation expense totaled $17.3 million and $168 thousand during the three months ended March 31, 2022 and 2021, respectively. All of the Company's outstanding restricted stock units (“RSUs”) included a performance condition that requires a liquidity event to occur in order to vest. Accordingly, the Company previously did not recognize share-based compensation expense associated with the RSUs as their performance condition was not probable of being met until such an event occurred. Upon closing of the Tailwind Two Merger, the Company recorded a cumulative catch-up of approximately $17.2 million in order to begin recognition of share-based compensation expense associated with these RSUs as the performance condition was met, of which $2.1 million was recorded to cost of sales and $15.1 million was recorded to selling, general, and administrative expenses in the condensed consolidated statements of operations and comprehensive loss based on the classification of each employee's compensation expense.
2014 Plan
During the three months ended March 31, 2022 and prior to the Tailwind Two Merger, the Company granted approximately 6.4 million RSUs under the 2014 Plan with a weighted-average grant date fair value of $8.12.
The majority of these RSUs (referred to as “Retention RSUs”) will generally vest on the later to occur of: (i) the first anniversary of the consummation of the Tailwind Two Merger and (ii) the trading price of Company’s common stock equaling or exceeding $11.00 or $13.00, as applicable, for any 20 trading days within any consecutive 30-trading day period. The Retention RSUs expire five years from the Tailwind Two Merger if unvested. The derived service period for the Retention RSUs was estimated to be less than one year from the date of the Tailwind Two Merger based on the median weighted-average triggering event period determined using the Monte Carlo simulation model. As the derived service period is less than one year, the share-based compensation expense associated with the Retention RSUs will be recognized over a one-year period beginning from the consummation of the Tailwind Two Merger. In addition, the grant date fair value of the Retention RSUs was determined using the Monte Carlo simulation model using the following significant inputs and assumptions as of the valuation date: (i) the price per share of Terran Orbital Corporation’s common stock, (ii) the risk-free interest rate, (iii) the dividend yield, (iv) the estimated volatility, and (v) a discount for lack of marketability.
For the granted RSUs that are not Retention RSUs, the grant date fair value was based on the fair value of Legacy Terran Orbital’s common stock. Prior to the Tailwind Two Merger and in the absence of a public market for the Legacy Terran Orbital’s common stock, the valuation of the Legacy Terran Orbital’s common stock has been determined using an option pricing model, which is used to allocate the total enterprise value of the Company to the different classes of equity as of the valuation date. The significant assumptions used in the option pricing model include: (i) total enterprise value of the Company based on the guideline publicly-traded company method, guideline transaction method, market calibration method and discounted cash flow method; (ii) liquidation preferences, conversion values, and participation thresholds of different equity classes; (iii) probability-weighted time to a liquidity event; (iv) expected volatility based upon the historical and implied volatility of common stock for the Company’s selected peers; (v) expected dividend yield of zero as the Company does not have a history or plan of declaring dividends on its common stock; (vi) risk-free interest rate based on U.S. treasury bonds with a zero-coupon rate, (vii) implied valuation, timing, and probability of the Tailwind Two Merger; and (viii) a discount for the lack of marketability of the Company’s common stock. As a result of the Tailwind Two Merger, the estimates will no longer be necessary to determine the fair value of the Company’s common stock as there is a public market for the underlying shares.
PredaSAR Plan
24
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
In connection with the PredaSAR Merger, the PredaSAR Corporation 2020 Equity Incentive Plan (the “PredaSAR Plan”) was terminated. The stock options granted under the PredaSAR Plan were modified by cancellation and replacement with RSUs granted under the 2014 Plan. The incremental share-based compensation to be recognized over the service period of the RSUs as a result of the modification totaled approximately $445 thousand and was based on the incremental fair value of the RSUs granted compared to the fair value of the stock options immediately prior to cancellation. The Company did not recognize any incremental share-based compensation expense associated with the RSUs during the three months ended March 31, 2021 as the performance condition was not probable of being met until a liquidity event occurs. However, the Company continued to recognize share-based compensation expense related to the original grant date fair value of the cancelled stock options as the stock options were probable of vesting pursuant to their original terms.
Note 10 Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.
Diluted net loss per share gives effect to all securities having a dilutive effect on net loss, weighted-average shares outstanding of common stock or both. The effect from potential dilutive securities includes (i) incremental shares of common stock calculated using the if-converted method for the PIPE Investment Obligation and the Series A Preferred Stock and (ii) incremental shares of common stock calculated using the treasury stock method for warrants and share-based compensation awards. None of the potential dilutive securities meet the definition of a participating security.
For purposes of the diluted net loss per share computation, all potentially dilutive securities were excluded because their effect would be anti-dilutive or because of unsatisfied contingent issuance conditions. As a result, basic net loss per share was equal to diluted net loss per share for each period presented.
The table below represents the anti-dilutive securities that could potentially be dilutive in the future for the periods presented:
|
|
Three Months Ended March 31, |
|
|||||
(in shares of common stock) |
|
2022 |
|
|
2021 |
|
||
Series A Preferred Stock |
|
|
|
|
|
10,947,686 |
|
|
Stock options |
|
|
1,938,804 |
|
|
|
2,836,655 |
|
Restricted stock units |
|
|
16,076,087 |
|
|
|
14,121,542 |
|
Detachable Warrants |
|
|
|
|
|
26,029,630 |
|
|
Inducement Warrants |
|
|
|
|
|
479,208 |
|
|
FP Combination Warrants |
|
|
8,291,704 |
|
|
|
|
|
Combination Warrants |
|
|
2,763,902 |
|
|
|
|
|
Public Warrants |
|
|
11,499,960 |
|
|
|
|
|
Private Placement Warrants |
|
|
7,800,000 |
|
|
|
|
|
PIPE Investment Obligation |
|
|
3,270,349 |
|
|
|
|
|
The computations of basic and diluted net loss per share for the periods presented were as follows:
|
|
Three Months Ended March 31, |
|
|||||
(in thousands, except per share and share amounts) |
|
2022 |
|
|
2021 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
Denominator: |
|
|
|
|
|
|
||
Weighted-average shares outstanding - basic and diluted |
|
|
83,643,940 |
|
|
|
71,431,259 |
|
Net loss per share - basic and diluted |
|
$ |
(0.85 |
) |
|
$ |
(1.08 |
) |
Note 11 Income Taxes
25
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Provision for income taxes for the three months ended March 31, 2022 was $2 thousand, resulting in an effective tax rate for the period of 0.0%. The Company had a minimal effective tax rate as a result of the continued generation of net operating losses (“NOLs”) offset by a full valuation allowance recorded on such NOLs as the Company determined it is more-likely-than-not that the Company’s NOLs will not be utilized.
Provision for income taxes for the three months ended March 31, 2021 was $28 thousand, resulting in an effective tax rate for the period of 0.0%. The Company had a minimal effective tax rate as a result of the continued generation of NOLs offset by a full valuation allowance recorded on such NOLs as the Company determined it is more-likely-than-not that the Company’s NOLs will not be utilized. The remainder of the Company’s provision for income taxes was related to the Company’s foreign subsidiary.
Note 12 Commitments and Contingencies
Litigation and Other Legal Matters
From time to time, the Company is subject to claims and lawsuits in the ordinary course of business, such as contractual disputes and employment matters. The Company is also subject to regulatory and governmental examinations, information requests and subpoenas, inquiries, investigations, and threatened legal actions and proceedings. The Company records accruals for losses that are probable and reasonably estimable. These accruals are based on a variety of factors such as judgment, probability of loss, and opinions of internal and external legal counsel. Legal costs in connection with claims and lawsuits in the ordinary course of business are expensed as incurred.
Customer Contractual Dispute
In January 2019, the Company entered into a contract (and other related agreements) with a customer to provide mission support and launch support services. During 2021, a contractual dispute arose between the Company and the customer. In April 2022, the Company entered into a confidential settlement agreement with the customer and agreed to a payment to the customer of $833 thousand, which is anticipated to be paid by September 30, 2022. As of March 31, 2022 and December 31, 2021, the Company had accrued $833 thousand and $800 thousand for the settlement, respectively.
Commercial Agreements
During the three months ended March 31, 2022, the Company entered into commercial agreements to purchase $20 million of goods and services over three years from two affiliates of a PIPE investor. These commercial agreements became effective upon the closing of the Tailwind Two Merger.
Note 13 Related Party Transactions
Lockheed Martin
Lockheed Martin, directly and through its wholly-owned subsidiary Astrolink International, LLC ("Astrolink"), is a significant holder of debt and equity instruments in the Company. On June 26, 2017, the Company entered into the strategic cooperation agreement with Lockheed Martin (the "Strategic Cooperation Agreement") pursuant to which the parties agreed to (i) collaborate on the development, production and sale of satellites for use in U.S. Government spacecraft and spacecraft procurements and (ii) establish a cooperation framework to enable the parties to enter into projects, research and development agreements and other collaborative business arrangements and “teaming activities.” In connection with the issuance of the Senior Secured Notes due 2026, the Company and Lockheed Martin amended and restated the Strategic Cooperation Agreement to, among other things, extend the term to March 8, 2026. In connection with the Merger Agreement, the Strategic Cooperation Agreement was further amended and restated to extend the term to October 28, 2030 and was subsequently extended for an additional twelve months to October 28, 2031 in March 2022 pursuant to existing contractual terms. Refer to Note 5 "Debt" and Note 6 "Warrants and Derivatives" for further discussion regarding debt and equity transactions with Lockheed Martin.
26
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The Company recognized revenue from Lockheed Martin of $10.3 million and $3.8 million during the three months ended March 31, 2022 and 2021, respectively. In addition, the Company had accounts receivables due from Lockheed Martin of $15.2 million and $530 thousand as of March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022 and December 31, 2021, programs associated with Lockheed Martin represented approximately 86% and 56% of the Company's remaining performance obligations, respectively.
GeoOptics, Inc.
The Company owns a non-controlling equity interest in GeoOptics, Inc. (“GeoOptics”), a privately held company engaged in the acquisition and sale of Earth observation data and a purchaser of products and services from the Company. Additionally, one of the Company’s executive officers serves as a member of the GeoOptics board of directors. As of March 31, 2022 and December 31, 2021, the Company’s $1.7 million investment in GeoOptics represented an approximately 2.3% ownership interest and was fully impaired.
The Company recognized revenue from GeoOptics of $501 thousand and $320 thousand during the three months ended March 31, 2022 and 2021, respectively. In addition, the Company had accounts receivables due from GeoOptics of $637 thousand and $470 thousand as of March 31, 2022 and December 31, 2021, respectively.
As of March 31, 2022 and December 31, 2021, programs associated with GeoOptics represented approximately 3% and 9% of the Company's remaining performance obligations, respectively.
Transactions with Chairman and CEO
The Company leases office space in a building beneficially owned by its Chairman and CEO with a lease term of April 1, 2021 to March 31, 2026. The Company has a one-time right to extend the lease for a period of additional years. During the three months ended March 31, 2022, the lease payments under this lease were approximately $57 thousand.
During the three months ended March 31, 2021, the Company's Chairman and CEO was paid $125 thousand for consulting services.
Beach Point
Beach point is a significant holder of debt and equity instruments in the Company. Refer to Note 5 "Debt" and Note 6 "Warrants and Derivatives" for further discussion regarding debt and equity transactions with Beach Point.
PIPE Investment Obligation
The PIPE Investment Obligation represents a related party transaction. Refer to Note 5 "Debt" for further discussion.
Note 14 Segment Information
The Company’s Chief Executive Officer is its chief operating decision maker (the “CODM”). The Company reports segment information based on how the CODM evaluates performance and makes decisions about how to allocate resources. Accordingly, the Company has two operating and reportable segments: Satellite Solutions and Earth Observation Solutions.
The reportable segments are defined as follows:
The Satellite Solutions segment is a vertically integrated satellite provider with modern facilities and a global ground station network that delivers end-to-end satellite solutions, including spacecraft design, development, launch services and on-orbit operations for critical missions across a number of applications in a variety of orbits to governmental agencies and commercial businesses.
27
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Through the Satellite Solutions segment, the Earth Observation Solutions segment has commenced developing satellites and intends to continue to develop, build, launch and operate a constellation of Earth observation satellites that will feature Synthetic Aperture Radar ("SAR") and electro-optical capabilities to provide Earth observation data and mission solutions that it believes will be distinguished by breadth of coverage, revisit rates and ability to observe and detect during day and night and through clouds and other interference. In addition, the Earth Observation Solutions segment plans to provide secondary payload solutions and onboard data processing capabilities on its satellite constellation, including sensors, optical links or other mission solutions.
The Earth Observation Solutions segment is still in its developmental stage and does not yet generate any material revenue. The scope and timing of the satellite constellation is subject to continuing assessments of customer demand and the Company's financial and other resources. The Company has designed and began building the first two satellites of the constellation and plans to launch the two satellites in late 2022 or the first half of 2023.
The CODM uses income (loss) from operations by segment as the segment profitability measure in order to evaluate segment performance. Income (loss) from operations by segment excludes share-based compensation expense and corporate and other costs included within the Company’s consolidated income (loss) from operations.
The CODM does not review the Company's assets by segment; therefore, such information is not presented.
The following table presents revenue by segment and a reconciliation to consolidated revenue for the periods presented:
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
2022 |
|
|
2021 |
|
||
Satellite Solutions |
$ |
12,974 |
|
|
$ |
10,494 |
|
Earth Observation Solutions |
|
146 |
|
|
|
— |
|
Revenue |
$ |
13,120 |
|
|
$ |
10,494 |
|
The following table presents loss from operations by segment for the periods presented:
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
2022 |
|
|
2021 |
|
||
Satellite Solutions |
$ |
(6,048 |
) |
|
$ |
(980 |
) |
Earth Observation Solutions |
|
(660 |
) |
|
|
(912 |
) |
Loss from operations by segment |
$ |
(6,708 |
) |
|
$ |
(1,892 |
) |
During the three months ended March 31, 2022, depreciation and amortization expense included in loss from operations by segment totaled $641 thousand and $184 thousand for Satellite Solutions and Earth Observation Solutions, respectively. During the three months ended March 31, 2021, depreciation and amortization expense included in loss from operations by segment totaled $671 thousand and related entirely to Satellite Solutions.
The following table presents a reconciliation of loss from operations by segment to consolidated loss from operations and net loss for the periods presented:
28
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
|
Three Months Ended March 31, |
|
|||||
(in thousands) |
2022 |
|
|
2021 |
|
||
Loss from operations by segment |
$ |
(6,708 |
) |
|
$ |
(1,892 |
) |
Corporate and other |
|
(9,007 |
) |
|
|
(3,853 |
) |
Share-based compensation expense |
|
(17,335 |
) |
|
|
(168 |
) |
Loss from operations |
|
(33,050 |
) |
|
|
(5,913 |
) |
Interest expense, net |
|
2,923 |
|
|
|
907 |
|
Loss on extinguishment of debt |
|
23,141 |
|
|
|
70,667 |
|
Change in fair value of warrant and derivative liabilities |
|
11,853 |
|
|
|
(34 |
) |
Other expense |
|
403 |
|
|
|
15 |
|
Loss before income taxes |
|
(71,370 |
) |
|
|
(77,468 |
) |
Provision for income taxes |
|
2 |
|
|
|
28 |
|
Net loss |
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
Note 15 Leases
As part of normal operations, the Company leases real estate and equipment from various counterparties with lease terms and maturities extending through 2032. The Company applies the practical expedient to not separate the lease and non-lease components and accounts for the combined component as a lease. Additionally, the Company’s right-of-use assets and lease liabilities include leases with lease terms of 12 months or less.
The Company’s right-of-use assets and lease liabilities primarily represent lease payments that are fixed at the commencement of a lease and variable lease payments that depend on an index or rate. Lease payments are recognized as lease cost on a straight-line basis over the lease term, which is determined as the non-cancelable period, including periods in which termination options are reasonably certain of not being exercised and periods in which renewal options are reasonably certain of being exercised. The discount rate for a lease is determined using the Company’s incremental borrowing rate that coincides with the lease term at the commencement of a lease. The incremental borrowing rate is estimated based on the Company's recent financing transactions.
