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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
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54-1698039
DELAWARE 54-1841164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization of Registrants) Identification Nos.)
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2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(ADDRESS OF REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(703) 406-6000
(Registrants' telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 24
Item 6. Selected Financial Data..................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 25
Item 8. Financial Statements and Supplementary Data................. 32
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 83
PART III
Item 10. Directors and Executive Officers of Registrant.............. 83
Item 11. Executive Compensation...................................... 86
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 87
Item 13. Certain Relationships with Related Transactions............. 88
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 97
Signatures.................................................. 100
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PART I
ITEM 1. BUSINESS
BACKGROUND
ORBCOMM Global, L.P. ("ORBCOMM" or the "Company") is a Delaware limited
partnership formed in 1993 to develop, construct, operate and market the ORBCOMM
system. The general and limited partnership interests in ORBCOMM are held by
each of Orbital Communications Corporation ("OCC"), a Delaware corporation and
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a Delaware general partnership whose interests
are wholly owned on an indirect basis by Teleglobe Inc. ("Teleglobe") and
Technology Resources Industries Bhd. ("TRI"). Through December 31, 1997,
Orbital, through OCC, and Teleglobe and TRI, through Teleglobe Mobile, had
invested in the aggregate approximately $160 million in ORBCOMM.
Orbital, a Delaware corporation, is a U.S.-based space and information
systems company that designs, manufactures, operates and markets a broad range
of space-related products and services, including the manufacture and launch of
the ORBCOMM satellites. Teleglobe is a North American-based overseas
telecommunications carrier whose network and service capabilities (including
voice, data, Internet and value-added services) can be accessed in virtually all
countries. TRI is a Malaysian holding company that controls the largest cellular
operator in Malaysia and has established cellular operations in Bangladesh,
Cambodia and Tanzania.
ORBCOMM has three subsidiaries, ORBCOMM USA, L.P. ("ORBCOMM USA"), a
Delaware limited partnership, ORBCOMM International Partners, L.P. ("ORBCOMM
International"), a Delaware limited partnership, and ORBCOMM Global Capital
Corporation ("Capital"), a Delaware corporation. ORBCOMM holds general and
limited partnership interests with a 98% participation percentage
("Participation Percentage") in each of ORBCOMM USA and ORBCOMM International.
OCC directly holds general and limited partnership interests in ORBCOMM USA with
a 2% Participation Percentage. Teleglobe Mobile directly holds general and
limited partnership interests in ORBCOMM International with a 2% Participation
Percentage. ORBCOMM USA and ORBCOMM International were formed to market services
using the ORBCOMM System in the United States and internationally, respectively.
Capital, a Delaware corporation, was formed in July 1996 to act as a
co-issuer in connection with the private placement (the "Notes Offering") of
$170 million 14% Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). The Old Notes were exchanged in January 1997 for notes that are
substantially similar to the Old Notes except that the new notes (the "Notes")
are registered under the Securities Act of 1933, as amended. The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
non-recourse to the shareholders and/or partners of the guarantors, limited only
to the extent necessary for each such guarantee not to constitute a fraudulent
conveyance under applicable law. Capital has nominal assets and does not conduct
any operations.
ORBCOMM
ORBCOMM provides two-way data and messaging services through the world's
first commercial low-earth orbit ("LEO") satellite-based system. ORBCOMM
believes that it will provide a reliable, cost-effective method of providing
fixed asset monitoring, mobile asset tracking and messaging services to a broad
range of customers around the world, enabling such customers to collect data
from multiple locations, track assets on a global basis and transmit and receive
short text messages outside the coverage area of other systems. ORBCOMM has
launched 12 satellites to date and expects to launch 16 additional satellites by
mid-1998, which will complete its planned 28-satellite "basic" constellation. An
additional eight satellites that will create a 36-satellite "enhanced"
constellation with increased capacity and improved service in equatorial regions
are expected to be launched in the third quarter of 1999.
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Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through two satellites. ORBCOMM expects to offer commercial
service on a broader basis commencing in the spring of 1998, when satellites
launched in late 1997 and early 1998 are expected to begin to be placed in
commercial service. ORBCOMM expects to significantly expand its commercial
services later in the year in the United States and other temperate regions,
when 16 additional satellites are expected to be placed in commercial service.
Service outside the United States will be expanded as the necessary ground
infrastructure is completed and the necessary regulatory approvals are received.
Expanded service in the equatorial regions is expected to be available by the
fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service.
ORBCOMM is targeting specific markets for ORBCOMM services, including those
in which potential customers currently have geographically limited or otherwise
inefficient methods of obtaining information. ORBCOMM's current primary target
markets include: (i) fixed asset monitoring services for electric utility
meters, oil and gas storage tanks, wells and pipelines and environmental
projects; (ii) mobile asset tracking services for commercial vehicles, trailers,
containers, rail cars, heavy equipment, fishing vessels, barges and government
assets; and (iii) messaging services for consumers and commercial and government
entities. Future target markets are expected to include: (i) home security; (ii)
automotive; and (iii) additional U.S. and foreign government applications.
ORBCOMM has made substantial progress toward its goal of full commercial
operation of the ORBCOMM system. ORBCOMM has entered into agreements with over
40 value-added resellers ("VARs"), each of which is authorized to market and
distribute ORBCOMM services within specific regions and to targeted industries
or markets. ORBCOMM has also established two internal value-added resellers
("Internal VARs") to market and distribute monitoring and tracking services to
the oil and gas and transportation industries. In addition, ORBCOMM has entered
into agreements with 13 international licensees ("International Licensees") that
are expected to market and distribute ORBCOMM services in over 95 countries
following completion of the necessary ground infrastructure and receipt of the
necessary regulatory and other approvals in their respective regions. ORBCOMM
has also entered into agreements with six subscriber unit manufacturers, Kyushu
Matsushita Electric Company, Ltd. (also known as "Panasonic"),
Scientific-Atlanta, Inc., also a VAR ("Scientific-Atlanta"), Magellan
Corporation ("Magellan"), Stellar Electronics Ltd. ("Stellar"), Torrey Science
Corporation ("Torrey") and Communications Technology Inc. ("CTI"), and has type
approved ten subscriber unit models for commercial use with the ORBCOMM system.
Four subscriber unit manufacturers have commenced pre-commercial or commercial
production of subscriber units that can be used for electric utility meter, oil
and gas storage tank, well and pipeline and environmental monitoring and
commercial vehicle, trailer, container, rail car, heavy equipment, fishing
vessel and government asset tracking applications.
The ORBCOMM system consists of small and relatively inexpensive satellites
and subscriber units and a relatively low-cost ground infrastructure. ORBCOMM
expects that the aggregate cost to design, develop, launch and place in
commercial service the proposed 36-satellite enhanced constellation and design
and construct the associated ground infrastructure in the United States (the
"U.S. Ground Segment"), which includes an ORBCOMM system gateway (the "U.S.
Gateway") and the master control center for the entire ORBCOMM network (the
"Network Control Center"), will be approximately $332 million, of which
approximately $242 million had been spent through December 31, 1997, excluding
capitalized interest.
Since late December 1997, ORBCOMM has launched ten satellites. To date in
the in-orbit check-out process, certain of these satellites are generating lower
than expected solar power levels, although ORBCOMM anticipates that such power
levels will be sufficient to meet planned service and lifetime requirements, and
certain of these satellites have experienced anomalies in certain radio
transmitters. Orbital and ORBCOMM believe they have determined the causes of the
lower power level and radio transmitter anomalies, which they believe will be
corrected in future ORBCOMM satellites, and are developing procedures to
minimize the effects of and/or bypass the anomalies on the existing in-orbit
ORBCOMM satellites. There can be no assurance that Orbital and ORBCOMM will be
successful in their efforts or, if unsuccessful, that ORBCOMM's commercial
operations would not be adversely affected. See "System Architecture."
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SERVICE OFFERINGS
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world. ORBCOMM intends to integrate the
ORBCOMM system with related applications software and hardware developed by or
for ORBCOMM, International Licensees or third parties that address the needs of
specific industries and market segments.
Fixed Asset Monitoring. ORBCOMM believes its services will provide a means
of collecting data from industrial assets in multiple locations around the
world. Ultimately, ORBCOMM also expects to provide a method of controlling the
functions of such assets. Primary applications currently include or are expected
to include monitoring and control applications for: (i) electric utility meters;
(ii) oil and gas storage tanks and wells; (iii) oil and gas pipelines; and (iv)
environmental projects. Many of the customers for these applications manage
numerous, widely dispersed assets in locations not currently or adequately
served by other systems.
Mobile Asset Tracking. ORBCOMM believes its services will provide a means
to regularly and reliably track the location and report the status or condition
of mobile assets around the world, thereby enabling customers to reduce "down
time", repair costs, theft and other losses, improve service and more
effectively utilize transportation and other equipment assets. Primary
applications currently include or are expected to include tracking and
monitoring applications for: (i) commercial vehicles; (ii) trailers, containers
and rail cars; (iii) heavy equipment; (iv) fishing vessels and barges; and (v)
government assets. Certain of the customers in this market segment have no
efficient means of tracking the location and may have no means of monitoring the
status or condition of their assets.
Messaging. ORBCOMM plans to introduce messaging services in the United
States in the fall of 1998 and thereafter on a global basis as the necessary
ground infrastructure is completed, the necessary regulatory approvals are
received and, in the equatorial region, as additional satellites are launched.
The ORBCOMM system is designed to provide short, alphanumeric paging-like
communications services. ORBCOMM expects that messaging customers will include a
broad range of consumer, commercial and government customers that require a
means of communicating with various locations such as their offices, dispatch
centers or homes or who require the ability to send priority messages or
position information. Certain customers in this market segment currently have no
cost-effective alternatives or rely on pagers, cellular phones or fleet dispatch
systems, all of which services can be expensive, unavailable or inconvenient in
certain locations. ORBCOMM expects that messaging subscriber units that can be
used in the United States and certain other regions will be commercially
available from Magellan in mid-1998.
Future Applications. In addition to the addressable markets described
above for data and messaging services, ORBCOMM believes that future potential
markets include: (i) monitoring applications for home security systems; (ii)
tracking and messaging services for automobiles; and (iii) additional U.S. and
foreign government applications.
BUSINESS STRATEGY
ORBCOMM's business strategy is to provide data and messaging communications
services to customers in fixed asset monitoring, mobile asset tracking and
messaging markets worldwide. These services are being provided through the
world's first commercial LEO satellite-based communications system. Key
components of this strategy include:
Reliable, Global Coverage. ORBCOMM believes that the integration of proven
technologies into the ORBCOMM system and the redundancy provided by the ORBCOMM
constellation will enable ORBCOMM to provide reliable, global, two-way data and
messaging communications services. The distributed nature of the ORBCOMM
satellite constellation is designed to reduce potential risks associated with
the loss or outage of one or more satellites.
First-to-Market Advantage. ORBCOMM began providing limited commercial
service in the United States in February 1996 with two satellites and expects to
have the ability to provide expanded service on a global basis, other than in
equatorial regions, by the fall of 1998 and expanded service on a global basis
by the
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fall of 1999. ORBCOMM's first two satellites, as well an operational U.S.
Gateway and type approved subscriber units, has permitted ORBCOMM to conduct a
significant number of beta tests beginning in the second half of 1997 for
companies in various industries including the heavy equipment, oil and gas and
transportation industries. Based on published reports, ORBCOMM believes that
other Little LEO systems are not expected to be commercially operational until
at least the year 2000. ORBCOMM believes that being first to market with its
Little LEO system provides it with the opportunity to achieve a significant
competitive advantage and therefore a greater market penetration because of its
ability to: (i) establish certain industry standards for hardware and software
applications; (ii) demonstrate the ORBCOMM system in an actual operating
environment; (iii) deploy an installed base of subscriber units; (iv) solidify
customer relationships; and (v) create relationships with leading VARs,
International Licensees, subscriber unit manufacturers and other hardware and
software developers.
Affordable and Convenient Service. ORBCOMM believes that its small and
relatively inexpensive satellites and subscriber units and relatively low-cost
ground infrastructure will enable it to provide customers with affordable and
convenient data and messaging communications services. Each satellite is
designed specifically for the transmission of short messages. This design
eliminates a number of complex and expensive components such as customized spot
beams, on-board switching and high-powered amplifiers that are required on
larger, more complex satellites designed to carry voice, video and data traffic.
The less complex and more compact design of the ORBCOMM satellites (which weigh
approximately 90 pounds each with the exception of the two satellites launched
in April 1995, which weigh approximately 104 pounds each) reduces the cost and
time of production and enables ORBCOMM to launch multiple satellites using a
single, relatively low-cost launch vehicle. As a result of ORBCOMM's relatively
inexpensive satellites and relatively low-cost ground infrastructure, ORBCOMM
believes that it will be in a position to offer affordable services.
Additionally, ORBCOMM subscriber units are small, lightweight and have
substantial battery lives. ORBCOMM believes that as more subscriber units become
commercially available and as the overall production volume for subscriber units
increases, the price for subscriber units will decline.
Global Marketing and Distribution of Services. ORBCOMM intends to target
specific markets for ORBCOMM services, including those in which customers have
geographically limited or otherwise inefficient methods of obtaining information
using other systems. ORBCOMM believes that it can rapidly achieve a global
presence by capitalizing on the customer relationships, technical expertise and
other resources of ORBCOMM's VARs, Internal VARs and International Licensees.
The Internal VARs enable ORBCOMM to broaden its distribution base, to capture
additional revenue from value-added hardware, software and customer services
provided directly to customers and to facilitate the development of application
hardware and software that can hasten market development in the United States
and by the International Licensees.
Commitment and Expertise of Strategic Partners. Through December 31, 1997,
Orbital, Teleglobe and TRI had through OCC and Teleglobe Mobile, respectively,
had invested an aggregate of approximately $160 million in ORBCOMM. Orbital is a
U.S.-based space and information systems company, with 1997 revenues of
approximately $600 million, that designs, manufactures, operates and markets a
broad range of space-related products and services, including satellites, launch
vehicles, electronics and sensor systems, ground systems, satellite-based
navigation and communications products and transportation management systems,
including the manufacture and launch of the ORBCOMM satellites. Teleglobe is a
North American-based overseas telecommunications carrier, with 1997 revenues of
approximately C$2 billion, whose network and service capabilities (including
voice, data, Internet and value-added services) can be accessed in virtually all
countries. TRI is a Malaysian holding company, with revenues of approximately
RM2 billion, that controls the largest cellular operator in Malaysia and has
established cellular operations in Bangladesh, Cambodia and Tanzania. Orbital
and Teleglobe have significant operating, regulatory and marketing experience in
the satellite and communications industries, which has contributed to ORBCOMM
becoming the operator of the first commercial global satellite-based data and
messaging communications system. ORBCOMM has used and will continue to use the
expertise and capabilities of its current partners, including their expertise in
the design, construction and launch of satellites and the marketing and
operation of communications services, to enhance the services offered by the
ORBCOMM system.
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PROJECT MILESTONES
Milestones Achieved to Date
Through March 31, 1998, ORBCOMM has achieved the following milestones:
- Launch of Satellites and Commencement of Commercial Service. In April
1995, ORBCOMM's first two satellites were launched. In February 1996,
after extensive testing, ORBCOMM commenced limited commercial service in
the United States. Since December 1997, an additional ten satellites have
been successfully launched on two separate launch vehicles. These
satellites are undergoing testing and are expected to be available for
commercial service beginning in the spring of 1998.
- VARs. ORBCOMM has entered into agreements with over 40 VARs to provide
services in the United States to various market segments, including the
electric utility meters, oil and gas storage tanks, wells and pipelines,
environmental, commercial vehicles, trailers, containers, rail cars,
heavy equipment, fishing vessels, barges and government market segments.
- Tracking and Monitoring Subscriber Units. ORBCOMM has type approved ten
subscriber unit models for commercial use with the ORBCOMM system. Four
subscriber unit manufacturers have commenced pre-commercial or commercial
production of subscriber units that can be used for electric utility
meter, oil and gas storage tank, well and pipeline and environmental
monitoring and commercial vehicle trailer, container, rail car, heavy
equipment, fishing vessel and government asset tracking applications.
- International Licensees. ORBCOMM has executed agreements with 13
International Licensees (one of which agreements is subject to approval
by the board of directors of the International Licensee) that are
expected to market and distribute ORBCOMM services in over 95 countries.
- Beta Tests. ORBCOMM has completed or is in the process of conducting beta
tests in a variety of market segments including electric utility meter,
oil and gas storage tank, pipeline and environmental monitoring and
trailers, containers, rail cars, heavy equipment and government asset
tracking applications.
- Internal VARs. ORBCOMM is engaged in direct sales activities to customers
through the Internal VARs, which are currently focused on developing
monitoring and tracking applications for use in the oil and gas and
transportation industries. One of the Internal VARs application software
and information systems, that is capable of monitoring oil and gas
storage tanks and wells and is in various stages of beta testing.
- Gateways. The U.S. Ground Segment, including four Gateway Earth Stations,
is operational. The U.S. Gateway will be used to serve the United States,
Canada and Mexico. In March 1998, a Gateway located in Italy successfully
completed acceptance testing. In each of South Korea and Japan, a Gateway
is under construction and is expected to be completed by mid-1998.
ORBCOMM expects that many International Licensees will enter into
agreements to share Gateways.
- Equity and Debt Funding. Through December 31, 1997, ORBCOMM's current
partners had invested an aggregate of $160 million in ORBCOMM. In
addition, in August 1996, ORBCOMM completed the Notes Offering and
received net proceeds of approximately $164 million.
- FCC Authorizations. In October 1994, the Federal Communications
Commission (the "FCC") granted to OCC a license (the "FCC License")
authorizing OCC to construct, deploy and operate 36 LEO satellites in the
United States. In May and June 1995, OCC received FCC authority to
operate the U.S. Gateway and to operate subscriber units in the United
States.
- ITU Allocations. In 1992, certain portions of the radio spectrum were
allocated by the International Telecommunication Union ("ITU") for use by
Little LEO systems such as the ORBCOMM system on an international basis.
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- Canadian and Malaysian Regulatory Approvals. In February 1996, ORBCOMM
Canada Inc. received full regulatory approval to provide ORBCOMM services
in Canada. In March 1998, Celcom Sdn. Bhd. (Celcom) of Malaysia
("Celcom") received full regulatory approval to provide ORBCOMM services
in Malaysia.
Future Milestones
ORBCOMM expects to achieve the following future milestones:
- Launch of Additional Satellites. By mid-1998, ORBCOMM plans to have
launched 16 additional satellites in two planes of eight satellites each
and, by the third quarter 1999, ORBCOMM plans to have launched an
additional plane of eight satellites in an equatorial orbit.
- Messaging Subscriber Units. By mid-1998, ORBCOMM expects that hand-held
subscriber units will be commercially available from Magellan for
messaging services.
- Internal VARs. One of the Internal VARs plans to have a commercial
product capable of tracking trailers and other assets available by
mid-1998.
- International Licensees. By December 1998, ORBCOMM plans to have executed
agreements with several additional International Licensees. During 1998,
ORBCOMM expects that certain of its International Licensees will be able
to offer ORBCOMM services in portions of Europe, Brazil, Japan, Morocco
and South Korea, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals.
- Commencement of Expanded Global Service. In 1998, following the planned
launch and placement in commercial service of 16 additional satellites,
ORBCOMM plans to offer expanded services in the United States and be able
to offer expanded services in other temperate zones on completion of the
necessary ground infrastructure and receipt of the necessary regulatory
and other approvals. In the third quarter of 1999, following the launch
and placement in commercial service of the last eight satellites in the
36-satellite enhanced constellation in an equatorial orbit, ORBCOMM plans
to be able to offer expanded services in equatorial regions, subject to
completion of the necessary ground infrastructure and receipt of the
necessary regulatory and other approvals.
MARKETING AND DISTRIBUTION
ORBCOMM markets its services to customers within the United States
indirectly through VARs and directly through Internal VARs, and internationally
through International Licensees that may distribute ORBCOMM services directly or
through a distribution network.
ORBCOMM's National Account Program, a sales and marketing initiative,
supplements the activities of VARs and Internal VARs by identifying specific
large corporations that are perceived as likely to purchase ORBCOMM services.
The National Account Program and the VAR and Internal VAR activities are
designed as complementary strategies, with the goals of coordinated penetration
of targeted markets and the efficient use of the full range of ORBCOMM services.
VARs. ORBCOMM has entered into agreements with over 40 VARs and is
currently negotiating agreements with prospective VARs. The VARs have primary
responsibility for marketing ORBCOMM services to industries or markets within
specific regions in accordance with a marketing plan and program approved by
ORBCOMM at the time of selection. The VARs are also responsible for developing
applications, retail pricing, customer service, billing, training, customer
support and maintaining an inventory of or having subscriber units available.
ORBCOMM's relationship with a VAR is governed by a reseller agreement that
establishes the VAR's responsibilities with respect to developing and
maintaining customer relationships, as well as the cost of service to the VAR.
In soliciting customers, the VAR "adds value" to the basic data service provided
by ORBCOMM by integrating the ORBCOMM system with related applications software
and hardware in a manner intended to address the needs of a particular industry
or market segment.
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The VARs will provide one or more of ORBCOMM's tracking, monitoring and
messaging services in one or more of the market segments identified by ORBCOMM
within its target markets.
Internal VARs. ORBCOMM also markets and distributes its services directly
to customers through Internal VARs. To date, ORBCOMM has established two
Internal VARs to market and distribute monitoring and tracking services to the
oil and gas and transportation industries. In the future, ORBCOMM may establish
additional Internal VARs to market and distribute applications to the automotive
and other industries and to provide messaging services. The Internal VARs are
working closely with customers to develop and integrate the ORBCOMM system with
related applications and development hardware and software to address the
specific needs of customers in particular industries and market segments.
The Internal VAR for fixed asset monitoring applications has focused
initially on developing applications to monitor oil and gas storage tanks and
wells. The applications developed and to be developed by this Internal VAR
involve the integration of sensors, subscriber units and automation equipment
located in the field with the ORBCOMM system and, eventually, with information
systems centrally located in the offices of customers. These integrated
applications are expected to be used by customers to efficiently and accurately
collect and deliver data from remote assets to central locations and, once
collected, to assist in the management of such data. This Internal VAR has begun
beta testing with several companies in the oil and gas industry and currently
has a commercial product, including application software and information
systems, that is capable of monitoring oil and gas storage tanks and wells. In
the future, this Internal VAR intends to develop monitoring and control
applications for chemical tanks, oil and gas pipelines, agricultural assets,
such as grain silos and irrigation systems, water treatment facilities and
environmental projects.
The Internal VAR for mobile asset tracking applications is currently
developing applications to track assets in the transportation industry. These
applications involve the integration of subscriber units mounted on mobile
assets with the ORBCOMM system and with applications software for use by
customers in conjunction with their existing management information systems.
Applications developed by this Internal VAR may also include a sensor,
particularly in the case of applications developed to track mobile assets with
controlled environments, such as refrigerated trailers, containers and rail
cars. This Internal VAR plans to have a commercial product capable of tracking
trailers and other assets available by mid-1998. In the future, this Internal
VAR may develop applications to track and monitor intermodal power generation
equipment and chassis.
International Licensees. ORBCOMM expects to market and distribute its
services outside the United States through International Licensees. ORBCOMM has
executed agreements with 13 International Licensees (one of which agreements is
subject to approval by the board of directors of the International Licensee)
covering over 95 countries. ORBCOMM continues to negotiate agreements with
potential International Licensees and expects to execute agreements with several
additional International Licensees during 1998.
ORBCOMM's relationship with International Licensees is governed by service
license or similar agreements. Subject to certain limitations, these agreements
grant to the International Licensee, among other things, the exclusive right to
market services using the ORBCOMM satellites in a designated geographic area and
a limited right to use certain ORBCOMM proprietary technologies and intellectual
property. In return, the International Licensees are responsible for, among
other things, procuring and installing the necessary Gateways, obtaining the
necessary regulatory and other approvals to provide ORBCOMM services in their
designated regions and marketing and distributing ORBCOMM services in such
regions. International Licensees generally are required to make the ORBCOMM
system available to VARs in their designated geographic regions on the same
terms as resellers authorized by such International Licensees. These agreements
generally have a ten-year term and provide that the International Licensee may
request an extension of up to ten years, which ORBCOMM may not unreasonably
deny. On the occurrence of certain events of default, the non-defaulting party
may terminate the agreement.
ORBCOMM selects the International Licensees primarily by evaluating their
ability to successfully market and distribute ORBCOMM services. Key components
of such an evaluation include the International Licensee's: (i) reputation in
the marketplace; (ii) existing distribution capabilities and infrastructure;
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(iii) financial condition and other resources; and (iv) ability to obtain the
necessary regulatory and other approvals. International Licensees will pay fees
for access to the ORBCOMM system in their region, including a monthly usage or
service fee. This fee is calculated as the greater of a percentage of gross
operating revenues and a data throughput fee, which percentage and dollar amount
may be adjusted by ORBCOMM in accordance with the terms of the agreements.
Certain International Licensees are entitled to satellite usage fee credits if
ORBCOMM fails to meet certain milestones with respect to the launch of the
ORBCOMM system.
ORBCOMM PRICING
Services. In the United States, pricing of satellite capacity is based on
many variables, including the availability and cost of substitute services, the
cost of providing service and the nature of the customer application. Pricing
generally is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage. In charging for activation, access
and usage, ORBCOMM has developed pricing structures in the United States that it
believes suit the initial markets ORBCOMM is targeting. Additional pricing,
including priority and other messaging pricing, is expected to be developed in
the future as additional satellites in the ORBCOMM system are placed in
commercial service. It is likely that multiple pricing alternatives will be
offered in the United States, including peak/off-peak, volume discounts and
annual contract commitment options. Retail pricing for ORBCOMM services will be
largely outside the control of ORBCOMM and will be established by VARs or
International Licensees or their respective distribution networks.
The pricing of services provided by the Internal VARs will be based on a
pricing structure similar to the VAR pricing structure except that the Internal
VAR pricing structure will generate additional revenues from value-added
software, hardware and services provided to the customer.
Internationally, ORBCOMM earns revenues through license fees paid by, and
through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
International Licensees' gross operating revenues are generally based on a
wholesale pricing structure similar to the prices charged to VARs, which
includes an activation charge, a recurring monthly access charge and a usage
charge.
Subscriber Units. To use ORBCOMM services, customers will need subscriber
units. ORBCOMM has type approved ten subscriber unit models for use with the
ORBCOMM system. Four subscriber unit manufacturers have commenced pre-commercial
or commercial production of subscriber units.
ADDRESSABLE MARKETS
ORBCOMM has defined its "addressable market" as certain market segments
that possess a significant unsatisfied need for, and can afford the products and
services provided by, Little LEO systems. ORBCOMM has identified a number of
industries and industry segments in which a demand currently exists for fixed
asset monitoring, mobile asset tracking and messaging services. ORBCOMM views
these industries and industry segments as its primary target markets.
FIXED ASSET MONITORING
The fixed asset monitoring market segment includes a broad group of
industries that require a means of regularly collecting data from, or in some
cases controlling equipment in, multiple locations. Primary applications include
or are expected to include monitoring and control applications for: (i) electric
utility meters; (ii) oil and gas storage tanks and wells; (iii) oil and gas
pipelines; and (iv) environmental projects.
Electric Utility Meters. The electric utility meter monitoring market
segment includes electric utility meters only and does not include water meters.
Currently, wireline, cellular and paging systems are being used to collect data
from utility meters located in urban and suburban areas, in addition to
traditional manual meter reading. For example, Mobile Telecommunications
Technologies Corp. ("Mtel") recently announced a service agreement with Enron
Energy Services, Inc., under which Mtel will use its system to support meter
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reading and provide services for residential power customers nationwide
primarily in urban areas. The ORBCOMM system is capable of reading electric
utility meters in urban, suburban and rural areas. The ORBCOMM subscriber unit
for utility meter monitoring currently has the capability to read meters and
transmit data relating to usage to a central location. In the future, subscriber
units may be programmed to turn power on and off and identify unauthorized
usage.
Oil and Gas Storage Tanks and Wells. ORBCOMM believes that the oil and gas
storage tank monitoring market segment comprises tanks used, among other things,
in petroleum upstream, crude oil production and retail, wholesale and fleet
motor fuel storage. ORBCOMM believes that its services could be used, among
other things, to monitor tank levels and provide related tank management
services, to assist in inventory management and to aid reporting and compliance
efforts by tank operators. For the monitoring of wells in less remote areas,
private radio systems based on VHF radio frequency, multiple-address radio and
microwave are currently being used to collect data for storage tanks and wells.
These systems have been installed primarily for other communications purposes;
therefore, the incremental cost of monitoring storage tanks and wells is low.
However, asset monitoring based on private radio systems is not cost-effective
in locations where the system cannot be combined with other communications
functions. In addition to recording operations data such as tank level and
leakage information, subscriber units using the ORBCOMM system could be
programmed to operate tank and well valves, oil pumps and gas compressors.
Oil and Gas Pipelines. The oil and gas pipeline monitoring market segment
consists of gas compressors, oil pumps, pipeline rectifiers (which measure
pipeline corrosion), offshore platforms and pipeline valves. For remote and
hard-to-read meters, manual monitoring systems are typically used, which require
personnel to travel to the site to read the meter. ORBCOMM believes that it will
be able to offer a cost-effective means of gathering data from meters located in
remote locations. In addition to recording operations data, subscriber units
could be programmed to operate pipeline, pumps, compressors and valves on a
routine basis, as well as in the event of a leak or other emergency.
Environmental. ORBCOMM believes that the environmental monitoring market
segment comprises numerous sites that monitor meteorological, hydrological and
other environmental data such as rainfall, water levels and water quality. These
sites are located in remote areas not served or inadequately served by wireline
or terrestrial-based wireless communications systems. Based on discussions with
VARs that target the environmental monitoring market, ORBCOMM believes that
there are numerous sites globally that require water and air quality monitoring
devices that measure substances such as bacteria, dissolved oxygen and
concentrations of carbon monoxide and ozone, as well as provide meteorological
data on wind speed and barometric pressure.
MOBILE ASSET TRACKING
ORBCOMM believes that primary applications for mobile asset tracking
include or are expected to include monitoring and tracking of: (i) commercial
vehicles; (ii) trailers, containers and rail cars; (iii) heavy equipment; (iv)
fishing vessels and barges; and (v) government assets. ORBCOMM expects that it
will provide companies in such industries with a cost-effective means to
regularly and reliably track the location and status of assets globally, thereby
enabling customers to reduce asset losses, improve service and more effectively
utilize transportation assets.
Commercial Vehicles. The commercial vehicle market segment includes
medium-weight owned trucks in smaller fleets, as well as medium-weight leased
trucks and heavy-weight trucks, both leased and owned, that need mobile
communications to compete with larger fleets but have been unable to afford the
current service offerings where equipment costs are approximately $3,000 per
unit. Cellular systems (such as the system offered by HighwayMaster
Communications, Inc. ("Highway Master")) can be used to provide tracking of and
communications to trucks; however, geographic coverage is limited. Paging and
narrowband personal communications services ("NPCS") may provide cost-effective
alternatives for these smaller fleets. Paging services currently offer only a
one-way short data link to the vehicle and NPCS is limited in geographic
coverage. ORBCOMM believes that the addressable market also includes
owner-operated vehicles contracted
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to larger, long-haul carriers. Shippers are requiring these carriers to be
equipped with mobile communications, regardless of whether the motor carrier is
using its own fleet of vehicles or contracting out to owner-operators.
Trailers, Containers and Rail Cars. ORBCOMM believes that the addressable
market for trailer tracking services includes: (i) non-refrigerated trailers
belonging to large trucking fleets that need to improve trailer utilization and
operational efficiency; (ii) trailers that carry high-value goods in the medium
and small truck fleet segment; and (iii) refrigerated trailers. Many trailers
(both refrigerated and non-refrigerated) are currently being tracked by a GEO
satellite-based system offered by Qualcomm, Inc. ("Qualcomm") This system
provides seamless coverage, but depends on larger power sources that require the
trailer to be attached to the tractor. As a result, when the trailer is detached
from the tractor, it can no longer be tracked. The GEO satellite-based services
proposed by GE LogistiCom, a GE Capital Services Company ("GE LogistiCom") could
be used to track untethered trailers, although ORBCOMM believes that the
line-of-sight limitations imposed by this system could cause it to be a less
effective tracking method. HighwayMaster has announced its intention to offer a
cellular-based system to track untethered trailers, although this system's
coverage will be limited to the range of cellular communications. Private
trucking fleets may use systems internal to their companies where each trailer's
number is manually recorded as trailers enter and leave a point of distribution.
ORBCOMM believes it will be able to provide a cost-effective means of tracking
untethered trailers based on their current location and will not be constrained
by cellular coverage limitations, significant power source requirements or, in
general, certain line-of-sight limitations of currently available solutions.
ORBCOMM believes that the addressable market for marine and land containers
includes refrigerated containers, containers carrying valuable items subject to
theft (e.g., electronics and cigarettes) and general freight containers that
need to be tracked for security and liability purposes. Currently, intermodal
container transportation systems use manual and radio tag systems to record
containers as they enter and leave distribution facilities. These systems
therefore record only where the container has been. The ORBCOMM system will be
capable of tracking the current location of the asset, as well as monitoring its
status and the condition of its contents.
ORBCOMM believes that the addressable market for rail cars includes rail
cars used to transport high-value cargo (e.g., automobiles, cigarettes,
refrigerated goods and paper rolls) or hazardous cargo comprising bulk
materials. The American Association of Railroads has mandated the use of
automatic equipment identifiers ("AEI") on rail cars. AEI systems consist of a
radio tag mounted on the rail car and a reader that records the identity of the
car as it passes by. AEIs therefore share the same limitations as bar code
systems because they record only where the rail car has been, not its current
location, status or the condition of its contents. The ORBCOMM system will be
capable of tracking the current location of the railcar, as well as monitoring
its status or the condition of its contents.
Heavy Equipment. ORBCOMM believes that the addressable market for heavy
equipment includes equipment used in various large-scale construction,
infrastructure and mining operations. Currently, heavy equipment and machine
diagnostic information is collected manually and provided to equipment
manufacturers and operators for warranty programs and maintenance operations.
ORBCOMM believes that the ORBCOMM system will enable equipment manufacturers and
operators to automatically collect diagnostic information from remote locations
on a more timely and efficient basis.
Fishing Vessels and Barges. ORBCOMM believes that the use of Little LEO
systems such as the ORBCOMM system will provide fishing vessel and barge
operators with cost-effective tracking applications. Fishing vessels usually
remain at sea for extended periods and operate on extremely tight margins and
therefore must carefully control their operating costs. As a result, they need
cost-effective communications systems to meet safety and regulatory requirements
and to exchange commercial and operational information with their offices, fuel
providers, provisioners and packing houses. Commercial deep sea fishing vessels
currently use either high-frequency radio or one of the International Maritime
Satellite Organization ("Inmarsat") services. High-frequency radio is not
considered cost-effective and difficult to use, while use of the Inmarsat system
requires a considerable up-front investment of capital. Commercial fishing
vessels operating in coastal waters may also acquire service from American
Mobile Satellite Corporation ("AMSC") or use cellular telephone service,
particularly in the Gulf of Mexico. The ORBCOMM system is capable of
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providing remote tracking and operational data to a central location from a
fishing vessel anywhere in the world. Given the limitation of AMSC's geographic
coverage and the high cost of cellular roaming, the ORBCOMM system may provide a
more efficient, cost-effective communications service for both deep sea and
coastal fishing vessels.
Government Assets. ORBCOMM believes that use of Little LEO systems such as
the ORBCOMM system will provide government users with cost-effective solutions,
low probability of intercept and detection and worldwide availability. ORBCOMM
expects to compete to provide Little LEO service to the U.S. government,
including in connection with certain programs that have already been announced
by the U.S. government. The U.S. Department of Defense ("DoD") is developing the
Global Transportation Network ("GTN") to track personnel, aircraft and weapon
systems anywhere in the world. Effective military logistics requires location
identification and the ability to communicate tasking instructions. Asset
tracking is required at all locations from rear depots to front-line combat
elements, with integrated communications providing the essential link. The GTN
is a $418 million program that is being developed because no global system
currently exists to satisfy the requirements for tracking the status of assets.
The U.S. military has been relying on manual record keeping to track assets and
this process has recently been supplemented by distributed database systems
communicating over DoD-owned and/or leased lines. Asset tracking is currently
performed at the endpoints of the distribution chain. For this reason, a
misdirected shipment can only be relocated by tracing forward from its most
recent known location, and this can take weeks to accomplish. ORBCOMM believes
its services will provide tracking data on demand or on a scheduled basis for
use by the government for the location of personnel and military equipment.
MESSAGING
ORBCOMM believes that the messaging market segment includes a broad range
of consumer, commercial and government customers. ORBCOMM expects that the
ORBCOMM system will complement existing and planned wireline and
terrestrial-based wireless communications systems by providing coverage in
geographic areas where such services are not offered or by enhancing data
applications currently being offered by such systems. Internationally, ORBCOMM
believes that it will be able to offer services in developing countries or
remote regions where basic telephone service or data and messaging
communications services are not available. With coverage of virtually all of the
Earth's surface when fully operational, ORBCOMM believes that it will be able to
efficiently and cost-effectively offer messaging services in these geographic
areas through the ORBCOMM system.
Consumer. ORBCOMM believes that the addressable market for messaging
applications for consumers includes: (i) consumers who frequently engage in one
or more of the following "back-country" activities: hunting, hiking, camping,
and backpacking; and (ii) boating enthusiasts who enjoy traveling a considerable
distance outside the range of wireline and terrestrial-based wireless
communications systems and whose boats are generally over 26 feet and have
overnight accommodations suitable for extended travel. Recreational boaters
typically use VHF radio and/or cellular telephone where terrestrial-based
wireless communications systems are available. Some individuals rely on
high-frequency radio and a very small number employ Inmarsat services. However,
due to the significant limitations of these alternatives in terms of geographic
coverage or expense, there are few viable communications alternatives currently
available to back-country or boating enthusiasts. The primary market
requirements of these customers are based on a concern for safety and the desire
for a reliable, cost-effective, lightweight, personally portable unit. ORBCOMM
believes that its proposed messaging services and hand-held subscriber units
will enable it to meet these market requirements.