Lease payments that are neither fixed nor dependent on an index or rate and vary because of changes in usage or other factors are included in variable lease costs. Variable lease costs are recorded in the period in which the obligation is incurred and primarily relate to utilities, maintenance, and repair costs.
The Company’s leases do not contain material residual value guarantees or restrictive covenants. The Company is not a lessor in any leases and does not sublease.
The following table presents the amounts reported in the Company’s condensed consolidated balance sheets related to operating and finance leases as of the presented dates:
(in thousands) |
|
Classification |
|
March 31, 2022 |
|
|
January 1, 2022 |
|
||
Right-of-Use Assets: |
|
|
|
|
|
|
|
|
||
Operating |
|
|
$ |
14,119 |
|
|
$ |
6,550 |
|
|
Finance |
|
|
|
44 |
|
|
|
48 |
|
|
Total right-of-use assets |
|
|
|
$ |
14,163 |
|
|
$ |
6,598 |
|
|
|
|
|
|
|
|
|
|
||
Lease Liabilities |
|
|
|
|
|
|
|
|
||
Operating |
|
|
$ |
834 |
|
|
$ |
166 |
|
|
Finance |
|
|
|
15 |
|
|
|
14 |
|
|
Operating |
|
|
|
15,640 |
|
|
|
7,962 |
|
|
Finance |
|
|
|
34 |
|
|
|
39 |
|
|
Total lease liabilities |
|
|
|
$ |
16,523 |
|
|
$ |
8,181 |
|
29
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The following is a summary of the Company’s lease cost for the presented period:
Lease Cost (in thousands) |
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Operating lease cost |
|
|
|
|
|
$ |
1,263 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
|
|
|
|
4 |
|
Interest on lease liabilities |
|
|
|
|
|
|
2 |
|
Variable lease costs |
|
|
|
|
|
|
140 |
|
Total lease cost |
|
|
|
|
|
$ |
1,409 |
|
The following is a summary of the cash flows and supplemental information associated with the Company’s leases for the presented period:
Other information (in thousands) |
|
|
|
|
|
Three Months Ended March 31, 2022 |
|
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|||
Operating cash flows from operating leases |
|
|
|
|
|
$ |
486 |
|
Operating cash flows from finance leases |
|
|
|
|
|
|
2 |
|
Financing cash flows from finance leases |
|
|
|
|
|
|
3 |
|
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
7,384 |
|
Finance leases |
|
|
|
|
|
|
- |
|
The following is a summary of the weighted-average lease term and discount rate for operating and finance leases as of the presented date:
Lease Term and Discount Rate |
|
|
|
|
|
March 31, 2022 |
|
|
Weighted-average remaining lease term (years) |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
7.7 |
|
Finance leases |
|
|
|
|
|
|
3.4 |
|
Weighted-average discount rate |
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
29.69 |
% |
Finance leases |
|
|
|
|
|
|
14.96 |
% |
The following is a maturity analysis related to the Company’s operating and finance leases as of March 31, 2022:
Maturity of Lease Liabilities (in thousands) |
|
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2022 |
|
|
|
$ |
3,053 |
|
|
$ |
16 |
|
2023 |
|
|
|
|
5,666 |
|
|
|
21 |
|
2024 |
|
|
|
|
5,771 |
|
|
|
11 |
|
2025 |
|
|
|
|
5,709 |
|
|
|
8 |
|
2026 |
|
|
|
|
5,705 |
|
|
|
7 |
|
Thereafter |
|
|
|
|
21,522 |
|
|
|
- |
|
Total lease payments |
|
|
|
|
47,426 |
|
|
|
63 |
|
Less interest |
|
|
|
|
30,952 |
|
|
|
14 |
|
Total lease liabilities |
|
|
|
$ |
16,474 |
|
|
$ |
49 |
|
30
TERRAN ORBITAL CORPORATION
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The table above excludes certain operating leases which have been executed but not yet commenced. The Company has an executed operating lease for office space with a lease term from April 2022 to January 2028 with total future minimum lease payments of approximately $5.4 million. Additionally, there is an executed operating lease for office space with a lease term from April 2022 to June 2027 with total future minimum lease payments of approximately $2 million.
The following is a maturity analysis related to the Company’s operating and finance leases as of December 31, 2021 which is presented in accordance with ASC 840, Leases:
(in thousands) |
|
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2022 |
|
|
|
$ |
3,484 |
|
|
$ |
21 |
|
2023 |
|
|
|
|
4,865 |
|
|
|
21 |
|
2024 |
|
|
|
|
4,970 |
|
|
|
11 |
|
2025 |
|
|
|
|
4,928 |
|
|
|
8 |
|
2026 |
|
|
|
|
4,896 |
|
|
|
7 |
|
Thereafter |
|
|
|
|
5,167 |
|
|
|
- |
|
Total lease payments |
|
|
|
|
28,310 |
|
|
|
68 |
|
Less interest on finance leases |
|
|
|
|
- |
|
|
|
15 |
|
Total |
|
|
|
$ |
28,310 |
|
|
$ |
53 |
|
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
INTRODUCTION
The following discussion and analysis of our financial condition and results of operations and cash flows should be read in conjunction with our condensed consolidated financial statements, and the related notes thereto, included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 included in our registration statement on Form S-1, which was filed with the United States Securities and Exchange Commission (the “SEC”) on April 22, 2022 (the “Form S-1”) but has not yet been declared effective by the SEC. In addition to historical data, this discussion contains forward-looking statements about our business, results of operations, cash flows, financial condition and prospects based on current expectations that involve risks, uncertainties and assumptions. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in the Form S-1. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
OVERVIEW
Terran Orbital Corporation, formerly known as Tailwind Two Acquisition Corp. (“Tailwind Two”), together with its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our,” “us,” and “Terran Orbital”), is a leading manufacturer of small satellites primarily serving the United States (“U.S.”) aerospace and defense industry. Through our subsidiary Tyvak Nano-Satellite Systems, Inc. (“Tyvak”), we provide end-to-end satellite solutions by combining satellite design, production, launch planning, mission operations, and in-orbit support to meet the needs of our customers. We access the international market through both Tyvak and our Torino, Italy based subsidiary, Tyvak International S.R.L. (“Tyvak International”). Through our subsidiary PredaSAR Corporation (“PredaSAR”), we are developing what we believe will be the world’s largest, most advanced NextGen Earth observation constellation to provide near persistent, near real-time Earth imagery.
BASIS OF PRESENTATION
All financial information presented in this section includes the accounts of Terran Orbital Corporation and its subsidiaries, and has been prepared in U.S. dollars in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany transactions have been eliminated.
Our Chief Executive Officer is our chief operating decision maker (the “CODM”). We report segment information based on how the CODM evaluates performance and makes decisions about how to allocate resources. Accordingly, we have two operating and reportable segments: Satellite Solutions and Earth Observation Solutions.
The reportable segments are defined as follows:
The Satellite Solutions segment is a vertically integrated satellite provider with modern facilities and a global ground station network that delivers end-to-end satellite solutions, including spacecraft design, development, launch services and on-orbit operations for critical missions across a number of applications in a variety of orbits to governmental agencies and commercial businesses.
Through the Satellite Solutions segment, the Earth Observation Solutions segment has commenced developing satellites and intends to continue to develop, build, launch and operate a constellation of Earth observation satellites that will feature Synthetic Aperture Radar (“SAR”) and electro-optical capabilities to provide Earth observation data and mission solutions that it believes will be distinguished by breadth of coverage, revisit rates and ability to observe and detect during day and night and through clouds and other interference. In addition, the Earth Observation Solutions segment plans to provide secondary payload solutions and onboard data processing capabilities on its satellite constellation, including sensors, optical links or other mission solutions.
The Earth Observation Solutions segment is still in its developmental stage and does not yet generate any material revenue. The scope and timing of the satellite constellation is subject to continuing assessments of customer demand and our financial
32
and other resources. We anticipate on completing two satellites of the constellation currently under construction, which we anticipate launching in late 2022 or the first half of 2023, while the remainder of the satellites of the constellation will be temporarily delayed based on our prioritization of production capacity to U.S. Government programs coupled with the level of our financial resources as of March 31, 2022.
The CODM uses income (loss) from operations by segment as the segment profitability measure in order to evaluate segment performance. Income (loss) from operations by segment excludes share-based compensation expense and corporate and other costs included within the Company’s consolidated income (loss) from operations.
FACTORS AFFECTING OPERATING RESULTS
Our financial success is based on our ability to deliver high quality products and services on a timely basis and at an economical price for our customers. With the majority of our contracts with customers reflecting firm fixed pricing structures, our gross profit is dependent on the efficient and effective execution of our contracts. Our ability to maximize gross profit may be impacted by, but not limited to, unanticipated cost overruns, disruptions in our supply chains, and mix of customer contracts based on newer technology demonstrations versus existing technology.
From time to time, we may strategically enter into contracts with low or negative margins relative to other contracts or that are at risk of cost overruns. This may occur due to strategic decisions built around positioning ourselves for future contracts or to enhance our product and service offerings. However, in some instances, loss contracts may occur from unforeseen cost overruns which are not recoverable from the customer. We establish loss reserves on contracts in which the estimated cost-at-completion exceeds the estimated revenue. The loss reserves are recorded in the period in which a loss is determined.
We are actively executing on our growth initiatives with significant increases in headcount as well as the expansion of manufacturing facilities and office space in order to position ourselves to be awarded larger contracts with recurring revenue opportunities that will lay the foundation for our long-term success. Our portfolio of contracts includes several technology demonstrations, studies, and prototypes with the potential to convert into contracts to support future constellations. As of March 31, 2022, we have identified approximately 140 opportunities representing over $12 billion in potential revenue for our Satellite Solutions segment.
We may experience variability in the profitability of our contracts in the future and that such future variability may occur at levels and frequencies different from historical experience. Such variability in profitability may be due to strategic decisions, cost overruns or other circumstances within or outside of our control. Accordingly, our historical experience with profitability on our contracts is not indicative or predictive of future experience.
COVID-19 Pandemic
During March 2020, the World Health Organization declared the outbreak of a novel coronavirus as a pandemic (the “COVID-19 Pandemic”), which has become increasingly widespread across the globe. The COVID-19 Pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets.
The COVID-19 Pandemic has contributed to a worldwide shortage of electronic components which has resulted in longer than historically experienced lead times for such electronic components. The reduced availability to receive electronic components used in our operations has negatively affected our timing and ability to deliver products and services to customers as well as increased costs in recent periods. We have considered the emergence and pervasive economic impact of the COVID-19 Pandemic in our assessment of our financial position, results of operations, cash flows, and certain accounting estimates as of and for the three months ended March 31, 2022. Due to the evolving and uncertain nature of the COVID-19 Pandemic, it is possible that the effects of the COVID-19 Pandemic could materially impact our estimates and condensed consolidated financial statements in future reporting periods.
RECENT DEVELOPMENTS
The comparability of our results of operations has been impacted by the following events:
Tailwind Two Merger
Prior to March 25, 2022, Tailwind Two was a publicly listed special purpose acquisition company incorporated as a Cayman Islands exempted company. On March 25, 2022, Tailwind Two acquired Terran Orbital Operating Corporation, formerly known as Terran Orbital Corporation (“Legacy Terran Orbital”) (the “Tailwind Two Merger”). In connection with the Tailwind Two Merger, Tailwind Two filed a notice of deregistration with the Cayman Islands Registrar of Companies and filed a certificate of incorporation and a certificate of corporate domestication with the Secretary of State of the State of Delaware, resulting in Tailwind Two becoming a
33
Delaware corporation and changing its name from Tailwind Two to Terran Orbital Corporation. The Tailwind Two Merger resulted in Legacy Terran Orbital becoming a wholly-owned subsidiary of Terran Orbital Corporation.
As a result of the Tailwind Two Merger, all of Legacy Terran Orbital's issued and outstanding common stock was converted into shares of Terran Orbital Corporation's common stock using an exchange ratio of 27.585 shares of Terran Orbital Corporation's common stock per each share of Legacy Terran Orbital's common stock. In addition, Legacy Terran Orbital's convertible preferred stock and certain warrants were exercised and converted into shares of Legacy Terran Orbital's common stock immediately prior to the Tailwind Two Merger, and in turn, were converted into shares of Terran Orbital Corporation's common stock as a result of the Tailwind Two Merger. Further, in connection with the Tailwind Two Merger, Legacy Terran Orbital's share-based compensation plan and related share-based compensation awards were cancelled and exchanged or converted, as applicable, with a new share-based compensation plan and related share-based compensation awards of Terran Orbital Corporation.
While Legacy Terran Orbital became a wholly-owned subsidiary of Terran Orbital Corporation, Legacy Terran Orbital was deemed to be the acquirer in the Tailwind Two Merger for accounting purposes. Accordingly, the Tailwind Two Merger was accounted for as a reverse recapitalization, in which case the condensed consolidated financial statements of the Company represent a continuation of Legacy Terran Orbital and the issuance of common stock in exchange for the net assets of Tailwind Two recognized at historical cost and no recognition of goodwill or other intangible assets. Operations prior to the Tailwind Two Merger are those of Legacy Terran Orbital and all share and per-share data included in these condensed consolidated financial statements have been retroactively adjusted to give effect to the Tailwind Two Merger. In addition, the number of shares subject to, and the exercise price of, the Company’s outstanding options and warrants were adjusted to reflect the Tailwind Two Merger. The treatment of the Tailwind Two Merger as a reverse recapitalization was based upon the pre-merger shareholders of Legacy Terran Orbital holding the majority of the voting interests of Terran Orbital Corporation, Legacy Terran Orbital's existing management team serving as the initial management team of Terran Orbital Corporation, Legacy Terran Orbital's appointment of the majority of the initial board of directors of Terran Orbital Corporation, and Legacy Terran Orbital's operations comprising the ongoing operations of the Company.
In connection with the Tailwind Two Merger, approximately $29 million of cash and marketable securities held in trust, net of redemptions by Tailwind Two's public shareholders, became available for use by the Company as well as proceeds received from the contemporaneous sale of common stock in connection with the closing of a PIPE investment with a contractual amount of $51 million (the “PIPE Investment”). In addition, the Company received additional proceeds from the issuance of debt contemporaneously with the Tailwind Two Merger. The aggregate cash raised will be used for general corporate purposes, the partial paydown of debt, the payment of transaction costs and the payment of other costs directly or indirectly attributable to the Tailwind Two Merger.
Beginning on March 28, 2022, the Company's common stock and public warrants began trading on the New York Stock Exchange (the "NYSE") under the symbols “LLAP” and "LLAP WS," respectively.
Refer to the discussions below under “Liquidity and Capital Resources” for further details regarding our financing transactions which occurred in connection with the Tailwind Two Merger.
Public Company Costs
As a result of the Tailwind Two Merger, we have incurred and will continue to incur additional legal, accounting, board compensation, and other expenses that we did not previously incur, including costs associated with SEC reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act of 2002 as well as other rules implemented by the
34
SEC and the national securities exchanges. Our financial statements for the periods following the Tailwind Two Merger will reflect the impact of these expenses.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
The following table presents our consolidated results of operations for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Revenue |
$ |
13,120 |
|
|
$ |
10,494 |
|
|
$ |
2,626 |
|
Cost of sales |
|
15,953 |
|
|
|
9,734 |
|
|
|
6,219 |
|
Gross (loss) profit |
|
(2,833 |
) |
|
|
760 |
|
|
|
(3,593 |
) |
Selling, general, and administrative expenses |
|
30,217 |
|
|
|
6,673 |
|
|
|
23,544 |
|
Loss from operations |
|
(33,050 |
) |
|
|
(5,913 |
) |
|
|
(27,137 |
) |
Interest expense, net |
|
2,923 |
|
|
|
907 |
|
|
|
2,016 |
|
Loss on extinguishment of debt |
|
23,141 |
|
|
|
70,667 |
|
|
|
(47,526 |
) |
Change in fair value of warrant and derivative liabilities |
|
11,853 |
|
|
|
(34 |
) |
|
|
11,887 |
|
Other expense |
|
403 |
|
|
|
15 |
|
|
|
388 |
|
Loss before income taxes |
|
(71,370 |
) |
|
|
(77,468 |
) |
|
|
6,098 |
|
Provision for income taxes |
|
2 |
|
|
|
28 |
|
|
|
(26 |
) |
Net loss |
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
|
$ |
6,124 |
|
Revenue
The following table presents revenue by segment for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Satellite Solutions |
$ |
12,974 |
|
|
$ |
10,494 |
|
|
$ |
2,480 |
|
Earth Observation Solutions |
|
146 |
|
|
|
- |
|
|
|
146 |
|
Revenue |
$ |
13,120 |
|
|
$ |
10,494 |
|
|
$ |
2,626 |
|
The increase in revenue attributable to the Satellite Solutions segment was primarily due to the continued and increased level of progress made in satisfying our customer contracts and reflects the ongoing favorable impact from significant contract wins and modifications in recent periods.
During the three months ended March 31, 2022, we adjusted the estimate-at-completion (“EAC”) on certain firm fixed price contracts, which had an estimated $3 million negative impact to revenue in the Satellite Solutions segment. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our revenue in future reporting periods.
The Earth Observation Solutions segment was still in its developmental stage and generated limited revenue by providing expert analyses and planned technology demonstrations.
Cost of Sales
The following table presents cost of sales by segment and other components for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Satellite Solutions |
$ |
13,803 |
|
|
$ |
9,720 |
|
|
$ |
4,083 |
|
Earth Observation Solutions |
|
37 |
|
|
|
- |
|
|
|
37 |
|
Share-based compensation expense |
|
2,113 |
|
|
|
14 |
|
|
|
2,099 |
|
Cost of Sales |
$ |
15,953 |
|
|
$ |
9,734 |
|
|
$ |
6,219 |
|
35
The increase in cost of sales was primarily due to an increase of $4 million in labor, materials, third-party services, overhead and other direct costs incurred in satisfying our customer contracts as part of our growth initiatives in the Satellite Solutions segment as well as an increase in share-based compensation expense due to a $2.1 million non-recurring cumulative recognition of share-based compensation expense associated with awards that included a liquidity event, such as the Tailwind Two Merger, as a vesting condition. Prior to the Tailwind Two Merger, the awards were not probable of vesting and no share-based compensation expense was previously recognized.
During the three months ended March 31, 2022, we adjusted the EAC on certain firm fixed price contracts, which had an estimated $0.7 million negative impact to cost of sales in the Satellite Solutions segment. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our cost of sales in future reporting periods.
The Earth Observation Solutions segment was still in its developmental stage and generated limited revenue by providing expert analyses and planned technology demonstrations, incurring limited cost of sales.
Selling, General, and Administrative
The following table presents selling, general, and administrative expenses by segment and other components for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Satellite Solutions |
$ |
5,219 |
|
|
$ |
1,754 |
|
|
$ |
3,465 |
|
Earth Observation Solutions |
|
768 |
|
|
|
912 |
|
|
|
(144 |
) |
Corporate and other |
|
9,008 |
|
|
|
3,853 |
|
|
|
5,155 |
|
Share-based compensation expense |
|
15,222 |
|
|
|
154 |
|
|
|
15,068 |
|
Selling, general, and administrative expenses |
$ |
30,217 |
|
|
$ |
6,673 |
|
|
$ |
23,544 |
|
The increase in selling, general, and administrative expenses was primarily due to the following:
Interest Expense, net
The increase in interest expense, net was due to an increase in contractual interest of $2 million as a result of higher debt balances and higher interest rates as a result of our financing transactions during 2021 and 2022, an increase in amortization related to discount on
36
debt of $438 thousand as a result of our financing transactions, partially offset by an increase in capitalized interest of $434 thousand associated with the development of our Earth observation constellation.
Loss on Extinguishment of Debt
During the three months ended March 31, 2022, loss on extinguishment of debt totaled $23 million, which related to the refinancing and extinguishment of our debt obligations in connection with the Tailwind Two Merger.
During the three months ended March 31, 2021, loss on extinguishment of debt totaled $71 million, which related to the refinancing of convertible note instruments.
Change in Fair Value of Warrant and Derivative Liabilities
The change in fair value of warrant and derivative liabilities relates to the periodic fair value remeasurement of liability-classified warrants and derivatives issued in connection with our financing transactions during the first and fourth quarter of 2021. The increase during the three months ended March 31, 2022 was primarily due to fair value remeasurements as a result of the Tailwind Two Merger.
Other Expense
The increase in other expense was primarily related to an increase of $370 thousand for third-party legal fees expensed in connection with our financing transactions.
Provision for Income Taxes
Provision for income taxes for the three months ended March 31, 2022 was $2 thousand, resulting in an effective tax rate for the period of 0.0%. We had a minimal effective tax rate as a result of the continued generation of net operating losses (“NOLs”) offset by a full valuation allowance recorded on such NOLs as we determined it is more-likely-than-not that our NOLs will not be utilized.
Provision for income taxes for the three months ended March 31, 2021 was $28 thousand, resulting in an effective tax rate for the period of 0.0%. We had a minimal effective tax rate as a result of the continued generation of NOLs offset by a full valuation allowance recorded on such NOLs as we determined it is more-likely-than-not that our NOLs will not be utilized. The remainder of the provision for income taxes was related to our foreign subsidiary.
NON-GAAP MEASURES
To provide investors with additional information in connection with our results as determined in accordance with GAAP, we disclose non-GAAP financial measures, such as Adjusted Gross Profit and Adjusted EBITDA, that have not been prepared in accordance with GAAP. These non-GAAP measures may be different from non-GAAP measures made by other companies. These measures may exclude items that are significant in understanding and assessing our financial results. Therefore, these measures should not be considered in isolation or as an alternative to net income or other measures of financial performance or liquidity under GAAP.
Adjusted Gross Profit
We believe that the presentation of Adjusted Gross Profit is appropriate to provide additional information to investors about our gross profit adjusted for certain non-cash items. Further, we believe Adjusted Gross Profit provides a meaningful measure of operating
37
profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.
We define Adjusted Gross Profit as gross profit or loss adjusted for (i) share-based compensation expense included in cost of sales and (ii) depreciation and amortization included in cost of sales.
There are material limitations to using Adjusted Gross Profit. Adjusted Gross Profit does not take into account all items which directly affect our gross profit or loss. These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted Gross Profit in conjunction with gross profit or loss as calculated in accordance with GAAP.
The following table reconciles Adjusted Gross Profit to gross profit or loss (the most comparable GAAP measure) for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Gross (loss) profit |
$ |
(2,833 |
) |
|
$ |
760 |
|
|
$ |
(3,593 |
) |
Share-based compensation expense |
|
2,113 |
|
|
|
14 |
|
|
|
2,099 |
|
Depreciation and amortization |
|
513 |
|
|
|
453 |
|
|
|
60 |
|
Adjusted gross (loss) profit |
$ |
(207 |
) |
|
$ |
1,227 |
|
|
$ |
(1,434 |
) |
The decrease in Adjusted Gross Profit was largely due to adjustments to the EAC on certain firm fixed price contracts, which had an estimated $3.7 million negative impact to Adjusted Gross Profit. While we believe our estimates as of March 31, 2022 consider all relevant and known information, such as supply chain and related production challenges, additional adjustments to our EACs could occur and have an impact on our Adjusted Gross Profit in future reporting periods.
Adjusted EBITDA
We believe that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about our operating profitability adjusted for certain non-cash items, non-routine items that we do not expect to continue at the same level in the future, as well as other items that are not core to our operations. Further, we believe Adjusted EBITDA provides a meaningful measure of operating profitability because we use it for evaluating our business performance, making budgeting decisions, and comparing our performance against that of other peer companies using similar measures.
We define Adjusted EBITDA as net income or loss adjusted for (i) interest, (ii) taxes, (iii) depreciation and amortization, (iv) share-based compensation expense, (v) loss on extinguishment of debt, (vi) change in fair value of warrant and derivative liabilities, and (vii) other non-recurring and/or non-cash items.
There are material limitations to using Adjusted EBITDA. Adjusted EBITDA does not take into account certain significant items, including depreciation and amortization, interest, taxes, and other adjustments which directly affect our net income or loss. These limitations are best addressed by considering the economic effects of the excluded items independently and by considering Adjusted EBITDA in conjunction with net income or loss as calculated in accordance with GAAP.
The following table reconciles Adjusted EBITDA to net loss (the most comparable GAAP measure) for the three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
|
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Net loss |
$ |
(71,372 |
) |
|
$ |
(77,496 |
) |
|
$ |
6,124 |
|
Interest expense, net |
|
2,923 |
|
|
|
907 |
|
|
|
2,016 |
|
Provisions for income taxes |
|
2 |
|
|
|
28 |
|
|
|
(26 |
) |
Depreciation and amortization |
|
846 |
|
|
|
671 |
|
|
|
175 |
|
Share-based compensation expense |
|
17,335 |
|
|
|
168 |
|
|
|
17,167 |
|
Loss on extinguishment of debt |
|
23,141 |
|
|
|
70,667 |
|
|
|
(47,526 |
) |
Change in fair value of warrant and derivative liabilities |
|
11,853 |
|
|
|
(34 |
) |
|
|
11,887 |
|
Other, net(a) |
|
555 |
|
|
|
1,452 |
|
|
|
(897 |
) |
Adjusted EBITDA |
$ |
(14,717 |
) |
|
$ |
(3,637 |
) |
|
$ |
(11,080 |
) |
38
(a) - Represents other expense and other charges and items. Non-recurring legal and accounting fees related to our transition to a public company are included herein.
The decrease in Adjusted EBITDA was primarily due to a decrease in gross profit and an increase in salaries and wages, legal and accounting fees, and facility expenses as a result of our growth initiatives. Refer to the discussions above under “Results of Operations” for further details.
KEY PERFORMANCE INDICATORS
We view growth in backlog as a key measure of our business growth. Backlog represents the estimated dollar value of executed contracts, including both funded (firm orders for which funding is authorized and appropriated) and unfunded portions of such contracts, for which work has not been performed (also known as the remaining performance obligations on a contract). Order backlog excludes contracts in which we recognize revenue in proportion to the amount we have the right to invoice for services performed and does not include unexercised contract options and potential orders under indefinite delivery/indefinite quantity contracts. Although backlog reflects business associated with contracts that are considered to be firm, terminations, amendments or contract cancellations may occur, which could result in a reduction in our total backlog.
Our backlog totaled $221.8 million and $73.9 million as of March 31, 2022 and December 31, 2021, respectively. The increase in backlog was primarily due to a new award to build 42 satellites for the U.S. Space Development Agency's ("SDA") Tranche 1 of the Transport Layer. The award is in addition to the 10 satellites we are building for the SDA's Tranche 0 of the Transport Layer.
As of March 31, 2022, programs associated with Lockheed Martin represented approximately 86% of the Company’s backlog.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our future cash needs are expected to include cash for operating activities, working capital, purchases of property and equipment, strategic investments, research and development expenses, development and expansion of facilities, development of our Earth observation constellation and debt service requirements.
We have historically funded our operations primarily through the issuance of debt and equity securities. In order to proceed with our business plan, we expect to need to raise additional funds through the issuance of additional debt, equity or other commercial arrangements, which may not be available to us when needed or on terms that we deem to be favorable. To the extent we raise additional capital through the sale of equity or convertible securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to obtain sufficient financial resources, our business, financial condition and results of operations may be materially and adversely affected. We may be required to delay, limit, reduce or terminate parts of our strategic business plan or future commercialization efforts. There can be no assurance that we will be able to obtain financing on acceptable terms.
Furthermore, our ability to meet our debt service obligations and other capital requirements depends on our future operating performance, which is subject to future general economic, financial, business, competitive, legislative, regulatory, and other conditions, many of which are beyond our control. Changes in our operating plans, material changes in anticipated sales, increased expenses, acquisitions, or other events may cause us to seek equity and/or debt financing in future periods.
As of March 31, 2022, we had $76.7 million of cash and cash equivalents, which included $1.3 million of cash and cash equivalents held by our foreign subsidiary. We are not presently aware of any restrictions on the repatriation of our foreign cash and cash equivalents; however, earnings of our foreign subsidiary is essentially considered permanently invested in the foreign subsidiary. If these funds were needed to fund operations or satisfy obligations in the U.S., they could be repatriated and their repatriation into the U.S. may cause us to incur additional foreign withholding taxes. We do not currently intend to repatriate these earnings.
Our short-term liquidity requirements include initiatives related to (i) expansion of existing facilities and upgrade of equipment in order to increase operational capacity, (ii) recruitment of additional employees to meet operational needs, (iii) upgrade of information technology, (iv) research and development initiatives and (v) continued buildout of corporate functions and public company compliance requirements, inclusive of accounting and legal fees. Our long-term liquidity requirements include initiatives related to (i) development of our Earth observation constellation, inclusive of ground infrastructure, (ii) potential development of our proposed new campus of
39
approximately 660,000 square foot satellite manufacturing facility (the “Space Florida Facility”) and (iii) development of new satellite components and data and analytics software and infrastructure. Additionally, our liquidity requirements include the repayment of debt and other payment obligations incurred as a result the Tailwind Two Merger. The timing and amount of spend on these initiatives may be materially delayed, reduced, and cancelled as a result of our level of our financial resources.
Long-term Debt
As of March 31, 2022, debt was comprised of the following:
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Description |
|
|
|
Issued |
|
Maturity |
|
Interest Rate |
|
Interest Payable |
|
|
March 31, 2022 |
|
||
Francisco Partners Facility |
|
|
November 2021 |
|
April 2026 |
|
9.25% |
|
Quarterly |
|
|
$ |
120,023 |
|
||
Senior Secured Notes due 2026(1) |
|
|
March 2021 |
|
April 2026 |
|
9.25% and 11.25% |
|
Quarterly |
|
|
|
56,267 |
|
||
PIPE Investment Obligation |
|
|
March 2022 |
|
December 2025 |
|
N/A |
|
N/A |
|
|
|
28,125 |
|
||
Finance leases |
|
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
49 |
|
Unamortized deferred issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,115 |
) |
Unamortized discount on debt |
|
|
|
|
|
|
|
|
|
|
|
|
(99,905 |
) |
||
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
102,444 |
|
||
Current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
7,515 |
|
||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
$ |
94,929 |
|
||
(1) - Includes the Lockheed Martin Rollover Debt and Beach Point Rollover Debt, each as defined below.
N/A - Not meaningful or applicable
Significant changes in our long-term debt during the three months ended March 31, 2022 were as follows:
Francisco Partners Facility
On March 9, 2022, we amended the note purchase agreement (the “FP Note Purchase Agreement”) governing the issuance and sale of senior secured notes due on November 24, 2026 (the “Francisco Partners Facility”) to, among other things, (i) increase the principal amount of senior secured notes that may be issued under the FP Note Purchase Agreement to up to $154 million, (ii) increase the second tranche of the Francisco Partners Facility (the “Delayed Draw Notes”) to $24 million of senior secured notes, and (iii) accelerate the funding of the Delayed Draw Notes. The Delayed Draw Notes were issued net of a $4 million original issue discount and resulted in proceeds received of $20 million, before allocations for accounting purposes.
On March 25, 2022, we further amended the FP Note Purchase Agreement to, among other things, (i) decrease the principal amount of senior secured notes that may be issued under the Francisco Partners Facility to up to $119 million, (ii) amend certain existing covenants, as described below, (iii) add an additional covenant, as described below, (iv) revise the maturity date to April 1, 2026, and (v) change the timing of quarterly interest payments to May 15th, August 15th, November 15th and February 15th of each calendar year, with the first such interest payment required to be made on May 15, 2022. As consideration for the amendment on March 25, 2022, Francisco Partners received an additional 1.9 million shares of Terran Orbital Corporation's common stock in connection with the Tailwind Two Merger. Upon closing of the Tailwind Two Merger, the Company issued $65 million of senior secured notes as the third tranche of the Francisco Partners Facility (the “Conditional Notes”). The Conditional Notes were issued net of a $5 million original issue discount and resulted in proceeds received of $60 million, before allocations for accounting purposes.