Commercial. ORBCOMM believes that the addressable market for messaging
applications for remote workers includes mobile and remote workers who
frequently use terrestrial-based wireless communications in their jobs but
require the extension of coverage that ORBCOMM believes it will be able to
provide. These workers spend a significant portion of their time away from an
office and require ubiquitous messaging while in remote areas as well as
reliable, cost-effective, lightweight and personally portable units. The
industries typically populated by these workers include: mining, construction,
energy, forestry and utilities. ORBCOMM believes that it can provide these
workers with messaging services through hand-held subscriber units and
laptop-compatible modems.
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Government. ORBCOMM believes that subscriber units will be able to be used
to send command and control messages between military personnel. The Defense
Messaging System ("DMS") is a $1.5 billion project with an annual operating
budget of $45 million designed to provide messaging for the DoD, NATO and
certain civilian agencies. ORBCOMM believes that Little LEO systems would
complement existing and other planned communications services. Today, numerous
independent email systems, including the Autodin system, provide messaging
services throughout the military. Autodin messages are sent between fixed
terminals located throughout the world. ORBCOMM believes that in the DMS
implementation, when the ORBCOMM system is fully operational, it could offer
users the ability to send and receive messages regardless of location.
FUTURE APPLICATIONS
In addition to the current primary target market segments described above
for data and messaging communications services, ORBCOMM believes that with the
commercial operation of its satellite constellation, the ORBCOMM system's
combination of capabilities may stimulate demand in other potential markets.
Home Security Systems. ORBCOMM believes that the ORBCOMM system could be
used for home security monitoring. In addition, units could be used to remotely
turn alarms, lights or home appliances on or off. Security systems have
historically relied on telephone lines for communication with central offices
but such lines can be intentionally disabled. Wireless systems are now being
adopted to eliminate this problem and ensure service quality. The ORBCOMM system
is designed to support messaging to and from central security offices as well as
emergency communications with ambulances, police and other public safely
personnel. ORBCOMM could supplement terrestrial-based wireless systems by
providing communications with security systems in remote areas. ORBCOMM is
continuing to assess this market.
Automotive. ORBCOMM believes that the global remote coverage expected to
be provided by the ORBCOMM system will address private car owners' safety and
security concerns and could complement services such as General Motors'
OnStar(R) and Ford's RESCU(R), each of which relies on the limited coverage of
terrestrial-based wireless communications systems. ORBCOMM also believes that
certain vehicles operating in fleets in and out of remote areas in dispatch mode
have similar safety and security concerns and would also value the ORBCOMM
system's ubiquitous coverage. This segment also includes taxis and special
vehicles such as emergency-response vehicles, regional police, buses, tow
trucks, snowplows and road maintenance vehicles.
U.S. Government. ORBCOMM believes that there are additional DoD programs
that may use the services of Little LEO systems. These programs include: the
Commercial Satellite Communications Initiative, budgeted for $1.6 billion; the
Global Command and Control System, budgeted for $500 million; the Combat Search
and Rescue program to locate downed pilots, budgeted for $220 million; the Air
Mobility Command and Control Information Processing System, budgeted for $210
million; the Mobile Satellite Service program, budgeted for $87 million; and the
Joint Surveillance System, budgeted for $85 million. There are also a number of
civil government applications suitable for Little LEO systems. The Post-FTS 2000
is a program to provide long distance domestic and international wireless
Internet access, data and email to U.S. government civilian agencies. It is a
ten-year contract providing an estimated $300 to $400 million in revenues to
service providers. The existing Post-FTS 2000 provides domestic long distance
calling service to the federal government only. The new contract for service
includes wireless, mobile and international services. The U.S. Departments of
State, Justice and Transportation are also developing wireless email and
messaging programs.
Foreign Governments. Use of Little LEO systems such as the ORBCOMM system
is expected to provide foreign governments with cost-effective applications, low
probability of intercept and detection and worldwide availability. Potential
defense applications include: (i) transmission of GPS-determined position data
for maneuvering units and recovering downed pilots; (ii) transmission of data
for air defense, fire support and asset tracking; and (iii) tactical messaging.
Potential civil government applications include wide-area secure communications,
monitoring and control of natural resources and search and rescue functions.
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SYSTEM ARCHITECTURE
The ORBCOMM system comprises three operational segments: (i) a space
segment consisting of a constellation of 36 LEO satellites; (ii) a ground and
control segment consisting of the Network Control Center that serves as the
global control for the satellites and Gateways, the major elements of which
include Gateway Earth Stations that send signals to and receive signals from the
satellites, and a message switching system that processes the message traffic;
and (iii) a subscriber segment consisting of subscriber units used by customers
to transmit and receive messages to and from satellites.
Overview. To use the ORBCOMM system, an initial message or other data is
generated by a subscriber unit. From that source, the data is transmitted to the
nearest ORBCOMM satellite, which confirms receipt to the unit. The satellite
downlinks the data to the Gateway Earth Station portion of an Gateway, which
then transmits the data to the associated Gateway Control Center. Within the
Gateway Control Center, the data is processed using a combination of
ORBCOMM-developed and commercial email software, and transmitted to its ultimate
destination which may be to another subscriber unit or to a personal or business
address using public/private X.25 data networks, the Internet, text-to-fax
conversion or modems connected to a telephone network. If desired, an
acknowledgment message is returned to the sender. To mitigate design and
implementation risks and to control costs, the ORBCOMM system architecture,
where possible, makes use of existing, mature technologies and conforms to
internationally accepted standards. The ORBCOMM system network architecture
comprises a multi-nodal packet network using X.400 messaging and Time Division
Multiple Access ("TDMA") as the enabling technologies.
Space Segment. The enhanced space segment will consist of a constellation
of 36 LEO satellites comprising: (i) four planes of eight satellites; and (ii)
two planes of two satellites each in highly inclined orbits between
approximately 740 and 825 kilometers above the Earth. Currently, two planes of
two satellites and one plane of eight satellites have been launched. The
satellites are produced by Orbital and generally have been or will be launched
in groups of eight using Orbital's Pegasus launch vehicle. One plane of two
satellites was placed in a high-inclination orbit using a Pegasus launch vehicle
and the other plane of two satellites was launched using a Taurus launch
vehicle.
The satellites are equipped with a VHF communications infrastructure
capable of operation in the 137.0-150.05 MHz and the 400.075-400.125 MHz bands.
The use of the spectrum is managed by an on-board computer that employs an
ORBCOMM-developed Dynamic Channel Activity Assignment System (the "DCAAS"). The
DCAAS continuously scans the authorized spectrum, identifies frequencies in use
and assigns channels to minimize the possibility of interference. The DCAAS is
expected to change the frequency of the uplink random access channels every five
seconds. The ORBCOMM satellites can also transmit a UHF beacon that provides
subscriber unit manufacturers with the ability to supply enhanced,
cost-effective, Doppler positioning.
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Since late December 1997, ORBCOMM has launched ten satellites. While
in-orbit testing to date has confirmed that most satellite systems are
performing normally, certain of these satellites, however, experienced an
anomaly in their solar power system resulting in reduced power margins. ORBCOMM
expects that the power for these satellites will be sufficient to meet planned
service and lifetime requirements. In addition, two satellites have experienced
an anomaly in their subscriber transmitters that currently result in the
inability of such satellites to transmit data to subscriber units. Orbital and
ORBCOMM are attempting to bypass the anomaly so that such satellites can perform
substantially all of their functions, although the coverage footprint of the
affected satellites will be reduced. Orbital and ORBCOMM are also taking similar
action, with a similar effect, to reduce the likelihood that such an anomaly
will occur with respect to the other in-orbit satellites launched since December
1997. Orbital and ORBCOMM believe they have identified the reason for both of
these anomalies and that they are being addressed on future satellites. There
can be no assurance, however, that Orbital and ORBCOMM will be successful in
resolving these anomalies or that similar anomalies will not occur on one or
more of the other eight satellites launched since December 1997 or on future
satellites. The inability to resolve or prevent such anomalies could have a
material adverse effect on ORBCOMM's ability to provide service, financial
condition and results of operations.
With respect to its initial two satellites launched in April 1995, ORBCOMM
has experienced outages of certain electronic systems and subsystems, resulting
in the inability during such outages to process customer communications, as well
as certain other technical difficulties. There can be no assurance that such
systems outages will not continue to occur, that if they do occur that ORBCOMM
will be able to restore such systems or that performance degradation in these
two satellites will not occur.
ORBCOMM has an option to procure a second generation of substantially
similar satellites from Orbital that would replace the system it is now
deploying at the end of the current system's expected life. The option, priced
at $166.1 million (subject to adjustment for inflation and excluding taxes, if
any, and the cost of launch and satellite insurance) can be exercised by ORBCOMM
at any time prior to December 31, 1999. However, such option would only be
exercised by ORBCOMM at the specified price if the satellites for the second
generation will be substantially similar to those of the current system.
The Procurement Agreement with Orbital currently provides for the launch of
34 satellites, of which ten satellites have been launched since December 1997,
and ORBCOMM is currently negotiating a contract modification for the procurement
of a Pegasus launch vehicle to launch an additional eight satellites into an
equatorial orbit. Orbital's Pegasus vehicle is launched from beneath a modified
Lockheed L-1011 owned by Orbital and is capable of deploying satellites weighing
up to 1,000 pounds into LEO. To date, Orbital has conducted 20 Pegasus missions,
with approximately a 90% success rate.
Gateway Earth Stations and the subscriber units comprising the ORBCOMM
system communicate with the satellites in the same band, thus eliminating the
design complexity, as well as the associated mass, power and cost of supporting
multiple radio payloads on a single satellite. The satellite also contains an
intelligent packet-routing capability, including a limited store-and-forward
capability.
Ground and Control Segment. The ground and control segment consists of
Gateways strategically located throughout the world and the facilities to
monitor and manage all network elements to ensure continuous, consistent
operations in the provision of quality service. The role of the Gateway is to
provide access to the space segment and interface to public and private data
networks. The major elements of a Gateway include:
- Gateway Earth Stations, each of which is composed of two radomes, with
enclosed VHF tracking antennae, one of which is redundant, and associated
pedestal, controller and radio equipment;
- a Gateway message switching system located within each Gateway Control
Center, which processes the message traffic and provides the
interconnection to the terrestrial networks; and
- a Gateway management system located within each Gateway Control Center,
which manages the Gateway elements.
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To provide services using the ORBCOMM system in a particular region, an
appropriately located Gateway is required. Gateways cover a circular area with a
radius of approximately 3,300 miles. All elements of the U.S. Gateway are
operational, including four Gateway Earth Stations located in New York, Arizona,
Georgia and Washington and a Gateway Control Center located in Virginia. The
U.S. Gateway will be used to serve the United States, Canada and Mexico. In
March 1998, a Gateway, including one Gateway Earth Station, located in Italy
successfully completed acceptance testing. A Gateway Earth Station has been
constructed in each of South Korea and Japan, with each of the associated
Gateway Control Centers expected to be installed by mid-1998. ORBCOMM expects
that many International Licensees will enter into agreements to share Gateways.
The procurement of each of the existing Gateways located outside the United
States was funded by the relevant International Licensee. ORBCOMM has entered
into and will continue to enter into agreements with International Licensees for
the construction of additional Gateways outside the United States. The cost and
implementation of future Gateways is expected to be borne by the International
Licensees.
The Gateway satellite links have been designed to make use of single uplink
and downlink channels for all ORBCOMM satellites by using a TDMA protocol. This
protocol will permit several Gateways to communicate simultaneously with a
single satellite. The TDMA protocol has several advantages, including the
ability to provide a virtually seamless handover of a satellite from Gateway
Earth Station to Gateway Earth Station under the centralized control of the
Gateway Control Center.
The control segment of the ORBCOMM system is housed at the Network Control
Center. The control segment, includes a network management system, which
monitors the status of all network elements and a space vehicle management
system. Currently, there is no back-up Network Control Center, although the
existing Network Control Center is equipped with back-up hardware, and
associated software is backed up and stored off-site. In addition, the Network
Control Center is equipped with an automatic emergency generator to provide a
backup for normal building power. Requirements have been developed for a back-up
Network Control Center to be constructed in 1999. Through the U.S. Gateway,
managed from the Network Control Center, ORBCOMM has access to the space segment
for command and control purposes, although, consistent with the rules and
regulations of the FCC, OCC maintains ultimate control over the ORBCOMM system.
Subscriber Segment. The subscriber segment consists of various models of
subscriber units, some of which are intended for general use, and some of which
are designed to support specific applications, although even in the case of the
general use subscriber units, the configuration of these units may make them
more or less suitable for certain applications. The subscriber unit models will
include: (i) externally powered subscriber units for fixed applications such as
pipeline monitoring, remote device control or environmental monitoring; (ii)
self-contained, battery- and/or solar-powered subscriber units that would
support applications where commercial or other external power is not available,
including messaging applications; and (iii) vehicular-powered subscriber units
that could be used in asset tracking, cargo monitoring or vehicular operation
monitoring.
The subscriber units targeted for industrial or telemetric applications are
designed to interface with sensors or control devices through an
industry-standard serial interface using a proprietary communications protocol,
developed to take advantage of the packet nature of the ORBCOMM system. The
subscriber units targeted for the messaging market will incorporate interfaces
such as integrated keyboards or touch-sensitive screens. Additionally, while the
ORBCOMM satellites are designed to support Doppler position determination in the
subscriber units, certain subscriber unit models are also equipped with GPS
receivers, permitting more rapid and more accurate location determination.
COMPETITION
Competition in the communications industry is intense, fueled by rapid and
continuous technological advances and alliances between industry participants
seeking to use such advances on an international scale to capture significant
market share. At this time, the ORBCOMM system is the only commercially
operational Little LEO system.
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ORBCOMM commenced limited commercial service in the United States on
February 1, 1996, becoming the first commercial Little LEO mobile satellite
services ("MSS") provider. ORBCOMM believes that commencement of commercial
service provides it with a substantial head start in developing markets,
distribution systems, applications and a customer base globally. ORBCOMM expects
that potential competitors will include other Little LEO systems, including
those that are licensed or expected to be licensed by the FCC in 1998 such as
the systems proposed by Leo One USA Corporation ("Leo One") and Final Analysis
Communication Services, Inc. ("Final Analysis"), certain geosynchronous or
geostationary orbit ("GEO")-based systems, certain terrestrial-based
communications systems and various Big LEO and medium-Earth orbit ("MEO")
systems.
In addition to OCC, two other entities have licenses from the FCC to
provide Little LEO satellite services in the United States. Volunteers in
Technical Assistance ("VITA") has been licensed for one of the two satellites
for which it applied. VITA will use a small amount of uplink and downlink
spectrum to transmit health, research and scientific data on a delayed basis
between developing countries and the United States. In addition, the FCC's
International Bureau recently granted Leo One's second-round application for a
48-satellite system expected to provide a variety of commercial Little LEO
services. The FCC is in the process of completing the licensing of the remaining
second round Little LEO applications. ORBCOMM expects that a total of four
commercial Little LEO systems, and ORBCOMM's second-round application for an
additional 12 satellites, will be licensed by the FCC in 1998 as the FCC
finishes the second processing round.
Based on published reports, ORBCOMM does not believe that any of the other
proposed Little LEO systems currently participating in the second licensing
round before the FCC will be commercially operational until at least the year
2000. ORBCOMM believes that it holds a substantial advantage over these
potential competitors by having already designed, constructed and launched a
fully functional system, by virtue of its having already obtained FCC licensing
for all elements of its system in the United States, and by achieving, in large
part, international coordination of its designated frequencies through the ITU.
Over the course of the next several years, ORBCOMM is expected to obtain further
advantages over these potential competitors by establishing certain standards in
the industry, developing operational expertise, launching the remaining
satellites in the ORBCOMM system, signing agreements with additional subscriber
unit manufacturers, signing reseller agreements, service licenses and similar
agreements with additional marketing entities and expanding its marketing
activities generally as the ORBCOMM system matures.
Plans for Little LEO systems have been announced in Australia, Brazil,
France, Russia, South Korea, Tonga and Uganda, although ORBCOMM believes that,
without additional allocations of spectrum in the United States, these systems
will be unable to offer services in the United States. With the sole exception
of the French candidate system, the ORBCOMM system is protected from harmful
interference from all other systems.
In addition, ORBCOMM believes that it competes in certain of its market
segments with existing operators and users of certain GEO-based systems such as
AMSC, Qualcomm, GE LogistiCom and companies providing services using the
Inmarsat system. AMSC offers SKYCELL mobile data services, both satellite only
and "dual-mode", i.e., satellite and terrestrial, through the public data
network which can reach both densely populated urban areas and sparsely
populated rural areas. AMSC has recently announced that it is acquiring
Motorola's ARDIS two-way terrestrial-based wireless messaging network, which
will complement AMSC's existing satellite-based voice and data communications
services by allowing AMSC to offer a hybrid solution that will have the ability,
among other things, to serve urban areas and to penetrate buildings, which
AMSC's satellite-based system is currently unable to do effectively or at all.
Qualcomm designs, manufactures, distributes and operates the OmniTRACS
Communications System, a satellite-based, two-way mobile communications and
tracking system that provides messaging, position reporting and other services
for transportation companies and other mobile and fixed site customers using
certain GEO satellites. GE LogistiCom has announced plans to offer a trailer
tracking application in North America using the AMSC system. In addition,
various companies using the Inmarsat system are providing fishing vessel and
other marine tracking applications. ORBCOMM believes that the ORBCOMM system has
certain advantages over these other systems including worldwide coverage, lower
equipment costs in most cases and substantially reduced line-of-sight
limitations.
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While the ORBCOMM system is not intended to compete in general with
existing and planned terrestrial-based communications systems, in certain of its
market segments ORBCOMM believes it competes with certain of these systems
including the systems operated by HighwayMaster, ARDIS, RAM Mobile Data and
Mtel. The architecture of these systems may provide certain advantages relative
to the ORBCOMM system, including in-building penetration. HighwayMaster operates
a wireless enhanced services network providing integrated mobile voice, data,
tracking and fleet management information services to trucking fleets and other
operators in the long-haul segment of the transportation industry. The
terrestrial-based wireless systems operated by ARDIS and RAM Mobile Data are
capable of providing geographically limited data communications services to a
variety of end users. Mtel, through its wholly owned subsidiary, SkyTel Corp.
("SkyTel"), provides messaging services in cities in the United States. Mtel is
using its messaging network to provide fixed location services, specifically
utility meter reading in urban areas. Because of the inherent coverage
limitations of a terrestrial-based communications systems, ORBCOMM believes that
the ORBCOMM system will also complement these systems, which provide
cost-effective services primarily in metropolitan areas where subscriber
densities justify construction of radio towers. Such systems generally do not
have sufficient coverage outside metropolitan areas, making them less attractive
to certain market segments. ORBCOMM believes that the ORBCOMM system presents an
attractive complement to tower-based services because it can provide geographic
gap-filler service at affordable costs without the need for additional
infrastructure investment. The ORBCOMM system's ability to serve as a geographic
gap-filler may be reduced, however, as terrestrial-based communications systems
expand their coverage.
The Big LEO and MEO systems are expected to provide real time,
uninterrupted service. These systems are designed primarily to provide two-way
voice services that require larger, more complex satellites than the ORBCOMM
satellites and larger constellations to provide coverage. As a result, the cost
of the Big LEO and MEO systems is significantly greater than those of the
ORBCOMM system. However, the marginal cost on a per-message basis of providing
services similar to those expected to be offered by ORBCOMM could be relatively
low for a Big LEO or MEO System that is unable to sell its capacity for voice
services. Based on publicly available information, Iridium anticipates an
initial service date in September 1998 for a proposed 66-satellite constellation
to provide voice and other communications services at usage charges of
approximately $3.00 per minute plus tail charges (land-line extension charges).
The total system cost is expected to be approximately $3.7 billion. The
Globalstar system is expected to cost approximately $2.2 billion and consists of
a constellation of 48 satellites with wholesale usage charges of approximately
$0.35 to $0.55 per minute. The initial service date for the Globalstar system is
anticipated to be in early 1999. Another satellite system designed primarily to
provide voice communications is the ICO Global Communications System. The ICO
System is expected to cost $4.5 billion and consists of a constellation of MEO
satellites. The ICO System is scheduled to commence full commercial service in
the year 2000.
ORBCOMM may also face competition in the future from companies using new
technologies and new satellite systems. ORBCOMM's business could be adversely
affected if competitors begin operations or existing or new communications
service providers penetrate ORBCOMM's target markets. A number of these new
technologies, even if they are not ultimately successful, could have an adverse
effect on ORBCOMM's financial condition and results of operations.
REGULATION
U.S. FCC Regulation
Regulation of NVNG Systems. All commercial non-voice, non-geosynchronous
("NVNG") satellite systems, or Little LEO systems such as the ORBCOMM system, in
the United States are subject to the regulatory authority of the FCC, which is
the U.S. government agency with jurisdiction over commercial uses of the radio
spectrum. Little LEO operators must obtain authorization from the FCC to launch
and operate their satellites and to operate their satellites to provide services
in assigned spectrum segments.
In January 1993, the FCC allocated spectrum segments for NVNG MSS and
issued a Notice of Proposed Rulemaking to govern the NVNG application process.
In October 1993, the FCC formally adopted
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its rules pertaining to NVNG MSS systems. These rules included provisions
regarding financial qualifications, system size, intersystem coordination and
reporting requirements. These rules were applied to the three applications in
the initial NVNG processing round and each of these three applications
(including OCC's) was approved by the FCC. The ORBCOMM system is currently the
only commercial Little LEO system to be fully licensed for all segments of its
system, including four Gateway Earth Stations and its subscriber units, within
the United States. One of the other two first-round applicants, GE-Starsys
(formerly "Starsys"), has since relinquished its license.
On November 16, 1994, the FCC closed the application filing period for a
second processing round for NVNG applications. As a result of consolidation in
the satellite services industry, the total number of applicants currently
participating in the second round (including OCC) has been reduced from eight to
five. The FCC has indicated that it believes there will be sufficient spectrum
available to enable it to grant the applications, in whole or in part, of each
of the five second-round applicants. On February 13, 1998, one of the
second-round applicants, Leo One, was granted a satellite system license by the
FCC's International Bureau acting on delegated authority.
Regulatory History of the ORBCOMM System. On February 28, 1990, nearly two
years before the ITU allocated spectrum for NVNG systems, OCC filed an
application with the FCC for a Little LEO system. Starsys filed a Little LEO
system application with the FCC several months later, whereupon the FCC
established a cut-off date for the filing of applications to be considered
concurrently with these proposals. A third applicant, VITA, also filed a Little
LEO system application in this initial processing round.
On March 13, 1992 and May 28, 1993, the FCC awarded OCC experimental
licenses to develop and test a limited Little LEO service. These licenses, plus
other licenses previously granted to OCC, permitted the launch of two
satellites, the construction of two ground stations, the development and
production of 1,000 subscriber units and the marketing of revenue-generating
services.
On October 20, 1994, OCC was granted authority by the FCC to construct,
launch and operate an additional 34 satellites located approximately 775
kilometers above Earth, in four inclined orbital and two near-polar planes, for
the purpose of providing two-way data and messaging communications and position
determination services in certain specified segments of the radio frequency
spectrum (the "FCC License"). The FCC License grants OCC the authority to
operate within specified radio frequency spectrum segments for its uplink and
downlink functions. The frequency bands in which the ORBCOMM system is
authorized to operate are as follows:
<TABLE>
<S> <C>
Uplink: 148.0 -- 149.9 MHz
Downlink: 137.0 -- 138.0 MHz and 400.075 -- 400.125 MHz
</TABLE>
The FCC License pertains to private carriage and extends ten years from the
operational date of the first ORBCOMM satellite, FM1, which date was April 3,
1995. The milestone requirements of the FCC License mandate that OCC launch its
first two satellites by December 1998 and its remaining 34 authorized satellites
by December 2000. OCC has already met the first milestone with the launch of its
first two satellites, FM1 and FM2, in April 1995. OCC has set an aggressive
launch schedule for the remaining 24 satellites that, if successful, will result
in OCC reaching the second milestone by the third quarter of 1999. In addition,
OCC is required to apply for a license renewal three years prior to the
expiration of the FCC License. While, based on past experience, ORBCOMM believes
that the FCC generally grants license renewals to existing licensees where the
licensee has satisfied the requirements of the license, there can be no
assurance that OCC's license would be renewed should it apply.
At the time the FCC closed the first round of processing for NVNG
applications, ORBCOMM's application was mutually exclusive with that of Starsys.
In an effort to resolve this mutual exclusivity, the three first-round
applicants met and negotiated a Joint Sharing Proposal, executed on August 7,
1992. Using this Joint Sharing Proposal as a guide, the three first-round
applicants, the FCC, existing users of the same frequency bands and adjacent
bands and other interested parties met as a Negotiated Rulemaking Committee to
address and resolve operational and sharing concerns and to propose technical
rules to resolve them. The current rules, based on the proposals of this
committee, were adopted by the FCC and codified in its
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October 1993 NVNG order. OCC, as well as the other first round applicants, was
permitted to modify its license application in response to the October 1993 NVNG
order.
Under the terms of a coordination agreement between Starsys and OCC, which
was incorporated into the terms of the FCC License, OCC is required to shut down
its left-hand circular polarization ("LHCP") satellite-to-subscriber downlink
channels under certain circumstances when operation of such channels would
interfere with the Starsys system. To further lessen the possibility of
co-polarization interference, OCC also agreed to modify its frequency plan to
locate its LHCP channels in the lower portion of the 137.0-138.0 MHz band. The
FCC imposed these restrictions on OCC's domestic operations but reserved the
right to consider extending these restrictions to OCC's international operations
if notified of actual sharing difficulties between the ORBCOMM system and
Starsys. The FCC License also provides that the ORBCOMM system is permitted to
operate throughout the 148.0-149.9 MHz band until such time as Starsys is
prepared to launch its first satellite. Once Starsys so notified the FCC, or
earlier if required by the FCC, OCC agreed to limit its operations to the upper
half of the 148.0-149.9 MHz band, permitting Starsys to operate its spread
spectrum system in the lower half of the band.
Although Starsys has returned its license to the FCC, under new rules that
took effect January 2, 1998, the FCC anticipates that E-SAT, Inc. ("E-SAT") will
occupy most of the spectrum previously licensed to Starsys. E-SAT may be
entitled to all rights previously granted to Starsys under the Joint Sharing
Proposal. In the final order issued in October 1997 (the "Final Order"), the FCC
indicated that E-SAT will share portions of spectrum with the ORBCOMM system
consistent with the Starsys sharing agreement.
The Final Order contains a provision allowing each of the three commercial
narrowband second-round applicants to have permanent access to approximately 355
kHz of spectrum in the lower portion of the 148.0-149.9 MHz band, thereby
promoting a greater availability of spectrum for second-round applicants while
at the same time protecting to the greatest extent possible a critical portion
of spectrum in the middle of the band for use by E-SAT. This access to
approximately 355 kHz of spectrum in the lower half of the band supersedes the
prior requirement in the FCC License that ORBCOMM discontinue its use of the
lower half of the band once Starsys launches its system.
The Final Order also imposed duty cycle limits on subscriber units
operating in the band 148.0-149.9 MHz. Subscriber units are limited to
transmitting no more than 1% of the time during any 15-minute period and no
transmission may exceed 450 milliseconds. Earth stations are limited to
transmitting no more than 1% of the time during any 15-minute period. ORBCOMM
believes that its services can be provided within this limitation.
The FCC also provided OCC a secondary right to use a portion of the
"transit band" (149.9-150.05 MHz) for feeder links, which right is contingent on
Final Analysis moving its feeder link to another location, which it has
indicated it desires to do. However, before Final Analysis can move its feeder
link, additional spectrum needs to be made available by ITU for the MSS, which
is not likely to happen until at least 1999.
In 1995, the FCC granted OCC licenses to operate four Gateway Earth
Stations in the continental United States and granted OCC a blanket license to
deploy up to 200,000 subscriber units. Currently, the ORBCOMM system is the only
commercial Little LEO system to be fully licensed for all segments of its system
within the United States.
Requests for Modification of FCC License. On October 20, 1995, OCC
submitted to the FCC a request for modification of the FCC License (the
"Modification Request"), proposing to reduce each of the ORBCOMM satellite's
subscriber downlinks operating in the 137-138 MHz band from two to one, while
changing the downlink data rate to a selectable rate of either 4.8 or 9.6 kbps,
which would reduce ORBCOMM's overall bandwidth requirements in the 137-138 MHz
band by 40 kHz, down from 320 kHz to 280 kHz. OCC also proposed to continue to
operate at 4.8 kbps in high-inclination planes, and at 56 kbps in the gateway
downlink on all satellites. Although several of the other second-round
applicants have filed comments with the FCC opposing the Modification Request,
the Modification Request has several advantages for OCC's opponents, as well as
OCC. To the extent that E-SAT will operate in much the same way as
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<PAGE> 22
Starsys would have, the Modification Request would eliminate the need for OCC to
shut down its left-hand circular polarization ("LHCP") when in view of an E-SAT
Earth station and thus obviate many of the restrictions imposed on the ORBCOMM
system under the terms of the FCC License. Moreover, the Modification Request
would free a certain portion of the allocated spectrum for use by other Little
LEO applicants, and the joint sharing proposal reflected in the Final Order
presumes the grant of the Modification Request. The Modification Request would
also facilitate coordination of the ORBCOMM system with Russian meteorological
satellites currently operating in this bandwidth and could facilitate OCC's
coordination efforts with the proposed French S/80-1 satellite system. The
Modification Request has now completed the public comment cycle and OCC has
reached an agreement with the National Oceanic and Atmospheric Administration
("NOAA") with respect to technical matters raised by the Modification Request.
While OCC believes that the Modification Request will be approved shortly, there
can be no assurance that the FCC will do so. Should the FCC fail to approve the
Modification Request, it could have a material adverse effect on the ORBCOMM
system.
OCC has submitted an additional request for modification of the FCC License
to change the orbital altitude of the satellites in the ORBCOMM system from
approximately 775 kilometers to approximately 825 kilometers above Earth and to
launch two of the high inclination satellites to 108 degrees instead of 70
degrees. In December 1997, OCC received a special temporary authority from the
FCC allowing OCC to launch eight satellites to this altitude. In February 1998,
OCC received special temporary authority to launch the two high inclination
satellites to 108 degrees. OCC also plans to launch eight satellites in an
equatorial orbit, which will also require application to the FCC to modify the
FCC License. OCC believes that FCC authority will be received prior to the
scheduled launch.
Second Processing Round. On November 16, 1994, the FCC closed the
application filing period for applications from other proposed NVNG satellite
systems. As noted earlier, there are currently five NVNG applicants in the
second processing round (including OCC), each of which proposes to operate in
all or part of the same frequencies as the ORBCOMM system in the United States.
In its own second-round application, OCC seeks authorization to construct
12 more satellites to improve its high-latitude coverage over Alaska, Canada and
Europe as well as to provide additional capacity and greater in-orbit
redundancy. This proposal would require the FCC to license an additional 70 kHz
of spectrum in the 137-138 MHz downlink to OCC.
The FCC has closed the second processing round for NVNG systems, but so far
has licensed only one of the second-round applicants. On February 13, 1998, the
FCC's International Bureau, acting on delegated authority, granted LEO One's
application for a 48-satellite Little LEO system. ORBCOMM recently filed with
the FCC an Application for Review of the International Bureau's decision. Prior
to the World Radiocommunication Conference held in November 1995 ("WRC-95"), the
FCC noted that there was insufficient spectrum available to license all of the
second-round NVNG applicants, and declined to issue any additional Little LEO
system licenses pending its request for additional spectrum for the Little LEOs
at WRC-95. Significant additional spectrum was not allocated for use by NVNG
services at WRC-95. On October 29, 1996, the FCC issued a Notice of Proposed
Rulemaking (the "Notice") that sets forth proposed rules for the second
licensing round for Little LEO systems. In the Notice, the FCC indicated that
there was sufficient spectrum available for only one to three additional
licensees. Due to the scarcity of spectrum, the FCC proposed to limit the second
processing round to applicants that were not licensed in the first processing
round and are not affiliated with companies licensed in the first processing
round. Nevertheless, in the Final Order the FCC agreed to permit first-round
licensees to participate in the second processing round. The FCC has indicated
that it believes there will be sufficient spectrum available to enable it to
approve the applications, in whole or in part, of each of the five second-round
applicants. Should there prove to be insufficient spectrum available for each of
the five second-round applicants, or if OCC is denied the spectrum it has
requested, it would likely only obtain additional spectrum to provide expansion
capacity for the ORBCOMM system if additional spectrum is subsequently allocated
for use by Little LEO systems. The ITU did not allot any significant additional
spectrum to NVNG systems at the World Radiocommunication Conference held in 1997
("WRC-97").
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OCC believes that the FCC will issue licenses to each of the other
second-round applicants in 1998.
International Regulation
Summary. The ORBCOMM system operates in frequencies that were allocated on
an international basis for use by Little LEO systems at the World Administrative
Radio Conference held in 1992 ("WARC-92"). The United States, on behalf of
various Little LEO service providers, including OCC, pursued international
allocations of additional frequencies for use of Little LEOs at WRC-95 with
limited success, as noted above. The United States also requested additional
frequencies for use by the Little LEOs at WRC-97, which resulted in the
allocation, on a footnote basis, of additional spectrum in the 454-455 MHz band,
which is adjacent to certain additional spectrum that was allocated for use
during WRC-95. In addition to cooperating with these efforts by the United
States to secure additional spectrum for Little LEO systems, OCC was required to
and has in fact, through the FCC, engaged in international coordination
procedures with other countries with respect to other satellite systems under
the aegis of the ITU. OCC has completed these international coordination
procedures, with the exception of those efforts involving France and Russia. OCC
was also required, by the FCC and the U.S. Department of State, to engage in
economic and/or technical coordination with two international satellite systems,
Intelsat and Inmarsat. These coordinations were completed successfully as of
1995. Finally, the ORBCOMM system must receive operational authority from each
of the foreign countries in which it proposes to provide service. It will be the
responsibility of the International Licensee in each country to obtain such
authority.
ITU Spectrum Allocations. The ORBCOMM system operates both in the United
States and internationally using frequencies allocated for Little LEO systems in
the International Table of Frequency Allocations (the "International Table").
The International Table identifies radio frequency segments that have been
designated for specific radio services by the member nations of the ITU. The
International Table is revised periodically at WRCs. Between WRCs, the member
nations of the ITU, in connection with private industry, prepare and propose
recommendations for international allocations to be considered at the next WRC.
Preparatory analyses and recommendations are considered in appropriate technical
study groups for specific topics.
Little LEO systems require use of radio spectrum on a global basis to reach
their full commercial potential. At WARC-92, with the sponsorship of the U.S.
government and a number of other key administrations, major portions of the 137
to 150 MHz band and a narrow portion of the spectrum band at 400 MHz were
allocated on a global basis to Little LEO systems. The specific frequency
allocations for uplink and downlink operations included the following:
<TABLE>
<S> <C>
Uplink: 148.0 -- 149.9 MHz (1.9 MHz on a primary basis)
Downlink: 137.0 -- 138.0 (675 kHz on a primary basis; 325 kHz on a
secondary basis)
400.15 -- 401.00 MHz (850 kHz on a primary basis)
</TABLE>
In addition, 3 MHz of uplink and 3 MHz of downlink frequencies were
allocated on a secondary basis. The band 400.075-400.125 MHz licensed for use by
the ORBCOMM system already was allocated previously on a global basis to Time
and Frequency Standard service and, therefore, was not subject to consideration
at WARC-92. ORBCOMM's planned use of this bandwidth complies with the
regulations governing its use. At WARC-92, a footnote to the Table of
Allocations was adopted providing that MSS uplinks in the band 148-149.9 MHz
would be secondary in more than 100 countries. Earth stations in these countries
would neither be protected from interference, nor permitted to cause
interference to terrestrial services.
A designation of "primary" places the Little LEO systems on an equal
footing with existing users of these frequencies, subject to the provision that
the Little LEO systems not interfere with existing users or constrain their
growth and, with respect to certain countries and certain frequency bands, that
the Little LEO systems not claim protection from existing users. A "secondary"
designation means that the other users of the same frequencies have priority
over the Little LEO systems and are not required to accommodate or avoid
interference with them. The procedures for "coordinating" Little LEO services
with other registered users of the band were established at WARC-92.
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<PAGE> 24
At WRC-95, the U.S. government and other administrations sought an
additional allocation of 6.65 MHz of spectrum for Little LEO systems. This
proposal was largely unsuccessful due to the late identification of candidate
bands. At WRC-97, the U.S. government and other administrations again sought an
additional allocation of spectrum for Little LEO systems, which requests were
again met with only limited success. Consideration of additional bandwidth
allocations is currently scheduled to be on the agenda for the next WRC
scheduled for 1999. There can be no assurance that such additional allocations
will be approved.
Finally, a portion of the "transit band" between 149.9-150.05 MHz and
399.9-400.05 MHz was allocated to Little LEOs effective on January 1, 1997. OCC
has determined, however, that the upper portion of the transit band is not
particularly useful to the ORBCOMM system.
ITU Coordination. The United States, on behalf of OCC, is required to
coordinate the frequencies used by the ORBCOMM system through the ITU. ITU
frequency coordination is a necessary prerequisite to obtaining interference
protection from other NVNG satellite systems. There is no penalty for launching
a satellite system prior to completion of the ITU coordination process, although
protection from interference through this process is afforded only as of the
date of successful completion of the process and notification of the satellite
by the ITU.