As part of the amendment on March 25, 2022, the liquidity maintenance financial covenant of the Francisco Partners Facility was modified to require that as of the last day of each fiscal quarter, we must have an aggregate amount of unrestricted cash and cash equivalents of at least (i) $20 million in the case of the fiscal quarters ending March 31, 2022, June 30, 2022 and September 30, 2022, (ii) $10 million in the case of the fiscal quarter ending December 31, 2022 and (iii) $20 million plus 15% of certain aggregate funded indebtedness of the Company in the case of each fiscal quarter thereafter. In addition, a new covenant was added requiring us to at least break even on an EBITDA basis (as defined in the FP Note Purchase Agreement) by December 31, 2023, subject to certain extensions.
Senior Secured Notes due 2026
On March 25, 2022, the senior secured notes issued on March 8, 2021 and due April 1, 2026 (the "Senior Secured Notes due 2026") were impacted as described below.
In connection with the PIPE Investment, two holders of the Senior Secured Notes due 2026 agreed to, in substance, exchange the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with any residual amounts settled in cash,
40
resulting in a loss on extinguishment of debt of $727 thousand. The consideration transferred as part of the extinguishment included common stock with a fair value of $4.6 million and a cash payment of $703 thousand, of which $293 thousand represents financing cash flows related to the repayment of debt and $410 thousand represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows.
On March 25, 2022, the note purchase agreement governing the Senior Secured Notes due 2026 was amended to, among other things, (i) set the amount of senior secured notes that will remain outstanding with Lockheed Martin Corporation ("Lockheed Martin") subsequent to the Tailwind Two Merger to $25 million (the "Lockheed Martin Rollover Debt"), (ii) increase and set the amount of senior secured notes that will remain outstanding with Beach Point Capital ("Beach Point") subsequent to the Tailwind Two Merger to $31.3 million (the "Beach Point Rollover Debt"), (iii) set the terms of the Lockheed Martin Rollover Debt and the Beach Point Rollover Debt to have substantially similar terms as the terms in the Francisco Partners Facility, excluding call protection and the Beach Point Rollover Debt bearing interest at 11.25% (9.25% of which is payable in cash and 2.0% of which is payable in kind), and (iv) cause the Beach Point Rollover Debt to be subordinated in right of payment to the Francisco Partners Facility.
In connection with the Tailwind Two Merger, we partially extinguished Lockheed Martin's portion of the Senior Secured Notes due 2026, resulting in a gain on extinguishment of debt of $1.8 million, with the remainder representing the Lockheed Martin Rollover Debt. The consideration transferred as part of the partial extinguishment included a cash payment of $30.8 million, of which $25 million represents financing cash flows related to the repayment of debt and $5.8 million represents operating cash flows related to the payment of interest in the condensed consolidated statements of cash flows.
In connection with the PIPE Investment and the amendment on March 25, 2022, Beach Point agreed to, in substance, exchange a portion of the outstanding amount of principal and interest for common stock of Terran Orbital Corporation with the remainder representing the Beach Point Rollover Debt. As consideration for the amendment on March 25, 2022, Beach Point received an additional 2.4 million shares of Terran Orbital Corporation's common stock as part of the Tailwind Two Merger. Accordingly, Beach Point's portion of the Senior Secured Notes due 2026 was deemed to have been extinguished for the issuance of the Beach Point Rollover Debt and common stock of Terran Orbital Corporation, resulting in a loss on extinguishment of debt of $24.2 million.
PIPE Investment Obligation
An affiliate of a director and shareholder of the Terran Orbital Corporation invested $30 million, before allocations for accounting purposes, as part of the PIPE Investment (the "Insider PIPE Investment"). The subscription agreement for the Insider PIPE Investment included a provision that obligates us to pay the affiliate a quarterly fee of $1.875 million for sixteen quarters beginning with the period ending March 31, 2022 (the "PIPE Investment Obligation"). The first four quarterly payments are to be paid in cash and the remaining payments are to be paid, at our option, in cash or common stock of Terran Orbital Corporation, subject to subordination to and compliance with the Company's debt facilities.
Warrants and Derivatives
As of March 31, 2022, our liability-classified warrants were comprised of the following:
(in thousands, except share and per share amounts) |
|
Number of Issuable Shares as of |
|
|
Issuance |
|
Maturity |
|
Exercise Price |
|
|
March 31, 2022 |
|
|||
Public Warrants |
|
|
11,499,960 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
5,750 |
|
Private Placement Warrants |
|
|
7,800,000 |
|
|
March 2021 |
|
March 2027 |
|
$ |
11.50 |
|
|
|
3,900 |
|
FP Combination Warrants |
|
|
8,291,704 |
|
|
March 2022 |
|
March 2027 |
|
$ |
10.00 |
|
|
|
25,966 |
|
Warrant liabilities |
|
|
27,591,664 |
|
|
|
|
|
|
|
|
|
$ |
35,616 |
|
|
Significant changes in our warrants and derivative instruments during the three months ended March 31, 2022 were as follows:
Inducement Warrants
As part of the Tailwind Two Merger, all of the warrants issued by Legacy Terran Orbital in connection with the issuance of the Senior Secured Notes due 2026 (the "Inducement Warrants") were ultimately net settled into approximately 695 thousand shares of Terran Orbital Corporation’s common stock.
Francisco Partners Warrants and Derivatives
41
As part of the Francisco Partners Facility, we issued warrants to Francisco Partners in November 2021 to purchase 1.5% of the fully diluted shares of Legacy Terran Orbital’s common stock (the "FP Pre-Combination Warrants"). The FP Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
As additional consideration for the Francisco Partners Facility in November 2021, we committed to the issuance of (i) an equity grant package equal to 1.5% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger, plus an additional one million shares of Terran Orbital Corporation's common stock (the “FP Combination Equity”), and (ii) warrants to purchase 5.0% of the Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share, redeemable at the option of Francisco Partners for $25 million on the third anniversary of the closing of the Tailwind Two Merger, and expiring on March 25, 2027 (the “FP Combination Warrants”).
The FP Combination Equity and the FP Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 3.3 million shares of Terran Orbital Corporation's common stock were issued related to the FP Combination Equity. In addition, approximately 8.3 million warrants were issued related to the FP Combination Warrants.
Pre-Combination and Combination Warrants and Derivatives
Upon initial funding of the Francisco Partners Facility and in connection with the amendment to the Senior Secured Notes due 2026 note purchase agreement in November 2021, we issued warrants to each of Lockheed Martin and Beach Point to purchase 0.25% of the fully diluted shares of Legacy Terran Orbital’s common stock for on the same valuation and terms and conditions as the FP Pre-Combination Warrants (the “Pre-Combination Warrants”). The Pre-Combination Warrants terminated unexercised upon consummation of the Tailwind Two Merger pursuant to their contractual provisions.
In November 2021, we committed to issue to each of Lockheed Martin and Beach Point (i) an equity grant package equal to 0.25% of the fully diluted shares of Terran Orbital Corporation’s common stock outstanding as of immediately following the closing of the Tailwind Two Merger (the “Combination Equity”), and (ii) warrants to purchase 0.83333% of Terran Orbital Corporation's common stock on a fully diluted basis as of immediately following the closing of the Tailwind Two Merger at a strike price of $10.00 per share expiring on March 25, 2027 (the “Combination Warrants”).
The Combination Equity and the Combination Warrants were contingently issuable upon closing of the Tailwind Two Merger. Upon consummation of the Tailwind Two Merger, approximately 774 thousand shares of Terran Orbital Corporation's common stock were issued related to the Combination Equity. In addition, approximately 2.8 million warrants were issued related to the Combination Warrants. Subsequent to the Tailwind Two Merger, the Combination Warrants now represent equity-classified financial instruments.
Public Warrants
As part of the Tailwind Two Merger, we assumed outstanding warrants giving the holders the right to purchase an aggregate of 11.5 million shares of the Terran Orbital Corporation's common stock for $11.50 per share (the "Public Warrants"). The Public Warrants became exercisable on April 24, 2022, 30 days after the completion of the Tailwind Two Merger, and will expire five years from the completion of the Tailwind Two Merger.
We will not be obligated to deliver any shares of common stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such warrant exercise unless a registration statement with respect to the shares underlying the warrants is then effective and a related prospectus is current, unless a valid exemption from registration is available. No Public Warrant will be exercisable for cash or on a cashless basis and we will not be obligated to issue shares upon exercise of a Public Warrant unless the underlying shares have been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. On April 22, 2022, we filed the Form S-1 with the SEC for, among other transactions, the registration of the shares of common stock issuable by us upon exercise of the Public Warrants. The Form S-1 has not yet been declared effective by the SEC.
Once the Public Warrants become exercisable, we may redeem the outstanding warrants when the price per share of the Terran Orbital Corporation’s common stock equals or exceeds $18.00 as follows:
42
In addition, once the Public Warrants become exercisable, we may redeem the outstanding warrants when the price per share of Terran Orbital Corporation’s common stock equals or exceeds $10.00 as follows:
If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If we call the Public Warrants for redemption, as described above, we will have the option to require any holder that wishes to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Public Warrants will not be adjusted for issuances of common shares at a price below its exercise price. Additionally, in no event will we be required to net cash settle the Public Warrants.
Private Placement Warrants
As part of the Tailwind Two Merger, we assumed outstanding warrants that were previously issued in a private placement and that give the holders thereof the right to purchase an aggregate of 7.8 million shares of Terran Orbital Corporation's common stock for $11.50 per share (the "Private Placement Warrants"). The Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the common shares issuable upon their exercise will not be transferable, assignable or salable until 30 days after the completion of the Tailwind Two Merger. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable, except as described above, so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by us and exercisable by such holders on the same basis as the Public Warrants. During April 2022, we filed a registration statement for the registration of the Private Placement Warrants and the shares of common stock issuable upon exercise of the Private Placement Warrants.
Detachable Warrants
As part of the Tailwind Two Merger, all of the warrants issued by Legacy Terran Orbital in connection with the extinguishment of convertible notes (the "Detachable Warrants") were ultimately net settled into approximately 22.3 million shares of the Terran Orbital Corporation’s common stock.
Dividends
We intend to retain future earnings, if any, for future operations, expansion and debt repayment (if any) and there are no current plans to pay any cash dividends for the foreseeable future. In addition, our ability to pay dividends is limited by covenants of our existing and outstanding indebtedness, including the Francisco Partners Facility, and may be limited by covenants of any future indebtedness. There are no current restrictions in the covenants of our existing and outstanding indebtedness on our wholly-owned subsidiaries from
43
distributing earnings in the form of dividends, loans or advances and through repayment of loans or advances to Terran Orbital Corporation.
Following the Tailwind Two Merger, the Company’s existing and outstanding indebtedness allows for the declaration and payment of dividends or prepayment of junior debt obligations in cash in an amount not to exceed $5 million.
Cash Flow Analysis
The following table is a summary of our cash flow activity for three months ended March 31, 2022 and 2021:
|
Three Months Ended March 31, |
|
|||||||||
(in thousands) |
2022 |
|
|
2021 |
|
|
$ Change |
|
|||
Net cash used in operating activities |
$ |
(29,300 |
) |
|
$ |
(548 |
) |
|
$ |
(28,752 |
) |
Net cash used in investing activities |
|
(4,030 |
) |
|
|
(2,422 |
) |
|
|
(1,608 |
) |
Net cash provided by financing activities |
|
82,687 |
|
|
|
44,348 |
|
|
|
38,339 |
|
Effect of exchange rate fluctuations on cash and cash equivalents |
|
(28 |
) |
|
|
(66 |
) |
|
|
38 |
|
Net increase in cash and cash equivalents |
$ |
49,329 |
|
|
$ |
41,312 |
|
|
$ |
8,017 |
|
Cash Flows from Operating Activities
The increase in net cash used in operating activities was primarily due to an increase in selling, general and administrative expense largely related to salaries and wages, legal and accounting fees, and facility expenses as a result of the Company’s growth initiatives as well cash interest payments of approximately $6.2 million related to the partial extinguishment of the Senior Secured Notes due 2026. The remainder of the activity in net cash used in operating activities related to changes in assets and liabilities due to the volume and timing of other operating cash receipts and payments with respect to when the transactions are reflected in earnings.
Refer to the discussions above under “Results of Operations” for further details.
Cash Flows from Investing Activities
The increase in net cash used in investing activities primarily was due to an increase of $745 thousand related to the payment of capital expenditures incurred in previous reporting periods, an increase in the development of company-owned satellites of $327 thousand, and the buildout of other manufacturing facilities and office space.
Cash Flows from Financing Activities
During the three months ended March 31, 2022, net cash provided by financing activities primarily consisted of $58 million of proceeds received from the Tailwind Two Merger and the PIPE Investment, $42 million of proceeds received allocated to warrant and derivative instruments, $36 million of proceeds received allocated to the issuance of debt, and $15 million of proceeds received allocated to the
44
issuance of common stock in relation to our financing transactions. These increases were partially offset by $42 million of payments of issuance costs related to our equity and debt transactions coupled with $27 million related to the repayment of long-term debt.
During the three months ended March 31, 2021, net cash provided by financing activities primarily consisted of $47.5 million of proceeds received allocated to the issuance of debt and $2.5 million of proceeds received allocated to warrant and derivative instruments. These increases were partially offset by $5.7 million of payments of issuance costs related to our debt transactions.
Other Material Cash Requirements
In addition to debt service requirements on our long-term debt and any payment obligations on our warrants and derivatives, we have certain short-term and long-term cash requirements under operating leases and certain other contractual obligations and commitments.
Operating Leases
Refer to Note 15 "Leases" to the condensed consolidated financial statements for further information regarding our operating leases.
PIPE Investment
We entered into commercial agreements to purchase $20 million of goods and services over three years from two affiliates of a PIPE investor. These commercial agreements became effective upon the closing of the Tailwind Two Merger.
Off-Balance Sheet Arrangements
As of March 31, 2022, we do not have any material off-balance sheet arrangements other than the Combination Warrants, which are described above. Upon closing of the Tailwind Two Merger, the Combination Warrants became both indexed to and classified as equity under U.S. GAAP.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to the “Critical Accounting Policies and Estimates” section of “Terran Orbital's Management's Discussion and Analysis of Financial Condition and Results of Operations” under Exhibit 99.3 in the amendment to the current report on Form 8-K filed with the SEC on March 31, 2022. There were no material changes to these policies and estimates during the three months ended March 31, 2022.
ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 “Organization and Summary of Significant Accounting Policies” to the condensed consolidated financial statements for further information about recent accounting pronouncements and adoptions.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements, other than statements of present or historical fact included in this report, regarding Terran Orbital’s future financial performance, as well as Terran Orbital’s business strategy, future operations, financial position, estimated revenues, and losses, projected costs, earning outlooks, prospects, expectations, plans and objectives of management are forward-looking statements. When used in this report, the words “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements are based on management’s current expectations, forecasts, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to our business.
These forward-looking statements are based on information available as of the date of this report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. There can be no assurance that future developments will be those that have been anticipated. Accordingly, forward-looking statements in this report should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances
45
after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, Terran Orbital’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:
46
These forward-looking statements are based on our current expectations, plans, forecasts, assumptions and beliefs concerning future developments and their potential effects. There can be no assurance that the future developments affecting us will be those that we have anticipated and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. New risk factors and uncertainties may emerge from time to time and it is not possible to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. You should read this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from the expectations disclosed in the forward-looking statements we make. All forward-looking statements we make are qualified in their entirety by this cautionary statement. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this report, and we do not assume any obligation to update any forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as the material weaknesses in Legacy Terran Orbital's internal control over financial reporting that were previously reported in the Form S-1 continued to exist as of March 31, 2022. As a result, we performed additional analysis as deemed necessary to ensure that our condensed consolidated financial statements were prepared in accordance with GAAP. Accordingly, management believes that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects our financial position, results of operations, and cash flows for the period presented.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2022 that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting, except as described below.
We have begun implementation of a plan to remediate our identified material weaknesses. These remediation measures are ongoing and include (i) hiring additional accounting and IT personnel to bolster our technical reporting, transactional accounting, internal controls and IT capabilities; (ii) designing and implementing controls to formalize roles and review responsibilities and designing and implementing formal controls over segregation of duties; (iii) designing and implementing a formal risk assessment process to identify and evaluate changes in our business and the impact on our internal controls; (iv) designing and implementing controls to formally assess complex accounting transactions and other technical accounting and financial reporting matters; (v) designing and implementing formal processes, accounting policies, procedures, and controls supporting our financial close process, including completion of business performance reviews, creating standard balance sheet reconciliation templates and journal entry controls; and (vi) designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over data backups, and controls over program development efforts.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 12 "Commitments and Contingencies" to the condensed consolidated financial statements under the heading “Litigation and Other Legal Matters” included in this Quarterly Report on Form 10-Q for legal proceedings and related matters.
Item 1A. Risk Factors.
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Equity Securities
During the three months ended March 31, 2022, the Company had the following unregistered sales of equity securities:
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed/furnished or incorporated by reference as part of this report.
Exhibits Index
The information required by this Item is set forth on the exhibit index below.
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Incorporated by Reference |
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Exhibit Number |
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Description |
Form |
Exhibit |
Filing Date |
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S-4/A |
2.2 |
2/10/2022 |
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8-K |
2.1 |
3/15/2022 |
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8-K |
3.1 |
3/28/2022 |
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8-K |
3.2 |
3/28/2022 |
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Certificate of Amendment to the Certificate of Incorporation of Terran Orbital Corporation |
8-K |
3.3 |
3/28/2022 |
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Certificate of Corporate Domestication of Tailwind Two Acquisition Corp. |
8-K |
4.1 |
3/28/2022 |
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Form of Common Stock Certificate of Terran Orbital Corporation |
8-K |
4.2 |
3/28/2022 |
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8-K |
10.2 |
3/28/2022 |
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8-K |
10.6 |
3/28/2022 |
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8-K |
10.7 |
3/28/2022 |
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8-K |
10.9 |
3/28/2022 |
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8-K |
10.10 |
3/28/2022 |
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8-K |
10.13 |
3/28/2022 |
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8-K |
10.1 |
3/15/2022 |
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8-K |
10.19 |
3/28/2022 |
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8-K |
10.21 |
3/31/2022 |
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Pre-Tailwind Two Merger Form of Employment Agreement for Non-NEO Officers |
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101 |
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XBRL Instant Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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104 |
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Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document |
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* Filed herewith.
** Furnished herewith.
+ Indicates a management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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TERRAN ORBITAL CORPORATION |
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Date: May 16, 2022 |
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By: |
/s/ Gary A. Hobart |
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Gary A. Hobart |
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Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial Officer) |
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Exhibit 4.3
STOCK AND Warrant PURCHASE AGREEMENT
This STOCK AND Warrant Purchase Agreement (this “Agreement”) is made as of March 25, 2022 by and among TAILWIND TWO ACQUISITION CORP. (a Delaware corporation, expected to be renamed TERRAN ORBITAL CORPORATION, a Delaware corporation (the “Company”), FP CREDIT PARTNERS II, L.P., a Cayman Islands limited partnership (“FPCP 1”), FP CREDIT PARTNERS PHOENIX II, L.P., a Cayman Islands limited partnership (“FPCP 2”, and, together with FPCP 1, the “FPCP Purchasers”), BPC Lending II LLC, a Delaware limited liability company (“BP”), and Lockheed Martin Corporation, a Maryland corporation (“LM”). Each of FPCP 1, FPCP 2, BP and LM is referred to herein individually as a “Purchaser”, and all of them are referred to herein collectively as “Purchasers.”
WHEREAS, the Company, Titan Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of the Company, and Terran Orbital Corporation (expected to be renamed Terran Orbital Operating Corporation, the “Target”) are party to that certain Agreement and Plan of Merger, dated as of October 28, 2021 (as amended by Amendment No. 1 dated as of February 8, 2022, as further amended by Amendment No. 2 dated as of March 9, 2022, as further amended by the Acknowledgment and Waiver dated as of March 25, 2022 and as may be further amended from time to time, the “Business Combination Agreement”), pursuant to which, among other things, Merger Sub will merge with and into the Target (the “Merger”), with the Target being the surviving corporation in the Merger;
WHEREAS, on or prior to the date hereof, as contemplated by the Business Combination Agreement, the Company has transferred by way of continuation from the Cayman Islands to Delaware and domesticated as a Delaware corporation in accordance with applicable Laws;
WHEREAS, the Target, as issuer, the guarantors party thereto, certain affiliates of FP Credit Partners, L.P. (“FPCP”) and Wilmington Savings Fund Society, FSB, as administrative agent and collateral agent (the “FP Agent”), have entered into a Note Purchase Agreement, dated as of November 24, 2021 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time to the date hereof, the “FP Note Purchase Agreement”), which provides for the issuance and sale by the Target to such affiliates of FPCP, on the terms and subject to the conditions set forth therein, of (A) on the Closing Date (as defined in the FP Note Purchase Agreement), certain Initial Senior Secured Notes (as defined in the FP Note Purchase Agreement) due 2026 in an aggregate original principal amount of $30,000,000, (B) on the Amendment No. 1 Closing Date (as defined in the FP Note Purchase Agreement), certain Delayed Draw Senior Secured Notes (as defined in the FP Note Purchase Agreement) due 2026 in an aggregate original principal amount of $24,000,000, (C) on the Combination Closing Date (as defined in the FP Note Purchase Agreement), certain Additional Delayed Draw Senior Secured Notes (as defined in the FP Note Purchase Agreement) due 2026 in an aggregate original principal amount of $65,000,000, and certain related transactions contemplated thereby (the foregoing, collectively, the “FP Note Transactions”);
WHEREAS, (i) the Target as issuer, (ii) the guarantors party thereto, (iii) LM, as a purchaser, (iv) BPC Lending II LLC, as a purchaser (together with LM, collectively, the “Existing LMT/BP Noteholders”), (v) Lockheed Martin, as authorized representative, and (vi) the other parties thereto entered into that certain Note Purchase Agreement, dated as of March 8, 2021 (as amended, amended and restated, supplemented or otherwise modified from time to time to the date hereof including by the Fifth NPA Amendment, the Sixth NPA Amendment and the Seventh NPA Amendment (each as defined below), the “Existing Note Purchase Agreement”), pursuant to which the Target issued and sold to the purchasers party thereunder certain senior secured notes due 2026 (the “Existing Notes”) in an aggregate original principal amount of $86,859,108;
WHEREAS, in furtherance of the Business Combination Agreement, the Existing LMT/BP Noteholders, the Target and the Company have entered into those certain Transaction Support Agreements, each dated as of October 28, 2021 and as amended by those certain Amendments to the Transaction Support Agreements, each dated as of March 25, 2022 (each, a “Support Agreement” and collectively, the “Support Agreements”), pursuant to which each of the Existing LMT/BP Noteholders has committed to, among other things, consummate the Debt Rollover (as defined in the Support Agreements) on the Combination Closing Date and subject to the terms and conditions set forth in the Support Agreements;
Whereas, in furtherance of the Support Agreements, the Existing LMT/BP Noteholders, the other parties thereto, the Target, the guarantors party thereto and Lockheed Martin, as authorized representative, have entered into the Fifth Amendment to Note Purchase Agreement, dated as of November 24, 2021 (the “Fifth NPA Amendment”), to the Existing Note Purchase Agreement, pursuant to which, among other things, the requisite purchasers under the Existing Note Purchase Agreement consented to the incurrence of the Initial Senior Secured Notes (as defined in the FP Note Purchase Agreement) and made certain other amendments to the Existing Note Purchase Agreement;
WHEREAS, in furtherance of the Support Agreements, the Existing LMT/BP Noteholders, the other parties thereto, the Target, the guarantors party thereto and Lockheed Martin, as authorized representative, have entered into the Sixth Amendment to Note Purchase Agreement, dated as of March 9, 2022 (the “Sixth NPA Amendment”), to the Existing Note Purchase Agreement, pursuant to which, among other things, the requisite purchasers thereunder consented to the early draw of the Delayed Draw Senior Secured Notes (as defined in the FP Note Purchase Agreement) in the principal amount of $24 million and made certain other amendments to the Existing Note Purchase Agreement;
Whereas, in furtherance of the Support Agreements, the Existing LMT/BP Noteholders, the Target, the guarantors party thereto and Lockheed Martin, as authorized representative, have entered into the Seventh Amendment (the “Seventh NPA Amendment”) to the Existing Note Purchase Agreement, dated as of the date hereof, to, among other things, effect the Debt Rollover;
Whereas, in furtherance of the Support Agreement by BP, BP, the FP Agent and the other parties thereto entered into a Subordination Agreement, dated as of March 25, 2022, whereby BP shall subordinate its debt remaining as a result of the Debt Rollover to the debt under the FP Note Purchase Agreement (the “BP Subordination” and together with the transactions contemplated in the Support Agreements with respect to the Existing Notes, the transactions contemplated in the Fifth NPA Amendment, the Sixth NPA Amendment and the Seventh NPA Amendment, the “Existing Note Support Transactions” and, together with the FP Note Transactions, the “Financing Transactions”);
WHEREAS, as an inducement for FPCP, which is an affiliate of each of the FPCP Purchasers, to enter into the FP Note Transactions and as an inducement for the Existing LMT/BP Noteholders, which are one or more Purchasers or affiliates of one or more Purchasers hereunder (Purchasers that are the Existing LMT/BP Noteholders or affiliates of the Existing LMT/BP Noteholders, the “LMT/BP Purchasers”), to enter into the Existing Note Support Transactions, the Company is entering into this Agreement to issue the Subscribed Shares (as defined below) and the Warrants (as defined below) to the Purchasers as set forth on Schedule 1 on the terms and subject to the conditions set forth herein; and
WHEREAS, the Company shall issue a portion of the Subscribed Shares and a Warrant to each Purchaser as provided in this Agreement, which issuances, for the avoidance of doubt, shall be made by the Company immediately following, and conditioned upon, the consummation of the Merger as contemplated by the Business Combination Agreement, including Section 3.09 thereof.
2
Now, Therefore, in consideration of the foregoing and of the mutual promises, covenants and conditions hereinafter contained, the undersigned parties agree as follows:
3
.
4
. In addition to the terms defined above or otherwise herein, the following terms used in this Agreement shall be construed to have the meanings set forth or referenced below.
“Affiliate” means, with respect to a specified Person, (a) another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified and (b) other than with respect to any Purchaser, any officer or director of such Person. For the avoidance of doubt and notwithstanding the foregoing, (i) each of the BP Funds and each of their respective successors and assigns shall be deemed an Affiliate of BP for purposes of this Agreement and (ii) each of the FP Funds and each of their respective successors and assigns shall be deemed an Affiliate of the FPCP Purchasers for purposes of this Agreement.
“BP Funds” means any Affiliate of BP and any Person, fund or account managed by Beach Point Capital Management LP, a Delaware limited partnership.
“Business Combination Transaction Agreements” has the meaning set forth in the Business Combination Agreement with respect to the term “Transaction Agreements”.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, New York, New York.
“Common Stock” means the common stock of the Company, $0.0001 par value per share.
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto. Without limiting the generality of the foregoing, a Person shall be deemed to be Controlled by another Person if such other Person possesses, directly or indirectly, power to vote 5% or more of the securities having ordinary voting power for the election of directors, managing general partners or the equivalent.
“Exchange” means NYSE (as defined in the Business Combination Agreement) or, if applicable in accordance with Section 7.07(b) of the Business Combination Agreement, Nasdaq (as defined in the Business Combination Agreement).
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder.
5
“FP Funds” means any Affiliate of, or any Person, fund or account managed by, Francisco Partners Management, L.P., a Cayman Islands limited partnership, or FPCP.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Investor Rights Agreement” means the Investor Rights Agreement of the Company, dated October 28, 2021, as amended from time to time.
“Laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
“Material Adverse Effect” means any “Material Adverse Effect” as such term is defined in the FP Note Purchase Agreement and the Existing Note Purchase Agreement, as applicable, except that, for purposes of this definition, each of this Agreement and the Warrants shall be deemed to be a “Note Document” as such term is used in the definition of “Material Adverse Effect” set forth in the FP Note Purchase Agreement and the Existing Note Purchase Agreement, and each Purchaser shall be deemed to be a “Note Party” as such term is used in the definition of “Material Adverse Effect” set forth in the FP Note Purchase Agreement and the Existing Note Purchase Agreement, as applicable.
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws, (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement, and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization, including in each case of the foregoing the equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction, and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Preferred Stock” means the Company’s preferred stock, par value $0.0001 per share.
“Securities Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder.
6
“Stock Plan” means the Terran Orbital Corporation 2021 Omnibus Incentive Plan, as amended from time to time.
“Transaction Agreements” means the FP Note Purchase Agreement, the other Note Documents (as defined in the FP Note Purchase Agreement), the Fifth NPA Amendment, the Sixth NPA Amendment, the Seventh NPA Amendment, and the Investor Rights Agreement.
. The Company hereby represents and warrants to each Purchaser that, except as set forth on the Disclosure Schedule, which exceptions shall be deemed to be part of the representations and warranties made hereunder, the following representations are true and complete as of the date hereof and as of the Combination Closing Date, except as otherwise indicated. The Disclosure Schedule shall be arranged in sections corresponding to the numbered and lettered sections contained in this Section 2, and the disclosures in any section of the Disclosure Schedule shall qualify other sections in this Section 2 to the extent it is reasonably apparent on its face from a reading of the disclosure that such disclosure is applicable to such other sections.
. Each of the Company and each of its subsidiaries (a) is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite permits, governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations, with respect to the Company, under this Agreement and the Warrants and, with respect to the Company and each of its subsidiaries, under the Transaction Agreements to which it is a party, and (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
. The authorized equity capital of the Company consists of the following.
7
8
. The execution, delivery and performance by (x) the Company of this Agreement and the Warrants and (y) the Company and each of its subsidiaries of each Transaction Agreement to which such Person is party have been duly authorized by all necessary corporate or other organizational action, and, upon receipt of the Required Acquiror Shareholder Approval (as defined in the Business Combination Agreement), will not (a) contravene the terms of any of such Person’s Organization Documents, (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its subsidiaries or (ii) any order, judgment, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject, or (c) violate any applicable Law (including, without limitation, Regulation U or Regulation X issued by the Board of Governors of the Federal Reserve System of the United States), in the case of clauses (b) and (c) to the extent such contravention, conflict, breach or violation could reasonably be expected to have a Material Adverse Effect.
. Assuming receipt of the Required Acquiror Shareholder Approval and the consummation of the transactions contemplated by this Agreement in accordance with its terms, each of the Subscribed Shares and each Warrant (including any warrant issued in replacement or substitution for such Warrant pursuant to the terms of such Warrant), when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, and the Shares to be issued upon valid exercise of each Warrant, when issued, sold and delivered in accordance with the terms and for the consideration set forth in each Warrant, in each case, will be duly authorized, validly issued, (and in the case of any Shares) fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under this Agreement, the Warrants and the Transaction Agreements, applicable state and federal securities Laws and Liens or encumbrances created by or imposed by any Purchaser. Assuming the accuracy of the representations of each Purchaser in Section 3 of this Agreement and subject to the Required Acquiror Shareholder Approval, the filings described in clause (a), (c) or (e) of Section 2.5 below, the offer, sale and issuance of each of the Subscribed Shares and each Warrant is, and the Shares to be issued pursuant to and in conformity with each Warrant will be, in compliance with all applicable federal and state securities Laws.
. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of this Agreement and the Warrants or the Company or any of its subsidiaries of any Transaction Agreement to which such Person is a party other than (a) those that have already been obtained and are in full force and effect, (b) filings to perfect the Liens created by the Collateral Documents (as defined in the FP Note Purchase Agreement and the Existing Note Purchase Agreement, as applicable), (c) the filing of any applicable reports or other filings under securities Laws (d) applicable requirements of the HSR Act (e) the filing of any applicable reports with, or approvals of, the Exchange and (f) such licenses, approvals, authorizations, registrations, filings or consents the failure of which to obtain or make would not reasonably be expected to result in a Material Adverse Effect. As of their respective dates (or if amended or superseded by a filing, then on the date of such subsequent filing), all reports required to be filed by the Company with the Securities and Exchange Commission (the “SEC
9
Reports”) complied in all material respects with the requirements of the Securities Act and the Exchange Act as in effect at the time of filing, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. The financial statements of the Company included in the SEC Reports complied in all material respects with applicable accounting requirements and the rules and regulations of the Securities and Exchange Commission with respect thereto as in effect at the time of filing and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results and operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments. Each Purchaser acknowledges that (i) the staff of the SEC (the “Staff”) issued the Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies on April 12, 2021 (the “Statement”), (ii) the Company continues to review the Statement and its implications, including on the financial statements and other information included in the SEC Reports and (iii) any restatement, revision or other modification of the SEC Reports in connection with such review of the Statement or any subsequent agreements, orders, comments or other guidance from the Staff of the SEC regarding the accounting policies of the Company shall be deemed not material for purposes of this Agreement.
. Each Purchaser, solely with respect to itself and not with respect to the other Purchasers, hereby represents and warrants to the Company as follows.
. Purchaser has full power and authority to enter into this Agreement, the applicable Warrant and the Transaction Agreements to which it is a party. This Agreement, the applicable Warrant and the Transaction Agreements to which it is a party, when executed and delivered by Purchaser, will constitute valid and legally binding obligations of Purchaser, enforceable in accordance with their terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and any other Laws of general application affecting enforcement of creditors’ rights generally, and as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
. This Agreement is made with Purchaser in reliance upon Purchaser’s representation to the Company, which by Purchaser’s execution of this Agreement, Purchaser hereby confirms, that its Subscribed Shares and its Warrant and the Shares to be acquired by Purchaser pursuant to such Warrant will be acquired for investment for Purchaser’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Purchaser further represents that Purchaser does not presently have any contract, undertaking, agreement or arrangement with any Person (other than an Affiliate of Purchaser) to sell, transfer or grant participations to such Person or to any third Person, with respect to its Subscribed Shares or its Warrant or the Shares subject to such Warrant. Purchaser has not been formed for the specific purpose of acquiring its Subscribed Shares or its Warrant or the Shares subject to such Warrant.
. Purchaser has had adequate opportunity to discuss the Company’s business, management, financial affairs and the terms and conditions of the offering of the Subscribed Shares and the Warrants
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with the Company’s management. Purchaser acknowledges that the securities offered hereby (i) were not offered by any form of general solicitation or general advertising, including but not limited to the methods described in Rule 502(c) under the Securities Act, and (ii) are not being offered in a manner involving a public offering under, or in a distribution in violation of, the Securities Act, or any state securities laws. The Investor acknowledges that it is not relying upon, and has not relied upon, any statement, representation, warranty or other information made by any person, firm or corporation, other than the representations and warranties of the Company contained in Section 2 of this Agreement, in making its investment or decision to invest in the Subscribed Shares and the Warrants. Purchaser acknowledges and agrees that no federal or state agency has passed upon or endorsed the merits of the offering of the Subscribed Shares, Warrants or Shares issuable upon exercise of the Warrants or made any findings or determination as to the fairness of this investment.
. Purchaser understands that none of the issuances of its Subscribed Shares or its Warrant or the Shares issuable upon exercise of such Warrant have been registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser’s representations as expressed herein. Purchaser understands that its Subscribed Shares and its Warrant and the Shares subject to such Warrant are “restricted securities” under applicable U.S. federal and state securities Laws and that, pursuant to these Laws, Purchaser must hold the Shares indefinitely unless their resale is registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges and agrees that the Subscribed Shares, the Warrants and the Shares to be issued upon exercise of the Warrants will not be immediately eligible for offer, resale, transfer, pledge or disposition pursuant to Rule 144 promulgated under the Securities Act until at least one year from the Closing Date and that the provisions of Rule 144(i) will apply to such securities. The Purchaser acknowledges and agrees that it has been advised to consult legal counsel and tax and accounting advisors prior to making any offer, resale, transfer, pledge or disposition of any of the securities offered hereby.
. Purchaser understands that no public market now exists for its Warrant and that the Company has made no assurances that a public market will ever exist for its Warrant.
. Purchaser understands that its Subscribed Shares and its Warrant and the Shares issuable upon exercise of such Warrant and any securities issued in respect of or exchange therefor may bear any one or more of the following legends: (a) any legend or required by the Warrant or any other Transaction Agreements; (b) any legend required by the securities Laws of any state to the extent such Laws are applicable thereto; and (c) unless the issuance of the applicable Shares has been registered under the Securities Act, the following legend on any Shares represented by a certificate or book-entry position:
“THE ISSUANCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
11
THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT.”
The Company shall cause such legend or legends to be removed promptly upon such legend or legends ceasing to be required by, or applicable to such Warrant or such Shares under, applicable Law, and delivery of an opinion of counsel in a form reasonably satisfactory to the Company that such registration is not required under the Securities Act.
. Purchaser is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
. Purchaser is not a “foreign person,” as defined at 31 C.F.R. § 800.224, and is not otherwise controlled by a “foreign person,” as defined at 31 C.F.R. § 800.224.
. The office of Purchaser in which its principal place of business is identified in the address or addresses of Purchaser on the signature page for Purchaser.
. Unless otherwise set forth in this Agreement, the representations and warranties of the Company and each Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing until each Warrant has expired or been terminated in accordance with its terms and shall in no way be affected by any investigation or knowledge of the subject matter thereof made by or on behalf of any Purchaser or the Company.
. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
. This Agreement and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, THE law OF THE STATE OF DELAWARE.
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.
. This Agreement may be executed and delivered by facsimile, electronic mail or other transmission method and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs, schedules and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and schedules and exhibits attached hereto. Unless otherwise specified or the context requires otherwise, (i) references herein to the “parties” or any “party” are to the parties to this Agreement, (ii) references herein to any agreement, instrument or other document (including this Agreement) are references to such agreement, instrument or other document, as applicable, as amended, restated, supplemented or otherwise modified from time to time and (iii) references herein to any statute, rule or regulation are references to
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such statute, rule or regulation, as applicable, as amended, restated, supplemented or otherwise modified from time to time, including through the promulgation of rules or regulations thereunder, and to any consolidation thereof or successor statute, rule or regulation, as applicable, thereto. As used herein, (A) the words “this Agreement,” “herein,” “hereto,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision or part of this Agreement, (B) the words “any” and “or” express alternatives that are not mutually exclusive, (C) the words “include,” “includes” and “including” are deemed to be followed by the phrase “without limitation,” (D) the word “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends and does not mean simply “if” and (E) words importing the singular also import the plural, and vice versa.
. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the party to be notified, (b) when sent, if sent by email during normal business hours of the recipient, and if not sent during normal business hours, then on the next Business Day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one Business Day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next Business Day delivery, with written verification of receipt. All communications shall be sent to the applicable party at its address or email address as set forth on the signature page, or to such address or email address as subsequently modified by written notice given in accordance with this Section 4.7. If notice is given to the Company, it shall be sent to: (i) Tailwind Two Acquisition Corp., 150 Greenwich Street, 29th Floor, New York, NY 10006, matthewdeby@gmail.com, marked “Attention: Matthew Eby”; and a copy (which shall not constitute notice) shall also be sent to Kirkland & Ellis LLP, 601 Lexington Avenue, New York, NY 10022, jonathan.davis@kirkland.com, chelsea.darnell@kirkland.com and patrick.salvo@kirkland.com, marked “Attention: Jonathan Davis, Chelsea Darnell and Patrick Salvo” and (ii) Terran Orbital Corporation, 6800 Broken Sound Parkway NW, Suite 200, Boca Raton, FL 33847, marc.bell@terranorbital.com and terranorbitallegal@terranorbital.com, marked “Attention: Marc Bell, Chief Executive Officer”; and a copy (which shall not constitute notice) shall also be sent to Akin Gump Strauss Hauer & Feld LLP, One Bryant Park, New York NY 10036, jpavlich@akingump.com, marked “Attention: Jonathan Pavlich.”
. Except for a fee which may be payable by the Target to Houlihan Lokey Capital, Inc., Goldman Sachs & Co., and Jefferies LLC in connection with the transactions contemplated by the Business Combination Agreement on the Combination Closing Date, each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction. Each party agrees to indemnify and to hold harmless the other parties from any liability for any commission or compensation in the nature of a finder’s or broker’s fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which such party or any of its officers, employees, or representatives is responsible.
. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of any of this Agreement, the Warrants or the Transaction Agreements, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
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. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and each Purchaser.
. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
. This Agreement (including the Exhibits hereto), the Warrants, the Support Agreements and the Transaction Agreements constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled.
. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the federal or state courts located in the Southern District of New York for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the federal or state courts located in the Southern District of New York, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that a party is not subject to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution based upon judgment or order of such court(s), that any suit, action or proceeding arising out of or based upon this Agreement commenced in the federal or state courts located in the Southern District of New York is brought in an inconvenient forum, that the venue of such suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court. Should any party commence a suit, action or other proceeding arising out of or based upon this Agreement in a forum other than the federal or state courts located in the Southern District of New York, or should any party otherwise seek to transfer or dismiss such suit, action or proceeding from such court(s), that party shall indemnify and reimburse the other parties for all legal costs and expenses incurred in enforcing this provision.
. The Company hereby acknowledges that each Purchaser may invest in numerous companies, some of which may be competitive with the Company’s business. No Purchaser shall be liable for any claim
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arising out of or based upon (a) the investment by any Purchaser in any entity competitive with the Company, or (b) actions taken by any partner, officer or other representative of any Purchaser to assist any such competitive company, whether or not such action was taken as a board member of such competitive company or otherwise, and whether or not such action has a detrimental effect on the Company; provided that each Purchaser shall remain subject to its obligations under this Agreement, the Warrants and the Transaction Agreements to which it is a party in the course of such investments or taking such actions.
. Except as may be required by applicable Law or for the purpose of any required SEC disclosure or related public announcement or investment presentation made by the Company or the Target (provided that the Company shall, to the extent permitted by applicable Law, provide each of the Purchasers and its legal counsel a reasonable opportunity to review any information so disclosed to the extent relating to this Agreement, the Warrants, the Transaction Agreements or such Purchaser and shall consider in good faith any comments of such Purchaser or its legal counsel with respect thereto prior to making such disclosure), neither the Company nor any Purchaser, nor their respective Affiliates, shall issue any press release or public announcement concerning this Agreement, the Warrants or the Transaction Agreements, or make any other public disclosure containing the terms of this Agreement, including the name of any Purchaser, without obtaining the prior written approval of the other parties, which may be withheld in each other party’s sole discretion, unless required by applicable Law, subpoena or judicial or similar order, in which case, the disclosing party shall endeavor to give the non-disclosing party or parties prior written notice of such publication or other disclosure if permitted by such applicable Law, subpoena or judicial or similar order. In addition, each party agrees to comply with the confidentiality obligations set forth in Section 12.07 of the FP Note Purchase Agreement and the Existing Note Purchase Agreement, as applicable (and in the event of any conflict with this Section 4.16, Section 12.07 of the FP Note Purchase Agreement and the Existing Note Purchase Agreement, as applicable, shall control).
. The parties agree that failure of any party to perform its agreements and covenants hereunder, including a party’s failure to take all actions as are necessary on such party’s part in accordance with the terms and conditions of this Agreement and the Warrants to consummate the transactions contemplated hereby and thereby, will cause irreparable injury to the other parties, for which monetary damages, even if available, will not be an adequate remedy. It is agreed that the parties shall be entitled to equitable relief including injunctive relief and specific performance of the terms hereof, without the requirement of posting a bond or other security, and each party hereby consents to the issuance of injunctive relief by any court of competent jurisdiction to compel performance of a party’s obligations and to the granting by any court of the remedy of specific performance of such party’s obligations hereunder, this being in addition to any other remedies to which the parties are entitled at law or equity.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.
COMPANY:
TAILWIND TWO ACQUISITION CORP.
By: /s/ Chris Hollod
Name: Chris Hollod
Title: Co-Chief Executive Officer
PURCHASERS:
Signature Page to Stock and Warrant Purchase Agreement
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FP CREDIT PARTNERS II, L.P.
By: FP Credit Partners GP II, L.P. Its: General Partner
By: FP Credit Partners GP II Management, LLC Its: General Partner
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By: /s/ Scott Eisenberg Name: Scott Eisenberg |
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FP CREDIT PARTNERS PHOENIX II, L.P.
By: FP Credit Partners GP II, L.P. Its: General Partner
By: FP Credit Partners GP II Management, LLC Its: General Partner
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By: /s/ Scott Eisenberg Name: Scott Eisenberg |
Address notices to:
c/o Francisco Partners
1114 Avenue of the Americas, 15th Floor
New York, NY 10036
Attention: Lee Rubenstein, Jordan Smith
Email: lee.rubenstein@franciscopartners.com, jordan.smith@franciscopartners.com
with a copy (which shall not constitute notice) to:
Latham & Watkins LLP
505 Montgomery Street, Suite 2000
San Francisco, CA 94111
Attention: Haim Zaltzman
Email: haim.zaltzman@lw.com
BPC LENDING II LLC
Signature Page to Stock and Warrant Purchase Agreement
By: /s/ Allan Schweitzer
Name: Allan Schweitzer
Title: Executive Managing Officer
Address: c/o Beach Point Capital Management
Suite 6000N
1620 26th Street
Santa Monica, CA 90404
Attention: Lawrence Goldman
Email: lgoldman@beachpointcapital.com
Signature Page to Stock and Warrant Purchase Agreement
LOCKHEED MARTIN CORPORATION
By: /s/ John Enright
Name: John Enright
Title: Director, Corporate Development
Address: 6801 Rockledge Drive, MP 205
Bethesda, MD 20817
Attention: Michael Elliott, Associate General Counsel
Email: Michael.a.elliott@lmco.com
Signature Page to Stock and Warrant Purchase Agreement
SCHEDULE 1
Description of Subscribed Shares and Warrants
Purchaser |
Number of Subscribed Shares Issued |
Number of Shares for Which Warrant Is Exercisable* |
Exercise Price of Warrant* |
Cash Price Payable if the Warrant is Returned to the Company |
FP CREDIT PARTNERS II, L.P. |
5,003,798 |
7,907,863 |
$10.00 |
$23,842,696.63** |
FP CREDIT PARTNERS PHOENIX II, L.P. |
242,879 |
383,841 |
$10.00 |
$1,157,303.37** |
BPC LENDING II LLC |
2,786,946 |
1,381,951 |
$10.00 |
N/A |
LOCKHEED MARTIN CORPORATION |
386,946 |
1,381,951 |
$10.00 |
N/A |
Total |
8,420,569 |
11,055,605 |
N/A |
$25,000,000** |
*Assuming Warrant were exercised in full on the date hereof immediately following the closing of the transactions contemplated by the Business Combination Agreement.
**Both Warrants must be returned to the Company together pursuant to the terms of the Warrants.
EXHIBIT A
Form of Warrant
THE ISSUANCE OF THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY (IF THE COMPANY SO REQUESTS) THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
[TERRAN ORBITAL CORPORATION]
No. [●]
Number of Warrant Shares: [●]
Original Issue Date: [●]
Void After: [●]
FOR VALUE RECEIVED, [TERRAN ORBITAL CORPORATION], a Delaware corporation (the “Company”), hereby certifies that [●], a [●] (together with its successors, transferees and assignees, the “Holder”), is entitled to purchase from the Company, at the election of the Holder, up to [●] duly authorized, validly issued, fully paid and nonassessable shares of Common Stock (as hereinafter defined), subject to adjustment as set forth herein, at a purchase price per share of $10.00, subject to adjustment as set forth herein (the “Exercise Price”), on the terms and subject to the conditions set forth herein. Certain capitalized terms used herein are defined in Section1 hereof.
This Warrant has been issued pursuant to that certain Stock and Warrant Purchase Agreement (the “Purchase Agreement”) entered into on the date hereof by the Company and the purchasers identified therein and as an inducement to the Holder or one or more of its affiliates to enter into the applicable Financing Transactions (as defined in the Purchase Agreement).