The FCC, on behalf of OCC, has notified the ITU that the ORBCOMM system was
placed in service on April 3, 1995 and that it has operated without complaint of
interference since that time. The FCC also informed the ITU that OCC has
successfully completed its coordination with all other administrations except
Russia and France. ORBCOMM believes that the Modification Request would
facilitate its coordination efforts with Russia and could facilitate its
coordination efforts with France. OCC expects that it will successfully complete
the ITU coordination process with Russia and France by December 1998, at which
time the ORBCOMM system will be fully registered with the ITU indicating the
completion of coordination with respect to all satellite systems preceding the
ORBCOMM system. Satellite systems subsequent to the ORBCOMM system must
coordinate with OCC to protect the ORBCOMM system from interference.
ITU coordination is also required for the uplink ground segment of the
ORBCOMM system, but is the responsibility of individual administrations.
Depending on the location of particular ground stations, the applicable
coordination distance specified in the ITU procedures may extend across
international boundaries and require coordination by more than one governmental
authority. For example, two of the four U.S. Earth Stations have a coordination
distance that extends into Canada, and thus required coordination with Canada
prior to ITU notification or registration.
At WRC-95, France proposed a reduction in the threshold for coordination
with terrestrial services, which would require additional coordination of MSS
systems. France raised this proposal again at WRC-97. This proposed change was
not adopted at either WRC-95 or WRC-97, but there can be no assurance that it
will not be proposed and adopted at the next WRC scheduled for 1999, or that, if
adopted, additional coordination requirements would not be imposed on the
ORBCOMM system, to the extent that OCC may not have completed the ITU
coordination process.
Coordination with Intelsat and Inmarsat. Pursuant to the Intelsat treaty,
international satellite operators are required to demonstrate that they will not
cause economic or technical harm to Intelsat. OCC was notified in March 1995
that this coordination with Intelsat had been completed successfully.
The Inmarsat treaty similarly requires both technical and economic harm
coordination. OCC was notified in October 1995 that it had successfully
completed both technical and economic coordination with Inmarsat.
Regulation of Service Providers. Primary responsibility for obtaining
local regulatory approval to offer ORBCOMM system services in countries outside
the United States will reside with the various International Licensees. In all
cases, the proposed International Licensees are private companies, reflecting
the expectation that the ORBCOMM system will be licensed as a value-added
service rather than as a regulated basic service. International Licensees and
proposed International Licensees have had discussions with regulators in certain
major target countries and have advised ORBCOMM that such discussions indicate
that favorable regulatory treatment can be anticipated.
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<PAGE> 25
The process for obtaining regulatory approval in foreign countries
generally conforms to the following process. The International Licensee requests
regulatory approval from the appropriate national regulatory body, which has the
sole authority to grant an operating license. Obtaining such local regulatory
approvals normally requires, among other things, that the International Licensee
demonstrate the absence of interference to other authorized uses of the spectrum
in each country. In some countries, this process may take longer due to heavier
shared use of the applicable frequencies and, in certain other countries, may
require reassignment of some existing users. The national regulatory authority
will be required to associate with the ORBCOMM ITU submission. The national
regulatory authority also will be required to submit so-called Appendix 3
information to the ITU to coordinate and protect ORBCOMM Gateway Earth Stations
in the territory or region from interference by other ground systems in
neighboring countries.
To date, ORBCOMM has executed 13 agreements with International Licensees
covering Canada, Japan, Mexico, the Philippines, South Korea, Turkey and South
Central Asia, Thailand, the Andean/Caribbean region, Europe, the Malaysian
region, the Middle East, the northwest region of North Africa and the southern
cone of South America. Full regulatory approval to provide ORBCOMM services has
been received in Canada and Malaysia and preliminary, experimental or limited
regulatory approvals have been received in Chile, Germany, Italy, Japan, South
Africa, South Korea, Spain and Sweden.
ORBCOMM provides technical and regulatory assistance to its International
Licensees in pursuing operating authority. The assistance provided by ORBCOMM
includes actual in-country demonstrations that the ORBCOMM system can share use
of the allocated spectrum with existing users while neither causing harmful
interference nor constraining operations and growth of those systems. While
International Licensees have been selected, in part, based upon their perceived
qualifications to obtain the requisite foreign regulatory approvals, there can
be no assurance that they will be successful in doing so, and if they are not
successful, ORBCOMM services will not be available in such countries. In
addition, the continued operations of the International Licensees may be subject
to other regulatory requirements or regulatory or other changes in each foreign
jurisdiction.
EMPLOYEES
As of February 27, 1998, ORBCOMM had 251 full-time employees, none of whom
is subject to any collective bargaining agreement. ORBCOMM's management
considers its relations with employees to be good.
ITEM 2. PROPERTIES
ORBCOMM currently leases approximately 45,000 square feet of office space
in Herndon, Virginia, as well as approximately 25,000 square feet of office
space in Dulles, Virginia from Orbital. ORBCOMM also leases approximately 28,000
square feet of additional space at various sites in Virginia and Maryland for,
among other purposes, self-storage, space to assemble certain portions of the
Gateway and for use by employees and a contractor. ORBCOMM currently operates
four Gateway Earth Stations. ORBCOMM owns the properties on which the St. Johns,
Arizona and Arcade, New York Gateway Earth Stations are located and leases,
subject to long-term lease agreements, the properties on which the Ocilla,
Georgia and East Wenatchee, Washington Gateway Earth Stations are located.
ITEM 3. LEGAL PROCEEDINGS
ORBCOMM is not a party to any pending legal proceedings material to its
financial condition or results of operations. For a discussion of regulatory
issues affecting regulatory issues affecting ORBCOMM, see
"ORBCOMM -- Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
ORBCOMM is a Delaware limited partnership that is owned 50% by OCC and 50%
by Teleglobe Mobile. There is no public trading market for any class of common
equity of ORBCOMM. To date, no cash dividends have been paid by ORBCOMM to
either OCC or Teleglobe Mobile and ORBCOMM does not intend to do so in the near
future.
There are no distributions required to be made to the partners of ORBCOMM
other than a minimum annual distribution required by the Restated Agreement of
Limited Partnership of ORBCOMM Global, L.P. (the "Partnership Agreement") in the
amount of (i) 40%, multiplied by the lesser of (a) such partners distributive
share of the Company's taxable income for the preceding year, and (b) the
excess, if any, of cumulative Net Income (as defined) over cumulative Net Loss
(as defined) allocated to such partner since the inception of ORBCOMM. All other
distributions are to be made at the discretion of the partners. Pursuant to the
covenants contained in the Indenture dated August 7, 1996 among ORBCOMM,
Capital, certain affiliate guarantors and Marine Midland Bank (the "Indenture")
governing the Notes, no additional cash distributions are permitted to be made
to the partners of the Company other that those distributions that satisfy the
requirements of the various limitations on "Restricted Payments" contained in
the Indenture.
ITEM 6. SELECTED FINANCIAL DATA
The following selected income and expense data of ORBCOMM for the years
ended December 31, 1993, 1994, 1995, 1996 and 1997 and the selected balance
sheet data of ORBCOMM as of December 31, 1993, 1994, 1995, 1996 and 1997 have
been derived from the audited financial statements of ORBCOMM. The selected
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of ORBCOMM and notes thereto included elsewhere in this
report. SINCE ORBCOMM ACCOUNTS FOR ITS OWNERSHIP IN BOTH ORBCOMM USA AND ORBCOMM
INTERNATIONAL USING THE EQUITY METHOD OF ACCOUNTING, REFERENCE IS MADE TO THE
FINANCIAL STATEMENTS OF ORBCOMM USA AND ORBCOMM INTERNATIONAL LOCATED ELSEWHERE
IN THIS REPORT.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
-----------------------------------------------
1993 1994 1995 1996 1997
---- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE DATA: (1)
Total revenues (2)......................... $0 $ 0 $ 900(3) $ 420 $ 527
Cost of product sales...................... 0 0 0 268 517
Depreciation............................... 0 0 0 6,198 7,348
Engineering expenses (4)................... 0 0 0 5,453 8,160
Marketing, administrative and other
expenses................................. 0 9 50 6,933 12,070
Equity earnings (losses) of affiliates
(5)...................................... 0 0 (854) (4,602) (8,413)
Interest income (expense), net............. 0 0 59 3,554 4,545
-- --- ----- -------- --------
Net income (loss).......................... $0 $(9) $ 55 $(19,480) $(31,436)
== === ===== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
(IN THOUSANDS)
--------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments
(6)....................................... $ 0 $ 5,000 $ 1,785 $153,482 $ 38,862
ORBCOMM system, net (7)..................... 43,925 68,647 106,990 170,034 263,379
Total assets................................ 47,665 73,647 109,030 329,509 316,969
Total long-term debt........................ 0 5,000 4,174 173,269 172,277
Partners' capital........................... 47,665 58,509 94,601 137,942 106,418
</TABLE>
24
<PAGE> 27
- ------------------------------
(1) For the period June 30, 1993 (date of inception) through December 31, 1994,
there were no significant income and expense transactions.
(2) The Company is a development stage enterprise and has had no significant
system revenues.
(3) Represents a non-refundable fee received from a potential International
Licensee.
(4) Prior to 1996, ORBCOMM capitalized substantially all engineering expenses as
part of the total costs of the ORBCOMM system.
(5) The Company accounts for its investments in ORBCOMM USA and ORBCOMM
International using the equity method of accounting.
(6) Includes U.S. government securities pledged as security for repayment of
principal and interest on the Notes (the "Pledged Securities") of $21.5
million and $44.8 million as of December 31, 1997 and 1996, respectively,
and the amount in a segregated account related to a Loan and Security
Agreement dated December 22, 1994 between MetLife Capital Corporation
("MetLife") and ORBCOMM (the "MetLife Note") of $2.8 million and $3.8
million as of December 31, 1997 and 1996, respectively.
(7) Represents the aggregate costs of the satellite constellation design,
construction and launch services, design and construction of the U.S. Ground
Segment, insurance and other system costs, including capitalized interest,
net of accumulated depreciation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In 1993, ORBCOMM was formed by Orbital, acting through OCC, and Teleglobe,
acting through Teleglobe Mobile. Each of OCC and Teleglobe Mobile acquired and
currently owns a 50% interest in ORBCOMM, with TRI (through TR (U.S.A.) Ltd.)
now holding a 30% interest in Teleglobe Mobile. Concurrently with the formation
of the Company, OCC and Teleglobe Mobile formed two marketing partnerships,
ORBCOMM USA and ORBCOMM International (collectively, the "Marketing
Partnerships"), with the exclusive right to market services using the Company's
LEO satellite communications system in the United States and internationally,
respectively. The Company is a 98% general partner in each of the Marketing
Partnerships, while OCC and Teleglobe Mobile control the remaining 2% of ORBCOMM
USA and ORBCOMM International, respectively. OCC retains control over the FCC
License and the ORBCOMM system, consistent with FCC regulations.
Through December 31, 1997, Orbital, through OCC, and Teleglobe and TRI,
through Teleglobe Mobile, had invested in the aggregate approximately $160
million in ORBCOMM. In addition, on August 7, 1996, ORBCOMM and Capital
completed the Notes Offering of the Old Notes. In January 1997, all of the Old
Notes were exchanged for the Notes. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International, except that the guarantees are non-recourse to the
shareholders and/or partners of the guarantors, limited only to the extent
necessary for each such guarantee not to constitute a fraudulent conveyance
under applicable law.
ORBCOMM provides two-way data and messaging services through the world's
first commercial LEO satellite-based communications system. ORBCOMM's current
primary target markets include: (i) fixed asset monitoring services for electric
utility meters, oil and gas storage tanks, wells and pipelines and environmental
projects; (ii) mobile asset tracking services for commercial vehicles, trailers,
containers, rail cars, heavy equipment, fishing vessels, barges and government
assets; and (iii) messaging services for consumers and commercial and government
entities. Future target markets are expected to include: (i) home security; (ii)
automotive; and (iii) additional U.S. and foreign government applications.
ORBCOMM has entered into agreements with over 40 VARs, each of which is
authorized to market and distribute ORBCOMM services within specific regions and
to targeted industries or markets. ORBCOMM has also established two Internal
VARs to market and distribute monitoring and tracking services to the oil and
gas and transportation industries. In addition, ORBCOMM has entered into
agreements with 13 International Licensees that are expected to market and
distribute ORBCOMM services in over 95 countries following completion of the
necessary ground infrastructure and receipt of the necessary regulatory and
other approvals in their respective regions. ORBCOMM has also entered into
agreements with six subscriber unit manufacturers, Panasonic,
Scientific-Atlanta, Magellan, Stellar, Torrey and CTI, and has type approved ten
subscriber unit models for commercial use with the ORBCOMM system. Four
subscriber unit manufacturers have commenced pre-commercial or commercial
production of subscriber units that can be used for electric utility meter, oil
and gas storage tank, well and pipeline and environmental monitoring and
commercial vehicle, trailer, container, rail car, heavy equipment, fishing
vessel and government asset tracking applications.
25
<PAGE> 28
ORGANIZATIONAL STRUCTURE; FINANCIAL REPORTING
Pursuant to the terms of the partnership agreements for ORBCOMM and the
Marketing Partnerships: (i) OCC and Teleglobe Mobile share equal responsibility
for the operational and financial affairs of ORBCOMM; (ii) OCC controls the
operational and financial affairs of ORBCOMM USA; and (iii) Teleglobe Mobile
controls the operational and financial affairs of ORBCOMM International. Since
OCC and Teleglobe Mobile have effective control over ORBCOMM USA and ORBCOMM
International, respectively, ORBCOMM accounts for the Marketing Partnerships
using the equity method of accounting. ORBCOMM does not consolidate, and
therefore does not report in its financial statements, ORBCOMM USA's and ORBCOMM
International's assets, liabilities and operating revenues and expenses.
Instead, ORBCOMM's proportionate share of the net income and losses of the
Marketing Partnerships is recorded under the caption "Equity in losses of
affiliates" in ORBCOMM's financial statements. Correspondingly, ORBCOMM's
investment in the Marketing Partnerships is carried at cost, subsequently
adjusted for the proportionate share of net income and losses, additional
capital contributions and distributions under the caption "Investments in and
advances to affiliates." Investors are encouraged to refer to the financial
statements of both ORBCOMM USA and ORBCOMM International included elsewhere in
this report.
ORBCOMM USA pays to OCC an output capacity charge ("Output Capacity
Charge") that is a quarterly fee equal to 23% of ORBCOMM USA's total service
revenues for such calendar quarter in exchange for the exclusive right to
market, sell, lease and franchise all ORBCOMM system output capacity in the
United States and exclusive use of the tangible assets (including software)
located in the United States to be delivered to the Company pursuant to certain
procurement agreements (the "System Assets"). In consideration of the
construction and financing of the System Assets by ORBCOMM, OCC, in turn, pays
to ORBCOMM a system charge that is a quarterly fee equal to the Output Capacity
Charge less 1.15% of total aggregate revenues, defined as the aggregate of
ORBCOMM USA's and ORBCOMM International's total system service revenues ("Total
Aggregate Revenues"). If the Output Capacity Charge as described above is less
than 1.15% of Total Aggregate Revenues, then OCC is not required to pay any
portion of the system charge to ORBCOMM.
ORBCOMM International pays to Teleglobe Mobile an international output
capacity charge ("International Output Capacity Charge") that is a quarterly fee
equal to 23% of ORBCOMM International's total service revenues for such calendar
quarter in exchange for the exclusive right to market, sell, lease and franchise
all ORBCOMM System output capacity outside the United States. In consideration
of the grant by ORBCOMM to Teleglobe Mobile of the exclusive right to market,
sell, lease and franchise all ORBCOMM System output capacity outside the United
States, Teleglobe Mobile, in turn, pays to ORBCOMM a system charge that is a
quarterly fee equal to the International Output Capacity Charge less 1.15% of
Total Aggregate Revenues. If the International Output Capacity Charge as
described above is less than 1.15% of Total Aggregate Revenues, Teleglobe Mobile
is not required to pay any portion of the system charge to ORBCOMM.
SERVICE ROLL-OUT
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world, enabling such customers to
collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. ORBCOMM has launched 12 satellites to date and expects to launch 16
additional satellites by mid-1998, which will complete its planned 28-satellite
basic constellation. An additional eight satellites that will create a
36-satellite enhanced constellation with increased capacity and improved service
in equatorial regions are expected to be launched in the third quarter of 1999.
Since early 1996, ORBCOMM has been providing limited commercial services in
the United States through two satellites. ORBCOMM expects to offer commercial
service on a broader basis commencing in the spring of 1998, when satellites
launched in late 1997 and early 1998 are expected to begin to be placed in
26
<PAGE> 29
commercial service. ORBCOMM expects to significantly expand its commercial
services later in the year to provide expanded service in the United States and
other temperate regions, when 16 additional satellites are expected to be placed
in commercial service. Service outside the United States will be expanded as the
necessary ground infrastructure is completed and the necessary regulatory
approvals are received. Expanded service in the equatorial regions is expected
to be available by the fall of 1999, when the final eight satellites of the
planned 36-satellite enhanced constellation are scheduled to be placed in
commercial service.
The U.S. Ground Segment, including four Gateway Earth Stations, is
operational. In March 1998, a Gateway located in Italy successfully completed
acceptance testing. In each of South Korea and Japan, a Gateway is under
construction and is expected to be completed by mid-1998. During 1998, ORBCOMM
expects that certain of its International Licensees will be able to offer
ORBCOMM services in portions of Europe, Brazil, Japan, Morocco and South Korea,
subject to completion of the necessary ground infrastructure and receipt of the
necessary regulatory and other approvals.
REVENUES
Domestically, ORBCOMM generates revenues from the direct sale of satellite
capacity to VARs, which sales to date have been primarily for resale to beta
test customers. The pricing of satellite capacity is based on many variables,
including the availability and cost of substitute services, the cost of
providing service and the nature of the customer application. Pricing generally
is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage.
ORBCOMM expects that beginning in 1998 it will also generate revenues from
the sale of data and messaging communications services and applications
developed and distributed by Internal VARs. The pricing of services provided by
the Internal VARs will be based on a pricing structure similar to the VAR
pricing structure except that the Internal VAR pricing structure will generate
additional revenues from value-added software, hardware and services provided to
the customer.
ORBCOMM has on occasion purchased and recently entered into an agreement,
and may enter into additional agreements in the future, to purchase subscriber
units for resale. In the past, ORBCOMM has not generated substantial revenues
from the sale of subscriber units.
Internationally, ORBCOMM generates revenues through license fees paid by,
and through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
International Licensees' gross operating revenues are based on a wholesale
pricing structure similar to the prices charged to VARs, which includes an
activation charge, a recurring monthly access charge and a usage charge. On
execution of a service license or similar agreement, an International Licensee
purchases a Gateway or Gateway components from ORBCOMM pursuant to a Gateway
procurement contract or arranges to share a Gateway with an International
Licensee that is in close proximity. Cash received under the Gateway procurement
contracts is generally accounted for as deferred revenues and recognized when
the Gateway has successfully completed acceptance testing. License fees from
service license or similar agreements are generally accounted for as deferred
revenues and recognized over the term of the agreements or when ORBCOMM's
obligations under the agreements are substantially complete.
OPERATING EXPENSES
ORBCOMM owns and operates the assets that comprise the ORBCOMM system other
than the FCC License (which is held by OCC, with certain contractual rights
relating thereto granted to ORBCOMM). Satellite-based communications systems are
characterized by high initial capital expenditures and relatively low marginal
costs for providing service. ORBCOMM has been depreciating certain of its assets
beginning in 1996, when commercial operation of the ORBCOMM system began. Cost
of products sold consists of the sale of subscriber units. ORBCOMM has agreed to
pay to Magellan a subsidy for each Magellan subscriber unit sold through March
1999, up to an aggregate of $2.4 million. Additionally, ORBCOMM incurs
engineering expenses related to the development and operation of the ORBCOMM
system and marketing, administrative
27
<PAGE> 30
and other expenses related to the operation of the ORBCOMM system. ORBCOMM has
also incurred nominal expenses related to the development of Internal VARs which
are included in marketing expenses. ORBCOMM anticipates that its expenses
related to the continued development and operation of the Internal VARs
(including the development of applications for customers) will increase
substantially as ORBCOMM expands the marketing and distribution efforts of the
Internal VARs.
RESULTS OF OPERATIONS -- ORBCOMM
ORBCOMM commenced limited commercial service in the United States in
February 1996 and has generated nominal revenues and substantial negative cash
flows to date. ORBCOMM's activities have focused primarily on the acquisition of
U.S. regulatory approvals for the operation of the ORBCOMM system, the design,
construction and launch of satellites, the design and construction of associated
ground network and operating systems (including associated software), the
development of subscriber unit manufacturing sources, the negotiation of
agreements with International Licensees, the hiring of key personnel, the
negotiation of agreements with VARs, the development of Internal VARs, the
development of customer software and hardware applications and preliminary
marketing and sales activities associated with ORBCOMM's limited commercial
operations to date.
Income. In 1995, ORBCOMM received a nonrefundable distribution fee from a
potential International Licensee. ORBCOMM recognized this nonrefundable
distribution fee over the term of the relevant agreement. No such fees were
received in earlier periods or during the years ended December 31, 1997 and
1996.
In late 1994, ORBCOMM received the MetLife Note to help finance a portion
of the ORBCOMM system. In addition, in August 1996, ORBCOMM closed the Notes
Offering. The proceeds from the sale of the Old Notes are invested primarily in
short-term government securities, with certain restrictions attached to all of
the investment portfolio. In January 1997, the Old Notes were exchanged for the
Notes. ORBCOMM recognized interest income (excluding interest expenses of
$833,000, $307,000 and $0) on the invested portion of the MetLife Note and the
proceeds of the Notes Offering of $5.4 million, $3.8 million and $59,000,
respectively, for the years ended December 31, 1997, 1996 and 1995.
Expenses. As discussed above, ORBCOMM is in its development stage and does
not anticipate emerging from the development stage until the fall of 1998.
During the construction phase of the ORBCOMM system, ORBCOMM has capitalized all
construction costs, consisting primarily of satellites, launch vehicles and the
U.S. Ground Segment acquired from Orbital. Research and development expenses and
selling, general and administrative costs have been expensed in the period
incurred. Interest expense where appropriate, related to the MetLife Note, the
Old Notes and the Notes has been capitalized as part of the historical cost of
the ORBCOMM system.
ORBCOMM incurred $12.0 million, $6.9 million and $50,000 of marketing,
administrative and other expenses for the years ended December 31, 1997, 1996
and 1995, respectively. ORBCOMM incurred $8.2 million and $5.5 million of
ORBCOMM system engineering expenses for the years ended December 31, 1997 and
1996 (none for the year ended December 31, 1995). ORBCOMM is capitalizing a
portion of engineering direct labor costs that relates to hardware and system
design development and coding of the software products that enhance the
operation of the ORBCOMM system. ORBCOMM also incurred $7.3 million and $6.2
million in ORBCOMM system depreciation expense for the years ended December 31,
1997 and 1996, as the ORBCOMM system became available for commercial service in
early 1996 (none for the year ended December 31, 1995).
Equity in Earnings (Losses) of Affiliates. ORBCOMM recognized its share of
ORBCOMM USA's and ORBCOMM International's losses, consisting primarily of
marketing expenses. As of December 31, 1997, 1996 and 1995, ORBCOMM recognized
$8.4 million, $4.6 million and $854,000 of such losses, respectively. ORBCOMM
USA and ORBCOMM International each formally began their marketing efforts in
1995 in anticipation of commercial service in 1996.
28
<PAGE> 31
RESULTS OF OPERATION -- ORBCOMM USA
Income. In 1995 and 1994, ORBCOMM USA performed marketing activities for
the U.S. market pursuant to a contract with OCC (the "System Charge Agreement"),
whereby OCC reimbursed ORBCOMM USA for all marketing costs incurred.
Accordingly, ORBCOMM USA recognized contract revenues of $1.4 million and $2.1
million for the years ended December 31, 1995 and 1994, respectively. The U.S.
marketing service portion of the System Charge Agreement expired in 1995.
ORBCOMM USA also recognized revenues relating to the provision of products and
services of $172,000 and $240,000 for the years ended December 31, 1997 and
1996, respectively. The cost of product sales associated with revenues was
$383,000 and $262,000, respectively.
Expenses. ORBCOMM USA incurred $5.2 million and $2.9 million of marketing
expenses for the years ended December 31, 1997 and 1996, respectively. Pursuant
to the System Charge Agreement, ORBCOMM USA incurred contract marketing expenses
of $1.4 million and $2.1 million for the years ended December 31, 1995 and 1994,
respectively.
RESULTS OF OPERATION -- ORBCOMM INTERNATIONAL
Expenses. ORBCOMM International incurred $3.1 million and $1.7 million of
marketing expenses for the years ended December 31, 1997 and 1996, respectively
(none for the year ended December 31, 1995).
Service License or Similar Agreements. ORBCOMM International has signed 13
service license or similar agreements with International Licensees, ten of which
have associated gateway procurement contracts and software license agreements.
These agreements authorize the International Licensees to use the ORBCOMM System
to provide two-way data and messaging communications services. As of December
31, 1997 and 1996, $13.3 million and $6.1 million, respectively, had been
received under these agreements and the associated Gateway procurement
agreements and recorded as deferred revenue. ORBCOMM International is obligated
to ship ten Gateways under certain of these agreements.
SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM system
comprising data of ORBCOMM, ORBCOMM USA and ORBCOMM International for the year
ended December 31, 1997. Such supplemental data should be read in conjunction
with the financial statements of ORBCOMM, ORBCOMM USA and ORBCOMM International,
and the notes thereto are located elsewhere in this report.
SUPPLEMENTAL DATA
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM ELIMINATION
ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
-------- ------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total revenue(1)............... $ 527 $ 172 $ 56 $(487) $ 268
Interest income (expense),
net.......................... 4,545 (2) 0 0 4,545
Expenses....................... 28,095 (3) 5,556 3,256 487 36,420
Earnings (loss) before interest
and taxes.................... (27,568)(4) (5,384) (3,200) (36,152)
Net income (loss).............. (23,023)(4) (5,384) (3,200) (31,607)
Capital expenditures........... 100,693 (5) 0 0 100,693
</TABLE>
29
<PAGE> 32
SUPPLEMENTAL DATA
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
-------- ------- ------------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $16,106 $ 0 $ 0 $ 16,106
ORBCOMM system, net............................. 263,379 0 0 263,379
Total debt...................................... 172,277 0 0 172,277
Subscriber units(6)............................. 0 537 343 880
</TABLE>
- ------------------------------
(1) As development-stage companies, none of ORBCOMM, ORBCOMM USA, and ORBCOMM
International has had any significant operating revenues for the year ended
December 31, 1997.
(2) Net of $833,000 of amortization of deferred financing fees.
(3) Includes depreciation expenses of $7.3 million. Interest expense of $24.1
million was capitalized in 1997.
(4) Excludes equity in losses of affiliates of $8.4 million.
(5) Represents capital expenditures, principally for the construction of the
space and ground network system elements.
(6) Represents units that either generate revenues or are used in beta testing.
These units do not include units that are used for demonstration purposes.
LIQUIDITY AND CAPITAL RESOURCES
ORBCOMM is a development stage enterprise and has incurred cumulative net
losses from inception. ORBCOMM has financed its operations to date primarily
with capital contributions from its current partners and through financing
activities. For the year ended December 31, 1997, net cash provided by operating
activities was $4.1 million primarily as a result of a net loss, excluding
non-cash charges for depreciation, amortization and equity in losses of
affiliates, of $14.8 million, offset by an increase in accounts payable to
Orbital and other accrued liabilities of $19.9 million. As of December 31, 1997,
cash and investments had been reduced by $114.6 million, which decrease was
attributable to capital expenditures, operating expenses, interest payments and
an increase in accounts payable to Orbital under the Procurement Agreement as a
result of the achievement of milestones under the Procurement Agreement,
including the launch of eight satellites in December 1997. As of December 31,
1997, ORBCOMM International had also received $3.7 million under service license
or similar agreements and $9.6 million under Gateway procurement agreements that
are recorded as deferred revenue.
Cash flows used in investing activities for the year ended December 31,
1997 were $43.6 million primarily as a result of additional capital
expenditures, advances to affiliates and purchases and sales of securities. In
1997, ORBCOMM invested $100.7 million, including $24.1 million of capitalized
interest, for design, development and construction of satellites, launch
services, and design and construction of the U.S. Ground Segment. In addition,
ORBCOMM advanced an additional $16.4 million to ORBCOMM USA and ORBCOMM
International to support their marketing activities. This use of cash was
partially offset by $73.8 million of net proceeds of the sale of securities. For
the years ended December 31, 1996 and 1995, $167.4 million and $39.0 million
respectively, were used in investing activities, primarily for capital
expenditures and purchases and sales of securities. In 1996 and 1995, ORBCOMM
invested $69.2 million and $39.3 million, respectively, in capital expenditures.
In 1996 and 1995, investing activities also included $96.5 million and $0,
respectively, of cash used to purchase securities (net of proceeds).
Cash flows used in financing activities for the fiscal year ended December
31, 1997 were $1.2 million, $992,000 of which was used to repay a portion of the
principal of the MetLife Note. Cash flows related to financing activities for
the fiscal years ended December 31, 1996 and 1995, resulted in increases of
$225.3 million and $35.2 million, respectively. These increases reflect
additional partners' contributions of $62.7 million and $38.1 million in 1996
and 1995, respectively, and net proceeds of approximately $164.5 million from
the Notes Offering in 1996.
30
<PAGE> 33
Expected future uses of cash include continued hiring of employees, capital
expenditures related to the completion of the ORBCOMM constellation, debt
servicing and working capital requirements. In addition, ORBCOMM intends to
continue to increase marketing and product development expenditures in
anticipation of expanded commercial operations. The total cost of the
36-satellite enhanced constellation is expected to be approximately $332.0
million. Of this amount, $244.0 million is for the design, development and
construction of the satellite constellation and launch services, $39.0 million
is for the design and construction of the U.S. Ground Segment, $17.0 million is
for insurance and approximately $32.0 million is for other system costs such as
engineering and billing system costs. Through December 31, 1997, $242.4 million
had been spent for the ORBCOMM system, excluding a total of $34.5 million of
interest expenses that have been capitalized. The foregoing information reflects
ORBCOMM's current estimate of its funding requirements for the ORBCOMM system.
Actual amounts may vary from such estimates for a variety of reasons, including
delays or launch or satellite failures.
ORBCOMM expects to continue to generate negative cash flows through all of
1998 and at least a portion of 1999. ORBCOMM expects that a portion of its cash
requirements will be met through cash expected to be generated from operations.
ORBCOMM's ability to generate significant revenues is subject to numerous
uncertainties. In 1998, ORBCOMM expects to receive additional cash payments
related to certain milestones under agreements with International Licensees.
ORBCOMM's service and equipment contracts are U.S. dollar-based and do not
generate foreign currency risk. ORBCOMM partners' capital contributions,
together with the net proceeds of the Notes Offering and the MetLife Note and
cash expected to be generated from operations are expected to enable ORBCOMM to
meet its financial obligations through mid-1998. During the first half of 1998,
OCC and Teleglobe Mobile are expected to provide ORBCOMM with up to an
additional $30.0 million in capital contributions or debt financing expressly
subordinated to the Notes. Additionally, Orbital has and indicated that it will
continue to defer invoicing of certain amounts otherwise due under the
Procurement Agreement until other sources of financing are secured by ORBCOMM.
ORBCOMM expects to require additional capital in 1998 and may seek to raise
such additional capital through additional contributions or loans from its
current partners, other equity or debt financings or operating lease
arrangements or ORBCOMM may seek to enter into strategic arrangements. There can
be no assurance, however, that debt or equity financing or operating lease
arrangements will be available and, if so, that it will be available on terms
acceptable to ORBCOMM or that strategic arrangements will be possible and, if
so, that they will be possible on terms acceptable to ORBCOMM.
ORBCOMM has made a preliminary assessment of potential "Year 2000" issues
with respect to various computer-related systems. ORBCOMM has developed an
initial corrective action plan that includes reprogramming impacted software
when appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. ORBCOMM
currently expects that identified "Year 2000" impacted systems will be corrected
by the end of 1998, although there can be no assurance that the company has
identified all "Year 2000" impacted systems or that its corrective action plan
will be timely and successful. ORBCOMM believes that the costs to correct its
systems will not materially affect its results of operations or its financial
condition. In addition, ORBCOMM has not received any indication to date that the
impact of "Year 2000" issues on its customers and suppliers will have a material
adverse effect on ORBCOMM.
ORBCOMM is a development stage enterprise. Many statements in this Report
are not historical and are forward looking in nature. Examples of such forward
looking statements include statements concerning ORBCOMM's operations,
prospects, markets, technical capabilities, funding needs, financing sources,
pricing, launch and commercial service schedules and cash flows, as well as
information concerning future regulatory approvals, expected characteristics of
competing systems and expected actions of third parties such as equipment
suppliers, International Licensees and VARs. These forward looking statements
are inherently predictive and speculative and no assurance can be given that any
of such statements will prove to be correct. Actual results and developments may
be materially different from those expressed or implied by such statements.
31
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ORBCOMM GLOBAL, L.P.
Independent Auditors' Report.............................. 33
Balance Sheets as of December 31, 1997 and 1996........... 34
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995 and Total Accumulated During
Development Stage through December 31, 1997............ 35
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995 and Total Cash Flows During
Development Stage through December 31, 1997............ 36
Statements of Partners' Capital for the period June 30,
1993 (date of inception) to December 31, 1997.......... 37
Notes to Financial Statements............................. 38
ORBCOMM USA, L.P.
Independent Auditors' Report.............................. 45
Balance Sheets as of December 31, 1997 and 1996........... 46
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995 and Total Accumulated During
Development Stage through December 31, 1997............ 47
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995 and Total Cash Flows During
Development Stage through December 31, 1997............ 48
Statements of Partners' Capital for the period June 30,
1993 (date of inception) to December 31, 1997.......... 49
Notes to Financial Statements............................. 50
ORBCOMM INTERNATIONAL PARTNERS, L.P.
Independent Auditors' Report.............................. 53
Balance Sheets as of December 31, 1997 and 1996........... 54
Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995 and Total Accumulated During
Development Stage through December 31, 1997............ 55
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995 and Total Cash Flows During
Development Stage through December 31, 1997............ 56
Statements of Partners' Capital for the period June 30,
1993 (date of inception) to December 31, 1997.......... 57
Notes to Financial Statements............................. 58
ORBITAL COMMUNICATIONS CORPORATION
Independent Auditors' Report.............................. 61
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... 62
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995...................... 63
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... 64
Consolidated Statement of Stockholders' Deficit for the
Years Ended December 31, 1994, 1995, 1996, and 1997.... 65
Notes to Consolidated Financial Statements................ 66
TELEGLOBE MOBILE PARTNERS
Independent Auditors' Report.............................. 72
Independent Auditors' Report.............................. 73
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... 74
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995 and Total Accumulated
During Development Stage through December 31, 1997..... 75
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995 and Total Cash Flows
During Development Stage through December 31, 1997..... 76
Consolidated Statements of Partners' Capital for the
period July 21, 1993 (date of inception) to December
31, 1997............................................... 77
Notes to Consolidated Financial Statements................ 78
</TABLE>
32
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying balance sheets of ORBCOMM Global, L.P.
("ORBCOMM") (a development stage enterprise) as of December 31, 1997 and 1996,
and the related statements of operations, partners' capital, and cash flows for
each of the years in the three-year period ended December 31, 1997, and for the
period from June 30, 1993 (date of inception) through December 31, 1997. These
financial statements are the responsibility of ORBCOMM's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM (a development stage
enterprise) as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1997, and for the period from June 30, 1993 (date of inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 5, 1998
33
<PAGE> 36
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 16,106 $ 56,870
Investments............................................... 22,756 54,769
Other receivables......................................... 1,931 753
Inventory................................................. 2,160 1,751
-------- --------
Total Current Assets................................... 42,953 114,143
Investments................................................. 0 41,843
Other receivables........................................... 0 517
ORBCOMM System, net......................................... 263,379 170,034
Other assets, net........................................... 5,527 6,138
Investments in and advances to affiliates................... 4,777 (3,166)
Investment in ORBCOMM Japan................................. 333 0
-------- --------
TOTAL ASSETS...................................... $316,969 $329,509
======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt......................... $ 1,087 $ 991
Accounts payable -- Orbital Sciences Corporation.......... 21,100 4,648
Other accounts payable and accrued liabilities............ 17,174 13,650
-------- --------
Total Current Liabilities.............................. 39,361 19,289
Long-term debt............................................ 171,190 172,278
-------- --------
Total Liabilities...................................... 210,551 191,567
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. 57,834 73,596
Orbital Communications Corporation........................ 48,584 64,346
-------- --------
Total Partners' Capital................................ 106,418 137,942
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $316,969 $329,509
======== ========
</TABLE>
See accompanying notes to the financial statements
34
<PAGE> 37
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1997 1996 1995 1997
-------- -------- ----- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales...................................... $ 517 $ 268 $ 0 $ 785
Distribution fees.................................. 0 100 900 1,000
Other.............................................. 10 52 0 62
-------- -------- ----- --------
Total revenues.................................. 527 420 900 1,847
EXPENSES:
Costs of product sales............................. 517 268 0 785
Depreciation....................................... 7,348 6,198 0 13,546
Engineering expenses............................... 8,160 5,453 0 13,613
Marketing, administrative and other expenses....... 12,070 6,933 50 19,062
-------- -------- ----- --------
Total expenses.................................. 28,095 18,852 50 47,006
-------- -------- ----- --------
Income (loss) from operations................... (27,568) (18,432) 850 (45,159)
OTHER INCOME AND EXPENSES:
Interest income, net of interest expenses of $833,
$307 and $0, respectively....................... 4,545 3,554 59 8,158
Equity in losses of affiliates..................... (8,413) (4,602) (854) (13,869)
-------- -------- ----- --------
NET INCOME (LOSS).................................... $(31,436) $(19,480) $ 55 $(50,870)
======== ======== ===== ========
</TABLE>
See accompanying notes to the financial statements
35
<PAGE> 38
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1997 1996 1995 1997
--------- --------- -------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ (31,436) $ (19,480) $ 55 $ (50,870)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Depreciation.................................. 7,348 6,198 0 13,546
Amortization of financing fees................ 833 307 0 1,140
Equity in losses of affiliates................ 8,413 4,602 854 13,869
Increase in other receivables................. (661) (1,270) 0 (1,931)
Increase in inventory......................... (409) (1,304) (447) (2,160)
Increase in accounts payable -- Orbital
Sciences Corporation....................... 16,452 573 1,788 21,100
Increase (decrease) in other accounts payable
and accrued liabilities.................... 3,524 7,471 (1,670) 17,174
--------- --------- -------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................ 4,064 (2,903) 580 11,868
--------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (100,693) (69,242) (38,343) (276,925)
Increase in amount due from affiliates........ (16,356) (1,608) (661) (18,625)
Investment in ORBCOMM Japan................... (333) 0 0 (333)
Purchase of investments....................... (47,125) (136,532) 0 (183,657)
Proceeds from sale of investments............. 120,893 40,007 0 160,900
--------- --------- -------- ---------
NET CASH USED IN INVESTING
ACTIVITIES.......................... (43,614) (167,375) (39,004) (318,640)
--------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
debt....................................... 0 164,475 0 169,475
Repayment of long-term debt................... (992) (905) (825) (2,722)
Partners' contributions....................... 0 62,733 38,065 159,800
Financing fees paid........................... (222) (940) (2,031) (3,675)
--------- --------- -------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................ (1,214) 225,363 35,209 322,878
--------- --------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... (40,764) 55,085 (3,215) 16,106
CASH AND CASH EQUIVALENTS:
Beginning of period........................... 56,870 1,785 5,000 0
--------- --------- -------- ---------
CASH AND CASH EQUIVALENTS:
End of period................................. $ 16,106 $ 56,870 $ 1,785 $ 16,106
========= ========= ======== =========
</TABLE>
See accompanying notes to the financial statements
36
<PAGE> 39
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS
PARTNERS CORPORATION TOTAL
--------- -------------- --------
<S> <C> <C> <C>
Capital contributions................................... $ 10,000 $ 38,149 $ 48,149
Net income (loss)....................................... 0 0 0
Financing fees.......................................... (242) (242) (484)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993...................... 9,758 37,907 47,665
Capital contributions................................... 0 10,853 10,853
Net loss................................................ (4) (5) (9)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994...................... 9,754 48,755 58,509
Capital contributions................................... 24,750 13,315 38,065
Net income.............................................. 27 28 55
Financing fees.......................................... (1,014) (1,014) (2,028)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995...................... 33,517 61,084 94,601
Capital contributions................................... 49,775 12,958 62,733
Net loss................................................ (9,740) (9,740) (19,480)
Unrealized gains on investments, net.................... 44 44 88
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996...................... 73,596 64,346 137,942
Net loss................................................ (15,718) (15,718) (31,436)
Unrealized losses on investments, net................... (44) (44) (88)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997...................... $ 57,834 $ 48,584 $106,418
======== ======== ========
</TABLE>
See accompanying notes to the financial statements
37
<PAGE> 40
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. OCC and Teleglobe Mobile each holds
a 50% partnership interest in the Company, with the result that the approval of
both OCC and Teleglobe Mobile is generally necessary for the Company to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely. Simultaneously, the
Company became a 98% general partner in ORBCOMM International, reducing
Teleglobe Mobile's direct partnership interest to 2% and eliminating OCC's
direct partnership interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some are designed to support specific
applications.
The System Charge
OCC is obligated to pay to the Company a system charge that is equal to 23%
of ORBCOMM USA's total service revenues (the "Output Capacity Charge") less
1.15% of total aggregate revenues, defined as the aggregate of ORBCOMM USA's and
ORBCOMM International's total system service revenues ("Total Aggregate
Revenues") for a calendar quarter in consideration of the construction and
financing of the ORBCOMM System assets by the Company. Teleglobe Mobile is
obligated to pay to the Company a system charge that is equal to 23% of ORBCOMM
International's its total service revenues (the "International Output Capacity
Charge") less 1.15% of Total Aggregate Revenues for a calendar quarter in
consideration of the Company's grant to Teleglobe Mobile of the right to market,
sell, lease and franchise all ORBCOMM System output capacity outside the United
States. If the Output Capacity Charge as described above is less than 1.15% of
Total Aggregate Revenues, then OCC is not required to pay any portion of the
system charge to ORBCOMM. If the International Output Capacity Charge as
described above is less than 1.15% of Total Aggregate Revenues, then Teleglobe
Mobile is not required to pay any portion of the system charge to ORBCOMM.
38
<PAGE> 41
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is in its development stage, devoting substantially all of its
efforts to establishing a new data and messaging communications business. The
Company's planned principal operations are expected to commence in the fall of
1998. The accompanying financial statements have been prepared on the accrual
basis of accounting in conformity with generally accepted accounting principles
in the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Recoverability of Long-Lived Assets
The Company depreciates its operational assets over the estimated economic
useful life using the straight-line method as follows:
<TABLE>
<S> <C>
Space Segment Assets: estimated life of the constellation
Ground Segment Assets: 10 years
Furniture and Equipment: 3 to 10 years
</TABLE>
The ORBCOMM System, which includes the worldwide network control center
(including the satellite management system), the U.S. Gateway and two
satellites, was placed into service at the beginning of 1996, at which time
ORBCOMM began depreciating those assets.
The Company's policy is to review its long-lived assets, including its
satellite systems, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
Company recognizes impairment losses when the sum of the expected future cash
flows is less than the carrying amount of the assets. Given the inherent
technical and commercial risks within the space communications industry, it is
possible that the Company's current estimate for recovery of the carrying amount
of its assets may change.
Investments in Affiliates
Pursuant to the terms of ORBCOMM USA's and ORBCOMM International's
partnership agreements, OCC controls the operational and financial affairs of
ORBCOMM USA and Teleglobe Mobile controls the operational and financial affairs
of ORBCOMM International. The Company, however, significantly influences both
marketing partnerships. Accordingly, the Company is accounting for its
investments in ORBCOMM USA and ORBCOMM International using the equity method of
accounting.
39
<PAGE> 42
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Pursuant to the equity method of accounting, the Company's carrying amount
of an investment is initially recorded at cost and is increased to reflect its
share of the affiliate's income, and is reduced to reflect its share of the
affiliate's losses. The Company's investment is also increased to reflect
contributions to, and reduced to reflect distributions from, such affiliates.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
Investments
The Company maintains two investment portfolios characterized by
management's intentions as to future investment activity. Investments classified
as "held-to-maturity" are not intended to be sold prior to maturity and are
carried at cost. Investments not intended to be held until maturity or traded to
capitalize on market gains are classified as "available-for-sale" and are
carried at fair value with temporary unrealized gains (losses) charged directly
to partners' capital. Investments maturing after one year are classified as
long-term investments. The Company uses the average cost method in determining
the basis of investments sold when computing realized gains (losses).
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and represents subscriber communicators
available for sale to customers.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents, receivables,
and accounts payables approximates fair value since all such instruments are
short-term in nature. Fair value for the Company's long-term debt is determined
based on quoted market rates. At December 31, 1997 and 1996, the fair value for
the long-term debt approximated market value.
ORBCOMM System Under Construction
During the construction of the ORBCOMM System, the Company is capitalizing
substantially all construction costs. The Company also is capitalizing a portion
of the engineering direct labor costs that relate to hardware and system design
development and coding of the software products that enhance the operation of
the ORBCOMM System. As of December 31, 1997 and 1996, $4,641,000 and $1,244,000,
respectively, of such costs have been capitalized, (none as of December 31,
1995). Interest expenses of $24,060,000, $10,030,000 and $426,000 have been
capitalized as a part of the historical cost of the ORBCOMM System for the years
ended December 31, 1997, 1996 and 1995, respectively.
40
<PAGE> 43
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Partners' Capital
In accordance with the Partnership Agreement, Teleglobe Mobile and OCC are
both general and limited partners in the Company. Therefore, limited and general
partner accounts are combined into one single capital account and presented as
such in the balance sheets and statements of partners' capital.
Revenue Recognition
Revenues are generally recognized when products are shipped or when
customers have accepted the products, depending on contractual terms. Service
revenues are generally recognized as such services are rendered. Distribution
fees and license fees from service license or similar agreements are recognized
ratably over the term of the agreements, or when ORBCOMM's obligations under the
agreements are substantially completed.
Reclassification of Prior Years Balances
Certain amounts in the prior years financial statements have been
reclassified to conform with the current year presentation.
(3) INVESTMENTS
Included in cash and cash equivalents is $5,420,000 and $54,527,000 of
commercial paper as of December 31, 1997 and 1996, respectively. The fair value
of the commercial paper approximates carrying value.
The following table sets forth the aggregate costs and fair values and
gross unrealized gains (losses) of available-for-sale investments as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
(IN THOUSANDS) (IN THOUSANDS)
-------------------------------- ---------------------------------
UNREALIZED UNREALIZED
GAINS GAINS
COST (LOSSES) FAIR VALUE COST (LOSSES) FAIR VALUE
------ ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
U.S. Treasury Notes.......................... $ 0 $0 $ 0 $21,152 $54 $21,206
Commercial Paper............................. 1,278 0 1,278 10,229 (2) 10,227
------ -- ------ ------- --- -------
Total short-term investments............... 1,278 0 1,278 31,381 52 31,433
------ -- ------ ------- --- -------
LONG-TERM
U.S. Treasury Notes, maturing 2-5 years...... 0 0 0 20,329 36 20,365
------ -- ------ ------- --- -------
Total available-for-sale investments....... $1,278 $0 $1,278 $51,710 $88 $51,798
====== == ====== ======= === =======
</TABLE>
41
<PAGE> 44
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
The following table sets forth the aggregate cost and fair values of
held-to-maturity investments as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
(IN THOUSANDS) (IN THOUSANDS)
--------------------------------- ---------------------------------
UNREALIZED UNREALIZED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
U.S. Treasury Notes......................... $21,478 $1,841 $23,319 $23,336 $ 525 $23,861
LONG-TERM
U.S. Treasury Notes, maturing 2-5 years..... 0 0 0 21,478 542 22,020
------- ------ ------- ------- ------ -------
Total held-to-maturity investments........ $21,478 $1,841 $23,319 $44,814 $1,067 $45,881
======= ====== ======= ======= ====== =======
</TABLE>
Unrealized gains on held-to-maturity investments represent accrued interest
income as of December 31, 1997 and 1996, respectively.
(4) RELATED PARTY TRANSACTIONS
ORBCOMM paid Orbital $41,843,000, $56,177,000 and approximately $38,000,000
for the periods ended December 31, 1997, 1996 and 1995, respectively. Payments
were made for work performed pursuant to the ORBCOMM System Design, Development,
and Operations Agreement, the ORBCOMM System Procurement Agreement and the
Administrative Services Agreement (for provision of ongoing support to ORBCOMM).
In 1995, pursuant to the terms of the ORBCOMM System Design, Development
and Operations Agreement, the Company reimbursed OCC $1,375,000 for costs
previously incurred in obtaining the FCC License and other related costs. The
Company capitalized such costs as part of the ORBCOMM System.
Certain provisions of the Partnership Agreement require ORBCOMM to
reimburse OCC for OCC's repurchase of shares of OCC common stock acquired
pursuant to the OCC 1992 Stock Option Plan ("Stock Option Plan"). During 1997
and 1996, ORBCOMM reimbursed OCC approximately $598,000 and $1,100,000,
respectively, under the Stock Option Plan (none in 1995). In 1996, Orbital
contributed approximately $100,000 to OCC to repurchase such shares (none in
1997 and 1995).
(5) ORBCOMM SYSTEM
The ORBCOMM System comprises the following assets:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------------
1997 1996
-------- --------
<S> <C> <C>
Space segment........................................ $234,110 $142,678
Ground segment....................................... 42,815 33,554
-------- --------
Total................................................ 276,925 176,232
Less accumulated depreciation........................ (13,546) (6,198)
-------- --------
Total, net of depreciation........................... $263,379 $170,034
======== ========
</TABLE>
42
<PAGE> 45
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, the Company used
$44,800,000 of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this investment
portfolio, $23,300,000 was used to pay interest that was due on the Notes on
February 15, and August 15, 1997.
The Company also has a $5,000,000 secured note with a financial institution
of which $2,277,000 is outstanding. The note bears interest at 9.2% per annum
and is due in monthly principal and interest installments of $104,000 through
December 1999. The note is secured by equipment located at certain of the U.S.
gateway Earth stations and the network control center, and is guaranteed by
Orbital. A portion of the net proceeds from the offering of the Old Notes,
sufficient to pay when due all remaining interest and principal payments on this
note, was deposited into a segregated account.
System Procurement Agreement
Pursuant to the System Procurement Agreement with Orbital, the Company's
remaining obligation to purchase satellites, launch services and the ground
system is approximately $49,600,000 over the next two years.
Lease Commitments
In November 1997, ORBCOMM entered into a five-year operating lease
agreement for approximately 46,000 square feet of additional office space.
ORBCOMM has an option to renew the lease for another five-year period
immediately upon the expiration of the original operating lease. Rental expense
for 1997, 1996 and 1995 amounted to $825,000, $393,000, and $48,000,
respectively, which was paid to Orbital as part of the Administrative Services
Agreement. Rental expense to third parties amounted to $126,000 in 1997. The
future minimum rental payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
PERIODS IN THOUSANDS
------- ------------
<S> <C>
1998........................................................ $ 978
1999........................................................ 1,007
2000........................................................ 1,038
2001........................................................ 1,062
2002........................................................ 1,094
Thereafter.................................................. 0
------
Total minimum lease commitments........................... $5,179
======
</TABLE>
43
<PAGE> 46
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
As of March 31, 1998, OCC and Teleglobe Mobile each paid to the Company an
additional $10,000,000 in capital contributions (or debt financing expressly
subordinated to the Notes) as required under the Indenture governing the Notes.
44
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM USA, L.P.:
We have audited the accompanying balance sheets of ORBCOMM USA, L.P.
("ORBCOMM USA") (a development stage enterprise) as of December 31, 1997 and
1996, and the related statements of operations, partners' capital, and cash
flows for each of the years in the three-year period ended December 31, 1997,
and for the period from June 30, 1993 (date of inception) through December 31,
1997. These financial statements are the responsibility of ORBCOMM USA's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM USA (a development
stage enterprise) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, and for the period from June 30, 1993 (date of
inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 5, 1998
45
<PAGE> 48
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $ 65 $ 54
Prepaid contract costs.................................... 123 0
------- -------
TOTAL ASSETS...................................... $ 188 $ 54
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable.......................................... $ 38 $ 120
Other accounts payable and accrued liabilities............ 765 222
------- -------
Total Current Liabilities.............................. 803 342
Amount due to ORBCOMM Global, L.P. ....................... 8,635 3,578
------- -------
Total Liabilities...................................... 9,438 3,920
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P....................................... (9,065) (3,789)
Orbital Communications Corporation........................ (185) (77)
------- -------
Total Partners' Capital................................ (9,250) (3,866)
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $ 188 $ 54
======= =======
</TABLE>
See accompanying notes to the financial statements
46
<PAGE> 49
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1997 1996 1995 1997
------- ------- ------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales.................................... $ 127 $ 229 $ 0 $ 356
Contract revenues................................ 0 0 1,360 4,203
Service revenues................................. 45 11 0 56
------- ------- ------ -------
Total revenues................................ 172 240 1,360 4,615
EXPENSES:
Costs of product sales........................... 383 262 0 645
Marketing expenses............................... 5,173 2,984 2,230 13,230
------- ------- ------ -------
Total expenses................................ 5,556 3,246 2,230 13,875
------- ------- ------ -------
NET LOSS........................................... $(5,384) $(3,006) $ (870) $(9,260)
======= ======= ====== =======
</TABLE>
See accompanying notes to the financial statements
47
<PAGE> 50
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1997 1996 1995 1997
------- ------- ----- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $(5,384) $(3,006) $(870) $ (9,260)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Increase in accounts receivable...................... (11) (54) 0 (65)
Increase in prepaid contract costs................... (123) 0 0 (123)
Increase (decrease) in accounts payable.............. (82) (57) 177 38
Increase in other accounts payable and accrued
liabilities....................................... 543 190 32 765
------- ------- ----- --------
NET CASH USED IN OPERATING ACTIVITIES........ (5,057) (2,927) (661) (8,645)
------- ------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global, L.P........ 5,057 2,917 661 8,635
Partners' contributions.............................. 0 0 0 10
------- ------- ----- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.... 5,057 2,917 661 8,645
------- ------- ----- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS.......................................... 0 (10) 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period.................................. 0 10 10 0
------- ------- ----- --------
CASH AND CASH EQUIVALENTS:
End of period........................................ $ 0 $ 0 $ 10 $ 0
======= ======= ===== ========
</TABLE>
See accompanying notes to the financial statements
48
<PAGE> 51
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL ORBCOMM
MOBILE COMMUNICATIONS GLOBAL,
PARTNERS CORPORATION L.P. TOTAL
--------- -------------- ------- -------
<S> <C> <C> <C> <C>
Capital contributions.......................... $2 $ 8 $ 0 $ 10
Net income (loss).............................. 0 0 0 0
-- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1993............. 2 8 0 10
Net income (loss).............................. 0 0 0 0
-- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1994............. 2 8 0 10
Capital transfer............................... (2) (8) 10 0
Net loss....................................... 0 (17) (853) (870)
-- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1995............. 0 (17) (843) (860)
Net loss....................................... 0 (60) (2,946) (3,006)
-- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1996............. 0 (77) (3,789) (3,866)
Net loss....................................... 0 (108) (5,276) (5,384)
-- ----- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1997............. $0 $(185) $(9,065) $(9,250)
== ===== ======= =======
</TABLE>
See accompanying notes to the financial statements
49
<PAGE> 52
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. OCC and Teleglobe Mobile each holds
a 50% partnership interest in the Company, with the result that the approval of
both OCC and Teleglobe Mobile is generally necessary for the Company to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's partnership interest entirely. Simultaneously, the Company
became a 98% general partner in ORBCOMM International, reducing Teleglobe
Mobile's partnership interest to 2% and eliminating OCC's direct partnership
interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some are designed to support specific
applications.
The System Charge and U.S. Marketing Services
Pursuant to the terms of the system charge agreement between OCC and
ORBCOMM USA, ORBCOMM USA has agreed to pay OCC an output capacity charge that is
a quarterly fee equal to 23% of its total service revenues for such calendar
quarter in exchange for the exclusive right to market, sell, lease and franchise
all ORBCOMM System output capacity in the United States and for the exclusive
use of the system assets in the United States.
Additionally, pursuant to the terms of the system charge agreement, through
September 12, 1995 ORBCOMM USA furnished all management, labor, facilities and
material necessary to perform, on a best efforts basis, certain marketing
services in the United States (the "U.S. Marketing Services"), on a cost
reimbursable basis. The U.S. Marketing Services portion of the system charge
agreement expired on September 12, 1995.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
50
<PAGE> 53
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company and ORBCOMM USA are in the development stage, devoting
substantially all of their efforts to establishing a new data and messaging
communications business. The planned principal operations of the Company and
ORBCOMM USA are expected to commence in the fall of 1998. The accompanying
financial statements have been prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents. Pursuant to banking arrangements,
ORBCOMM USA has no cash or cash equivalents in accordance with the zero balance
agreement with ORBCOMM.
Revenue Recognition
ORBCOMM USA provides subscriber communicator hardware to commercial
customers. Revenues are recognized when products are shipped or when customers
have accepted the products or services, depending on contractual terms. Service
revenues are recognized as such services are rendered.
(3) RELATED PARTY TRANSACTIONS
Through September 1995, ORBCOMM USA provided U.S. Marketing Services to OCC
on a cost reimbursable basis. Payments by OCC to ORBCOMM USA for U.S. Marketing
Services were based on ORBCOMM USA's monthly costs incurred. For the period
ended December 31, 1995 and the period from June 30, 1993 (date of inception)
through December 31, 1994, ORBCOMM USA received $1,360,000 and $2,843,000,
respectively, from OCC as reimbursement of costs to provide U.S. Marketing
Services.
At December 31, 1997 and 1996, ORBCOMM USA had a payable of $8,635,000 and
$3,578,000, respectively, to ORBCOMM for amounts advanced to support ORBCOMM
USA's efforts to establish commercial and government markets. ORBCOMM USA is
currently in the development stage and obtains funds to support operations
through non-interest bearing advances from ORBCOMM.
51
<PAGE> 54
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, the Company used
$44,800,000 of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this investment
portfolio, $23,300,000 was used to pay interest that was due on the Notes on
February 15, and August 15, 1997.
(5) SUBSEQUENT EVENT (UNAUDITED)
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
52
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM International Partners, L.P.:
We have audited the accompanying balance sheets of ORBCOMM International
Partners, L.P. ("ORBCOMM International") (a development stage enterprise) as of
December 31, 1997 and 1996, and the related statements of operations, partners'
capital, and cash flows for each of the years in the three-year period ended
December 31, 1997, and for the period from June 30, 1993 (date of inception)
through December 31, 1997. These financial statements are the responsibility of
ORBCOMM International's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM International (a
development stage enterprise) as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, and for the period from June 30, 1993 (date of
inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 5, 1998
53
<PAGE> 56
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable....................................... $ 0 $ 15
Inventory-gateway Earth stations.......................... 19,580 3,871
Amount due from ORBCOMM Global, L.P....................... 0 1,309
------- -------
TOTAL ASSETS...................................... $19,580 $ 5,195
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities.................. $ 1,200 $ 728
Deferred revenue.......................................... 13,270 6,147
------- -------
Total Current Liabilities.............................. 14,470 6,875
Amount due to ORBCOMM Global, L.P......................... 9,990 0
------- -------
Total Liabilities...................................... 24,460 6,875
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. (98) (34)
ORBCOMM Global, L.P....................................... (4,782) (1,646)
------- -------
Total Partners' Capital................................ (4,880) (1,680)
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $19,580 $ 5,195
======= =======
</TABLE>
See accompanying notes to the financial statements
54
<PAGE> 57
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1997 1996 1995 1997
------- ------- ---- ------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................ $ 56 $ 8 $0 $ 64
EXPENSES:
Costs of product sales....................... 104 6 0 110
Marketing expenses........................... 3,152 1,692 0 4,844
------- ------- -- -------
Total expenses............................ 3,256 1,698 0 4,954
------- ------- -- -------
NET LOSS....................................... $(3,200) $(1,690) $0 $(4,890)
======= ======= == =======
</TABLE>
See accompanying notes to the financial statements
55
<PAGE> 58
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
------------------------- DECEMBER 31,
1997 1996 1995 1997
-------- ------- ---- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (3,200) $(1,690) $ 0 $ (4,890)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
(Increase) decrease in accounts receivable.......... 15 (15) 0 0
Increase in inventory -- gateway Earth stations..... (15,709) (3,871) 0 (19,580)
Increase in accounts payable and accrued
liabilities...................................... 472 728 0 1,200
Increase in deferred revenue........................ 7,123 6,147 0 13,270
-------- ------- --- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................ (11,299) 1,299 0 (10,000)
-------- ------- --- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in amount due from ORBCOMM
Global, L.P...................................... 1,309 (1,309) 0 0
-------- ------- --- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................ 1,309 (1,309) 0 0
-------- ------- --- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to OBCOMMM Global, L.P....... 9,990 0 0 9,990
Partners' contributions............................. 0 0 0 10
-------- ------- --- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES... 9,990 0 0 10,000
-------- ------- --- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS............. 0 (10) 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period................................. 0 10 10 0
-------- ------- --- --------
CASH AND CASH EQUIVALENTS:
End of period....................................... $ 0 $ 0 $10 $ 0
======== ======= === ========
</TABLE>
See accompanying notes to the financial statements
56
<PAGE> 59
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORBITAL TELEGLOBE ORBCOMM
COMMUNICATIONS MOBILE GLOBAL,
CORPORATION PARTNERS L.P. TOTAL
-------------- --------- ------- -------
<S> <C> <C> <C> <C>
Capital contributions.......................... $ 8 $ 2 $ 0 $ 10
Net income (loss).............................. 0 0 0 0
--- ---- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1993............. 8 2 0 10
Net income (loss).............................. 0 0 0 0
--- ---- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1994............. 8 2 0 10
Net income (loss).............................. 0 0 0 0
Capital transfer............................... (8) (2) 10 0
--- ---- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1995............. 0 0 10 10
Net loss....................................... 0 (34) (1,656) (1,690)
--- ---- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1996............. 0 (34) (1,646) (1,680)
Net loss....................................... 0 (64) (3,136) (3,200)
--- ---- ------- -------
PARTNERS' CAPITAL, DECEMBER 31, 1997............. $ 0 $(98) $(4,782) $(4,880)
=== ==== ======= =======
</TABLE>
See accompanying notes to the financial statements
57
<PAGE> 60
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. OCC and Teleglobe Mobile each holds
a 50% partnership interest in the Company, with the result that the approval of
both OCC and Teleglobe Mobile is generally necessary for the Company to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, the Company became a 98% general partner
in ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's partnership interest entirely. Simultaneously, the Company
became a 98% general partner in ORBCOMM International, reducing Teleglobe
Mobile's partnership interest to 2% and eliminating OCC's direct partnership
interest entirely.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some are designed to support specific
applications.
The System Charge
Pursuant to the terms of the international system charge agreement between
ORBCOMM, Teleglobe Mobile and ORBCOMM International, ORBCOMM International has
agreed to pay Teleglobe Mobile an international output capacity charge that is a
quarterly fee equal to 23% of its total service revenues for such calendar
quarter in exchange for the exclusive right to market, sell, lease and franchise
all ORBCOMM System output capacity outside the United States and for the
exclusive use of the system assets outside the United States.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
58
<PAGE> 61
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company and ORBCOMM International are in the development stage,
devoting substantially all of their efforts to establishing a new data and
messaging communications business. The planned principal operations of the
Company and ORBCOMM International are expected to commence in the fall of 1998.
The accompanying financial statements have been prepared on the accrual basis of
accounting in conformity with generally accepted accounting principles in the
United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues under the gateway procurement contracts with international
licensees or the sale of subscriber communicator hardware are generally
recognized when contracts are completed, products are shipped or when customers
have accepted the products or services, depending on contractual terms.
Distribution fees and license fees from service license or similar agreements
are recognized ratably over the term of the agreements, or when ORBCOMM
International's obligations under the agreements are substantially completed.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of
three-months or less to be cash equivalents. Pursuant to banking arrangements,
ORBCOMM International has no cash and cash equivalents in accordance with the
zero balance agreement with ORBCOMM.
Inventory
Inventory consists of work-in-process for the construction of gateway Earth
stations for sale to international licensees.
(3) RELATED PARTY TRANSACTIONS
At December 31, 1997, ORBCOMM International had a payable of $9,990,000 to
ORBCOMM for amounts advanced to support ORBCOMM International's efforts to
establish commercial markets. As of December 31, 1996, ORBCOMM International had
a receivable of $1,309,000 from ORBCOMM that represents a net cash outflow to
ORBCOMM. ORBCOMM International is currently in the development stage and obtains
funds to support operations through non-interest bearing advances from ORBCOMM.
At December 31, 1997 and 1996, ORBCOMM International had a payable of
$87,000 and $225,000, respectively, to Teleglobe Canada Inc., an affiliate of
Teleglobe Mobile, for a contracted employee to provide international marketing
services.
59
<PAGE> 62
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
Internationals except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, the Company used
$44,800,000 of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this investment
portfolio, $23,300,000 was used to pay interest that was due on the Notes on
February 15, and August 15, 1997.
Construction of Gateway Earth Stations
In October 1996, ORBCOMM International entered into agreements with certain
manufacturers for the construction of twenty gateway Earth stations scheduled
for delivery over the next two years, with the first installations occurring
during the first quarter of 1998. As of December 31, 1997 and 1996, ORBCOMM
International had $19,580,000 and $3,871,000, respectively, of prepaid contract
costs of which $11,016,000 and $3,547,000, respectively, represent advance
payments to those manufacturers. Total commitments under these manufacturing
agreements approximate $18,000,000. Included in inventory-gateway Earth stations
is a portion of the engineering direct labor costs that are specifically related
to the construction of gateway Earth stations. At December 31, 1997, $1,609,000
of such costs had been included in inventory-gateway Earth stations (none at
December 31, 1996).
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
ORBCOMM International has signed thirteen service license or similar
agreements with international licensees, ten of which have associated gateway
procurement contracts and software license agreements. The service license or
similar agreements authorize the international licensees to use the ORBCOMM
System to provide two-way data and messaging communications services. At
December 31, 1997 and 1996, $13,270,000 and $6,147,000, respectively, had been
received under these agreements and recorded as deferred revenue. ORBCOMM
International is obligated to ship ten gateways under certain of these
agreements (see note 4).
(6) SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
60
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Orbital Communications Corporation:
We have audited the accompanying consolidated balance sheets of Orbital
Communications Corporation and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Orbital
Communications Corporation and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 4, 1998
61
<PAGE> 64
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 34 $ 142
Accounts receivable....................................... 65 29
Other current assets...................................... 123 --
-------- -------
Total current assets................................... 222 171
Investments in affiliates................................... 54,663 67,667
-------- -------
TOTAL ASSETS...................................... $ 54,885 $67,838
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable.......................................... $ 41 $ 117
Accrued expenses.......................................... 765 388
Promissory Notes.......................................... 331 166
-------- -------
Total current liabilities.............................. 1,137 671
Due to affiliates......................................... 84,160 78,728
-------- -------
Total Liabilities...................................... 85,297 79,399
Non-Controlling Interest in Net Assets of Consolidated
Subsidiary................................................ (4,533) (1,894)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $0.01; 8,000,000 shares
authorized; 4,751,292 and 4,730,392 shares issued;
4,656,720 and 4,679,620 shares outstanding............. 48 47
Additional paid-in capital................................ 350 210
Treasury stock, at cost, 94,572 and 50,772 shares......... (730) (155)
Accumulated deficit....................................... (25,547) (9,769)
-------- -------
Total stockholders' deficit............................ (25,879) (9,667)
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT....... $ 54,885 $67,838
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
62
<PAGE> 65
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
REVENUES:
Contract revenues......................................... $ -- $ -- $15,652
Service and product revenues.............................. 172 240 --
-------- ------- -------
Total revenues......................................... 172 240 15,652
EXPENSES:
Costs of product sales.................................... 383 265 10,851
Marketing, administrative and other expenses.............. 5,202 2,959 5,671
-------- ------- -------
Total expenses......................................... 5,585 3,224 16,522
Loss from operations................................... (5,413) (2,984) (870)
OTHER INCOME AND EXPENSES:
Equity in earnings (losses) of affiliates................. (13,004) (8,268) 454
Non-controlling interest in net losses of consolidated
subsidiary............................................. 2,639 1,473 426
-------- ------- -------
Income (loss) before provision for income taxes........... (15,778) (9,779) 10
Provision for income taxes................................ -- -- --
-------- ------- -------
NET INCOME (LOSS)........................................... $(15,778) $(9,779) $ 10
======== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
63
<PAGE> 66
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(15,778) $ (9,779) $ 10
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Equity in earnings (losses )of affiliates................. 13,004 8,268 (454)
Non-controlling interest in net losses of consolidated
subsidiary............................................. (2,639) (1,473) (426)
Decrease (increase) in accounts receivable................ (36) 873 11,010
Decrease (increase) in other assets....................... (123) -- 1,375
Increase (decrease) in accounts payable................... (76) 113 (355)
Increase (decrease) in accrued expenses................... 377 (131) --
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES...................................... (5,271) (2,129) 11,160
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates................................. -- (12,958) (13,319)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES............. -- (12,958) (13,319)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees........... 141 124 77
Purchases of treasury stock, net of reimbursement from
ORBCOMM Global, L.P. .................................. (575) (104) (51)
Repayments of promissory notes............................ (166) -- --
Net borrowings from affiliates............................ 5,763 15,209 2,133
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 5,163 15,229 2,159
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (108) 142 --
CASH AND CASH EQUIVALENTS:
Beginning of period....................................... 142 -- --
-------- -------- --------
CASH AND CASH EQUIVALENTS:
End of period............................................. $ 34 $ 142 $ --
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
64
<PAGE> 67
ORBITAL COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED
------------------ PAID-IN --------------- EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) TOTAL
--------- ------ ---------- ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994............ 4,654,186 $47 $ 9 -- $ -- $ -- $ 56
Shares issued to employees.......... 8,936 -- 77 -- -- -- 77
Treasury stock purchased............ -- -- -- 3,012 (51) -- (51)
Net income.......................... -- -- -- -- -- 10 10
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1995............ 4,663,122 47 86 3,012 (51) 10 92
Shares issued to employees.......... 67,270 -- 124 -- -- -- 124
Treasury stock purchased, net of
reimbursement from ORBCOMM
Global, L.P. .................... -- -- -- 47,760 (104) -- (104)
Net loss............................ -- -- -- -- -- (9,779) (9,779)
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1996............ 4,730,392 47 210 50,772 (155) (9,769) (9,667)
Shares issued to employees.......... 20,900 1 140 -- -- -- 141
Treasury stock purchased, net of
reimbursement from ORBCOMM
Global, L.P. .................... -- -- -- 43,800 (575) -- (575)
Net loss............................ -- -- -- -- -- (15,778) (15,778)
--------- --- ---- ------ ----- -------- --------
BALANCE, DECEMBER 31, 1997............ 4,751,292 $48 $350 94,572 $(730) $(25,547) $(25,879)
========= === ==== ====== ===== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
65
<PAGE> 68
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization and Business
Orbital Communications Corporation ("OCC") is a majority owned subsidiary
of Orbital Sciences Corporation ("Orbital") and is included in Orbital's
consolidated financial statements. In 1993, OCC and Teleglobe Mobile Partners
("Teleglobe Mobile"), a partnership established by affiliates of Teleglobe Inc.
("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited
partnership, and two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA")
and ORBCOMM International Partners, L.P. ("ORBCOMM International"). OCC and
Teleglobe Mobile are each 50% General Partners in ORBCOMM, and ORBCOMM is a 98%
General Partner in each of the two marketing partnerships. Additionally, OCC is
a 2% direct General Partner in ORBCOMM USA, and Teleglobe Mobile is a 2% direct
General Partner in ORBCOMM International. Directly and indirectly, OCC currently
holds 51% and 49% of ORBCOMM USA and ORBCOMM International, respectively. OCC
consolidates the financial results of ORBCOMM USA.
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The ORBCOMM System comprises three
operational segments: (i) a space segment consisting of a constellation of 36
LEO satellites; (ii) a ground and control segment consisting of a network
control center which serves as the global control for the satellites, gateway
Earth stations which send signals to and receive signals from the satellites,
and gateway control centers which serve as message switching systems that
process the message traffic; and (iii) a subscriber segment consisting of
subscriber units used by customers to transmit and receive messages to and from
satellites.
The space segment will consist of a constellation of 36 satellites. At
December 31, 1997, one plane of two satellites and one plane of eight satellites
are operating in orbit. The ground and control segment consists of gateways
strategically located throughout the world and the facilities to monitor and
manage all network elements to ensure continuous, consistent operations in the
provision of quality service. In addition, ORBCOMM operates a network control
center, which is designed to support the full constellation of the ORBCOMM
System. The subscriber segment consists of various models of subscriber units,
some of which are intended for general use, and some are designed to support
specific applications.
ORBCOMM USA has been granted the exclusive right to market, sell, lease and
franchise the ORBCOMM System output capacity in the U.S. and the exclusive use
of the ORBCOMM System assets in the U.S.
The System Charge
In consideration of the construction and financing of the ORBCOMM System
assets by ORBCOMM, OCC is obligated to pay ORBCOMM a system charge equal to 23%
of ORBCOMM USA's total service revenues (the "Output Capacity Charge") minus
1.15% of aggregate system service revenues, defined as the total of ORBCOMM USA
and ORBCOMM International total system service revenues. If the Output Capacity
Charge is less than 1.15% of aggregate system service revenues as described
above, then OCC is not required to pay any portion of the system charge to
ORBCOMM.
Regulatory Status
Construction and operation of communications satellites in the U.S.
requires licenses from the Federal Communications Commission (the "FCC"). OCC
has been granted full operational authority for the ORBCOMM System by the FCC.
Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the U.S. Primary responsibility
for obtaining licenses outside the U.S. will reside with the various
international licensees.
66
<PAGE> 69
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Certain
reclassifications have been made to the 1996 and 1995 financial statements to
conform to the 1997 financial statement presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of OCC and
ORBCOMM USA. All material transactions and accounts among consolidated entities
have been eliminated in consolidation.
Revenue Recognition
OCC recognizes revenues on long-term contracts using the percentage of
completion method of accounting. Accordingly, revenues on long-term fixed-price
contracts are recognized based on costs incurred in relation to total estimated
costs, or based on specific delivery terms and conditions. Anticipated contract
losses are recognized as they become known. OCC currently has no long-term
contracts, but was the primary supplier of the ORBCOMM System through its April
1995 completion. ORBCOMM USA provides subscriber communicator hardware to
commercial customers. Revenue is recognized when products are shipped or when
customers have accepted the products, depending on contractual terms. Service
revenues are recognized when rendered.
Income Taxes
OCC is included in Orbital's consolidated Federal income tax returns. OCC
determines its provision for income taxes as if it were filing on a separate
return basis. OCC recognizes income taxes using the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Cash and Cash Equivalents
OCC considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Investments in Affiliates
OCC uses the equity method of accounting for its investments in and
earnings of affiliates in which OCC has the ability to significantly influence,
but not control, such affiliate's operations. In accordance with the equity
method of accounting, OCC's carrying amount of an investment in an affiliate is
initially recorded at cost and is increased to reflect its share of the
affiliate's income and is reduced to reflect its share of the affiliate's
losses. OCC's investment is also increased to reflect contributions to, and
decreased to reflect distributions received from, each affiliate. Any excess of
the amount of OCC's investment and the amount of the underlying equity in each
affiliate's net assets is amortized over a period of twenty years.