“Aggregate Exercise Price” means, with respect to any given exercise of this Warrant, an amount equal to the product of (a) the total number of Warrant Shares in respect of which this Warrant is being so exercised multiplied by (b) the Exercise Price then in effect as of the Exercise Date in accordance with the terms of this Warrant (including any amendments thereto).
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or obligated by law or executive order to close or are in fact closed.
“Common Stock” means the common stock, par value $0.0001 per share, of the Company or any other class or series of capital stock of the Company into or for which such shares of common stock have been converted, exchanged, reclassified or otherwise changed.
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“Exercise Date” means, with respect to any given exercise of this Warrant, the first Business Day occurring during the Exercise Period on which all of the conditions to such exercise set forth in Section 3 have been satisfied no later than 5:00 p.m., New York, New York local time.
“Fair Market Value” means, as of any given date, (a) if the Common Stock is traded on a national securities exchange, inter-dealer quotation system or over-the-counter bulletin board service during the Reference Period (as hereinafter defined) (or such shorter period of consecutive Trading Days within the Reference Period on which the Common Stock was so traded as may be mutually agreed between the Company and the Holder), the volume-weighted average of the closing prices per share of Common Stock, as reported by Bloomberg, or if not reported by Bloomberg, as reported by Morningstar, during the period of thirty (30) Trading Days ending on the Trading Day immediately prior to such date (the “Reference Period”), (b) if this Warrant is being exercised in connection with a reorganization, reclassification, consolidation, merger, sale, or similar transaction contemplated by Section 4(e), the per-share value of the consideration received by the holders of the outstanding shares of Common Stock (or other securities of the Company then constituting Warrant Shares) in connection therewith and (c) in any other case, the fair market value per share of Common Stock as jointly determined by the board of directors of the Company (the “Board”) in consultation with the Holder, each acting in good faith; provided that if the Board and the Holder are unable to agree on the fair market value per share of the Common Stock within ten (10) Business Days after the Company’s receipt of the Exercise Notice, such fair market value shall be determined by a nationally recognized investment banking, accounting or valuation firm selected by the Board with the consent of the Holder (not to be unreasonably withheld, conditioned or delayed) and engaged by the Company, which firm’s determination shall be final and conclusive, and the fees and expenses of which firm shall be borne equally by the Company and the Holder.
“Original Issue Date” means [●].
“Person” means any individual, sole proprietorship, partnership, limited liability company, corporation, joint venture, trust, incorporated organization or government or department or agency thereof.
“Principal Exchange” means, as of any given time, the principal securities exchange or securities market on which the Common Stock is then listed or quoted.
“Repurchase Date” means the date that is three (3) years after the Original Issue Date.
“Trading Day” means any day on which the Common Stock is traded on the Principal Exchange.
“Warrant” means this Warrant and any warrant issued upon division or combination of, or in substitution for, this Warrant.
“Warrant Shares” means the shares of Common Stock or other securities of the Company purchasable from time to time upon exercise of this Warrant in accordance with the terms hereof.
23
X = Y(A – B)
A
where:
X = the number of Warrant Shares to be issued to the Holder;
Y = the total number of Warrant Shares for which the Holder has elected to exercise this Warrant pursuant to Section 3(a) (inclusive of the number of Warrant Shares to be withheld by the Company
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in payment of the Aggregate Exercise Price (or portion thereof to be paid in the manner provided in this clause (ii)));
A = the Fair Market Value of one Warrant Share as of the Exercise Date; and
B = the Exercise Price in effect as of the Exercise Date;
In the event that all or any part of the Aggregate Exercise Price is paid pursuant to any of the preceding clauses (ii), (iii) or (iv) and the number of shares or other securities to be withheld by or surrendered to the Company in accordance therewith would result in the withholding or surrender of a fraction of a share or other security, the number of shares or other securities withheld by or surrendered to the Company shall be rounded up to the nearest whole number and the Company shall make a cash payment to the Holder (by delivery of a certified or bank cashier’s check payable to the order of the Holder or by wire transfer of immediately available funds to an account designated in writing by the Holder) in an amount equal to the product of (A) the fraction of a share or other security that otherwise would have been withheld or surrendered in the absence of the foregoing provisions of this sentence multiplied by (B) the value of such share or other security as of the Exercise Date, determined in accordance with the preceding clause (iii).
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26
27
28
29
then, in each such case, the Company shall send or cause to be sent to the Holder at least five (5) Business Days prior to the applicable record date for, or the applicable anticipated effective date of, such action, transaction or event a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent, or other right or action, and a description of such dividend, distribution, or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, merger, consolidation, reclassification, conversion, exchange, sale, dissolution, liquidation, winding-up or other applicable transaction is expected to occur, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or other securities of the Company then constituting Warrant Shares) shall be entitled to exchange their shares of Common Stock (or other securities of the Company then constituting Warrant Shares) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.
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31
“THE ISSUANCE OF THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY (IF THE COMPANY SO REQUESTS) THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT.”
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33
34
[signature page follows]
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IN WITNESS WHEREOF, the Company has duly executed this Warrant on the Original Issue Date.
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[TERRAN ORBITAL CORPORATION]
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By: _ _____________ __________ Title: [●]
Address: 6800 Broken Sound Parkway NW, Suite 200, Boca Raton, FL 33847
Attention: Marc Bell, Chief Executive Officer Email:marc.bell@terranorbital.com; terranorbitallegal@terranorbital.com |
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Accepted and agreed:
|
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[●]
|
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By: __________ ____________ Name: [●] Title: [●]
Address: [●] [●]
Attention: [●] Email: [●] |
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EXHIBIT A
FORM OF EXERCISE NOTICE
To: TERRAN ORBITAL CORPORATION (the “Company”)
Attention: Chief Executive Officer
tenders herewith payment in cash in accordance with Section 3(b)(i) of the attached Warrant in satisfaction of $__________ of the Aggregate Exercise Price; and/or
instructs the Company to withhold Shares issuable upon such exercise, in lieu of a cash payment, in accordance with Section 3(b)(ii) of the attached Warrant in satisfaction of $__________ of the Aggregate Exercise Price; and/or
tenders herewith securities of the Company in accordance with accordance with Section 3(b)(iii) in satisfaction of $__________ of the Aggregate Exercise Price.
(2) Conditional Exercise. Is this a conditional exercise pursuant to Section 3(g)?
Yes No
If “Yes,” indicate the applicable condition:
(3) Manner of Delivery. Please issue the applicable Warrant Shares:
by crediting such Warrant Shares, if they are unrestricted and unlegended, to the undersigned’s account with The Depository Trust Company as set forth below, or otherwise to the undersigned’s account with the Company’s transfer agent.
Name:
DWAC Account Number:
by issuing a certificate or certificates as set forth below.
Name:
Address:
(Print name of the warrant holder)
(Signature)
[________]
(Name and title of signatory, if applicable)
(Date)
(Email address)
Exhibit 10.10
EXECUTION COPY
TERRAN ORBITAL CORPORATION
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(U.S. Participants)
Terran Orbital Corporation, a Delaware corporation (the “Company”), has granted to the Participant an award (the “Award”) of certain units pursuant to the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “Plan”) and the Company’s Restricted Stock Unit Agreement (the “Award Agreement”), each of which represents the right to receive on the applicable Settlement Date (as defined below) one (1) Share, as set forth below. Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the Plan.
By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Award Agreement and the Plan, both of which are made a part of this document. The Participant acknowledges that copies of the Plan and the Award Agreement are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Award Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
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TERRAN ORBITAL CORPORATION |
PARTICIPANT |
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ATTACHMENTS: Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, and the Terran Orbital Corporation Restricted Stock Unit Agreement
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Exhibit 10.11
EXECUTION COPY
TERRAN ORBITAL CORPORATION
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(U.S. Participants)
Terran Orbital Corporation, a Delaware corporation (the “Company”), has granted to the Participant an award (the “Award”) of certain units pursuant to the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “Plan”) and the Company’s Restricted Stock Unit Agreement (the “Award Agreement”), each of which represents the right to receive on the applicable Settlement Date (as defined below) one (1) Share, as set forth below. Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the Plan.
By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Award Agreement and the Plan, both of which are made a part of this document. The Participant acknowledges that copies of the Plan and the Award Agreement are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Award Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
TERRAN ORBITAL CORPORATION |
PARTICIPANT |
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By: |
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Signature |
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ATTACHMENTS: Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, and the Terran Orbital Corporation Restricted Stock Unit Agreement
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Exhibit 10.12
EXECUTION COPY
TERRAN ORBITAL CORPORATION
RESTRICTED STOCK UNITS AGREEMENT
(U.S. Participants)
Terran Orbital Corporation, a Delaware corporation (the “Company”), has granted to the Participant named in the Notice of Grant of Restricted Stock Units (the “Grant Notice”) to which this Restricted Stock Units Agreement (the “Agreement”) is attached an Award (as defined in the Plan) consisting of Restricted Stock Units (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, as amended (the “Plan”), the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, and the Plan, (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Grant Notice, this Agreement or the Plan.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of agreement or other document employed by the Company in the
administration of the Plan or the Award shall be determined by the Administrator. All such determinations by the Administrator shall be final, binding and conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Administrator in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Award. Any person designated by the Board as an officer of the Company (an “Officer”) shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
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In the event of a Change in Control, the Award shall be subject to and treated as set
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forth in Section 13 of the Plan and any applicable provisions of the Grant Notice.
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In the event of a change in the capital structure of the Company, the Award shall be subject to and treated as set forth in Section 13(a) of the Plan.
The Participant shall have no rights as a stockholder with respect to any Shares which may be issued in settlement of this Award until the date of the issuance of such Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date the shares are issued, except as provided in Section 9. If the Participant is an Employee, the Participant understands and acknowledges that, except as otherwise provided in a separate, written employment agreement between the Company, a Parent or Subsidiary and the Participant, the Participant’s employment is “at will” and is for no specified term. Nothing in this Agreement shall confer upon the Participant any right to continue in the Continuous Service of the Company, a Parent or Subsidiary or interfere in any way with any right of the Company, a Parent or Subsidiary to terminate the Participant’s Continuous Service at any time.
The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing Shares issued pursuant to this Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to this Award in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include, but shall not be limited to, the following:
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It is intended that any election, payment or benefit which is made or provided pursuant to or in connection with this Award that may result in compensation that constitutes nonqualified deferred compensation within the meaning of Section 409A (“Section 409A Deferred Compensation”) shall comply in all respects with the applicable requirements of Section 409A of the Code (“Section 409A”) (including applicable regulations or other administrative guidance thereunder, as determined by the Administrator in good faith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with effecting compliance with or an exemption from Section 409A, the following shall apply:
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The Participant hereby agrees that in the event of any underwritten public offering of Shares, including an initial public offering of Shares, made by the Company pursuant to an effective registration statement filed under the Securities Act, the Participant shall not offer, sell, contract to sell, pledge, hypothecate, grant any option to purchase or make any short sale of, or otherwise dispose of any Shares of the Company or any rights to acquire Shares of the Company for such period of time from and after the effective date of such registration statement as may be established by the underwriter for such public offering; provided, however, that such period of time may not exceed one hundred eighty (180) days from the effective date of the registration statement to be filed in connection with such public offering; or, upon the request of the Company or the underwriter, such longer period as necessary to permit compliance with FINRA Rule 2241 or any successor provisions or amendments thereto. The foregoing limitation will not apply to Shares registered in the public offering under the Securities Act. The Participant hereby agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing within a reasonable timeframe if so requested by the Company.
At any time prior to the existence of a public market for the Shares, the Board may prohibit the Participant and any transferee of such Participant from selling, transferring, assigning, pledging, or otherwise disposing of or encumbering any Shares acquired pursuant to the Award (each, a “Transfer”) without the prior written consent of the Board. The Board may withhold consent for any reason, including without limitation any Transfer (i) to any individual or entity identified by the Company as a potential competitor or considered by the Company to be unfriendly, or (ii) if such Transfer increases the risk of the Company having a class of security held of record by such number of persons as would require the Company to register any class of securities under the Exchange Act; or (iii) if such Transfer would result in the loss of any federal or state securities law exemption relied upon by the Company in connection with the initial issuance of such Shares or the issuance of any other securities; or (iv) if such Transfer is facilitated in any manner by any public posting, message board, trading portal, Internet site, or similar method
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of communication, including without limitation any trading portal or Internet site intended to facilitate secondary transfers of securities; or (v) if such Transfer is to be effected in a brokered transaction; or (vi) if such Transfer would be of less than all of the Shares then held by the stockholder and its affiliates or is to be made to more than a single transferee. No Shares acquired pursuant to this Award may be sold, exchanged, transferred (including, without limitation, any transfer to a nominee or agent of the Participant), assigned, pledged, hypothecated or otherwise disposed of, including by operation of law in any manner which violates any of the provisions of this Agreement, and any such attempted disposition shall be void. The Company shall not be required (a) to transfer on its books any Shares which will have been transferred in violation of any of the provisions set forth in this Agreement or (b) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares will have been so transferred.
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Exhibit 10.13
TERRAN ORBITAL CORPORATION
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(U.S. Participants - $11.00 Share Price Hurdle)
Terran Orbital Corporation, a Delaware corporation, and any successor thereto (the “Company”), has granted to the Participant an award (the “Award”) of certain units pursuant to the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “Plan”) and the Company’s Restricted Stock Units Agreement (Retention RSUs) (the “Award Agreement”), each of which represents the right to receive on the applicable Settlement Date (as defined below) one (1) Share (as defined in the Plan), as set forth below. Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the Award Agreement.
Participant: |
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Employee ID: |
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Date of Grant: |
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Total Number of Units: |
(each a “Unit”), subject to adjustment as provided by the Award Agreement. |
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Expiration Date: |
The fifth (5th) anniversary of the Closing Date. |
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Vested Units: |
The vesting of each Unit requires the satisfaction of each of the following conditions (each as defined below): (i) the Closing Condition, (ii) the Time Condition, and (iii) the Share Price Condition. Each Unit will vest and become non-forfeitable on the first date (the “Vesting Date”) on which each of the Closing Condition, the Time Condition and the Share Price Condition have been satisfied with respect to such Unit on or before the Expiration Date, provided that, except as otherwise provided herein or in the Award Agreement, the Participant is employed by the Service Recipient on the applicable Vesting Date: |
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Closing Condition: |
The Closing Condition will be satisfied for the Total Number of Units on the Closing Date. |
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Time Condition: |
The Time Condition will be satisfied for the Total Number of Units by the Participant’s continuous employment by the Service Recipient through the first (1st) anniversary of the Closing Date. |
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Share Price Condition: |
The Share Price Condition will be satisfied with respect to the Total Number of Units as and when the Last Reported Closing Price per Share of $11.00 or greater (the “Share Price Hurdle”) is achieved, for any twenty (20) trading days during any consecutive thirty (30)-day period during the Incentive Period. The Share Price Hurdle shall be equitably adjusted for share subdivisions, share capitalization, reorganization, and the like, as determined by Administrator. |
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Change In Control: |
If a Change in Control occurs following the Closing Date and before the applicable Vesting Date, provided the Participant is employed by the Service Recipient from the Date of Grant through the consummation of the Change in Control, upon the termination of the Participant’s employment by the Service Recipient without Cause or by reason of the Participant’s death or Disability (as defined in the Plan), in each case, following such Change of Control, each unvested outstanding Unit shall fully vest upon the date of such termination (such date, also a “Vesting Date”) if the consideration received by the Acquiror Shareholders in connection with such Change in Control is greater than or equal to $11.00 per Share. The $11.00 per Share amount shall be equitably adjusted for share subdivisions, share capitalization, reorganization, and the like, as determined by the Administrator. In the event any unvested outstanding Units do not vest in connection with a Change in Control, the treatment of such unvested outstanding Units shall be determined under the terms of the Acquiror Equity Incentive Plan. |
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Settlement Date: |
Except as provided by the Award Agreement, the Settlement Date with respect to each Unit shall be within thirty (30) days of the Vesting Date applicable to such Unit, subject to Section 5 of the the Grant Agreement (each such actual date, the “Settlement Date”). |
Forfeiture upon Expiration: |
If any Units remain outstanding and unvested as of the Expiration Date (the “Expired Units”), such Expired Units shall be forfeited and canceled for no consideration or other payment. |
Lock-up: |
Commencing on the Settlement Date, in addition to any other restriction imposed by federal or state securities or other applicable law, the Participant agrees that sixty percent (60%) of the Shares issued on the Settlement Date in respect of the vested Units (the “Lock-up Shares”) shall be subject to a lock up and the Participant agrees to not transfer, exchange, assign, pledge, hypothecate, encumber or otherwise dispose of such Lock-up Shares (the “Transfer Restrictions”) except as set forth below. The Transfer Restrictions with respect to the Lock-Up Shares shall lapse over the following time periods and with respect to the following amounts of Lock-up Shares: (i) on the 90-day anniversary of the Settlement Date such Transfer Restrictions shall lapse with respect to 50% of the Lock-Up Shares and (ii) on the 180-day anniversary of the Settlement Date such Transfer Restrictions shall lapse with respect to the remaining 50% of the Lock-Up Shares. |
By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Award Agreement and the Plan, both of which are made a part of this document. The Participant acknowledges that copies of the Plan and the Award Agreement are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Award Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
TERRAN ORBITAL CORPORATION |
PARTICIPANT |
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ATTACHMENTS: Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, and the Terran Orbital Corporation Restricted Stock Unit Agreement (Retention RSUs)
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Exhibit 10.14
TERRAN ORBITAL CORPORATION
NOTICE OF GRANT OF RESTRICTED STOCK UNITS
(U.S. Participants - $13.00 Share Price Hurdle)
Terran Orbital Corporation, a Delaware corporation, and any successor thereto (the “Company”), has granted to the Participant an award (the “Award”) of certain units pursuant to the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan (the “Plan”) and the Company’s Restricted Stock Units Agreement (Retention RSUs) (the “Award Agreement”), each of which represents the right to receive on the applicable Settlement Date (as defined below) one (1) Share (as defined in the Plan), as set forth below. Capitalized terms used herein but not otherwise defined shall have the meaning ascribed to such term in the Award Agreement.