67
<PAGE> 70
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
OCC's policy is to review its long-lived assets, including investments in
affiliates, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. OCC recognizes an
impairment loss when the sum of expected future cash flows is less than the
carrying amount of the asset.
Fair Value of Financial Instruments
The carrying value of OCC's current assets and current liabilities
approximate fair value since all such instruments are short-term in nature.
Stock Based Compensation
Prior to January 1, 1996, OCC accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, OCC adopted Statement
of Financial Accounting Standards 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), which requires companies to (i) recognize as expense the fair
value of all stock-based awards on the date of grant, or (ii) continue to apply
the provisions of APB 25 and provide pro forma net income for employee stock
option grants made in 1995 and future years as if the fair-value-based method
defined in SFAS 123 had been applied. OCC has elected to continue to apply the
provisions of APB 25 and provide the pro forma disclosure provisions of SFAS 123
(See Note 7).
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
OCC will adopt the provisions of SFAS No. 130 in 1998. The disclosure of
comprehensive income in accordance with SFAS No. 130 will not impact the manner
of presentation of OCC's financial statements as currently and previously
reported.
(3) INVESTMENTS IN AFFILIATES
OCC's and Teleglobe Mobile's total capital commitments to ORBCOMM as of
December 31, 1997 are $75,275,000 and $84,525,000, respectively, all of which
had been contributed through December 31, 1996. Pursuant to the terms of the
relevant partnership agreements, (i) OCC and Teleglobe Mobile share equal
responsibility for the operational and financial affairs of ORBCOMM; (ii) OCC
controls the operational and financial affairs of ORBCOMM USA; and (iii)
Teleglobe Mobile controls the operational and financial affairs of ORBCOMM
International. Since OCC is unable to control, but is able to exercise
significant influence over ORBCOMM's and ORBCOMM International's operating and
financial policies, OCC is accounting for its investments in ORBCOMM and ORBCOMM
International using the equity method of accounting.
At December 31, 1997, ORBCOMM had total assets, total liabilities and total
partners' capital of $316,969,000, $210,551,000 and $106,418,000, respectively.
ORBCOMM recorded $527,000 in revenues and $31,436,000 in losses for the year
ended December 31, 1997. Based on its current assessment of the overall business
prospects of the ORBCOMM partnerships and the ORBCOMM System, OCC currently
believes its investments in ORBCOMM and ORBCOMM International are fully
recoverable. If in the future, the ORBCOMM business is not successful, OCC may
be required to expense part or all of its investments.
68
<PAGE> 71
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) RELATED PARTY TRANSACTIONS
Pursuant to the terms of the ORBCOMM System agreement, ORBCOMM contracted
directly with Orbital to procure additional communications satellites and launch
services. During 1997, 1996, and 1995, ORBCOMM purchased hardware and services
from Orbital totaling $57,505,000, $55,435,000, and $23,672,000, respectively.
OCC was the prime contractor and Orbital the subcontractor of the ORBCOMM
System, consisting of communications satellites, launch vehicles and ground
systems, and successfully launched the ORBCOMM System satellites in April 1995.
During 1995, OCC recorded contract revenues on sales to ORBCOMM of $15,652,000
and purchased hardware and services totaling $4,477,000 from Orbital. OCC also
procured U.S. marketing services from ORBCOMM USA on a cost reimbursable basis
through September 1995. During 1995, OCC purchased marketing services totaling
$1,360,000. In 1997 and 1996, OCC recorded no contract revenues on sales to
ORBCOMM and purchased no hardware or services from Orbital or ORBCOMM USA.
OCC obtains virtually all of its funding for its operations and for its
capital investments in ORBCOMM from Orbital via a non-interest bearing
intercompany borrowing agreement. As of December 31, 1997 and 1996, OCC owed
Orbital $75,513,000 and $74,786,000, respectively, none of which is currently
payable. As of December 31, 1997, OCC owes ORBCOMM $12,000 and has no
liabilities to either ORBCOMM International or ORBCOMM USA. As of December 31,
1996, OCC owed $112,000 and $7,000 to ORBCOMM and ORBCOMM International,
respectively.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via
non-interest bearing intercompany borrowing agreements. As of December 31, 1997
and 1996, ORBCOMM USA owed ORBCOMM $8,635,000 and $3,578,000, respectively, none
of which is currently payable.
(5) INCOME TAXES
OCC had no current or deferred provision for income taxes for the years
ended December 31, 1997, 1996, and 1995. There are no significant differences
between pre-tax financial statement income and taxable income in 1997, 1996, and
1995.
The differences between the actual taxes and taxes computed at the U.S.
Federal income tax rate of 34% are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory rate............................ (34%) (34%) 34%
Generation (utilization) of net operating loss
carryforward......................................... 34% 34% (34%)
---- ---- ----
Effective Rate......................................... 0 0 0
==== ==== ====
</TABLE>
The tax effects of significant temporary differences at December 31, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
-------------------
1997 1996
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward and other............... $ 9,939 $ 3,975
Valuation allowance..................................... (9,939) (3,975)
------- -------
$ 0 $ 0
======= =======
</TABLE>
69
<PAGE> 72
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES
On August 7, 1996, ORBCOMM and ORBCOMM Global Capital Corporation (a
wholly-owned subsidiary of ORBCOMM) co-issued $170,000,000 senior unsecured
notes due in 2004 (the "Notes") to institutional investors. The Notes bear
interest at a fixed rate of 14% and provide for noteholder participation in
future ORBCOMM service revenues. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International. The guarantees are non-recourse to OCC's stockholders
(including Orbital) and Teleglobe Mobile's partners (including Teleglobe and
Technology Resources Industries Bhd.).
(7) STOCK OPTION PLAN
OCC adopted a stock option plan in 1992 (the "ORBCOMM Plan"). The ORBCOMM
Plan provides for grants of incentive and non-qualified stock options to
purchase OCC common stock to officers and employees of OCC, ORBCOMM, ORBCOMM
USA, ORBCOMM International and Orbital. Under the terms of the ORBCOMM Plan,
incentive stock options may not be granted at less than 100% of the fair market
value at the date of grant and non-qualified options may not be granted at less
than 85% of the fair market value of OCC common stock at the date of grant as
determined by a committee consisting of two OCC Board members and two members
appointed by Teleglobe Mobile. The options vest at a rate set forth by the Board
of Directors in each individual option agreement, generally in one-fourth
increments over a four-year period.
Certain provisions of the ORBCOMM Plan require OCC to repurchase, with cash
or promissory notes, the common stock acquired pursuant to the options. The
total amount of cash for stock repurchases and promissory note repayments is
restricted to $1,000,000 per year, in accordance with the terms of the Notes
(See Note 6). During 1997 and 1996, OCC paid $829,000 and $1,000,000 in cash and
issued $331,000 and $166,000 in promissory notes to repurchase 43,800 and 47,760
shares of common stock, respectively. The 1996 promissory notes were repaid in
1997. These repurchases were funded by (i) reimbursements from ORBCOMM pursuant
to the terms of the Restated Agreement of Limited Partnership of ORBCOMM Global,
L.P. and (ii) contributions from Orbital.
The following tables summarize information regarding the options under the
ORBCOMM Plan for the last three years:
<TABLE>
<CAPTION>
WEIGHTED OUTSTANDING
NUMBER OPTION PRICE AVERAGE AND
OF SHARES PER SHARE EXERCISE PRICE EXERCISABLE
--------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
OUTSTANDING AT DECEMBER 31,
1994............................ 599,074 $ 1.50 -- $14.00 $ 5.64 298,657
Granted......................... 0 -- --
Exercised....................... (8,936) $ 1.50 -- $13.00 $ 3.87
Canceled or Expired............. (44,238) $ 1.50 -- $13.00 $ 6.74
-------- ---------------- ------
OUTSTANDING AT DECEMBER 31,
1995............................ 545,900 $ 1.50 -- $14.00 $ 5.56 411,086
Granted......................... 154,500 $17.00 -- $25.00 $20.50
Exercised....................... (67,270) $ 1.50 -- $13.00 $ 2.43
Canceled or Expired............. (34,300) $ 1.50 -- $17.00 $13.81
-------- ---------------- ------
OUTSTANDING AT DECEMBER 31,
1996............................ 598,830 $ 1.50 -- $25.00 $ 9.40 393,903
Granted......................... 284,500 $ 1.50 -- $26.50 $26.50
Exercised....................... (20,900) $ 1.50 -- $25.00 $ 6.68
Canceled or Expired............. (112,600) $25.00 $14.86
-------- ---------------- ------
OUTSTANDING AT DECEMBER 31,
1997............................ 749,830 $ 1.50 -- $26.50 $15.22 415,804
======== ================ ======
</TABLE>
70
<PAGE> 73
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCK OPTION PLAN -- (CONTINUED)
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING WEIGHTED AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICES AT 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/97 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.50 -- $ 4.00 261,540 4.82 years $ 2.37 261,540 $ 2.38
$ 5.25 -- $25.00 163,790 6.52 years $13.39 116,389 $11.79
$26.50 -- $26.00 324,500 9.36 years $ 6.50 37,875 $26.50
$ 1.50 -- $26.50 749,830 7.16 years $15.22 415,804 $ 7.21
</TABLE>
(8) STOCK BASED COMPENSATION
On January 1, 1996, OCC adopted SFAS 123. OCC uses the Black-Scholes
option-pricing model to determine the pro forma impact to OCC's net income
(loss). The model utilizes certain information, such as the interest rate on a
risk-free security maturing generally at the same time as the option being
valued, and requires certain assumptions, such as the expected amount of time an
option will be outstanding until it is exercised or it expires, to calculate the
weighted-average fair value per share of stock options granted. This information
and the assumptions used in the option pricing model for 1997 and 1996
respectively, are as follows: volatility, 30% and 30%; dividend yield, zero
percent and zero percent; risk free interest rate, 6.1% and 5.6%; average
expected life, 4.5 and 4.5 years; additional shares available, 48,878 and
20,778; and weighted-average exercise price per option grant, $26.50 and $20.50.
The majority of these assumptions were not applicable for 1995.
OCC recorded compensation expense related to the ORBCOMM Plan of $32,000
for the year ended December 31, 1995. No stock based compensation expense was
recorded in 1996 or 1997. Had the company determined compensation cost based on
the fair value at the grant date for its stock options in accordance with the
fair value method proscribed by SFAS 123, OCC's net loss would have been
$16,460,000 and $10,200,000 for the years ended December 31, 1997 and 1996,
respectively. Pro forma net loss reflects only options granted in 1997, 1996,
and 1995, and therefore, may not be representative of the effects for future
periods.
(9) SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, two additional satellites for ORBCOMM's constellation
were successfully launched and have been placed in high inclination orbit using
Orbital's Taurus launch vehicle.
As of March 31, 1998, OCC and Teleglobe Mobile each paid additional
$10,000,000 in capital contributions as required under the Indenture Agreement.
71
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
To the Partners of
Teleglobe Mobile Partners
We have audited the consolidated balance sheets of Teleglobe Mobile
Partners (the "Partnership") (a development stage enterprise) as of December 31,
1997 and 1996, and the consolidated statements of operations, partners' capital
and cash flows for each of the years in the two-year period ended December 31,
1997, and for the period from July 21, 1993 (date of inception), through
December 31, 1997. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements referred to above,
present fairly, in all material respects, the financial position of the
Partnership (a development stage enterprise) as of December 31, 1997 and 1996,
and the results of its operations, partners' capital and cash flows for each of
the years in the two-year period ended December 31, 1997, and for the period
from July 21, 1993 (date of inception) through December 31, 1997, in conformity
with generally accepted accounting principles.
Grant Thornton LLP
Vienna, Virginia
February 20, 1998
72
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To the Partners of
Teleglobe Mobile Partners
We have audited the consolidated balance sheet of Teleglobe Mobile Partners
(the "Partnership") (a development stage enterprise) as at December 31, 1995,
and the consolidated statements of operations, partners' capital and cash flows
for each of the years in the two-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Partnership (a development
stage enterprise) as at December 31, 1995, and the results of its operations,
partners' capital and cash flows for each of the years in the two-year period
ended December 31, 1995, in accordance with generally accepted accounting
principles in the United States of America.
Grant Thornton
General Partnership
Chartered Accountants
Montreal, Canada
June 25, 1996
73
<PAGE> 76
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,439 $ 1,618
Accounts receivable....................................... 40 17
Inventory-gateway Earth stations.......................... 19,580 3,871
Amount due from ORBCOMM Global, L.P. ..................... 0 1,309
------- -------
Total Current Assets................................... 21,059 6,815
Investments in affiliates................................... 59,645 74,361
------- -------
TOTAL ASSETS...................................... $80,704 $81,176
======= =======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities.................. $ 1,565 $ 899
Deferred revenue.......................................... 13,270 6,147
------- -------
Total Current Liabilities.............................. 14,835 7,046
Amount due to ORBCOMM Global, L.P. ....................... 9,990 0
------- -------
Total Liabilities...................................... 24,825 7,046
Non-controlling interest in net assets of ORBCOMM
International Partners, L.P. .......................... (2,391) (823)
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile, L.P. ................................... 40,381 51,942
TR (U.S.A.) Ltd. ......................................... 17,481 22,486
Teleglobe Mobile Investment Inc. ......................... 408 525
------- -------
Total Partners' Capital................................ 58,270 74,953
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $80,704 $81,176
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements
74
<PAGE> 77
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
--------------------------- DECEMBER 31,
1997 1996 1995 1997
-------- ------- ------ -------------------
<S> <C> <C> <C> <C>
REVENUES:
Product sales................................. $ 56 $ 8 $ 0 $ 64
EXPENSES:
Costs of product sales........................ 104 6 0 110
Marketing, administrative and other
expenses................................... 3,565 1,967 743 7,213
-------- ------- ------ --------
Total expenses........................... 3,669 1,973 743 7,323
-------- ------- ------ --------
Loss from operations..................... (3,613) (1,965) (743) (7,259)
OTHER INCOME AND EXPENSES:
Interest income (expense), net................ 78 617 1,253 1,948
Equity in losses of ORBCOMM Global, L.P....... (14,672) (8,975) (219) (23,866)
Non-controlling interest in losses of ORBCOMM
International Partners, L.P. .............. 1,568 828 0 2,396
-------- ------- ------ --------
NET INCOME (LOSS)............................... $(16,639) $(9,495) $ 291 $(26,781)
======== ======= ====== ========
</TABLE>
See accompanying notes to the consolidated financial statements
75
<PAGE> 78
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
----------------------------- DECEMBER 31,
1997 1996 1995 1997
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $(16,639) $ (9,495) $ 291 $(26,781)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Equity in losses of ORBCOMM Global, L.P. ........ 14,672 8,975 219 23,866
Non-controlling interest in losses of ORBCOMM
International Partners, L.P. ................. (1,568) (828) 0 (2,396)
Increase in accounts receivable.................. (23) (17) 0 (40)
Increase in inventory-gateway Earth stations..... (15,709) (3,871) 0 (19,580)
Increase (decrease) in accounts payable and
accrued liabilities........................... 666 628 (667) 1,565
Increase in deferred revenue..................... 7,123 6,147 0 13,270
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................. (11,478) 1,539 (157) (10,096)
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates........................ 0 (49,780) (24,742) (84,525)
Decrease (increase) in amount due from ORBCOMM
Global, L.P. ................................. 1,309 (1,309) 0 0
-------- -------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES............................. 1,309 (51,089) (24,742) (84,525)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global,
L.P. ......................................... 9,990 0 0 9,990
Partners' contributions.......................... 0 17,000 59,062 86,065
Non-controlling interest in net assets of ORBCOMM
International Partners, L.P. ................. 0 0 5 5
-------- -------- ------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 9,990 17,000 59,067 96,060
-------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (179) (32,550) 34,168 1,439
CASH AND CASH EQUIVALENTS
Beginning of period.............................. 1,618 34,168 0 0
-------- -------- ------- --------
CASH AND CASH EQUIVALENTS:
End of period.................................... $ 1,439 $ 1,618 $34,168 $ 1,439
======== ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements
76
<PAGE> 79
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE
TELEGLOBE MOBILE TR (U.S.A.)
MOBILE, L.P. INVESTMENT INC. LTD. TOTAL
------------ --------------- ----------- --------
<S> <C> <C> <C> <C>
Capital contributions....................... $ 9,903 $ 100 $ 0 $ 10,003
Net loss.................................... (480) (5) 0 (485)
-------- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993.......... 9,423 95 0 9,518
Net loss.................................... (449) (4) 0 (453)
-------- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994.......... 8,974 91 0 9,065
Capital contributions....................... 27,719 281 31,062 59,062
Excess of contributions from a new partner
to the existing partners................. 10,587 106 (10,693) 0
Net income.................................. 134 1 156 291
Share of financing fees of ORBCOMM Global,
L.P. .................................... (703) (7) (304) (1,014)
-------- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995.......... 46,711 472 20,221 67,404
Capital contributions....................... 9,256 94 7,650 17,000
Excess of contributions from a new partner
to the existing partners................. 2,525 25 (2,550) 0
Net loss.................................... (6,580) (67) (2,848) (9,495)
Share of unrealized gains on investments of
ORBCOMM Global, L.P., net................ 30 1 13 44
-------- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996.......... 51,942 525 22,486 74,953
Net loss.................................... (11,531) (116) (4,992) (16,639)
Share of unrealized losses on investments of
ORBCOMM Global, L.P., net................ (30) (1) (13) (44)
-------- ----- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997.......... $ 40,381 $ 408 $ 17,481 $ 58,270
======== ===== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements
77
<PAGE> 80
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization
Teleglobe Mobile Partners, a Delaware general partnership (the
"Partnership"), is a majority-owned indirect subsidiary of Teleglobe Inc.
("Teleglobe") and is included in Teleglobe's consolidated financial statements.
The Partnership was originally formed July 21, 1993, in accordance with the
provisions of the Delaware Uniform Partnership Law. As of June 29, 1994, the
original Partnership was amended and restated by admitting a new partner to the
Partnership. The Partnership's term commenced on June 29, 1994 and shall
terminate on December 31, 2015.
In 1993, the Partnership and Orbital Communications Corporation ("OCC"), a
majority-owned subsidiary of Orbital Sciences Corporation ("Orbital"), formed
ORBCOMM Global, L.P. ("ORBCOMM" or the "Company"), a Delaware limited
partnership.
The Partnership and OCC also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. The Partnership and OCC are each 50% general
partners in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two
marketing partnerships. Additionally, the Partnership is a 2% direct general
partner in ORBCOMM International, and OCC is a 2% direct general partner in
ORBCOMM USA. Directly and indirectly, the Partnership currently holds 51% and
49% of ORBCOMM International and ORBCOMM USA, respectively.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a new network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some are designed to support specific
applications.
The System Charge
The Partnership is obligated to pay quarterly to ORBCOMM a system charge in
consideration of ORBCOMM's grant to the Partnership of the right to market,
sell, lease and franchise all ORBCOMM System output capacity outside the United
States. Such system charge is calculated as 23% of ORBCOMM International's total
service revenues for such quarter ("International Output Capacity Charge") minus
1.15% of aggregate system service revenues, defined as the total of ORBCOMM
International and ORBCOMM USA total system service revenues. If the
International Output Capacity Charge is less than 1.15% of aggregate system
service revenues as described above, then the Partnership is not required to pay
and does not owe any portion of the system charge to ORBCOMM. No such charges
have been incurred.
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
78
<PAGE> 81
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Partnership is in the development stage, devoting substantially all of
its efforts to establishing a new data and messaging communications business
through ORBCOMM. The planned principal operations of the Partnership are
expected to commence in the fall of 1998. The accompanying consolidated
financial statements have been prepared on the accrual basis of accounting in
conformity with generally accepted accounting principles in the United States.
They include the accounts of the Partnership and its subsidiary, ORBCOMM
International. All significant intercompany transactions and balances have been
eliminated on consolidation.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
Inventory
Inventory consists of work-in-process for the construction of gateway Earth
stations for sale to international licensees.
Investments in Affiliates
The Partnership uses the equity method of accounting for its investments in
and earnings of affiliates in which the Partnership has the ability to
significant influence, but not control, such affiliates' operations. In
accordance with the equity method of accounting, the Partnership carrying amount
of an investment in an affiliate is initially recorded at cost and is increased
to reflect its share of the affiliate's income and is reduced to reflect its
share of the affiliate's losses. The Partnership's investment is also increased
to reflect contributions to, and decreased to reflect distributions received
from, each affiliate.
Goodwill, consisting of the excess of the cost of the Partnership's
investment over its equity in the underlying net assets of ORBCOMM at the
acquisition date, is included in the Investments in affiliates. Goodwill is
amortized on a straight-line basis, starting October 1, 1996, over the estimated
economic useful life of the ORBCOMM System.
79
<PAGE> 82
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Each year, the Partnership reviews the underlying value of its investments
by comparing its carrying amount to its net recoverable amount. The
determination of the net recoverable amount consists of evaluating forecasted
income and non-discounted cash flows. Any permanent impairment of such value
would be written off to expense.
Revenue Recognition
Revenues under the gateway procurement contracts with international
licensees or sale of subscriber communicator hardware are generally recognized
when contracts are completed, products are shipped or when customers have
accepted the products or services, depending on contractual terms. Distribution
fees and license fees from service license or similar agreements are recognized
ratably over the term of the agreements, or when ORBCOMM International's
obligations under the agreements are substantially complete.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying consolidated financial statements.
Fair Value of Financial Instruments
The carrying value of the Partnership's cash and cash equivalents,
receivables, and accounts payable approximates fair value since all such
instruments are short-term in nature.
New Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in the financial statements.
The Partnership will adopt the provisions of SFAS No. 130 in 1998.
Reclassification of Prior Years Balances
Certain amounts in prior years consolidated financial statements have been
reclassified to conform with the current year presentation.
(3) INVESTMENTS IN AFFILIATES
As of December 31, 1997, goodwill, net of accumulated amortization in the
amount of $522,000 ($63,000 as of December 31, 1996), included in the
Investments in affiliates amounts to $4,040,000 ($4,562,000 as of December 31,
1996).
Pursuant to the terms of the relevant partnership agreements, (i) the
Partnership and OCC share equal responsibility for the operational and financial
affairs of ORBCOMM; (ii) the Partnership controls the operational and financial
affairs of ORBCOMM International and (iii) OCC controls the operational and
financial affairs of ORBCOMM USA. Since the Partnership is unable to control,
but is able to exercise significant influence over ORBCOMM's and ORBCOMM USA's
operating and financial policies, the Partnership is accounting for its
investments in ORBCOMM and ORBCOMM USA using the equity method of accounting.
80
<PAGE> 83
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS IN AFFILIATES -- (CONTINUED)
The following tables summarize the information concerning the income,
assets and liabilities of ORBCOMM, including ORBCOMM's equity interests in
ORBCOMM USA and ORBCOMM International.
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
(IN THOUSANDS) DECEMBER 31,
----------------------------- 1997
1997 1996 1995 (IN THOUSANDS)
-------- -------- ------- --------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenue................................... $ 527 $ 420 $ 900 $ 1,847
Net income (loss)......................... (31,436) (19,480) 55 (50,870)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------------
1997 1996
-------- --------
<S> <C> <C>
BALANCE SHEET DATA
Total assets.............................................. $316,969 $329,509
Total liabilities......................................... 210,551 191,567
Partners' capital
Teleglobe Mobile Partners.............................. 57,834 73,596
Orbital Communications Corporation..................... 48,584 64,346
</TABLE>
Based on its current assessment of the overall business prospects of
ORBCOMM's marketing partnerships and the ORBCOMM System, the Partnership
currently believes its investments in ORBCOMM and ORBCOMM USA are fully
recoverable. If in the future, the ORBCOMM business is not successful, the
Partnership may be required to expense part or all of its investments.
(4) RELATED PARTY TRANSACTIONS
As of December 31, 1997, ORBCOMM International had a payable of $9,990,000
to ORBCOMM for amounts advanced to support ORBCOMM International's efforts to
establish commercial markets. As of December 31, 1996, ORBCOMM International had
a receivable of $1,309,000 from ORBCOMM that represents net cash outflow to
ORBCOMM. ORBCOMM International is currently in the development stage and obtains
funds to support operations through non-interest bearing advances from ORBCOMM.
As of December 31, 1997 and 1996, ORBCOMM International had a payable of
$87,000 and $225,000, respectively, to Teleglobe Canada Inc., an affiliate of
the Partnership, for a contracted employee to provide international marketing
services.
As of December 31, 1997, the Partnership had a payable of $200,000 to
ORBCOMM Canada Inc., an affiliate of the Partnership, for an employee to provide
management services to ORBCOMM on behalf of the Partnership (none as of December
31, 1996).
In 1996, the Partnership entered into an administrative services agreement
with Teleglobe, the ultimate parent company of the Partnership. Under this
agreement, Teleglobe provides management services to the Partnership. Teleglobe
invoices the Partnership for those services on a monthly basis. As of December
31, 1997, the Partnership owed Teleglobe $141,000 ($155,000 as of December 31,
1996).
81
<PAGE> 84
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by the Partnership, OCC, ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, the Company used
$44,800,000 of the net proceeds from the sale of the Old Notes to purchase a
portfolio of U.S. Government securities to provide for payment in full of
interest on the Old Notes and Notes through August 15, 1998. Of this investment
portfolio, $23,300,000 was used to pay interest that was due on the Notes on
February 15, and August 15, 1997.
Construction of Gateway Earth Stations
In October 1996, ORBCOMM International entered into agreements with certain
manufacturers for the construction of twenty gateway Earth stations scheduled
for delivery over the next two years, with the first installations occurring
during the first quarter 1998. As of December 31, 1997 and 1996, ORBCOMM
International had $19,580,000 and $3,871,000, respectively, of prepaid contract
costs of which $11,016,000 and $3,547,000, respectively, represent advance
payments to those manufacturers. Total commitments under these manufacturing
agreements approximate $18,000,000. Included in inventory -- gateway Earth
stations is a portion of the engineering direct labor costs that are
specifically related to the construction of gateway Earth stations. As of
December 31, 1997, $1,609,000 of such costs had been included in
inventory-gateway Earth stations (none as of December 31, 1996).
(6) SERVICE LICENSE OR SIMILAR AGREEMENTS
ORBCOMM International has signed thirteen service license or similar
agreements with international licensees, ten of which have associated gateway
procurement contracts and software license agreements. The service license or
similar agreements authorize the international licensees to use the ORBCOMM
System to provide two-way data and messaging communications services. As of
December 31, 1997 and 1996, $13,270,000 and $6,147,000, respectively, had been
received under these agreements and recorded as deferred revenue. ORBCOMM
International is obligated to ship ten gateways under certain of these
agreements (see note 5).
(7) SUBSEQUENT EVENTS (UNAUDITED)
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
As of March 31, 1998, OCC and the Partnership each paid to the Company an
additional $10,000,000 in capital contributions (or debt financing expressly
subordinated to the Notes) as required under the Indenture governing the Notes.
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<PAGE> 85
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANTS
The Partnership Agreement provides that the management of ORBCOMM is the
exclusive responsibility of the General Partners. Officers of ORBCOMM are
nominated by the President of ORBCOMM and elected by the General Partners and
exercise such authority as they are granted by the General Partners.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as of March 31, 1998 concerning
the executive officers of ORBCOMM and the directors and executive officers of
Capital.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- ----------------------------------------------
<S> <C> <C>
Scott L. Webster 45 Chief Executive Officer of ORBCOMM
President and Director of Capital
Alan L. Parker 59 President, Global Development of ORBCOMM
Robert F. Latham 55 President and Chief Operating Officer of
ORBCOMM
W. Bartlett Snell 46 Senior Vice President Finance and
Administration, Chief Financial Officer and
Treasurer of ORBCOMM
Vice President, Treasurer and Director of
Capital
Robert L. Vence 56 Senior Vice President Engineering and
Operations of ORBCOMM
Abdul H. Rana 47 Senior Vice President Product Management and
Development of ORBCOMM
Brian L. Williams 48 Senior Vice President Marketing, Strategy and
Communications of ORBCOMM
Mary Ellen Seravalli 39 Senior Vice President, General Counsel and
Secretary of ORBCOMM
Vice President and Secretary of Capital
</TABLE>
Scott L. Webster has been Chairman and Chief Executive Officer of ORBCOMM
since February 1998. Mr. Webster also has been the President of OCC since 1997.
He has been President and Director of Capital since March 1998. Mr. Webster is a
co-founder of Orbital, and served in various consulting capacities with Orbital
from 1993 to 1996. He served as President of Orbital's Space Data Division from
1990 to 1993 and was Executive Vice President of that organization from 1989 to
1990. Mr. Webster served as Orbital's Vice President and Senior Vice President
of Marketing from Orbital's inception in 1982 until 1989. Previously, he held
technical and management positions at Advanced Technology Laboratories and
Litton Industries.
Alan L. Parker has been President, Global Development of ORBCOMM since
February 1998 and was the President of ORBCOMM from June 1993 to February 1998
and Chief Executive Officer of ORBCOMM from February 1996 to February 1998. Mr.
Parker was President and Director of Capital from July 1996 to March 1998. Mr.
Parker is also Executive Vice President of OCC. Mr. Parker was a member of the
United States delegation to WARC-92, the WRC held in 1993 and WRC-95. Mr.
Parker's experience includes 25 years with Ford Aerospace and Ford Motor
Company. Mr. Parker served as Chairman and Chief Executive Officer of Ford
Aerospace Satellite Services Corporation from 1982 to 1986 and was Vice
President of Marketing and Business Planning of Ford Aerospace Corporation from
1976 to 1986. Prior to 1976,
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Mr. Parker held several marketing and product planning positions at Ford,
including Car Product Development, Ford of Europe and Corporate Product Planning
and Research.
Robert F. Latham has been President and Chief Operating Officer of ORBCOMM
since February 1998 and was Executive Vice President and Chief Operating Officer
of ORBCOMM from May 1997 to February 1998. From April 1997 to May 1997, Mr.
Latham was an independent consultant to ORBCOMM. From February 1996 to February
1997, Mr. Latham was Managing Director, Telecom for Bell Canada International
Management Ltd., UK ("BCIM"). From April 1996 until November 1996, Mr. Latham
was secunded to Mercury Communications, Limited in London, England as the
Managing Director, Commercial Services. Prior to joining BCIM, Mr. Latham spent
28 years with Bell Canada, most recently as Group Vice President ("GVP"),
Gateways and Public Telephony. From July 1992 to February 1995, Mr. Latham held
the positions of GVP, Business Sales and Services, and GVP, Signature Service,
with responsibility for Bell Canada's business accounts. From 1986 to 1991, Mr.
Latham led the development of Bell Cellular as President and Chief Executive
Officer. Prior to 1986, Mr. Latham held a variety of positions with Bell Canada,
including in the areas of Business Development, Customer Services, Regulatory
Matters, Cost and Performance and Forecasting and Planning.
W. Bartlett Snell has been Senior Vice President Finance and
Administration, Chief Financial Officer and Treasurer of ORBCOMM since February
1996. Mr. Snell has been Vice President, Treasurer and Director of Capital since
July 1996. From 1993 to 1996, Mr. Snell was President and Chief Executive
Officer of PowerSource Solutions, Inc., a company specializing in assisting
organizations undertaking strategic corporate change. From 1992 to 1993, Mr.
Snell was Senior Vice President and General Manager of People Karch
International, an international provider of work-site health promotion services,
health and fitness software and corporate child care programs. Prior to 1992,
Mr. Snell worked for IBM Corporation. Mr. Snell is a member of both the Northern
Virginia Business RoundTable and the Northern Virginia Technology Council.
Robert L. Vence has been Senior Vice President Engineering and Operations
of ORBCOMM from April 1997 to March 1998. Effective April 3, 1998, Mr. Vence
will resign his position with ORBCOMM. From September 1996 to April 1997, Mr.
Vence was Director of Messaging Services for Iridium. From 1987 to 1996, Mr.
Vence was Vice President of Engineering and Operations at SkyTel. From 1984 to
1987, Mr. Vence was Program Manager and Member of Executive Staff for Computer
Sciences Corporation. From 1983 to 1984, Mr. Vence was Senior Manager of Network
Operations for MCI. Mr. Vence's career in high technology began in the United
States Coast Guard in 1963. During his 20-year tenure in the Coast Guard, he
centralized its nationwide air and ground voice communications system, managed
Atlantic and Gulf Coast communications and navigation system stations, managed a
worldwide very low frequency radio navigation system and served as aircraft
commander of a C-130 unit.
Abdul H. Rana has been Senior Vice President Product Management and
Development of ORBCOMM since December 1997. From January 1997 to December 1997,
Dr. Rana was Vice President of Engineering and Technology Services for GE
LogistiCom, where he provided technical leadership for development and launch of
a low-cost mobile satellite communications product for asset management. From
1984 to 1996, Dr. Rana held several positions at GTE in the areas of product
development and program management, where, among other achievements, he managed
the launch of several successful commercial data and video products, was three
times the recipient of the GTE Leslie Warner Award, GTE's highest technical
honor, and twice the recipient of President's Awards for personal technical and
professional achievements. Prior to 1984, Dr. Rana held technical and management
positions at COMSAT Labs and ENSCO Incorporated in the areas of satellite
communications and signal processing. Dr. Rana received his Ph.D. in engineering
in 1977 and has 20 years of engineering and product development experience in
telecommunications, satellite and cellular communications and wireless data
networks. Dr. Rana has published over 30 articles in professional journals and
currently is a member of the Institute of Electrical and Electronics Engineers
Inc.
Brian L. Williams has been Senior Vice President Marketing, Strategy and
Communications of ORBCOMM since December 1997. Between May 1997 and December
1997, Mr. Williams was Senior Vice President, Marketing and Product Development
at ORBCOMM, and from January 1997 to May 1997,
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Mr. Williams was Vice President, Marketing, Strategy and Communications at
ORBCOMM. From March 1995 to January 1997, Mr. Williams was Senior Vice President
of Marketing and Business Development for Optex Communications Corporation, a
development stage company creating high-speed, high-capacity data storage and
imaging technologies. From December 1992 to March 1995, he was a director with
Bell Atlantic Video Services Company, where he was instrumental in the formation
of Bell Atlantic's multimedia strategy and many of Bell Atlantic's strategic
partner alliances. From 1986 to 1992, Mr. Williams held several marketing and
product development positions at NEC Technologies, Inc., including the position
of Assistant Vice President of Marketing. Mr. Williams has served on the Board
of Directors for the Electronic Industries Association-Consumer Electronics
Group.
Mary Ellen Seravalli has been Senior Vice President, General Counsel and
Secretary of ORBCOMM since January 1997 and was Vice President and General
Counsel of ORBCOMM from January 1996 to December 1996. Ms. Seravalli has been
Vice President and Secretary of Capital since July 1996. From 1991 to 1995, Ms.
Seravalli was Assistant General Counsel of Orbital and from January 1995 to
December 1995 she was also a Vice President of Orbital. Prior to 1991, Ms.
Seravalli was an associate in the law firm of Jones, Day, Reavis & Pogue, where
she worked on mergers and acquisitions, with an emphasis on the
telecommunications industry, and where she gained significant experience
representing both lenders and borrowers in connection with the establishment of
various types of credit facilities.
PARTNER REPRESENTATION
Pursuant to the Partnership Agreements of ORBCOMM, ORBCOMM USA and ORBCOMM
International, each General Partner is represented at the meetings of the
General Partners by up to three authorized representatives. Each General Partner
may by notice to the other change its designated authorized representatives. Set
forth below is information as of March 31, 1998 regarding each of the General
Partners' representatives.
OCC
David W. Thompson, 44, is a founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of Orbital since 1982. From 1981 to
1982, Mr. Thompson was Special Assistant to the President at Hughes Aircraft
Company's Missile Systems Group. From 1977 to 1979, Mr. Thompson was employed by
NASA at the Marshall Space Flight Center as a project manager and engineer.
Prior to that, he worked on the Space Shuttle's autopilot design at the Charles
Stark Draper Laboratory.
Jeffrey V. Pirone, 37, has been Executive Vice President and Chief
Financial Officer of Orbital since January 1998. Mr. Pirone has also been the
Vice President and Chief Financial Officer of OCC since June 1996. Prior to
January 1998, he held a number of positions at Orbital, including Senior Vice
President and Chief Financial Officer and Vice President and Controller. Prior
to joining Orbital in 1991, Mr. Pirone was a Senior Manager at KPMG Peat Marwick
LLP.
Scott L. Webster is a representative of OCC.
Teleglobe Mobile
Claude Seguin, 48, is Chairman of the Board and Chief Executive Officer of
Teleglobe Mobile Investment Inc., the managing partner of Teleglobe Mobile. He
is also the Executive Vice-President, Finance and Chief Financial Officer of
Teleglobe. Mr. Seguin served the Quebec Finance Ministry as Deputy Minister from
1987 to 1992. Mr. Seguin sits on the boards of Telesystem International Wireless
Corporation, Levesque Beaubien Geoffrion Inc. and La Societe generale de
financement du Quebec. He is also a former governor of the Montreal Exchange and
director of Caisse de depot et placement du Quebec.
William J. Meder, 55, has been President of ORBCOMM Canada Inc., a
majority-owned subsidiary of Teleglobe, since August 1994 and is also a
part-owner of ORBCOMM Canada Inc. Mr. Meder has also been Vice President,
Special Projects of ORBCOMM since July 1997. From 1993 to 1994, Mr. Meder was a
business consultant and, from 1990 to 1993, Chief Operating Officer of Henry
Birks and Sons Ltd. From 1982
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<PAGE> 88
to 1989, Mr. Meder was the Chief Executive Officer of Comp-u-Card Canada, Inc.
and, from 1978 to 1982, Chief Executive Officer of Imperial Manufacturing Inc.
Prior to that, Mr. Meder spent 13 years with IBM in various senior management
positions. Mr. Meder was formerly a chairman of Syscor, an information services
company serving hospitals in the Montreal area, and President of the Young
Presidents Association.
Marc J.E. Leroux, 47, has been President and Chief Operating Officer of
Teleglobe World Mobility, a division of Teleglobe, since 1994. Since 1992, Mr.
Leroux has also served as Vice President, Technology of Teleglobe. Prior to
1992, Mr. Leroux was Senior Manager, Services Development with Bell-Northern
Research Ltd., a telecommunications research and development company.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of all compensation earned,
awarded or paid in the fiscal years ended December 31, 1997, 1996 and 1995, as
applicable, to those persons who were at December 31, 1997, the Chief Executive
Officer and the four other most highly compensated executive officers of ORBCOMM
(collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- ---------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(1) COMPENSATION(2)
- ----------------------------------- ------- -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Alan Parker........................ 1997 $210,000 $ 73,500 -- $14,404
President and Chief Executive 1996 200,000 60,000 -- 16,655
Officer (3) 1995 167,846 33,512 -- 7,905
Robert F. Latham................... 1997(5) 108,692 157,800 70,000 32,250
Executive Vice President and 1996(6) -- -- -- --
Chief Operating Officer (4) 1995(6) -- -- -- --
W. Bartlett Snell..................
Senior Vice President Finance and 1997 160,000 53,965 -- 10,189
Administration, Chief Financial 1996 127,769 44,000 25,000 10,480
Officer and Treasurer 1995(6) -- -- -- --
Brian L. Williams.................. 1997(7) 147,692 68,867 30,000 6,518
Senior Vice President Marketing, 1996(6) -- -- -- --
Strategy and Communications 1995(6) -- -- -- --
Mary Ellen Seravalli............... 1997 150,000 52,531 -- 7,645
Senior Vice President, General 1996 130,000 33,000 20,000 9,342
Counsel and Secretary 1995(6) -- -- -- --
</TABLE>
- ------------------------------
(1) Shares of common stock of OCC subject to options granted under the OCC Stock
Option Plan.
(2) Includes ORBCOMM matching and profit sharing contributions made under
ORBCOMM's 401(k) plan. The 1997 amount for Robert F. Latham also reflects
payments by ORBCOMM of $10,385 in consulting fees prior to his employment by
ORBCOMM and $14,008 in moving expenses paid by ORBCOMM.
(3) In February 1998, Mr. Parker ceased being President and Chief Executive
Officer of ORBCOMM and became President, Global Development of ORBCOMM.
(4) In February 1998, Mr. Latham became President and Chief Operating Officer of
ORBCOMM.
(5) Represents compensation beginning in May 1997 when Mr. Latham started his
employment at ORBCOMM.
(6) No compensation is reported where the individual person did not serve as an
executive officer of ORBCOMM during a given fiscal year.
(7) Represents compensation from the end of January 1997, when Mr. Williams
started his employment at ORBCOMM.
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OCC OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options to the Named Officers
pursuant to the Stock Option Plan during the fiscal year ended December 31,
1997, which options are reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------- POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED RATES OF
SECURITIES % OF TOTAL PRICE ON STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE DATE OF FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE GRANT EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR ($/SHARE) ($/SHARE) DATE 5% 10%
---- ---------- ------------ --------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert F. Latham....... 55,000 19.33 $26.50 $26.50 5/15/07 $916,614 $2,322,800
15,000 5.27 26.50 26.50 7/18/07 249,986 633,513
Brian L. Williams...... 30,000 10.54 26.50 26.50 2/05/07 499,971 1,267,025
</TABLE>
EMPLOYMENT AGREEMENT
On May 15, 1997, ORBCOMM and Robert F. Latham entered into an employment
agreement that sets forth the terms and conditions of Mr. Latham's employment
with ORBCOMM. The employment agreement is for a term of three years commencing
on May 15, 1997, and is automatically extended from year to year thereafter
unless terminated either by ORBCOMM or Mr. Latham. Pursuant to the terms of the
employment agreement, Mr. Latham received a $75,000 signing bonus and is
entitled to a base salary of $180,000 per year. In addition to the signing bonus
and base salary, under the employment agreement Mr. Latham is eligible to
receive from ORBCOMM, among other things, an annual bonus of up to 50% of his
base salary, relocation expenses of up to $50,000 and a loan of up to $50,000.
Mr. Latham was also awarded options to purchase 55,000 shares of OCC common
stock at a price of $26.50 per share. The options vest, pro rata, over a period
of four years with one-fourth vested on the date of the grant, and are generally
governed by the terms of the Stock Option Plan. In the event of a termination of
Mr. Latham's employment, either: (i) by the Company without cause (as defined in
the agreement); or (ii) by Mr. Latham within three months following a change of
control (as defined in the agreement), Mr. Latham will be entitled to receive
from ORBCOMM: (x) a lump sum severance payment of twelve months annual base
salary (in the case of a termination without cause) or a lump sum severance
payment of the remaining balance of Mr. Latham's base salary through the end of
the term of the agreement plus 50% of Mr. Latham's then current annual base
salary (in the case of a change in control); (y) accelerated vesting of OCC
stock options; and (z) relocation expenses of up to $50,000. Pursuant to the
terms of the employment agreement, Mr. Latham has an obligation not to solicit
any employees of ORBCOMM for a period of one year following termination of his
employment with ORBCOMM.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the partnership interests of ORBCOMM as of March 1, 1998.
<TABLE>
<CAPTION>
NAME AND ADDRESS PARTNERSHIP INTEREST
---------------- --------------------
<S> <C>
Orbital Communications Corporation.......................... 50%
21700 Atlantic Boulevard
Dulles, Virginia 20166
Teleglobe Mobile Partners................................... 50%
c/o Teleglobe Inc.
1000, rue de La Gauchetiere ouest
Montreal, Quebec H3B 4X5
</TABLE>
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of ORBCOMM, OCC, Teleglobe Mobile and Orbital have entered into a
series of agreements or arrangements for the development, construction,
operation and marketing of the ORBCOMM system. The following paragraphs are a
summary of the material provisions of certain of these agreements and are
qualified in their entirety by reference to the actual agreements, which are
filed as exhibits to or incorporated by reference in this report.
MASTER AGREEMENT
As of June 30, 1993, Orbital, OCC, Teleglobe and Teleglobe Mobile entered
into the Master Agreement that sets forth the principles upon which the parties
have agreed to develop, construct and operate the ORBCOMM system. The Master
Agreement subsequently has been amended and restated and currently provides for
the following:
Covenants Relating to OCC. Orbital and OCC have agreed: (i) to preserve
OCC's corporate existence; (ii) to use all commercially reasonable efforts to
obtain and maintain all material U.S. operating licenses and permits necessary
for the construction, operation and marketing of the ORBCOMM system; (iii) to
ensure that so long as OCC holds any FCC licenses, OCC will (a) remain a
subsidiary of Orbital, other than as a result of options exercised under the OCC
Stock Option Plan; (b) carry on no business other than the construction,
operation and marketing of the ORBCOMM system or businesses that are in
furtherance of, or in connection with, the expansion of the ORBCOMM system; (c)
remain the sole holder of all FCC licenses required for the construction, launch
and operation of the ORBCOMM system (other than FCC licenses for individual user
transceivers and FCC licenses held by ORBCOMM); (iv) subject to certain
exceptions, that OCC will not grant, create, assume, incur or suffer to exist
any lien affecting OCC or any of its property, rights, revenues or assets and
that in no circumstances will OCC grant, create, assume, incur or suffer to
exist any lien on any FCC licenses held by OCC; (v) subject to certain
exceptions, that Orbital will not dispose of any debt interest in OCC and that
OCC will not sell, transfer, convey, lease or otherwise dispose of any assets;
(vi) that OCC will not consolidate, merge or amalgamate with any other person;
(vii) subject to certain exceptions in accordance with the Definitive Agreements
(as defined), that Orbital and OCC will not create, amend or repeal any by-laws
or modify the OCC certificate of incorporation; (viii) subject to certain
exceptions in accordance with the Definitive Agreements, that OCC will not make
any loans or give any financial guarantees for the obligations of any other
party; and (ix) that Orbital and OCC will not make any assignment for the
benefit of creditors or subject OCC to any proceedings under any bankruptcy or
insolvency law or take steps to wind up or terminate OCC's corporate existence
or engage in any financial restructuring.
Covenant Relating to Teleglobe Mobile. Teleglobe and Teleglobe Mobile have
agreed to preserve Teleglobe Mobile's corporate existence.
Guarantees. Teleglobe has unconditionally and absolutely guaranteed the
full and punctual payment of all of Teleglobe Mobile's payment obligations under
the Definitive Agreements to which Teleglobe Mobile is a party. Orbital has
unconditionally and absolutely guaranteed the full and punctual payment of all
of OCC's payment obligations under the Definitive Agreements to which OCC is a
party.
Change of Control. In the event of a Change of Control (as defined in the
Master Agreement) of Orbital or Teleglobe (the "Change of Control Party"),
Teleglobe Mobile or OCC, as the case may be (the "Non-Change of Control Party"),
has the option: (i) for a period of 180 days from such Change of Control (the
"Option Period") to require the Change of Control Party to purchase the
Non-Change of Control Party's interest in ORBCOMM at an aggregate price equal to
the greater of (a) the Non-Change of Control Party's aggregate Unrecouped
Capital Preferences (as defined in the Master Agreement) in such partnerships
and (b) the Non-Change of Control Party's direct and indirect Participation
Percentage (as defined in the Master Agreement) in each such partnership
multiplied by the fair market value (as defined in the Master Agreement) of each
such partnership; or (ii) to cause the General Partners of ORBCOMM to adopt a
resolution providing that, in the event there is a deadlock on a matter
requiring the approval of a Majority in Interest (as defined in the Master
Agreement) of the Partners, the President of ORBCOMM shall be entitled to decide
on such matter by way of casting a vote or otherwise, as deemed appropriate by
the Non-Change of
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<PAGE> 91
Control Party, notwithstanding any contrary provision set forth in the
Partnership Agreement. Subject to the receipt of all necessary government
approvals, upon a Change of Control of Orbital, Orbital agrees to cause OCC to
transfer to ORBCOMM all FCC licenses then held by OCC relating to the
construction, launch or operation of the ORBCOMM system.
SYSTEM CONSTRUCTION AGREEMENT
Under the terms of the System Construction Agreement, restated as of
September 12, 1995 and subsequently amended, ORBCOMM has agreed to develop,
construct, deploy, manage and operate, subject to OCC's ultimate control, the
ORBCOMM System satellites and the System Assets, in consideration for which OCC
is obligated to remit to ORBCOMM, on a quarterly basis, OCC's allocated portion
of the System Charge calculated in accordance with the ORBCOMM Partnership
Agreement, provided, however, that, if the Output Capacity Charge for any
quarter is less than 1.15% of Total Aggregate Revenues, then OCC shall not be
required to pay any portion of the System Charge for such calendar quarter.
OCC has granted to ORBCOMM under the System Construction Agreement the
right to market, sell, lease and franchise all output capacity outside the
United States.
ORBCOMM has agreed to indemnify OCC from and against any claim with respect
to an infringement or other violation of any copyright, trademark or patent or
other validly registered enforceable intellectual property right of any third
party for any items constructed by ORBCOMM pursuant to the authority granted in
the System Construction Agreement, but only to the same extent as the
indemnification received by ORBCOMM from Orbital pursuant to the Procurement
Agreement.
PROCUREMENT AGREEMENT
As of September 12, 1995, ORBCOMM and Orbital entered into the Procurement
Agreement pursuant to which Orbital has undertaken the overall design,
development, construction, integration, test and operation of the ORBCOMM
system. The Procurement Agreement was the result of arm's-length negotiations
between Orbital and Teleglobe Mobile that took place prior to Teleglobe Mobile's
decision to exercise an option to invest an approximately $75 million in
additional equity in ORBCOMM. The Procurement Agreement has subsequently been
amended and currently provides for the following:
Under the Procurement Agreement, Orbital will develop, construct and
deliver and launch 34 ORBCOMM satellites (ten of which have been launched) and
complete the construction and design of the U.S. Ground Segment. Under the
Procurement Agreement Orbital will launch the satellites using three Pegasus
launch vehicles and the Taurus launch vehicle. To date, Orbital has successfully
launched eight satellites on a Pegasus launch vehicle and two satellites on a
Taurus launch vehicle. Orbital will also provide in-orbit check-out support for
up to 120 days after each of the satellite launches.
ORBCOMM has agreed to pay Orbital approximately $196.4 million for
satellite construction, launch services and other work specified in the
Procurement Agreement, not including certain incentive fees. On execution of the
Procurement Agreement, ORBCOMM paid to Orbital approximately $17 million
representing reimbursement for certain costs incurred through the date thereof.
Under the Procurement Agreement, Orbital is entitled to invoice ORBCOMM monthly
for a maximum of 90% of certain costs incurred during each month. The remaining
ten percent of costs incurred in any month may be invoiced only on completion of
certain specified project milestones referred to in the Procurement Agreement as
Category B Milestones.
The remaining balance of the fixed price contract amount is generally
allocated to Category A Milestones as defined in the Procurement Agreement. In
the event that Orbital fails to achieve any Category A Milestone on or before
the scheduled completion date, ORBCOMM is relieved of its obligation to pay the
applicable amounts specified for such Category A Milestone until such time as
Orbital achieves such Category A Milestone or obtains a waiver in writing from
ORBCOMM for such achievement; provided, however, that
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<PAGE> 92
Orbital's failure to timely complete any milestone shall not relieve ORBCOMM of
its obligation to pay for other achieved milestones.
Incentive Payments. In addition to the above prices for work and service,
Orbital is entitled to receive certain in-orbit performance incentive payments.
Payments are to be made on a per-plane basis with the incentive to be earned
monthly for each complete month that there are a specified minimum number of
working satellites in the plane. The minimum number of working satellites in a
plane is seven during the first 30 months of the in-orbit performance incentive
period and six during the second 30 months of the in-orbit performance period.
Optional Work. The Procurement Agreement provides for additional work and
services to be performed on an optional basis, including: (i) an option to
purchase on or prior to December 31, 1999 a replacement constellation of 32
satellites substantially similar to those of the current system (including
launch services using four Pegasus launch vehicles) in accordance with the
specifications contained in the Procurement Agreement at a cost of $166.1
million (subject to adjustment for inflation and excluding taxes, if any, and
the cost of launch and satellite insurance); and (ii) a one-time option to
request Orbital to provide a standard Taurus launch vehicle rather than a
Pegasus launch vehicle for any launch procured pursuant to the Procurement
Agreement, which option may be exercised by ORBCOMM on or prior to September 12,
1998 at a price to be negotiated, provided that the price will not exceed $21
million.
Regulatory Matters. Under the terms of the Procurement Agreement, Orbital
is required to use all commercially reasonable efforts directly or through OCC:
(i) to obtain and maintain the required U.S. regulatory authority needed to
construct, launch and operate the satellites and operate the ORBCOMM system;
(ii) to obtain and maintain FCC regulatory authority for the operation of
subscriber units for use in connection with the ORBCOMM system; and (iii) to
take reasonable actions in any regulatory proceedings to defend any claims
against any regulatory authority granted to Orbital or OCC in connection with
the ORBCOMM system or to oppose any application by competing systems that use
frequencies below 1 GHz. ORBCOMM has agreed to pay or reimburse Orbital or OCC
for all out-of-pocket expenses and internal costs incurred in connection with
Orbital's or OCC's efforts.
Delivery; Title and Risk of Loss. Under the Procurement Agreement, with
respect to a satellite launch using the Pegasus launch vehicle, delivery of the
launch vehicle and satellites occurs on separation of the launch vehicle from
Orbital's L-1011 aircraft. With respect to a satellite launch using a Taurus
launch vehicle, delivery of the satellites occurs on intentional ignition of the
Taurus launch vehicle. At such time, title to and risk of loss or damage passes
to ORBCOMM and ORBCOMM's sole remedy for launch failure, defects, failures to
conform to applicable specifications or any other requirements is limited to:
(i) non-payment to Orbital of the specified milestone payment and any satellite
performance incentive payment; and (ii) termination of the Procurement
Agreement.
Limitation of Liability. Under no circumstances, regardless of fault,
shall Orbital be liable for any damage greater than $10 million excluding: (i)
any unpaid portion of Category A Milestone payments; and (ii) any unpaid portion
of the in-orbit performance incentive payment.
Stop Work. ORBCOMM may at any time by written order to Orbital require
Orbital to stop all or any part of the work called for by the Procurement
Agreement for a period of 60 days or for any further period to which the parties
may agree. Within a period of 60 days after a stop-work is delivered to Orbital,
or within any extension of that period to which the parties agree, ORBCOMM will
either cancel the stop-work order and make an equitable adjustment to the
Procurement Agreement for the delay or terminate the work as provided in the
Procurement Agreement or if Orbital otherwise agrees to terminate.
Intellectual Property. In general, all designs, inventions, processes,
technical data, drawings and/or confidential information related to the
satellites, launch vehicle launch services, the Network Control Center and U.S.
Gateway Earth Stations are the exclusive property of Orbital and its
subcontractors. All rights, title and interest in and to all underlying
intellectual property relating to the work to be performed pursuant to the
Procurement Agreement will remain exclusively in Orbital and its subcontractors,
notwithstanding Orbital's disclosure of any information or delivery of any data
items to ORBCOMM or ORBCOMM's payment to
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Orbital for engineering or non-recurring charges. ORBCOMM will not use or
disclose such information or property to any third party without the prior
written consent of Orbital.
Termination. ORBCOMM may, by written notice of termination to Orbital,
terminate the Procurement Agreement upon the failure of Orbital: (i) to achieve
any of the Category A Milestones within 56 weeks after the scheduled completion
date set forth in the Milestone Payment Schedule (as defined in the Procurement
Agreement) provided that scheduled completion dates can be extended by any
excusable delays as a result of a force majeure event; or (ii) to comply in any
material respect with any of the provisions of the Procurement Agreement and to
correct such failure, within 60 days from the date of Orbital's receipt of
written notice thereof from ORBCOMM, setting forth in detail ORBCOMM's basis for
termination of the Procurement Agreement.
SYSTEM CHARGE AGREEMENT
OCC and ORBCOMM USA have entered into the System Charge Agreement, restated
as of September 12, 1995, for the purpose of providing for the use by ORBCOMM
USA of all of the output capacity of the ORBCOMM System within the United States
and for the exclusive use by ORBCOMM USA of certain System Assets located within
the United States. The term of the System Charge Agreement commenced on June 30,
1993 and continues until June 30, 2013.
Exclusive Use of U.S. System Capacity. OCC has granted to ORBCOMM USA the
exclusive right in the United States to market, sell, lease and franchise all
ORBCOMM System output capacity and exclusive use of the System Assets located in
the United States. ORBCOMM USA is permitted to grant ORBCOMM International use
of the U.S. Gateway for the limited purpose of operating the ORBCOMM System in
Canada, Mexico and any other country proximate to the United States.
Notwithstanding these provisions of the System Charge Agreement, OCC has
retained all rights in and to, and ORBCOMM USA has been granted no rights to,
the ORBCOMM System.
Output Capacity Charge. In consideration of the grant by OCC to ORBCOMM
USA of the exclusive right to market, sell, lease and franchise all ORBCOMM
System output capacity in the United States, ORBCOMM USA agrees: (i) within 30
days of the end of each calendar quarter, to notify OCC of the total aggregate
revenues invoiced by it during such calendar quarter; and (ii) to remit to OCC
23% of the total aggregate revenues invoiced by it during each calendar quarter.
ORBCOMM USA retains sole discretion to set the fees to be paid by its
subscribers, VARs and licensees for use of the ORBCOMM System.
Indemnification. OCC and ORBCOMM USA agree to indemnify, defend and hold
harmless each other and their respective successors and assigns against any
liability, damage, loss or expense incurred by or imposed upon them in
connection with any claims, suits, actions, demands or judgments arising out of
any breach of the party's obligations under the System Charge Agreement. In
addition, OCC agrees to indemnify and hold harmless ORBCOMM USA and its
respective successors and assigns from and against any claim with respect to an
infringement or other violation of any copyright, trademark or patent or other
validly registered enforceable intellectual property right of any third party
for any items OCC has authorized ORBCOMM USA to use under the System Charge
Agreement (but only to the same extent as the indemnification received by OCC
from ORBCOMM, if any, under the terms of the System Construction Agreement).
INTERNATIONAL SYSTEM CHARGE AGREEMENT
ORBCOMM, ORBCOMM International and Teleglobe Mobile have entered into the
International System Charge Agreement, restated as of September 12, 1995, for
the purpose of: (i) providing for the use by Teleglobe Mobile of all of the
ORBCOMM System output capacity and exclusive use of the System Assets located in
all areas of the world outside of the United States (the "Non-U.S. Area"); and
(ii) providing the means by which Teleglobe Mobile will grant to ORBCOMM
International an exclusive right in the Non-U.S. Area to market, sell, lease and
franchise all ORBCOMM System output capacity. The term of the International
System Charge Agreement commenced on June 30, 1993 and continues until the
earlier of
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June 30, 2013 and the date on which Teleglobe Mobile ceases to be a general and
limited partner of ORBCOMM.
Exclusive Use of System Capacity Outside the United States. ORBCOMM has
granted to Teleglobe Mobile the exclusive right in the Non-U.S. Area to market,
sell, lease and franchise all ORBCOMM System output capacity and exclusive use
of the System Assets located in the Non-U.S. Area. Teleglobe Mobile, in turn,
has granted to ORBCOMM International the exclusive right in the Non-U.S. Area to
market, sell, lease and franchise all ORBCOMM System output capacity and
exclusive use of the System Assets located in the Non-U.S. Area. OCC ultimately
has retained all rights in and to, and neither Teleglobe Mobile nor ORBCOMM
International has been granted rights to, the ORBCOMM System.
System Charge. In consideration of the grant to Teleglobe Mobile of the
exclusive right to market, sell, lease and franchise all ORBCOMM System output
capacity in the Non-U.S. Area, Teleglobe Mobile agrees to remit to ORBCOMM
Teleglobe Mobile's allocated portion of the System Charge for that calendar
quarter calculated in accordance with the ORBCOMM Partnership Agreement. If the
International Output Capacity Charge for such calendar quarter is less than
1.15% of Total Aggregate Revenues, then Teleglobe Mobile is not required to pay
any portion of the System Charge for such calendar quarter.
International Output Capacity Charge. In consideration of the grant by
Teleglobe Mobile to ORBCOMM International of the exclusive right to market,
sell, lease and franchise all ORBCOMM System output capacity in the Non-U.S.
Area, ORBCOMM International agrees: (i) within 30 days of the end of each
calendar quarter, to notify ORBCOMM of the total aggregate revenues invoiced by
it during such calendar quarter; and (ii) to remit to Teleglobe Mobile 23% of
the total aggregate revenues invoiced by it during each calendar quarter.
ORBCOMM International retains sole discretion to set the fees to be paid by its
subscribers, VARs and International Licensees for use of the ORBCOMM System.
Indemnification. With regard to patent infringement claims, ORBCOMM agrees
to defend, indemnify and hold harmless Teleglobe Mobile and ORBCOMM
International and their respective successors and assigns from and against any
claim with respect to an infringement or other violation of any copyright,
trademark or patent or other validly registered enforceable intellectual
property right of any third party for any items ORBCOMM has authorized Teleglobe
Mobile and ORBCOMM International to use under the International System Charge
Agreement but only to the same extent as the indemnification received by ORBCOMM
from Orbital, if any, under the Procurement Agreement.
PROPRIETARY INFORMATION AND NON-COMPETITION AGREEMENT
ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe Mobile have entered into the
Proprietary Information and Non-Competition Agreement to protect any
confidential and proprietary information that may be disclosed to one another in
connection with the development, construction, operation and marketing of the
ORBCOMM system. The parties to the agreement that are in receipt of proprietary
information agree that they will not, during and for a period of five years
after the term of the agreement, use, disclose or otherwise disseminate such
proprietary information to any person or make any use of the proprietary
information for their own benefit or for the benefit of any other person.
Orbital and Teleglobe entered into the agreement for the additional purpose of
prohibiting direct competition between the two entities in the provision of
certain LEO satellite services during the term of the agreement and for a period
of one year thereafter.
Orbital and Teleglobe agree that for the duration of the agreement and for
one year thereafter, they will not, directly or indirectly or in any capacity:
(i) except in connection with the fulfillment of their respective obligations
under any of the Definitive Agreements, carry on, engage, participate, invest or
have an equity or any financial interest in the marketing, construction,
development or management of any business or enterprise that competes with
Orbital or Teleglobe or their respective affiliates in offering commercial, LEO,
non-voice satellite communications services operating in the 137-150 MHz band or
such other frequency allocated to the Little LEO MSS below 1 GHz, provided,
however, that OCC and Orbital are permitted to: (a) sell satellites, launch
vehicles, launch services and communications services to non-commercial entities
without limitation; and (b) provide all other entities up to two satellites
every two years and launch vehicles or launch services for up to two satellites
every two years; (ii) assist in or influence the hiring by any person who
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competes with Orbital or Teleglobe or their respective affiliates of any
salesman, distributor, or employee of Orbital or Teleglobe or their respective
affiliates, or otherwise cause any person having a business relationship with
Orbital or Teleglobe or their respective affiliates to sever such relationship;
or (iii) employ any person to work on or represent the ORBCOMM system who will
also work on or represent another mobile communications system, without first
notifying the President of ORBCOMM.
Neither of Orbital or Teleglobe will be in default of its obligations under
this portion of the Proprietary Information and Non-Competition Agreement by
virtue of holding for portfolio purposes as a passive investor no more than five
percent of the issued and outstanding public equity securities of a corporation.
Indemnification. Orbital and Teleglobe agree to indemnify and save
harmless one another and their respective affiliates and representatives (an
"indemnified party") from and against any claims, demands, actions, causes of
action, judgments, damages, losses, liabilities, costs or expenses that may be
made against any of them as a result of, arising out of or relating to any
violation, contravention or breach of the Proprietary Information and
Non-Competition Agreement by a party who is not an indemnified party.
Termination. The Proprietary Information and Non-Competition Agreement
will terminate on the earlier of OCC or Teleglobe Mobile ceasing to be both a
general partner and a limited partner of ORBCOMM.
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
As of January 1, 1997, ORBCOMM and Orbital entered into the Amended and
Restated Administrative Services Agreement (the "Administrative Services
Agreement") that sets forth the terms on which Orbital has agreed to provide
office space and certain administrative and other services to ORBCOMM. The
Administrative Services Agreement currently provides for the following:
Under the terms of the Administrative Services Agreement, Orbital has
agreed to provide to ORBCOMM defined office space for a total price per month
that is based on ORBCOMM's occupied useable square footage as a percentage of
total useable square footage in any Orbital facility occupied by ORBCOMM, and is
equal to ORBCOMM's pro rata portion of all Orbital's monthly costs and expenses
relating to the applicable facility, including but not limited to rent, mortgage
(including interest), operating expenses, taxes, building maintenance,
utilities, janitorial services, landscaping, management fees and leasehold
improvement amortization for interior buildout. Orbital also has agreed to
provide ORBCOMM with certain use and occupancy services on a cost reimbursable
basis (as specified therein). The use and occupancy services to be provided by
Orbital include management information systems services, security and facilities
support, telephone switchboard and communication services, employee training
services and other support services. Finally, Orbital has agreed to provide
various administrative and executive management services to ORBCOMM on a cost
reimbursable basis (as specified therein). The administrative and executive
management services to be provided by Orbital include accounting support,
payroll processing, miscellaneous purchasing services, personnel services and
other administrative services.
Orbital also has agreed to provide to ORBCOMM certain insurance on a cost
reimbursable basis, including health insurance, property and casualty insurance,
workers compensation insurance, auto liability insurance, general liability
insurance, fiduciary liability insurance, employee dishonesty insurance, transit
insurance and aviation products insurance. Orbital shall be required to provide
such insurance to ORBCOMM until such time as ORBCOMM can commercially procure
its own insurance at a rate comparable to Orbital's, or until such time as the
partners of ORBCOMM determine that ORBCOMM should procure its own insurance.
ORBCOMM has agreed to indemnify Orbital, its directors, officers or
employees against any liability in connection with any actions arising out of
the performance of the services except to the extent that such liability arises
from Orbital's gross negligence or willful misconduct.
The Administrative Services Agreement continues in effect so long as any of
the categories of office space or administrative services are being provided by
Orbital, provided that ORBCOMM has the right to terminate any or all of the
administrative services being provided by Orbital on 90 days prior written
notice to Orbital,
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and provided further that ORBCOMM shall have the right to terminate the
provision by Orbital of any office space occupied by ORBCOMM only upon the
expiration of the lease relating to such office space.
ORBCOMM CANADA INC. CONSULTING AGREEMENT
As of March 18, 1998, ORBCOMM and ORBCOMM Canada Inc. ("ORBCOMM
Canada")entered into the ORBCOMM Canada Consulting Agreement, which currently
provides for the following:
ORBCOMM Canada has agreed to furnish to ORBCOMM certain business and
industry consultancy services including: (i) arranging meetings with senior
executives of Fortune 100 companies with the objective of developing business
relationships for ORBCOMM services; (ii) providing advice and counsel to ORBCOMM
marketing executives to build and extend ORBCOMM business partner relationships;
(iii) acting as the executive contact for certain application developers,
manufacturers and related vendors; (iv) providing advice and counsel to ORBCOMM
management as it develops and improves business processes, with a particular
focus on sales and pricing policies and practices; and (v) establishing
strategic relationships with key partners on a global basis.
In consideration for these consultancy services, ORBCOMM has agreed to pay
ORBCOMM Canada one thousand dollars per day, not to exceed four thousand dollars
in any calendar week. Either party may terminate the ORBCOMM Canada Consulting
Agreement by giving ten days written notice to the other party.
U.S. GATEWAY EARTH STATION MAINTENANCE SERVICE AGREEMENT
As of October 1, 1997, Orbital and ORBCOMM entered into the U.S. Gateway
Earth Station Maintenance Service Agreement for the purpose of Orbital
providing, among other things, to ORBCOMM routine quarterly maintenance, spare
equipment, a site representative, repair services, ORBCOMM satellite launch
support and special projects in accordance with a detailed Statement of Work to
each of the four existing U.S. Gateway Earth Stations. The term of the agreement
is for one year. The routine maintenance includes quarterly visits to each
Gateway Earth Station site by a qualified engineer or senior technician,
transmitter output power tests, command communications tests, environmental
monitoring tests, electrical and mechanical hardware inspections, inspection of
all grounding connections and inspections of the physical facilities at each
Gateway Earth Station site. Orbital is required to hire a site representative to
provide periodic visits to the respective sites and to respond to any failure
within a specified period. Orbital is required under the agreement to establish
a primary and back-up 24-hour point of contact to respond to ORBCOMM telephone
queries and alerts. Finally, the agreement provides that Orbital and ORBCOMM
will identify special projects where performance characteristics, availability,
reliability, life or operational readiness of the ORBCOMM sites can be enhanced.
ORBCOMM may terminate the agreement in whole or in part, at any time by
providing written notice to Orbital.
ORBCOMM RESELLER AGREEMENT WITH ORBITAL SCIENCES CORPORATION
On March 3, 1997, ORBCOMM entered into a Reseller Agreement with Orbital.
The agreement has subsequently been amended and currently provides that, subject
to certain exclusions, ORBCOMM grants to Orbital the non-exclusive right to
market and resell ORBCOMM products and services for Intelligent Transportation
System monitoring, tracking and messaging applications to Federal, state and
local government and commercial accounts. The agreement provides that Orbital
will pay to ORBCOMM an activation fee for each new subscriber and monthly access
and usage fees for each new and current subscriber solicited by Orbital to use
the ORBCOMM system.
The term of the agreement is for one year renewable automatically for
additional terms of one year each unless either party gives 60 days' written
notice to the other party.
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SERVICE LICENSE AGREEMENTS WITH ORBCOMM CANADA INC. AND CELCOM
On December 19, 1995 and October 10, 1996, ORBCOMM entered into Service
License Agreements with two International Licensees, ORBCOMM Canada Inc., a
majority-owned subsidiary of Teleglobe, and Celcom, a wholly owned subsidiary of
TRI, respectively. Under the terms of each agreement, which each provides for an
initial ten year term and is renewable for up to an additional ten years,
ORBCOMM has granted to each International Licensee an exclusive license to
market ORBCOMM services throughout its territory and a nonexclusive license to
market ORBCOMM services in international waters.
Each agreement provides that each International Licensee will obtain the
necessary regulatory approvals, procure the necessary ground infrastructure and
use commercially reasonable efforts to advertise, promote and market the ORBCOMM
system throughout the territory. In addition, each International Licensee has
agreed to pay certain license fees according to the provisions of each
agreement. Finally, each International Licensee pays to ORBCOMM a monthly
satellite usage fee based on the greater of a percentage of gross operating
revenues and a data throughput fee.
SUBSCRIBER UNIT MANUFACTURE AGREEMENT WITH MAGELLAN
As of July 31, 1996, and for a ten-year term, ORBCOMM entered into a
Subscriber Unit Manufacture Agreement with Magellan, a majority-owned subsidiary
of Orbital. Under the terms of the agreement, Magellan agrees to manufacture,
distribute and service subscriber units to be used with the ORBCOMM system
according to specifications and technical requirements established by ORBCOMM.
Under the terms of the agreement, ORBCOMM authorizes Magellan to use the
ORBCOMM-developed subscriber unit software in subscriber units Magellan offers
for sale to ORBCOMM or to any other buyer. ORBCOMM also authorizes Magellan to
manufacture and sell each subscriber unit that has been type approved by
ORBCOMM. Under the terms of the agreement, ORBCOMM does not remit any payments
to Magellan for the development, manufacture or delivery of any subscriber units
not specifically purchased by ORBCOMM. Moreover, the agreement provides that
Magellan shall pay to ORBCOMM per-subscriber unit royalty for each unit that
Magellan sells. Under a letter agreement dated as of March 19, 1998 between
ORBCOMM and Magellan, ORBCOMM has agreed to pay to Magellan a subsidy for each
Magellan subscriber unit sold through March 1999, up to an aggregate of $2.4
million.
THE PARTNERSHIP AGREEMENTS
The following paragraphs are a summary of certain provisions of the
Partnership Agreements, restated as of September 12, 1996, of each of ORBCOMM,
ORBCOMM USA and ORBCOMM International and such summary is qualified in its
entirety by reference to such Partnership Agreements. Each of the Partnership
Agreements are substantially identical. Unless otherwise described herein,
references to the "Partnership" constitute references to ORBCOMM, ORBCOMM USA
and ORBCOMM International, collectively, and references to the "Partnership
Agreement" constitute references to the Partnership Agreements of ORBCOMM,
ORBCOMM USA and ORBCOMM International, collectively.
Organization and Duration. The Partnership will dissolve on December 31,
2013, unless sooner dissolved on the written consent of all of the General
Partners or upon removal, withdrawal, resignation, liquidation or bankruptcy of
the last remaining General Partner (unless a new General Partner is appointed
within 90 days with the unanimous consent of the remaining partners).
General Partners; Management. OCC and Teleglobe Mobile are the general
partners of ORBCOMM. ORBCOMM and OCC are the general partners of ORBCOMM USA and
ORBCOMM and Teleglobe Mobile are the general partners of ORBCOMM International.
The management of the Partnership is the exclusive responsibility of the General
Partners and, except as provided by law or except as specified in the
Partnership Agreement and summarized below, the act of the General Partners
holding a majority of the Participation Percentages of the Partnership (a
"Majority in Interest") is the act of the Partnership.
The Partnership Agreement provides for meetings of the General Partners to
be called by any General Partner. It is the current practice of the Partnerships
to hold regular meetings of the General Partners on at
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least a quarterly basis. Each General Partner is represented at the meetings by
up to three authorized representatives, although one representative of each
general partner is entitled to vote such General Partner's Participation
Percentage.
The Partnership Agreement provides for the election of officers to provide
for the day-to-day operation of the Partnership. Officers are nominated by the
President of the Partnership and elected by the General Partners. Officers
exercise the authority granted to such officers by the General Partners. Under
the terms of the ORBCOMM Partnership Agreement, the General Partners are
required to appoint one or more officers to have authority to act for the
Partnership with respect to the Procurement Agreement. Officers are subject to
removal for any reason by approval of the General Partners.
Certain Actions. Under the Partnership Agreement, the approval of at least
86% of the Participation Percentages held by the General Partners is required
to: (i) transfer all or substantially all the assets of the Partnership; (ii)
merge or consolidate the Partnership with any other person; (iii) permit the
entry by the Partnership into any additional lines of business; (iv) admit any
new Partner to the Partnership; (v) subject to certain exceptions in furtherance
of the business of the Partnership, cause the Partnership to borrow any amount
on a recourse basis or any amount in excess of $5 million on a non-recourse
basis; (vi) subject to certain exceptions set forth in the Partnership
Agreement, enter into any transaction with an affiliate of a General Partner
(excluding the Definitive Agreements); (vii) select or remove the independent
certified public accountant for the Partnership or adopt, or modify in any
material respect, any significant accounting policy or tax policy; (viii) make
on behalf of the Partnership an assignment for the benefit of creditors, decide
on behalf of the Partnership to subject the Partnership to any proceedings under
any bankruptcy or insolvency law, decide to avail the Partnership of the benefit
of any other legislation for the benefit of debtors, or take steps to wind up or
terminate the existence of the Partnership; (ix) delegate any of the powers of
the Partnership; (x) determine the value of the Partnership for purposes of the
Master Agreement; and (xi) amend any provision of the Partnership Agreement. No
amendment to the Partnership Agreement may: (i) decrease the capital account or
increase the amount required to be contributed by a Partner without the consent
of such Partner; or (ii) amend the provisions of, or adopt any provisions
inconsistent with, Sections 6.2, 6.3 and 6.4 of the Partnership Agreement, which
provisions regard super-majority approval requirements for certain actions of
the Company, enforcement of the Definitive Agreements and meetings of the
General Partners, respectively.