Participant: |
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Employee ID: |
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Date of Grant: |
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Total Number of Units: |
(each a “Unit”), subject to adjustment as provided by the Award Agreement. |
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Expiration Date: |
The fifth (5th) anniversary of the Closing Date. |
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Vested Units: |
The vesting of each Unit requires the satisfaction of each of the following conditions (each as defined below): (i) the Closing Condition, (ii) the Time Condition, and (iii) the Share Price Condition. Each Unit will vest and become non-forfeitable on the first date (the “Vesting Date”) on which each of the Closing Condition, the Time Condition and the Share Price Condition have been satisfied with respect to such Unit on or before the Expiration Date, provided that, except as otherwise provided herein or in the Award Agreement, the Participant is employed by the Service Recipient on the applicable Vesting Date: |
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Closing Condition: |
The Closing Condition will be satisfied for the Total Number of Units on the Closing Date. |
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Time Condition: |
The Time Condition will be satisfied for the Total Number of Units by the Participant’s continuous employment by the Service Recipient through the first (1st) anniversary of the Closing Date. |
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Share Price Condition: |
The Share Price Condition will be satisfied with respect to the Total Number of Units as and when the Last Reported Closing Price per Share of $13.00 or greater (the “Share Price Hurdle”) is achieved, for any twenty (20) trading days during any consecutive thirty (30)-day period during the Incentive Period. The Share Price Hurdle shall be equitably adjusted for share subdivisions, share capitalization, reorganization, and the like, as determined by Administrator. |
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Change In Control: |
If a Change in Control occurs following the Closing Date and before the applicable Vesting Date, provided the Participant is employed by the Service Recipient from the Date of Grant through the consummation of the Change in Control, upon the termination of the Participant’s employment by the Service Recipient without Cause or by reason of the Participant’s death or Disability (as defined in the Plan), in each case, following such Change of Control, each unvested outstanding Unit shall fully vest upon the date of such termination (such date, also a “Vesting Date”) if the consideration received by the Acquiror Shareholders in connection with such Change in Control is greater than or equal to $13.00 per Share. The $13.00 per Share amount shall be equitably adjusted for share subdivisions, share capitalization, reorganization, and the like, as determined by the Administrator. In the event any unvested outstanding Units do not vest in connection with a Change in Control, the treatment of such unvested outstanding Units shall be determined under the terms of the Acquiror Equity Incentive Plan. |
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Settlement Date: |
Except as provided by the Award Agreement, the Settlement Date with respect to each Unit shall be within thirty (30) days of the Vesting Date applicable to such Unit, subject to Section 5 of the Grant Agreement (each such actual date, the “Settlement Date”). |
Forfeiture upon Expiration: |
If any Units remain outstanding and unvested as of the Expiration Date (the “Expired Units”), such Expired Units shall be forfeited and canceled for no consideration or other payment. |
Lock-up: |
Commencing on the Settlement Date, in addition to any other restriction imposed by federal or state securities or other applicable law, the Participant agrees that sixty percent (60%) of the Shares issued on the Settlement Date in respect of the vested Units (the “Lock-up Shares”) shall be subject to a lock up and the Participant agrees to not transfer, exchange, assign, pledge, hypothecate, encumber or otherwise dispose of such Lock-up Shares (the “Transfer Restrictions”) except as set forth below. The Transfer Restrictions with respect to the Lock-Up Shares shall lapse over the following time periods and with respect to the following amounts of Lock-up Shares: (i) on the 90-day anniversary of the Settlement Date such Transfer Restrictions shall lapse with respect to 50% of the Lock-Up Shares and (ii) on the 180-day anniversary of the Settlement Date such Transfer Restrictions shall lapse with respect to the remaining 50% of the Lock-Up Shares. |
By their signatures below or by electronic acceptance or authentication in a form authorized by the Company, the Company and the Participant agree that the Award is governed by this Grant Notice and by the provisions of the Award Agreement and the Plan, both of which are made a part of this document. The Participant acknowledges that copies of the Plan and the Award Agreement are available on the Company’s internal web site and may be viewed and printed by the Participant for attachment to the Participant’s copy of this Grant Notice. The Participant represents that the Participant has read and is familiar with the provisions of the Award Agreement and the Plan, and hereby accepts the Award subject to all of their terms and conditions.
TERRAN ORBITAL CORPORATION |
PARTICIPANT |
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ATTACHMENTS: Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, and the Terran Orbital Corporation Restricted Stock Unit Agreement (Retention RSUs)
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Exhibit 10.15
TERRAN ORBITAL CORPORATION
RESTRICTED STOCK UNITS AGREEMENT (Retention RSUs)
(U.S. Participants)
Terran Orbital Corporation, a Delaware corporation (the “Company”), has granted to the Participant named in the Notice of Grant of Restricted Stock Units (the “Grant Notice”) to which this Restricted Stock Units Agreement (Retention RSUs) (this “Agreement”) is attached an Award (as defined in the Plan) consisting of Restricted Stock Units (each a “Unit”) subject to the terms and conditions set forth in the Grant Notice and this Agreement. The Award has been granted pursuant to and shall in all respects be subject to the terms and conditions of the Amended and Restated Terran Orbital Corporation 2014 Equity Incentive Plan, as amended (the “Plan”), the provisions of which are incorporated herein by reference. By signing the Grant Notice, the Participant: (a) acknowledges receipt of and represents that the Participant has read and is familiar with the Grant Notice, this Agreement, and the Plan, (b) accepts the Award subject to all of the terms and conditions of the Grant Notice, this Agreement and the Plan and (c) agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Grant Notice, this Agreement or the Plan.
All questions of interpretation concerning the Grant Notice, this Agreement, the Plan or any other form of agreement or other document employed by the Company in the administration of the Plan or the Award shall be determined by the Administrator. All such determinations by the Administrator shall be final, binding and conclusive upon all persons having an interest in the Award, unless fraudulent or made in bad faith. Any and all actions, decisions and determinations taken or made by the Administrator in the exercise of its discretion pursuant to the Plan or the Award or other agreement thereunder (other than determining questions of interpretation pursuant to the preceding sentence) shall be final, binding and conclusive upon all persons having an interest in the Award. Any person designated by the Board as an officer of the Company (an “Officer”) shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, or election.
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In the event of a Change in Control, the Award shall be subject to and treated as set forth in the Acquiror Incentive Equity Plan and any applicable provisions of the Grant Notice.
The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions or other restrictions (such as transfer restrictions) on all certificates or book entries representing Shares issued pursuant to the Units under this Agreement. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing Shares acquired pursuant to this Award in the possession of the Participant in order to carry out the provisions of this Section.
It is intended that any election, payment or benefit which is made or provided pursuant to or in connection with this Award that may result in compensation that constitutes nonqualified deferred compensation within the meaning of Section 409A (“Section 409A Deferred Compensation”) shall comply in all respects with the applicable requirements of Section 409A of the Code (“Section 409A”) (including applicable regulations or other administrative guidance thereunder, as determined by the Administrator in good faith) to avoid the unfavorable tax consequences provided therein for non‑compliance. In connection with effecting compliance with or an exemption from Section 409A, the following shall apply:
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Exhibit 10.16
TERRAN ORBITAL CORPORATION
AMENDED AND RESTATED 2014 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Amended and Restated 2014 Equity Incentive Plan (the “Plan”) shall have the same defined meanings in this Amended and Restated 2014 Equity Incentive Plan Stock Option Agreement (the “Option Agreement”).
I. NOTICE OF STOCK OPTION GRANT
Name:
Address:
The undersigned Participant has been granted an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows:
Date of Grant:
Vesting Commencement Date:
Exercise Price per Share: $
Total Number of Shares
Subject to the Option:
Total Exercise Price : $
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the following vesting schedule:
Termination Period:
This Option shall be exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above and this Option may be subject to earlier termination as provided in Section 13 of the Plan.
II. AGREEMENT
If designated in the Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”). Further, if for any reason this Option (or portion thereof) shall not qualify as an ISO, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a NSO granted under the Plan. In no event shall the Administrator, the Company or any Parent or Subsidiary or any of their respective employees or directors have any liability to Participant (or any other person) due to the failure of the Option to qualify for any reason as an ISO.
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No Shares shall be issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised with respect to such Shares.
Participant agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred and eighty (180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall be bound by this Section 4.
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(a) cash;
(b) check;
6. Restrictions on Exercise. This Option may not be exercised until such time as the
Plan has been approved by the stockholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any Applicable Law.
7. Non-Transferability of Option.
8. Term of Option. This Option may be exercised only within the term set out in the
Notice of Stock Option Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.
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9. Tax Obligations.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company and Participant. This Option Agreement is governed by the internal substantive laws but not the choice of law rules of California.
11. No Guarantee of Continued Service. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
5
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company upon any change in the residence address indicated below.
PARTICIPANT TERRAN ORBITAL CORPORATION
Signature By
Print Name Print Name
Title
Residence Address
6
Exhibit 10.17
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
EMPLOYMENT AGREEMENT
Terran Orbital Corporation (the “Company”) and [●] (“Executive”) (collectively, the “Parties”) agree to enter into this Employment Agreement (“Agreement”), effective as of [●] (“Effective Date”), as follows:
The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and subject to the conditions set forth in this Agreement.
This Agreement shall become effective, if at all, only upon the Effective Date. The period of Executive’s employment under this Agreement shall begin upon the Start Date (as defined below) and shall continue for a period of five (5) years following the Start Date (the “Expiration Date”), unless terminated in accordance with Section 5 below. As used in this Agreement, (i) “Start Date” means [●] and (ii) the phrase “Employment Term” refers to Executive’s period of employment from the Start Date until the date Executive’s employment is terminated or terminates. Notwithstanding the foregoing, if Executive fails to commence Executive’s employment by the Start Date, this Agreement shall be null and void and the Company will have no obligations to Executive under this Agreement.
Page 1 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Page 2 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Executive’s employment under this Agreement may be terminated under any of the circumstances set forth in this Section 5. Upon termination, Executive (or Executive’s beneficiary or estate, as the case may be) shall be entitled to receive the compensation and benefits described in Section 6 below, and, if applicable, Section 7 below. Upon any termination of employment hereunder, the Company’s acting Facilities Security Officer shall notify Executive’s security clearance sponsor, if any, of Executive’s change in status.
Page 3 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Upon termination of Executive’s employment under this Agreement, Executive (or Executive’s designated beneficiary or estate, as the case may be) shall be entitled to receive the following compensation:
Page 4 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Page 5 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Concurrently with the execution of this Agreement, Executive shall execute a confidentiality agreement with the Company, in the form attached as Exhibit C hereto (the “Confidentiality Agreement”). Executive agrees that during the course of employment with the Company, Executive has and will come into contact with and have access to various forms of confidential information and trade secrets, which are the property of the Company. Executive agrees to comply with terms of any confidentiality, non-disclosure or similar agreements between Executive and the Company and any affiliates.
The Company shall withhold from any compensation and benefits payable under this Agreement all applicable federal, state, local, or other taxes.
Nothing in this Agreement shall be construed as giving Executive any claim against any specific assets of the Company or as imposing any trustee relationship upon the Company in respect of Executive. The Company shall not be required to establish a special or separate fund or to segregate any of its assets in order to provide for the satisfaction of its obligations under this Agreement. Executive’s rights under this Agreement shall be limited to those of an unsecured general creditor of the Company and its affiliates.
Except as otherwise provided in this Agreement, this Agreement shall inure to the benefit of and be binding upon the Parties hereto and their respective heirs, representatives, successors and assigns. The Company agrees that in the event the Company engages in any corporate transaction in which it is not the surviving entity, it will require any successor to the Company to be bound by this Agreement. The rights and benefits of Executive under this Agreement are personal to Executive’s and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; provided, however, that nothing in this Section 11 shall preclude Executive from designating a beneficiary or beneficiaries to receive any benefit payable on Executive’s death.
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Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Other than the Confidentiality Agreement, the Equity Plan and Restricted Stock Unit Agreement and notice of grant of the RSUs, and any other agreements and plans related to any equity granted to Executive by the Company or an affiliate, all of which shall remain in full force and effect, this Agreement, together with all exhibits hereto, shall supersede any and all existing oral or written agreements, representations, or warranties between Executive and the Company or any of its subsidiaries or affiliated entities relating to the terms of Executive’s employment. This Agreement may not be amended except by a written agreement signed by both Parties and, in the case of the Company, signed by an officer or director of the Company.
This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the State of Florida, without giving effect to any conflicts or choice of laws rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction. Any dispute under this Agreement shall be brought in state or federal court in Palm Beach County, Florida. Executive agrees and acknowledges that this is a proper and convenient forum and will not raise objections to this venue based on inconvenient forum, improper venue or similar grounds.
Page 7 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Page 8 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by nationally recognized overnight courier services, by registered or certified mail, return receipt requested, by facsimile or by hand delivery, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others:
To the Company:
[●]
To Executive:
[●]
Page 9 of NUMPAGES \* MERGEFORMAT 11
Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
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Form of Officer Employment Agreement
(Non-NEO, Pre-Merger)
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year set forth below.
TERRAN ORBITAL CORPORATION |
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Name: [●] Title: [●] |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc H. Bell, certify that:
Date: May 16, 2022 |
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By: |
/s/ Marc H. Bell |
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Marc H. Bell |
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Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary A. Hobart, certify that:
Date: May 16, 2022 |
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By: |
/s/ Gary A. Hobart |
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Gary A. Hobart |
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Chief Financial Officer, Executive Vice President and Treasurer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Terran Orbital Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc H. Bell, Chairman and Chief Executive Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 16, 2022 |
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By: |
/s/ Marc H. Bell |
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Marc H. Bell |
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Chairman and Chief Executive Officer |
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of the United States Code and, accordingly, is not being filed with the U.S. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Terran Orbital Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gary A. Hobart, Chief Financial Officer, Executive Vice President and Treasurer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 16, 2022 |
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By: |
/s/ Gary A. Hobart |
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Gary A. Hobart |
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Chief Financial Officer, Executive Vice President and Treasurer |
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of the United States Code and, accordingly, is not being filed with the U.S. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).