The Partnership Agreement also provides that: (i) any action of the
Partnership with respect to the enforcement by it of its rights under any
Definitive Agreement or other contract or agreement to which any General Partner
or any affiliate thereof is a party with respect to a breach, default or dispute
by such General Partner or affiliate, requires the approval of General Partners
having a majority of the Participation Percentages held by the General Partners
other than such General Partner; and (ii) subject to the limitations set forth
in (i) above, in the event that a Majority in Interest of the General Partners,
each acting in the best interests of the Partnership, shall be unable to agree
on exercising or enforcing the rights of the Partnership under the Procurement
Agreement including, without limitation, the rights to exercise the options
thereunder, to stop work, to request changes and to send notices to preserve or
exercise any such rights, then the President of the Partnership shall decide on
the appropriate action with respect to such rights, and the Partnership shall
then act upon such decision. The ORBCOMM Partnership Agreement also provides
that so long as ORBCOMM holds voting rights in either of ORBCOMM USA or ORBCOMM
International, each General Partner shall be entitled to exercise directly a
fraction of ORBCOMM's rights determined by dividing such General Partner's
Participation Percentage by the total Participation Percentages held by all
General Partners.
Capital Contributions. Pursuant to the terms of the ORBCOMM Partnership
Agreement, OCC is obligated to contribute up to approximately $75 million, and
Teleglobe Mobile is obligated to contribute up to approximately $85 million, of
capital to ORBCOMM, all of which was contributed prior to the consummation of
the Old Notes Offering.
Under the terms of the ORBCOMM USA Partnership Agreement, OCC and the
Company together were obligated to contribute nominal capital to ORBCOMM USA in
the amount of $10,000. Under the terms of the ORBCOMM International Partnership
Agreement, Teleglobe Mobile and the Company together were
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obligated to contribute nominal capital to ORBCOMM International in the amount
of $10,000. Pursuant to a resolution adopted by the General Partners of ORBCOMM
on September 12, 1995, ORBCOMM agreed that until December 31, 1996, ORBCOMM
would provide interest-free loans to each of ORBCOMM USA and ORBCOMM
International in an amount equal to their monthly net cash requirements so long
as such cash requirements are generally in accordance with a budget approved by
ORBCOMM or the executive management of ORBCOMM.
System Charge. The ORBCOMM Partnership Agreement provides for the
remittance of the System Charge by OCC and Teleglobe to ORBCOMM each calendar
quarter. OCC's allocated portion of the System Charge for a calendar quarter is
equal to the Output Capacity Charge for such calendar quarter minus 1.15% of the
Total Aggregate Revenues. Teleglobe Mobile's allocated portion of the System
Charge for a calendar quarter is equal to the International Output Capacity
Charge for such calendar quarter minus 1.15% of the Total Aggregate Revenues.
Indemnification. The Partnership has agreed to indemnify its General
Partners and all of their respective officers, directors, partners, employees,
and agents (each an "Indemnitee") from and against any and all claims or
liabilities arising out of or in connection with any action taken or omitted by
the General Partners or the officers of the Partnership pursuant to authority
granted by the Partnership Agreement so long as such Indemnitee's conduct did
not constitute gross negligence, willful or wanton misconduct or bad faith. The
Partnership Agreement further provides that the General Partners and all of
their respective officers, directors, partners, employees and agents (each a
"General Partner Person") will not be liable to the Partnership or the limited
partners for any act or omission by such General Partner Person, except as such
act or omission results from gross negligence, willful or wanton misconduct or
bad faith.
Liquidation and Distribution of Proceeds. Upon the dissolution of the
Partnership, the General Partners, or, in the case of the removal, withdrawal,
resignation, liquidation or bankruptcy of the last remaining General Partner,
one of the limited partners elected by a majority vote of the limited partners,
shall act as liquidator to wind up the Partnership. The liquidator shall have
full power and authority to sell, assign and encumber any or all of the
Partnership's assets and to wind up and liquidate the affairs of the Partnership
in an orderly and business-like manner. All proceeds from liquidation shall be
distributed in the following order of priority: (i) to the payment of the debts
and liabilities of the Partnership and expenses of liquidation; (ii) to the
setting up of such reserves as the liquidator may reasonably deem necessary for
any contingent liability of the Partnership; and (iii) the balance to the
Partners in the proportions of their positive capital account balances, if any
(determined after taking into account all allocations of Net Income and Net Loss
for the year of liquidation).
Allocations and Distributions. Allocations of Net Income and Net Loss of
the Partners shall generally be allocated to the capital accounts of Partners in
proportion to their Participation Percentage. Except as set forth below, or in
the case of liquidating distributions, the amount and timing of distributions by
the Partnership are determined in the discretion of the General Partners. All
distributions will be made to Partners first to return to the Partners their
Capital Preference and, thereafter, to the Partners in proportion to their
Participation Percentages. The Partnership Agreement provides for a minimum
distribution each year in an amount sufficient to ensure that each Partner shall
have received at least an amount equal to the product of: (i) 40% multiplied by
(ii) the lesser of (a) such Partner's distributive share of the Partnership's
taxable income for the preceding year, and (b) the excess, if any, of cumulative
Net Income over cumulative Net Loss allocated to such Partner since the
inception of the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The Financial statements listed in the index to the Financial
Statements that appears on page of this Report on Form 10-K are filed
as part of this Report.
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<PAGE> 100
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are
inapplicable or are not required.
(b) Reports on Form 8-K
Neither ORBCOMM nor Capital has previously been required to file a
Report on Form 8-K under the Act.
(c) Exhibits.
<TABLE>
<S> <C>
2(a) Purchase Agreement, dated as of August 2, 1996, by and among
ORBCOMM Capital, ORBCOMM USA, ORBCOMM International, OCC,
Teleglobe Mobile, Bear Stearns & Co. Inc., J.P. Morgan
Securities Inc. and RBC Dominion Securities Company.
3 Organizational Documents.
3.1(a) Certificate of Limited Partnership of ORBCOMM.
3.2(a) Restated Agreement of Limited Partnership of ORBCOMM.
3.2.1(d) Amendment No. 1 to Restated Agreement of Limited Partnership
of ORBCOMM dated December 2, 1996.
3.3(a) Certificate of Limited Partnership of ORBCOMM USA.
3.4(a) Restated Agreement of Limited Partnership of ORBCOMM USA.
3.5(a) Certificate of Limited Partnership of ORBCOMM International.
3.6(a) Restated Agreement of Limited Partnership of ORBCOMM
International.
4(a) Indenture, dated as of August 7, 1996, by and among ORBCOMM,
Capital, ORBCOMM USA, ORBCOMM International, OCC, Teleglobe
Mobile and Marine Midland Bank.
10 Material Contracts.
10.2(a) Pledge Agreement, dated as of August 7, 1996, by and among
ORBCOMM, Capital, and Marine Midland Bank as Collateral
Agent.
10.3(a) International System Charge Agreement, restated as of
September 12, 1995, by and among ORBCOMM, Teleglobe Mobile
and ORBCOMM International.
10.4(a) Master Agreement, restated as of September 12, 1995, by and
among ORBCOMM, Orbital, ORBCOMM, Teleglobe and Teleglobe
Mobile.
10.4.1(b) Amendment No. 1 to Master Agreement, dated as of February 5,
1997 by and among OCC, Orbital, Teleglobe and Teleglobe
Mobile.
10.5(a) Procurement Agreement, dated as of September 12, 1995, by
and between ORBCOMM and Orbital (provided that Appendix I is
incorporated by reference to Exhibit 10.24.6 to the
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1993 filed by Orbital on August 13, 1993).
10.5.1(c) Amendment No. 1 to Procurement Agreement dated December 9,
1996 between Orbital and ORBCOMM.
10.5.2(b) Amendment No. 2 to Procurement Agreement dated March 24,
1997 between Orbital and ORBCOMM.
10.6(a) Proprietary Information and Non-Competition Agreement,
restated as of September 12, 1995, by and among ORBCOMM,
Orbital, OCC, Teleglobe, Teleglobe Mobile, ORBCOMM USA, and
ORBCOMM International.
10.7(a) System Charge Agreement, restated as of September 12, 1995,
by and between OCC and ORBCOMM USA.
10.8(a) System Construction Agreement, restated as of September 12,
1995, by and between ORBCOMM and OCC.
10.9(a) Amendment No. 1 to System Construction Agreement, dated as
of July 1, 1996, by and between ORBCOMM and OCC.
10.10(a) Service License Agreement, dated as of December 19, 1995,
between ORBCOMM International and ORBCOMM Canada Inc.
10.11(a) Service License Agreement, dated as of October 10, 1996,
between ORBCOMM International and Cellular Communications
Network (Malaysia) Sdn. Bhd.
</TABLE>
98
<PAGE> 101
<TABLE>
<S> <C>
10.12(a) Service License Agreement, dated as of October 15, 1996,
between ORBCOMM International and European Company for
Mobile Communicator Services, B.V., ORBCOMM Europe.
10.13(a) Ground Segment Procurement Contract, dated as of October 10,
1996, between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd.
10.14(a) Ground Segment Facilities Use Agreement, dated as of
December 19, 1995, between ORBCOMM International and ORBCOMM
Canada Inc.
10.15(a) Ground Segment Procurement Contract, dated as of October 15,
1996, between ORBCOMM International and European Company for
Mobile Communicator Services, B.V., ORBCOMM Europe.
10.16* Orbital Communications Corporation 1992 Stock Option Plan.
10.17* Amended and Restated Administrative Services Agreement,
dated as of January 1, 1997 by and between ORBCOMM and
Orbital.
10.18* U.S. Gateway Earth Station Maintenance Service Agreement
dated as of October 1, 1997 by and between Orbital and
ORBCOMM.
10.19* Subscriber Communicator Manufacture Agreement dated as of
July 31, 1996 by and between ORBCOMM and Magellan
Corporation.
10.20* Reseller Agreement dated as of March 3, 1997 by and between
ORBCOMM USA and Orbital Sciences Corporation (the "Reseller
Agreement").
10.20.1* Amendment No. 1 to the Reseller Agreement dated as of
September 2, 1997.
10.21* Employment Agreement dated as of May 15, 1997 by and between
ORBCOMM and Robert F. Latham.
10.22* Consulting Agreement dated as of March 18, 1998 by and
between ORBCOMM and ORBCOMM Canada Inc.
21(c) Subsidiaries of the Registrants.
27* Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to ORBCOMM's
Registration Statement on Form S-4, as amended (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to ORBCOMM's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by
ORBCOMM on May 14, 1997.
(c) Incorporated by reference to the identically numbered exhibit to ORBCOMM's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed
by ORBCOMM on March 28, 1997.
(d) Incorporated by reference to Exhibit 10.16.1 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Orbital 1996 Form
10-K") of Orbital, filed by Orbital on March 27, 1997.
(e) Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 of Orbital, filed by Orbital on
March 28, 1996.
(f) Incorporated by reference to Exhibit 10.8.1 to the Orbital 1996 Form 10-K.
99
<PAGE> 102
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HERNDON, COMMONWEALTH OF VIRGINIA, ON MARCH 31, 1998.
ORBCOMM GLOBAL, L.P.
By: ORBITAL COMMUNICATIONS
CORPORATION, a general partner
By: /s/ SCOTT L. WEBSTER
------------------------------------
Scott L. Webster,
President
By: TELEGLOBE MOBILE PARTNERS,
a general partner
By: TELEGLOBE MOBILE INVESTMENT INC.,
its managing partner
By: /s/ CLAUDE SEGUIN
------------------------------------
Claude Seguin
Chief Executive Officer
100
<PAGE> 103
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report on Form 10-K has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ SCOTT L. WEBSTER Chief Executive Officer of ORBCOMM March 31, 1998
- ----------------------------------------------------- Global, L.P.
Scott L. Webster (Principal Executive Officer)
/s/ W. BARTLETT SNELL Senior Vice President Finance and March 31, 1998
- ----------------------------------------------------- Administration, Chief Financial
W. Bartlett Snell Officer and Treasurer of ORBCOMM
Global, L.P.
(Principal Financial Officer and
Principal Accounting Officer)
/s/ DAVID W. THOMPSON Director, Orbital Communications March 31, 1998
- ----------------------------------------------------- Corporation
David W. Thompson
/s/ SCOTT L. WEBSTER Director, Orbital Communications March 31, 1998
- ----------------------------------------------------- Corporation
Scott L. Webster
/s/ CLAUDE SEGUIN Director, Teleglobe Mobile Investment March 31, 1998
- ----------------------------------------------------- Inc.
Claude Seguin
/s/ GUTHRIE J. STEWART Director, Teleglobe Mobile Investment March 31, 1998
- ----------------------------------------------------- Inc.
Guthrie J. Stewart
Director, Teleglobe Mobile Investment
- ----------------------------------------------------- Inc.
Wan Aishah Wan Hamid
</TABLE>
101
<PAGE> 104
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HERNDON, COMMONWEALTH OF VIRGINIA, ON MARCH 31, 1998.
ORBCOMM GLOBAL CAPITAL CORP.
By: /s/ SCOTT L. WEBSTER
------------------------------------
Scott L. Webster
President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report on Form 10-K has been signed by the following persons on
behalf of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ SCOTT L. WEBSTER President and Director of ORBCOMM March 31, 1998
- ----------------------------------------------------- Global Capital Corp.
Scott L. Webster (Principal Executive Officer)
/s/ W. BARTLETT SNELL Vice President, Treasurer and March 31, 1998
- ----------------------------------------------------- Director of ORBCOMM Global Capital
W. Bartlett Snell Corp.
(Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
102
<PAGE> 1
EXHIBIT 10.16
ORBITAL COMMUNICATIONS CORPORATION
1992 STOCK OPTION PLAN
(Amended and Restated Effective September 12, 1995)
ARTICLE I
PURPOSE OF PLAN
The purpose of this 1992 Stock Option Plan is to promote the
growth and profitability of Orbital Communications Corporation by providing,
through the ownership of Shares, incentives to attract and retain highly
talented persons to provide managerial and administrative services to the
Company or other entities in which the Company has a significant interest and
to motivate such persons to use their best effort on behalf of the Company.
ARTICLE II
DEFINITIONS
For the purposes of this Plan, the following terms shall have
the meanings set forth in this Article II:
2.01 Accrued Installment. The term "Accrued Installment" shall
mean any vested installment of an Option.
2.02 Board. The term "Board" shall mean the Board of Directors
of the Company.
2.03 Committee. The term "Committee" shall mean a committee
appointed by the Board pursuant to Section 3.04 and constituting two (2)
members of the Board, who shall be entitled to take any action permitted to be
taken by the Committee only after consultation with two (2) individuals
designated by the partners of ORBCOMM Global, other than ORBCOMM, which shall
be by Teleglobe Mobile, as long as Teleglobe Mobile holds at least forty
percent (40%) of the Participating Percentage in ORBCOMM Global, L.P. (as
defined in the Agreement of Limited Partnership of ORBCOMM Global, L.P.)*.
2.04 Company. The term "Company" shall mean Orbital
Communications Corporation, a Delaware corporation, or any successor thereof.
2.05 Director. The term "Director" shall mean a member of the
Board, or a member of the board of directors of any Participating Company.
2.06 Disinterested Person. The term "Disinterested Person" shall
mean any person defined as a disinterested person under Rule 16b-3 of the
Securities and Exchange Commission as promulgated under the Exchange Act.
- -------------
*Amended on November 11, 1997.
<PAGE> 2
2.07 Effective Date. The term "Effective Date" shall mean
September 29, 1992.
2.08 Eligible Person. The term "Eligible Person" shall mean any
employee or officer of any Participating Company, but shall not include any
Director of any Participating Company who is not also an employee or officer of
a Participating Company.
2.09 Exchange Act. The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended from time to time.
2.10 Fair Market Value. The term "Fair Market Value" shall mean
the closing sale price of a Share on the national securities exchange on which
Shares are then principally traded or, if that measure of price is not
available, on a composite index of such exchanges or, if that measure of price
is not available, in a national market system for securities on the date in
question. In the event that there are no sales of Shares on any such exchange
or market on such date, the fair market value of a Share shall be deemed to be
the closing sales price on the next preceding day on which Shares were sold on
any such exchange or market. In the event that such Shares are not listed on
any such market or exchange on such date, a reasonable valuation of the fair
market value of a Share shall be made by the Committee. Any determination of
fair market value made in good faith by the Committee shall be conclusive and
binding on the Company and all Optionees and/or holders of Shares.
2.11 I.R.C. The term "I.R.C." shall mean the Internal Revenue
Code of 1986, as amended from time to time.
2.12 Incentive Stock Option. The term "Incentive Stock Option"
shall mean any Option intended to satisfy the requirements under I.R.C. Section
422(b) as an incentive stock option.
2.13 Nonstatutory Stock Option. The term "Nonstatutory Stock
Option" shall mean any Option granted under the Plan that does not qualify as
an Incentive Stock Option.
2.14 Option. The term "Option" shall mean an option to acquire
Shares granted under the Plan.
2.15 Optionee. The term "Optionee" shall mean an Eligible Person
who has been granted Options.
2.16 ORBCOMM Partnerships. The term "ORBCOMM Partnerships" shall
mean ORBCOMM Global, L.P., ORBCOMM USA, L.P., ORBCOMM International Partners,
L.P. and any successor partnerships thereto; provided, however, that the term
"ORBCOMM Partnership" shall not include any such partnership at any time when
the Company holds, directly or indirectly, a Participation Percentage (as
defined in the applicable partnership agreement) in such partnership
aggregating less than 20%.
2
<PAGE> 3
2.17 Parent Corporation. The term "Parent Corporation" shall
mean a corporation as defined in I.R.C. Section 424(e).
2.18 Participating Company. The term "Participating Company"
shall mean the Company, any Parent Corporation of the Company, any Subsidiary
Corporation of the Company or its Parent Corporation and any ORBCOMM
Partnership.
2.19 Plan. The term "Plan" shall refer to the Stock Option Plan
of the Company set forth herein that provides for the granting of Incentive
Stock Options and Nonstatutory Stock Options.
2.20 Restricted Shareholder. The term "Restricted Shareholder"
shall mean an Optionee granted an Incentive Stock Option who, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company, with stock ownership determined in accordance with the attribution
rules of I.R.C. Section 424(d).
2.21 Shares. The term "Shares" shall mean shares of the
Company's authorized Common Stock, $0.01 par value, and may be unissued shares
or treasury shares or shares purchased for purposes of the Plan.
2.22 Subsidiary Corporation. The term "Subsidiary Corporation"
shall mean a corporation as defined in I.R.C. Section 424(f).
2.23 Teleglobe Mobile. The term "Teleglobe Mobile" shall mean
Teleglobe Mobile Partners, a Delaware general partnership.
2.24 Terminating Transaction. The term "Terminating Transaction"
shall mean any of the following events: (a) the dissolution or liquidation of
the Company; (b) a reorganization, merger or consolidation of the Company with
one or more other corporations as a result of which the Company goes out of
existence or becomes a subsidiary of a corporation other than a corporation
that was a Participating Company immediately prior to such event (which shall
be deemed to have occurred only if such a corporation shall own, directly or
indirectly, eighty percent (80%) or more of the aggregate voting power of all
outstanding equity securities of the Company); (c) a sale of all or
substantially all of the Company's assets to a person or persons other than a
corporation that was a Participating Company immediately prior to such event;
or (d) a sale to one person (or two or more persons acting in concert), other
than to a corporation that was a Participating Company immediately prior to
such event, of equity securities of the Company representing eighty percent
(80%) or more of the aggregate voting power of all outstanding equity
securities of the Company. As used herein or elsewhere in this Plan, the word
"person" shall mean an individual, corporation, partnership, association or
other person or entity, or any group of two or more of the foregoing that have
agreed to act together.
3
<PAGE> 4
2.25 Termination Date. The term "Termination Date" shall mean
September 29, 2002.
2.26 Total Disability. The term "Total Disability" shall mean a
permanent and total disability as that term is defined in I.R.C. Section
22(e)(3).
ARTICLE III
ADMINISTRATION OF PLAN
3.01 Administration by Board. The Plan shall be administered by
the Board. The Board shall have full and absolute power and authority in its
sole discretion to (a) determine which Eligible Persons shall receive Options;
(b) determine the time when Options shall be granted; (c) determine the terms
and conditions, not inconsistent with the provisions of this Plan, of any
Option granted hereunder, including whether such Option is an Incentive Stock
Option or a Nonstatutory Stock Option (except that Incentive Stock Options may
not be granted to any Eligible Person that is not an employee or officer of the
Company, any Parent Corporation of the Company or any Subsidiary Corporation of
the Company or its Parent Corporation); (d) determine the number of Shares
which may be issued upon exercise of the Options; and (e) interpret the
provisions of this Plan and of any Option granted under this Plan.
3.02 Rules and Regulations. The Board may adopt such rules and
regulations as the Board may deem necessary or appropriate to carry out the
purposes of the Plan and shall have authority to do everything necessary or
appropriate to administer the Plan.
3.03 Binding Authority. All decisions, determinations,
interpretations or other actions by the Board shall be final, conclusive and
binding on all Eligible Persons, Optionees, Participating Companies and any
successors-in-interest to such parties.
3.04 Administration by Committee.
(a) The Board shall appoint a Committee to administer the
Plan and exercise all of the powers, authority and discretion of the Board
under the Plan, other than the power and authority to amend and terminate the
Plan under Section 7.01.
(b) At any time the Company has a class of equity
securities registered under the Exchange Act, each member of the Committee must
be a Disinterested Person, and the Board may, but is not required to, take such
other actions as are deemed necessary or advisable to conform the Plan to the
requirements of Rule 16b-3 as promulgated under the Exchange Act.
(c) The Committee shall report to the Board the names of
Eligible Persons granted Options, the number of Shares covered by each Option,
and the terms and conditions of each such Option.
4
<PAGE> 5
(d) Prior to the time that it appoints a Committee to
administer the Plan, the Board shall consult with, and obtain the concurrence
of, the Human Resources Committee of the Board of Directors of Orbital Sciences
Corporation in administering the Plan.
ARTICLE IV
NUMBER OF SHARES AVAILABLE FOR GRANT
Subject to the following provisions of this Article IV, the
maximum aggregate number of Shares which may be optioned and sold under the
Plan is 1,100,000*. In the event that Options granted under the Plan shall,
for any reason, terminate, lapse, be forfeited or expire without being
exercised, the Shares subject to such unexercised Options shall again be
available for the granting of Options under the Plan. In the event that Shares
that were previously issued by the Company, upon exercise of an Option, are
reacquired by the Company as part of the consideration received (in accordance
with Section 6.05(b) hereof) upon the subsequent exercise of an Option or
pursuant to Section 6.06 hereof, such reacquired Shares shall again be
available for the granting of Options hereunder.**
ARTICLE V
TERM OF PLAN
The Plan shall be effective as of the Effective Date and
shall terminate on the Termination Date. No Option may be granted hereunder
after the Termination Date.
ARTICLE VI
OPTION TERMS
6.01 Form of Option Agreement. Any Option granted under the Plan
shall be evidenced by an agreement ("Option Agreement") in such form as the
Board, in its discretion, may, from time to time, approve. Any Option
Agreement shall contain such terms and conditions as the Board may deem
necessary or appropriate and which are not inconsistent with the provisions of
the Plan.
6.02 Option Exercise Price. The option exercise price for Shares
to be issued under this Plan shall be determined by the Board in its sole
discretion, but in no event shall the option exercise price be less than the
Fair Market Value of the Shares in the case of an Incentive Stock Option (or
one hundred and ten percent (110%) of such Fair Market Value in the case of an
Incentive Stock Option granted to a Restricted Shareholder), or less than
eighty-five percent (85%) of the Fair Market Value in the case of a
Nonstatutory Stock Option.
- -----------------------
*Amended on February 6, 1998 to increase number from 900,000 to 1,100,000.
**Amended on December 1, 1997.
5
<PAGE> 6
6.03 Vesting and Exercise of Options. Subject to the limitations
set forth herein and/or in any applicable Option Agreement entered into
hereunder, Options granted under the Plan shall vest and be exercisable in
accordance with the rules set forth in this Section 6.03:
(a) General. Subject to the other provisions of this
Section 6.03, Options shall vest and become exercisable at such time and in
such installments as the Board shall provide in each individual Option
Agreement. Notwithstanding the foregoing, the Board may, in its sole
discretion, accelerate the time at which an Option or installment thereof may
be exercised. Unless otherwise provided in this Section 6.03, in Section
6.04(a) or in the Option Agreement pursuant to which an Option is granted, an
Option may be exercised when Accrued Installments accrue as provided in such
Option Agreement and at any time thereafter until, and including, the day
before the Option Termination Date.
(b) Termination of Options. All installments of an
Option shall expire and terminate on such date as the Board shall determine
("Option Termination Date"), which in no event shall be later than ten (10)
years from the date such Option was granted (five (5) years in the case of an
Incentive Stock Option granted to a Restricted Shareholder).
(c) Termination of Employment other than by Death,
Retirement or Total Disability. In the event that the employment of an
Optionee with a Participating Company is terminated for any reason (other than
death or Total Disability or retirement on or after reaching age 60), any
installments under an Option held by such Optionee that have not accrued as of
the employment termination date shall expire and become unexercisable as of the
employment termination date. All Accrued Installments as of the employment
termination date shall expire and become unexercisable as of the earlier of (i)
three (3) months following the employment termination date; or (ii) the
original Option Termination Date. For purposes of the Plan, an Optionee who is
an employee or officer of any Participating Company shall not be deemed to have
incurred a termination of his employment so long as such Optionee is an
employee or officer of any Participating Company.
(d) Leave of Absence. An approved leave of absence shall
not constitute a termination of employment under the Plan. An approved leave
of absence shall mean an absence approved pursuant to the policy of a
Participating Company for military leave, sick leave, or other bona fide leave,
not to exceed ninety (90) days or, if longer, as long as the employee's right
to re-employment is guaranteed by contract, statute or the policy of a
Participating Company. Notwithstanding the foregoing, in no event shall an
approved leave of absence operate to make an Option exercisable after the
original Option Termination Date.
(e) Death, Retirement or Total Disability of Optionee.
In the event that the employment of an Optionee with a Participating Company is
terminated by reason of death, Total Disability, or retirement on or after
reaching age sixty (60), any unexercised Accrued Installments of Options
granted hereunder to such Optionee shall expire and become unexercisable as of
the earlier of:
6
<PAGE> 7
(i) The applicable Option Termination Date; or
(ii) The first anniversary of the date of
termination of employment of such Optionee by reason of the Optionee's
death, Total Disability or retirement.
Any such Accrued Installments of a deceased Optionee may be
exercised prior to their expiration only by the person or persons to whom the
Optionee's Option rights pass by will or the laws of descent and distribution.
Any Option installments under such a deceased, disabled or retired Optionee's
Option that have not accrued as of the date of the employee's termination of
employment due to death, Total Disability or retirement shall expire and become
unexercisable as of the employment termination date.
(f) Termination of Affiliation of Participating Company.
Notwithstanding the foregoing provisions of this Section 6.03, (i) in the case
of an Optionee who is an employee or officer of a Participating Company other
than the Company, upon an Affiliation Termination (as defined herein) of such
Participating Company or an ORBCOMM Partnership, such Optionee shall be deemed
(for all purposes of the Plan) to have incurred a termination of his employment
for reasons other than death, retirement on or after age 60 or Total
Disability, with such termination to be deemed effective as of the effective
date of said Affiliation Termination and (ii) in the case of an Optionee who is
an employee or officer of a Participating Company that is an ORBCOMM
Partnership, upon an Affiliation Termination of such Participating Company, all
unaccrued installments of any Option held by such Optionee shall vest and
become Accrued Installments immediately prior to the effectiveness of such
Affiliation Termination and thereafter each such Option shall expire and become
unexercisable as of the earlier of (A) the applicable Option Termination Date,
(B) the first anniversary of the Optionee's death, Total Disability or
retirement on or after reaching age 60 or (C) three (3) months following the
date the Optionee's ceases to be employed by any Participating Company or any
ORBCOMM Partnership. As used herein, the term "Affiliation Termination" shall
mean, with respect to a Participating Company, the termination of such
Participating Company's status as an ORBCOMM Partnership or as a Parent or
Subsidiary Corporation of the Company or of Orbital Sciences Corporation.
6.04 Exercise of Options.
(a) Subject to Section 6.09(b), no Options may be
exercised by any Optionee until the Board has determined that the value of
Orbital Sciences Corporation's share of the Company is equal to at least one
hundred twenty-five percent (125%) of the amount of Orbital Sciences
Corporation's investment in the Company, or until September 1, 2001, whichever
is earlier. For purposes of this Section 6.04(a), (i) the "value of Orbital
Sciences Corporation's share of the Company" shall mean the sum of the
percentage of the Company's Common Stock owned by Orbital Sciences Corporation
multiplied by the then Fair Market Value of the Common Stock of the Company as
determined by the Board, plus the principal amount of net intercompany
indebtedness owed by the Company to Orbital Sciences Corporation; and (ii)
"Orbital Sciences Corporation's investment in the Company" shall mean Orbital
Sciences Corporation's investment in, and to the extent not reflected in the
computation of such investment, the cumulative total of all unreimbursed
expenses incurred, and expenditures made by Orbital Sciences Corporation on
behalf
7
<PAGE> 8
of, the Company, net of expenditures that are charged to Independent Research
and Development or directly reimbursed by customers. Any such determination of
the value of Orbital Sciences Corporation's share of the Company, or of Orbital
Sciences Corporation's investment in the Company, made in good faith by the
Board shall be conclusive and binding on the Company and all Optionees.
(b) Subject to the restrictions in Section 6.04(a), an
Option may be exercised in accordance with this Section 6.04 as to all or any
portion of the Shares covered by an Accrued Installment of the Option, from
time to time during the applicable option period, except that an Option shall
not be exercisable with respect to fractions of a Share. Options may be
exercised, in whole or in part, by giving written notice of exercise to the
Company, which notice shall specify the number of Shares to be purchased and
shall be accompanied by payment in full of the purchase price in accordance
with Section 6.05. An Option shall be deemed exercised when such written
notice of exercise has been received by the Company. No Shares shall be issued
until full payment has been made and the Optionee has satisfied such other
conditions as may be required by this Plan, as may be required by applicable
laws, rules or regulations, or as may be adopted or imposed by the Board.
Until the issuance of stock certificates, no right to vote or receive dividends
or any other rights as a stockholder shall exist with respect to Shares subject
to an Option notwithstanding the exercise of the Option. No adjustment will be
made for a dividend or other rights for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 6.09(a).
6.05 Payment of Option Exercise Price.
(a) Except as otherwise provided in Section 6.05(b), the
entire option exercise price shall be paid at the time the Option is exercised
by cashier's check or such other means as deemed acceptable by the Board.
(b) In the discretion of the Board (which, in the case of
an Incentive Stock Option, shall be exercised only at the time of grant), an
Optionee may elect to pay for all or some of the Optionee's Shares with Shares
the Optionee has held for at least six (6) months, subject to all restrictions
and limitations of applicable laws, rules and regulations and subject to the
satisfaction of any conditions the Board may impose, including, but not limited
to, the making of such representations and warranties and the providing of such
other assurances that the Board may require with respect to the Optionee's
title to the Shares used for payment of the exercise price. Such payment shall
be made by delivery of certificates representing Shares, duly endorsed or with
duly signed stock power attached, such Shares to be valued at the Fair Market
Value of such Shares on the day immediately preceding the day notice of
exercise is received by the Company.
6.06 Purchase by the Company of Shares Acquired Pursuant to
Exercise of Option.
(a) Valuation. Provided that there has not yet been a
public offering (within the meaning of the Securities Act of 1933, as amended,
and the rules and regulations thereunder) of the Company's Common Stock, all
Shares acquired pursuant to exercise of an Option that as of the applicable
Valuation Date (as hereinafter defined), have been held by an Optionee at least
six (6) months from the date of exercise of the Option (such Shares, in each
year, the "Payable Shares"),
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shall, at the election of the Optionee exercised in the manner set forth
herein, be purchased by the Company at a price per share equal to the Fair
Market Value of a share of Common Stock on September 1, 1995, September 1, 1996
and September 1, 1997 and in subsequent years on March 1 and September 1 of
each year (each such date is referred to as a "Valuation Date"); provided
further that on the Valuation Date in 1995 only, no more than fifty percent
(50%) of each Optionee's Payable Shares shall become subject to purchase by the
Company. Within thirty (30) days after each such Valuation Date after Options
are exercisable under Section 6.04(a), the Company shall cause the Fair Market
Value of the Shares to be determined in accordance with Section 6.06(b) and
shall notify each holder of Shares acquired pursuant to exercise of an Option
of such Fair Market Value. Within thirty (30) days after receipt of such
notice, each such holder of Shares may elect to have all or any portion of his
or her Payable Shares be purchased by the Company at a price per share equal to
such Fair Market Value by submitting to the Committee an irrevocable written
notice of such election. The rights of an Optionee under this Section 6.06 may
be exercised by the Optionee and any transferee specified in clause (ii) of
Section 6.08(a) (in which case all references herein to "Optionee" shall refer
to such transferee), but shall not be exercisable by any other holder of
Shares, whether or not such holder acquired such Shares in a transfer permitted
by Section 6.08(a).
(b) Method of Valuation. The value of a Share of Company
Common Stock on each Valuation Date shall be determined in good faith by the
Committee, and any such determination shall be conclusive and binding on the
Company and all Optionees and/or holders of Shares. In making any such
determination of Fair Market Value, the Committee may, but shall not be
required to, rely on a determination of Fair Market Value made by an
independent appraiser or other appropriate financial professional selected by
the Committee in its sole discretion and reasonably believed to be competent to
make such determination. No member of the Committee shall have any personal
liability to any Optionee and/or holder of Shares for any determination of Fair
Market Value under this Section 6.06, or any act or omission in connection
therewith, unless the Optionee and/or holder of Shares shall establish that
such determination, act or omission was not made in good faith.
(c) Closing of Purchase of Shares. The closing for any
purchase of Shares pursuant to this Section 6.06 shall occur on such date
within sixty (60) days of the giving by the Company of the notification
required by Section 6.06(a) as the Company shall specify by five (5) business
days' notice to each selling Optionee, at the offices of the Company at 11:00
a.m. local time, or at such other time and place as the parties to such sale
may mutually agree. At the closing, the Optionee shall deliver to the Company
a certificate or certificates representing the Shares to be purchased by the
Company, duly endorsed for transfer, free and clear of any lien or encumbrance,
in exchange for payment of the purchase price (i) by check, (ii) by delivery of
certificates representing shares of Common Stock of Orbital Sciences
Corporation having a Fair Market Value (determined in the manner provided in
Section 2.10) as of the business day preceding the closing equal to the
purchase price of the Shares, (iii) by delivery of a subordinated promissory
note of the Company in the principal amount of the purchase price of the
Shares, bearing interest at a rate equal to the then applicable federal
short-term rate (determined pursuant to Section 1274(d) of the I.R.C.),
providing for quarterly payments of interest and payment of the full principal
amount on the first anniversary of the date of issuance, and containing
provisions as approved by the Board in its sole
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discretion providing for the subordination of such notes to such indebtedness,
whether then existing or thereafter created, of the Company as is specified by
the Board, including, without limitation, indebtedness for money borrowed or
similar indebtedness, or (iv) any combination of the foregoing; provided,
however, that no more than fifty percent (50%) of the purchase price for Shares
may be paid by subordinated promissory note. Any payment in the form of shares
of Orbital Sciences Corporation Common Stock shall be subject to all applicable
federal and state securities laws restrictions and all other restrictions.
(d) Limitations on Repurchase Obligations.
Notwithstanding any other provision of this Section 6.06, the Company shall not
be obligated to purchase Payable Shares (i) to the extent such purchase is not
permitted under applicable law or under the terms of any of (A) the Company's
then-existing debt instruments or agreements governing such debt instruments,
(B) the then-existing terms of any class of preferred stock of the Company, or
(C) a then-existing stockholders agreement to which the Company is a party; or
(ii) in the event there has been a public offering (within the meaning of the
Securities Act of 1933 as amended, and the rules and regulations thereunder) of
the Company's Common Stock.
6.07 Options Not Transferable. Options granted under this Plan
may not be sold, pledged, hypothecated, assigned, encumbered, gifted or
otherwise transferred or alienated in any manner, whether voluntarily, by
operation of law, pursuant to judicial process or otherwise, other than by will
or the laws of descent and distribution, and may be exercised during the
lifetime of an Optionee only by such Optionee.
6.08 Restrictions on Issuance or Transfer of Shares.
(a) Until such time as the Company shall have consummated
an underwritten public offering of Shares involving an aggregate public
offering price of at least Five Million Dollars ($5,000,000), or the Shares are
registered under the Exchange Act, no Shares issuable upon exercise of an
Option shall be sold, assigned, encumbered, pledged, hypothecated, given away
or in any other manner disposed of or transferred, whether voluntarily, by
operation of law, pursuant to judicial process or otherwise, except (i) to the
Company pursuant to Section 6.06 hereof, or (ii) upon the death of the holder
thereof, Shares may be transferred and distributed by will or other instrument
taking effect at death or by the laws of descent and distribution to such
holder's estate, executors, administrators and personal representatives, and
then to such holder's heirs, legatees or distributees, provided that no such
transfer shall be effective until the recipient has delivered to the Company a
written acknowledgment in form and substance reasonably satisfactory to the
Company that such Shares are subject to the restrictions on disposition or
transfer set forth in this Section 6.08(a). Any attempted transfer of Shares
not in accordance with this Section 6.08(a) shall be null and void, and the
Company shall not in any way give effect to any such disposition or transfer.
(b) No Shares shall be issued or delivered upon exercise
of an Option unless and until there shall have been compliance with all
applicable requirements of the Securities Act of 1933, as amended, all
applicable listing or quotation requirements of any national securities
exchange or market on which Shares are then listed or quoted, and any other
requirement of law or
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of any regulatory body having jurisdiction over such issuance and delivery.
The inability of the Company to obtain any required permits, authorizations or
approvals necessary for the lawful issuance and sale of any Shares hereunder on
terms deemed reasonable by the Board shall relieve the Company, the Board and
any Committee of any liability in respect of the non-issuance or sale of such
Shares as to which such requisite permits, authorizations or approvals shall
not have been obtained.
(c) As a condition to the granting or exercise of any
Option, the Board may require the person receiving or exercising such Option to
make any representation and/or warranty to the Company as may be required under
any applicable law or regulation, including, but not limited to, a
representation that the Option and/or Shares are being acquired only for
investment and without any present intention to sell or distribute such Option
and/or Shares, if such a representation is required under the Securities Act of
1933, as amended, or any other applicable law, rule or regulation.
(d) The exercise of Options under the Plan is conditioned
on approval of the Plan by the vote or written consent of a majority of the
holders of outstanding Shares of the Company's Common Stock within twelve (12)
months of the adoption of the Plan. In the event such stockholder approval is
not obtained within such time period, any Options granted hereunder shall be
void.
6.09 Option Adjustments.
(a) If the outstanding Shares of Common Stock of the
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse
stock split or other similar transaction, the Board shall make a proportionate
adjustment in the number or kind of shares and the per-share option price
thereof, which may be issued in the aggregate and to individual Optionees upon
exercise of Options granted under the Plan; provided, however, that no such
adjustment need be made if, upon the advice of counsel, the Board determines
that such adjustment may result in the receipt of federally taxable income to
holders of Options granted hereunder or the holders of Common Stock or other
classes of the Company's securities.
(b) Upon the occurrence of a Terminating Transaction, as
of the effective date of such Terminating Transaction, the Plan and any then
outstanding Options (whether or not vested) shall terminate unless (i)
provision is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of any
successor or survivor corporation in the Terminating Transaction or an
affiliate thereof, with such adjustments as the Board deems appropriate with
respect to the number and kind of securities and the per-share exercise price
under such substituted options, in which event the Plan and such outstanding
Options shall continue or be replaced, as the case may be, in the manner and
under the terms so provided; or (ii) the Board otherwise shall provide in
writing for such adjustments as it deems appropriate in the terms and
conditions of the then outstanding Options (whether or not vested), including,
without limitation, (A) accelerating the vesting of outstanding Options; and/or
(B) providing for the cancellation of
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Options and their automatic conversion into the right to receive the securities
or other properties which a holder of Shares underlying such Options would have
been entitled to receive upon the consummation of such Terminating Transaction
had such Shares been issued and outstanding (net of the appropriate option
exercise prices). If, pursuant to the foregoing provisions of this paragraph
(b), the Plan and the Options shall terminate by reason of occurrence of a
Terminating Transaction without provision for any of the action(s) described in
clause (i) and/or (ii) hereof, then any Optionee holding outstanding Options
shall have the right, at such time immediately prior to the consummation of the
Terminating Transaction as the Board shall designate, to exercise their Options
to the full extent not theretofore exercised, including any installments which
have not yet become Accrued Installments.
(c) Except to the extent required in order to retain the
qualification of an Option as an Incentive Stock Option under I.R.C. Section
422, to the maximum extent possible, any adjustments authorized under this
Section 6.09 with respect to any outstanding Options shall be made by means of
appropriate adjustments to the number of Shares (or other securities) and the
option exercise price therefor under the unexercised portions of such
outstanding Options, but without changing the aggregate exercise price
applicable to said unexercised portions. In all cases, the nature and extent
of adjustments under this Section 6.09 shall be determined by the Board in its
sole discretion, and any such determination as to what adjustments shall be
made, and the extent thereof, shall be final and binding. No fractional shares
of stock shall be issued under the Plan pursuant to any such adjustment.
6.10 Taxes. The Board shall make such provisions and take such
steps as it deems necessary or appropriate for the withholding of any federal,
state, local and other tax required by law to be withheld with respect to the
grant or exercise of an Option under the Plan, or with respect to the
disposition of Shares acquired pursuant to the exercise of an Option pursuant
to the Plan, including, but without limitation, the deduction of the amount of
any such withholding tax from any compensation or other amounts payable to an
Optionee by any member of the Participating Companies, or requiring an Optionee
(or the Optionee's beneficiary or legal representative), as a condition of
granting or exercising an Option, to pay to any member of the Participating
Companies any amount required to be withheld, or to execute such other
documents as the Board deems necessary or desirable in connection with the
satisfaction of any applicable withholding obligation. Prior to June 30, 1998*,
the Board may permit, and after June 30, 1998*, the Board shall permit, either
at the time of the grant of an Option or the time of exercise, the Optionee
and/or holder of Shares to elect, at such time and in such manner as the Board
may prescribe, to satisfy such withholding obligation by (i) delivering to the
Company Shares owned by such individual having a Fair Market Value equal to
such withholding obligation, or (ii) requesting that the Company withhold from
the Shares to be delivered upon the exercise a number of Shares having a Fair
Market Value equal to such withholding obligation; provided that after June 30,
1998*, in the first year that any Optionee and/or holder of Shares elects to
satisfy his or her tax withholding obligation in a manner specified in this
Section 6.10(i) or (ii), such Optionee and/or holder of Shares shall not be
entitled to exercise more than 50% of his or her total vested Options in such
manner; and provided further that the Board shall amend this Plan to delay the
foregoing June 30, 1998* date in the event there are not a total of at least
eighteen (18) operational ORBCOMM satellites in orbit by June 30, 1998*.
- -------------------
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*Amended on December 1, 1997.
6.11 Legends on Options and Stock Certificates. Each Option
Agreement and each certificate representing Shares acquired upon exercise of an
Option shall be endorsed with all legends, if any, required by applicable
federal and state securities laws to be placed on the Option Agreement and/or
the certificate, as well as legends setting forth the restrictions contained in
Section 6.08(a) hereof. The determination of which legends, if any, shall be
placed upon Stock Option Agreements and/or said Shares shall be made by the
Board in its sole discretion, and such decision shall be final and binding.
6.12 Employment Rights. Neither the adoption of the Plan nor the
grant of Options will confer upon any person any right to continued employment
with the Company or any subsidiary or affect in any way the right of the
Company or subsidiary to terminate an employment relationship at any time.
Except as specifically provided by the Board in any particular case, the loss
of existing or potential profit in connection with Options granted under the
Plan will not constitute an element of damages in the event of termination of
an employment relationship.
6.13 Non-Competition Provisions. In consideration for the grant
of Options, the Committee may require that Optionees enter into a
non-competition agreement with the Company.
ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
7.01 Board Authority. The Board may amend, alter and/or
terminate the Plan at any time; provided, however, that no change shall be
effective unless approved by the stockholders of the Company if such change
would cause the Option Plan to fail to meet the qualification requirements for
Incentive Stock Option Plans as set forth in the Internal Revenue Code or, if
the Company then has a class of equity security registered under the Exchange
Act, to comply with Rule 16b-3 of the Exchange Act or any successor rule under
such Act as in effect on the date of such amendment.
7.02 Limitation on Board Authority. The Board may amend the
terms of any Option previously granted, prospectively or retroactively, and may
amend the Plan in accordance with the provisions of Section 7.01; provided,
however, that unless required by applicable law, rule or regulation, no
amendment of the Plan or of any Option Agreement shall affect, in a material
and adverse manner, Options granted prior to the date of any such amendment
without the consent of any Optionee holding any such affected Options.
7.03 Substitution of Options. In the Board's discretion, the
Board may, with an Optionee's consent, substitute Nonstatutory Stock Options
for outstanding Incentive Stock Options, and any such substitution shall not
constitute a new Option grant for the purposes of the Plan, and shall not
require a revaluation of the Option exercise price for the substituted Option.
Any such substitution may be implemented by an amendment to the applicable
Option Agreement or in such other manner as the Board in its discretion may
determine.
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ARTICLE VIII
GENERAL PROVISIONS
8.01 Availability of the Plan. A copy of the Plan shall be
delivered to the Secretary of the Company and shall be shown by the Secretary
to any Eligible Person making reasonable inquiry concerning the Plan.
8.02 Notice. Any notice or other communication required or
permitted to be given pursuant to the Plan or under any Option Agreement must
be in writing and may be given by registered or certified mail and, if given by
registered or certified mail, shall be determined to have been given and
received when a registered or certified letter containing such notice, properly
addressed with postage prepaid, is deposited in the United States mails and, if
given otherwise than by registered or certified mail, shall be deemed to have
been given when delivered to and received by the party to whom addressed.
Notice shall be given to Eligible Persons at their most recent addresses shown
in the Company's records. Notice to the Company shall be addressed to the
Company at the address of the Company's principal executive offices, to the
attention of the Secretary of the Company.
8.03 Titles and Headings. Titles and headings of sections of the
Plan are for convenience of reference only and shall not affect the
construction of any provision of the Plan.
8.04 Governing Law. The Plan shall be governed by, interpreted
under and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware,
applicable to agreements made and to be performed wholly within the State of
Delaware.
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EXHIBIT 10.17
AMENDED AND RESTATED
ADMINISTRATIVE SERVICES AGREEMENT
This Amended and Restated Administrative Services Agreement
("Agreement") is entered into as of January 1, 1997 between Orbital Sciences
Corporation, a Delaware corporation ("Orbital"), and ORBCOMM Global, L.P., a
Delaware limited partnership.
W I T N E S S E T H:
WHEREAS, Orbital and ORBCOMM Global L.P. entered into that certain
Administrative Services Agreement dated September 12, 1995, pursuant to which
Orbital agreed to perform on behalf of ORBCOMM Global and its affiliated
partnerships, ORBCOMM USA, L.P. and ORBCOMM International Partners, L.P.
(collectively, "ORBCOMM Global") certain services, which agreement the parties
hereby wish to amend and restate in its entirety.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 - SERVICES TO BE PROVIDED
Section 1.1 - Orbital Services. Orbital shall provide to ORBCOMM
Global the services specified on Schedules 1 and 2 hereto (the "Services").
Section 1.2 - Manner of Furnishing Services. Orbital shall render and
perform the Services as an independent contractor in accordance with the
standards it employs for furnishing such services to itself or its subsidiaries
at the time the Services are provided, subject to the provisions of this
Agreement and to all applicable governmental laws, rules and regulations.
Notwithstanding the foregoing, in providing the Services, Orbital and its
directors, officers and employees shall not be responsible, or have any
liability, for the accuracy, completeness or timeliness of any advice or
service or any report, filing or other document that it or any of them
provides, prepares or assists in preparing except to the extent that any
inaccuracy, incompleteness or untimeliness arises from the gross negligence or
willful misconduct of Orbital or such directors, officers or employees.
ORBCOMM Global shall indemnify, defend and hold harmless Orbital and its
directors, officers and employees from and against any and all damage, cost,
loss, liability and expense (including reasonable attorneys' fees) in
connection with any and all actions or threatened actions arising out of the
performance of the Services, except in circumstances where the party who would
otherwise be indemnified hereunder has not met the standard of care described
in the preceding sentence. In no event shall Orbital or its directors,
officers or employees be liable for any indirect, special or consequential
damages in connection with or arising out of the performance of the Services.
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Section 1.3 - Quality of Services. The parties agree to cooperate in
good faith to resolve on a commercially reasonable basis any disputes that may
arise under this Agreement.
SECTION 2 - PROVISION OF OFFICE SPACE
Section 2.1. - Office Space. Orbital shall provide to ORBCOMM Global,
for its use, the following office space (including the right to use all
conference rooms and common space on an as available basis) (including future
office space described in Section 2.2, "Future Office Space"):
(a) All useable space currently occupied by ORBCOMM
Global (including any affiliates or consultants) in the Steeplechase
Office Building located at 21700 Atlantic Boulevard, Dulles, Virginia
and in the High Bay Building located at 21830 Atlantic Boulevard,
Dulles, Virginia.
Section 2.2. - Future Office Space. Orbital shall use all
commercially reasonable efforts to provide such available office or laboratory
space in Orbital-owned or -leased facilities to ORBCOMM Global as ORBCOMM
Global may reasonably request.
Section 2.3 - Compliance with Leases. ORBCOMM Global agrees to comply
with, and shall benefit from, the terms and conditions of any leases or similar
instruments relating to any facilities in which Orbital provides ORBCOMM Global
space under this Agreement. At ORBCOMM Global's request, Orbital shall provide
ORBCOMM Global with copies of such leases or instruments, including any
amendments.
SECTION 3 - TERM OF AGREEMENT
Subject to the provisions of Section 4 hereof, the term of this
Agreement shall commence on January 1, 1997 and shall continue so long as any
of the categories of Services or Office Space is provided by Orbital to ORBCOMM
Global (the "Term"); provided that, unless otherwise provided regarding
insurance in Schedule 2, ORBCOMM Global shall have the right to terminate the
provision by Orbital of any or all of the Services on furnishing Orbital ninety
(90) days prior written notice, and provided further that ORBCOMM Global shall
have the right to terminate the provision by Orbital of any Office Space
occupied by ORBCOMM Global only upon the expiration of the lease relating to
such Office Space. Upon any termination, Orbital shall invoice ORBCOMM Global
for payment in accordance with Section 4.
SECTION 4 - PRICE
Section 4.1 - Office Space. The total price per month for the Office
Space in any facility shall be based on ORBCOMM Global's occupied useable
square footage as a percentage of total useable square footage in such facility
occupied by ORBCOMM Global and shall be equal to
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ORBCOMM Global's pro rata portion of all Orbital's monthly costs and expenses
relating to the applicable facility, including but not limited to, rent,
mortgage (including interest), operating expenses, taxes, building maintenance,
utilities, janitorial services, landscaping, management fees and leasehold
improvement amortization for interior buildout.
Section 4.2 - Use and Occupancy Services. Except as otherwise
provided in Schedule 1, ORBCOMM Global shall compensate Orbital for the Use and
Occupancy Services as described in Schedule 1 on a cost reimbursable basis
pursuant to this Section 4.2. Under this Section 4.2, "cost" is based on an
allocation to ORBCOMM Global of a portion of the "use and occupancy cost pool"
calculated by Orbital, which allocation shall be based on ORBCOMM Global's pro
rata share of the entire pool's productive labor expenses (defined as gross
labor less personal leave, holiday pay and miscellaneous leave). Orbital shall
provide monthly to ORBCOMM Global a budget versus actual variance report in
order to update the status of pool expenses. When ORBCOMM Global is no longer
receiving any of the services or using any of the assets described in Schedule
1, then ORBCOMM Global shall no longer be required to pay Orbital under this
Section 4.2
Section 4.3 - Administrative and Executive Management Services.
Except as otherwise provided in Schedule 2, ORBCOMM Global shall compensate
Orbital for the Administrative and Executive Management Services as specified
in Schedule 2 on a cost reimbursable basis, based upon costs actually incurred.
Costs actually incurred are based on a salaried rate per hour plus fringe
benefits and overhead.
Section 4.4 - Additional Services. From time to time, Orbital may
provide, at ORBCOMM Global's reasonable request, additional services that are
not currently described in Schedule 1, subject to the parties prior agreement
as to the determination of pricing in accordance with Section 4.2 or Section
4.3.
Section 4.5 - Taxes. The prices set forth herein are exclusive of any
state or local sales, use or property taxes (except to the extent included in
the price charged for office space under Section 4.1 above), or taxes of a
similar nature (excluding any income taxes payable on amounts earned by Orbital
hereunder) that Orbital shall pay either directly to the taxing authority or as
a reimbursement to the other party. Such taxes shall be due and payable by
ORBCOMM Global as and when paid by Orbital.
SECTION 5 - PAYMENT TERMS
Section 5.1 - Payment Date. Within fifteen (15) days after the end of
each calendar month, Orbital shall invoice ORBCOMM Global for Services provided
by Orbital to ORBCOMM Global, together with any unbilled or unpaid charges for
any prior month. Such invoice shall set forth in detail information supporting
the amount of such invoice and shall be due and payable by ORBCOMM Global
within thirty (30) days of receipt thereof by ORBCOMM Global. ORBCOMM Global
shall make payments to Orbital on the first business day of each month for the
Office Space at the price per month determined under Section 4.1
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above. To the extent practicable, Orbital shall cause vendors to directly bill
ORBCOMM Global for any services provided to ORBCOMM Global under this
Agreement. Such bills shall be paid by ORBCOMM Global in accordance with their
terms. Invoices for Office Space and Services not paid within thirty (30) days
of receipt shall be considered delinquent and shall incur a 10% late fee, which
will be based upon the outstanding amount due. Any such late fees incurred are
due and payable by ORBCOMM Global upon receipt of notice of such delinquency.
Section 5.2 - Outstanding Balances. On execution of this Agreement,
ORBCOMM Global shall pay in full to Orbital $460,596.31, which is the amount of
the billed and unpaid balance owed hereunder as of October 31, 1997.
Section 5.3 - Maintenance of Records. Orbital shall maintain those
records necessary to support the amount set forth on its invoices and the
amount charged for the Office Space and Services.
SECTION 6 - MISCELLANEOUS
Section 6.1 - Notices. All notices given under this Agreement must be
in writing and sent by hand delivery, by overnight courier or by facsimile
transmission (answerback received), to:
ORBCOMM Global:
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, Virginia 20166
Telecopy: (703) 406-3508
Attention: Bart Snell
Chief Financial Officer
Orbital:
Orbital Sciences Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
Telecopy: 703-406-5000
Attention: Michael P. Keegan
Corporate Controller
or to such other persons or addresses as either party may designate by written
notice to the other. All such notices sent to Orbital or ORBCOMM Global shall
be effective on the date of actual receipt.
Section 6.2 - Binding Effect; Assignment. This Agreement shall be
binding on the parties and their permitted successors and assigns. Neither
this Agreement nor any interests or
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obligations hereunder shall be assigned or transferred (by operation of law or
otherwise) to any person without the prior consent of the other party.
Section 6.3 - Entire Agreement. This Agreement and all attachments
(which are hereby made part of this Agreement) contain the entire understanding
between ORBCOMM Global and Orbital and supersede all prior written and oral
understandings relating to the subject hereof. No representations, agreements,
modifications or understandings not contained herein shall be valid or
effective unless agreed to in writing and signed by both parties. Any
modification or amendment of this Agreement must be in writing and signed by
both parties.
Section 6.4 - Governing Law. The construction, interpretation and
performance of this Agreement, as well as the legal relations of the parties
arising hereunder, shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia, without giving effect to the conflict or
choice of law provisions thereof. Neither party may bring any action for a
claim under this Agreement later than one (1) year after the termination or
expiration of this Agreement.
Section 6.5 - Waiver. It is understood and agreed that no failure or
delay by either ORBCOMM Global or Orbital in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege hereunder. No waiver of any
terms or conditions of this Agreement shall be deemed to be a waiver of any
subsequent breach of any conditions of any term or condition. All waivers must
be in writing and signed by the party sought to be bound.
Section 6.6 - Severability. If any part of this Agreement shall be
held invalid or unenforceable, such determination shall not affect the validity
or enforceability of any remaining portion, which shall remain in force and
effect as if this Agreement had been executed with the invalid or unenforceable
portion thereof eliminated.
Section 6.7 - Headings. Headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
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IN WITNESS WHEREOF, the parties have caused this Administrative
Services Agreement to be executed as of the day and year first above written.
ORBITAL SCIENCES CORPORATION
By:
---------------------------------
Name: Jeffrey V. Pirone
Title: Senior Vice President and
Chief Financial Officer
ORBCOMM GLOBAL, L.P.
By:
---------------------------------
Name: Alan L. Parker
Title: President and Chief Executive Officer
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SCHEDULE 1
USE & OCCUPANCY SERVICES
MIS - ORBCOMM Global shall have access to Orbital's data processing system
during all such times as Orbital's system is in operation and in accordance
with Orbital's customary practices. Orbital personnel shall provide to ORBCOMM
Global data processing support services (including but not limited to hardware
and software maintenance and upgrades, LAN connections and maintenance, data
backup and recovery, etc.) in accordance with the Support Level Agreement
between Orbital and ORBCOMM Global.
Security and Facilities Support - Orbital shall provide security for the
Office Space to ORBCOMM Global in a manner consistent with Orbital's customary
practice. Orbital shall provide mail room and mail distribution services
(including postage and shipping) and janitorial and other facility maintenance
services to ORBCOMM Global in a manner consistent with Orbital's customary
practice. Special shipping requirements of ORBCOMM Global, including but not
limited to, postage for mass mailings and package expenses exceeding $100, will
be billed directly to ORBCOMM Global at cost on actual use.
Supplies and Furniture - Orbital shall provide to ORBCOMM Global all standard
office support requirements (including but not limited to office supplies
including paper, pencils, pens, etc.) and provide ORBCOMM Global employees with
standard office furniture and associated equipment in a manner consistent with
Orbital's customary practice. ORBCOMM Global shall reimburse Orbital for any
increased cost associated with the purchase of non-standard office furniture,
supplies and equipment.
Cafeteria Services - Orbital shall provide ORBCOMM Global employees with
access to and use of the cafeteria located in the Office Space.
Graphics and Duplication Services - Orbital shall provide ORBCOMM Global the
services of Orbital's graphics department and reasonable access to and use of
all Orbital color and non-color photocopy equipment. EFFECTIVE JULY 1, 1997,
COLOR PHOTOCOPY EQUIPMENT LEASE AND USE EXPENSES SHALL BE CHARGED AS AN
ADMINISTRATIVE SERVICE. SEE GRAPHICS AND DUPLICATION SERVICES ON SCHEDULE 2.
Taxes - Orbital shall maintain appropriate and necessary records, and shall
remit such records to ORBCOMM Global as requested by ORBCOMM Global, to enable
ORBCOMM Global to determine all property, sales and use taxes attributable to
ORBCOMM Global, in a manner consistent with Orbital's customary practice.
ORBCOMM Global shall be responsible for appropriate, necessary and timely tax
filings and remittances, and shall hold Orbital harmless in the event it does
not exercise due care in fulfilling this responsibility.
Telephone Switchboard and Communication Services - Orbital shall provide
general receptionist services to ORBCOMM Global and provide access to local,
long distance and
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WATS service telephone lines and equipment used to access such communication
services of the type used by ORBCOMM employees on the date of this Agreement.
Orbital shall remain responsible for such communications equipment, including
taking all reasonable actions to assure that such equipment remains in good
working order.
Parking - Orbital shall provide parking space in the Office Space parking lots
for each employee of ORBCOMM Global, except that a total of seven parking
spaces in the Steeplechase building underground parking garage will be provided
for members of ORBCOMM Global's executive management.
Beverages - Orbital shall provide employees of ORBCOMM Global coffee and soft
drinks in the same manner as such items are available to Orbital employees.
Training - Orbital shall provide employees of ORBCOMM Global access to any
general facility related training programs sponsored by Orbital including but
not limited to sexual harassment and EEOC training, management training and IS
software training.
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SCHEDULE 2
ADMINISTRATIVE SERVICES
Accounting - ORBCOMM Global shall have access to Orbital's DELTEK accounting
system during all such times as such system is in operation and in accordance
with Orbital's customary practices. Orbital personnel shall provide to ORBCOMM
Global support services for the DELTEK accounting system. ORBCOMM Global shall
reimburse Orbital for the DELTEK site license. The provision by Orbital of
this service shall terminate on December 31, 1997.
Payroll Processing - Orbital shall provide all payroll processing services
(including but not limited to timesheet collection and data entry, labor
distribution report preparation and distribution, payroll check preparation and
distribution, payroll withholding calculations, deposits and reporting, etc.)
to ORBCOMM Global in a manner consistent with Orbital's customary practice.
Purchasing, Receiving and Shipping/Accounts Payable - Orbital shall provide
all purchasing services (including but not limited to purchase request
collection and data entry, purchase order preparation and ordering, goods
receiving and verification, property control and storage, accounts payable
voucher processing, cash disbursement and check preparation and distribution,
etc.) to ORBCOMM Global in a manner consistent with Orbital's customary
practice.
Access to Orbital Accounting Records - Orbital shall provide representative(s)
of ORBCOMM Global, who shall be designated in writing by ORBCOMM Global at
least seven (7) days in advance, access to all appropriate accounting records
of Orbital relating to ORBCOMM Global in a manner that allows such
representative(s) to obtain any and all accounting information relating to the
books and records of ORBCOMM Global, in a manner consistent with Orbital's
customary practice.
Personnel Services - Orbital shall provide all personnel services (including
but not limited to recruiting services, relocation services, new employee
administration, etc.) to ORBCOMM Global in a manner consistent with Orbital's
customary practice.
Insurance - Orbital shall provide (a) health insurance, (b) property and
casualty insurance, (c) workers compensation insurance, (d) auto liability
insurance, (e) general liability insurance, (f) fiduciary liability insurance,
(g) employee dishonesty insurance, (h) transit insurance and (i) aviation
products insurance to ORBCOMM Global until such time that ORBCOMM Global can
commercially procure its own insurance at a rate close to Orbital's, or at such
time the partners of ORBCOMM Global determine that ORBCOMM Global should obtain
its own insurance. The insurance described above shall be provided on a
cost-reimbursable basis.
A decision to not include ORBCOMM Global's employees in Orbital's health plan
must be made in September for the upcoming insurance year. A decision to not
include ORBCOMM in Orbital's property and casualty insurance must be made by
January 15 of the applicable year.
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To the fullest extent permissible under the terms of the relevant insurance
policies, Orbital shall continue to allow ORBCOMM Global employees to
participate and have the coverage provided by the insurance policies in a
manner consistent with current practice until such time Orbital, with agreement
by ORBCOMM Global, determines otherwise. Orbital shall provide administrative
services with respect to ORBCOMM Global's 401(k) plan. Orbital shall provide
to ORBCOMM Global all benefit management and administration services with
respect to the foregoing in a manner consistent with Orbital's customary
practice.
Graphics and Duplication Services - Effective July 1, 1997 Orbital shall
provide ORBCOMM Global the use of all Orbital color photocopy equipment under
this Administrative Services category.
Special Services - Upon the request of ORBCOMM Global from time to time,
Orbital shall provide executive management services (including but not limited
to legal advice, financial advice, operating advice, public relations support,
regulatory support, lobbying activities, government relations support, etc.) to
ORBCOMM Global in a manner consistent with Orbital's customary practice.
General Administration - Services provided by Orbital with respect to
administering this Agreement shall be charged under this category.
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EXHIBIT 10.18
U.S. GATEWAY EARTH STATION MAINTENANCE SERVICE AGREEMENT
BETWEEN
ORBITAL SCIENCES CORPORATION
LOCATED AT:
3380 SOUTH PRICE ROAD
CHANDLER, AZ 85248
AND
ORBCOMM GLOBAL, L.P.
LOCATED AT:
21700 ATLANTIC BOULEVARD
DULLES, VA 20166
AGREEMENT NUMBER:
ORB/GES.2
EFFECTIVE DATE:
1 OCTOBER 1997
PERIOD OF PERFORMANCE:
1 OCTOBER 1997 TO 30 SEPTEMBER 1998
<PAGE> 2
AGREEMENT
BETWEEN
ORBITAL SCIENCES CORPORATION
AND
ORBCOMM GLOBAL, L.P.
This Agreement made as of this 1st day of October, 1997 between
Orbital Sciences Corporation ("Orbital" or "Seller"), with its principal
offices located at 3380 South Price Road, Chandler, AZ 85248, and ORBCOMM
Global, L.P., ("ORBCOMM" or "Buyer"), with its principal offices located at
21700 Atlantic Boulevard, Dulles, VA 20166. The effective date of this
Agreement is October 1, 1997. The parties agree as follows:
ARTICLE I
STATEMENT OF WORK
Consistent with the terms and conditions set forth herein, Seller
shall provide the necessary personnel, facilities, supplies and services in
accordance with the Statement of Work (the "SOW"), attached hereto as
Attachment 1, and as such SOW and specifications contained therein may be
modified from time to time by mutual agreement of the parties. Seller shall
manufacture and/or procure and store for the period of performance as described
in Article II the spares identified in the Maintenance Support Spares list,
attached hereto as SOW Table 4-3, as such spares list may be modified by mutual
agreement of the parties. Seller shall use its best efforts to meet the
Routine Maintenance Planning Schedule, attached herein as SOW Table 4-1.
Either party shall notify the other party of any schedule conflicts within ten
10 days prior to the schedule conflict date; provided that the parties
acknowledge and agree that schedule conflicts arising from the operation of the
ORBCOMM System may not be identifiable within such timeframe. Seller shall use
its best efforts to meet the delivery schedule in the SOW. If Seller
reasonably believes the schedule will not be met, Seller shall promptly notify
Buyer of the delay and the proposed delivery dates.
ARTICLE II
PERIOD OF PERFORMANCE
The period of performance for this Agreement shall be from October 1,
1997 through September 30, 1998. Future maintenance service agreements beyond
September 30, 1998 may be separately negotiated on an annual basis. Buyer
shall notify Seller of its desire to negotiate continued performance no later
than 60 days prior to the expiration of the term of this Agreement.
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ARTICLE III
DELIVERABLE SUPPLIES AND SERVICES
Set forth below are the tasks to be provided as described in the SOW
for the U.S. GES sites, defined as: Arcade, NY; Oscilla, GA; East Wanatchee, WA
and St. Johns, AZ.
1. Routine Quarterly Maintenance
2. Spares Program
3. Site Representation
4. Service Repair
5. As Installed Shelter Documentation
6. ORBCOMM Satellite Launch Support
7. Special Projects
ARTICLE IV
CONTRACT TYPE AND CONSIDERATION
As described in Article III and the SOW, this Agreement consists of
seven CLINs that are separately priced. Orbital shall deliver the services and
supplies in accordance with the SOW. Orbital shall perform CLINs 1, 2, 3, 5
and 6 on a firm fixed price ("FFP") basis, and CLIN 4 on a time and materials
("T&M") basis. CLIN 7 shall be negotiated by mutual agreement of the parties
on either a FFP or T&M basis, as each project is defined.
CLIN 1 - ROUTINE QUARTERLY MAINTENANCE FFP $180,736
Services shall take place as described in the SOW and Routine
Maintenance Planning Schedule, SOW Table 4-1.
Note: All travel costs for the performance of Routine Quarterly
Maintenance are included in the FFP set forth above.
CLIN 2 - SPARES PROGRAM FFP $66,440
Orbital shall manufacture, procure and maintain spares ("Spares") on
execution of this Agreement in accordance with the SOW and SOW Table 4-3.
Orbital shall receive, inspect, test and inventory spares in a controlled
stockroom. ORBCOMM shall take ownership of each Spare after it is inspected,
tested and received into inventory at Orbital's Chandler, AZ facility in
accordance with the SOW. ORBCOMM will furnish asset bar-code labels for each
Spare.
Orbital shall notify ORBCOMM as each Spare is installed with the
appropriate asset information, such as: bar-code, serial number and
installation site.
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Shipping costs to the U.S. GESs and insurance during such shipment are
not included in the FFP set forth above and will be handled as provided in
Article XIV. While located in Orbital's controlled stockroom located in
Chandler, AZ, the Spares shall be covered by Orbital's all-risk and peril
insurance, which insurance shall cover the full replacement value thereof, the
cost of which shall be included in the FFP set forth above.
CLIN 3 - SITE REPRESENTATION FFP $641,700
Orbital shall maintain a local site representative and provide
maintenance of the site grounds for each US GES site (NY, WA, GA, AZ) in
accordance with the SOW. Each site representative shall be responsible for
routine twice-weekly (8 hrs./day, 16 hrs./week) visits to their designated
site. Orbital and ORBCOMM shall update the checklist for each site
representative to use during such routine visits on an as needed basis by
mutual agreement. The site representatives shall be on 24 hour call for site
emergencies and must be able to reach his or her designated site within 6 hours
of notification. Upon receipt by the site representative of notification of a
site emergency by Orbital, the site representative shall be required to
immediately deploy to the site. The dispatching of the site representative by
Orbital and response to emergencies by the site representative shall be
accomplished within this CLIN.
ORBCOMM shall provide up to $1,000 per site to Orbital for site petty
funds to enable local purchase of low cost, expendable items in accordance with
the SOW.
CLIN 4 - SERVICE REPAIR T&M* TBD
On verbal authorization and authorization number from an ORBCOMM
Technical Manager, Orbital shall be authorized to expend the necessary labor,
material, shipping and travel costs to complete any service repair
requirements. This CLIN includes any critical, major and minor repairs.
NOTE: Failures with ORBCOMM software, Torrey Modems and other items
not addressed in the SOW shall be identified and referred to ORBCOMM for
resolution.
* Orbital's Time and Materials pricing under this Agreement including
this CLIN 4 shall be equal to the actual direct dollars (labor, material, ODC)
incurred, and the applicable fringe, overhead and G&A rates as described in
Orbital's Forward Pricing Rates and a 15% profit rate. Orbital's published
Forward Pricing Rates shall be those rates used by Orbital's most favored
Government customers and submitted to the Defense Contract Audit Agency (DCAA).
Orbital represents that it operates under a U.S. Government-approved
accounting system and establishes its published Forward Pricing Rates within
the Government's guidelines. ORBCOMM shall be entitled to conduct audits,
through an independent auditor, to verify that Orbital's invoices have been
rendered in accordance with the terms of this Agreement including this CLIN 4.
Such auditor shall be required to sign an appropriate Non-Disclosure Agreement
pursuant to which such auditor will be precluded from disclosing to ORBCOMM
Orbital's proprietary Forward Pricing Rates.
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CLIN 5 - AS INSTALLED SHELTER DOCUMENTATION FFP $97,843
Orbital shall develop drawings for the ORBCOMM
shelters/interconnections installed at the sites by ORBCOMM and not currently
covered by existing drawings. The drawing package shall use the St. Johns,
Arizona site as the baseline. Once the Arizona shelter drawings are completed,
Orbital will conduct a detailed survey at each of the other sites, identify and
document the specific differences from the "baseline" set of drawings. ORBCOMM
shall determine whether unique drawings or changes for the other 3 sites are
wanted. New drawings or changes to conform to baseline drawings will be an
add-on to this Agreement in accordance with the provisions of CLIN 7.
CLIN 6 - ORBCOMM SATELLITE LAUNCH SUPPORT FFP $64,311
Orbital will provide one knowledgeable person at each site prior to
the next 2 ORBCOMM launches scheduled after the execution of this Agreement.
That individual shall remain at the site until 6 days after the launch, a total
of 7 days, not including travel time. If the launch is delayed after the
person is deployed to the site, ORBCOMM will estimate the additional time that
the person will be required to remain at the site. Additional travel time and
any extension will be administered as a Special Project in accordance with the
provisions of CLIN 7.
CLIN 7 - SPECIAL PROJECTS FFP/T&M TBD
As requested by ORBCOMM or initiated by Orbital, Orbital shall submit
proposals to ORBCOMM for potential projects that are identified as of the
effective date of this Agreement or as may be later identified. Orbital's
proposals shall be valid for a period of 60 days from receipt by ORBCOMM. The
contract type (FFP, T&M) shall be negotiated as appropriate to the project.
Orbital is not authorized to begin work on any special projects prior to
receipt of ORBCOMM contractual authorization.
ARTICLE V
INVOICING
Orbital shall submit to ORBCOMM invoices to the address below.
Invoices for Firm Fixed Priced CLINs 1, 2, 3, 5 and 6 will be based on the
milestone payment schedule set forth in Attachment 2. With respect to invoices
for time and material CLIN 4, Orbital shall invoice ORBCOMM on acceptance of
each repair as described in Article IV, CLIN 4. As described in Article IV,
CLIN 7 will be invoiced as negotiated at a later date. ORBCOMM shall pay such
invoices within 30 days from the date of receipt. Third party billing for
maintenance service orders authorized by ORBCOMM for which a procurement
control number has been assigned shall be directly billed to ORBCOMM and shall
not be the responsibility of Orbital.
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ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Controller
With a copy to:
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Collin MacDonald
ARTICLE VI
REPORTS
Orbital shall submit all reports as required by the SOW to the
technical managers identified below.
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Mr. Brian Wallace
cc: Mr. Collin MacDonald
cc: Mr. Tom Edmonston
ARTICLE VII
TECHNICAL MANAGERS
(a) The Technical Managers for this Agreement are:
Orbital Sciences Corporation
3380 South Price Road
Chandler, AZ. 85248
Technical Managers: Mr. Charles Tracy (602) 814-6820
Mr. Richard Fahrner (602) 814-6370
Mr. Mark DiLello (602) 814-6050
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
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Technical Managers: Mr. Brian Wallace
cc: Mr. Collin MacDonald
cc: Mr. Tom Edmonston
(b) ORBCOMM's technical managers are authorized to issue technical
directions under this Agreement on behalf of ORBCOMM that provide
details or otherwise more specifically defines work set forth herein.
To be valid, the technical direction (i) must be issued in writing
consistent with the general scope of work set forth in this Agreement;
(ii) may not modify the SOW, change the express terms and conditions
of this Agreement or issue a stop work order; and (iii) shall not
commit ORBCOMM to any adjustment of the price or other provisions of
this Agreement.
(c) In the event any ORBCOMM technical direction is interpreted by
Orbital to constitute a change to the requirements hereunder in effect
at the time of the direction, Orbital shall not implement such
direction but shall:
(i) Notify ORBCOMM promptly by telephone at the time of
such interpretation, which oral notification shall be
confirmed in writing within ten (10) business days after
Orbital's receipt of such direction. Such notice shall
include the reasons on which Orbital bases its belief that the
technical direction constitutes a change to the requirement of
this Agreement. If ORBCOMM is interested in pursuing such
technical direction, it shall within ten (10) business days of
receipt of Orbital's notice, provide a formal request for
Orbital's best estimate of changes to the Price, performance
time, specifications, delivery schedules and any other
contractual provisions that would result from implementing the
technical direction.
(ii) If after reviewing the information presented pursuant
to subparagraph (i) above, ORBCOMM agrees with Orbital that
such direction is a change to the requirements of this
Agreement and ORBCOMM wishes to change such requirement,
ORBCOMM and Orbital shall negotiate a bilateral modification
to this Agreement to implement such change.
(iii) Failure of ORBCOMM and Orbital to agree on whether
ORBCOMM's direction is technical direction or a change in the
requirements of this Agreement shall be a dispute and be
resolved in accordance with Article IX of this Agreement.
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ARTICLE VIII
NOTIFICATIONS
Except as otherwise specified herein, all notices, request and other
communications required to be delivered to any party hereunder shall be in
writing (including any facsimile transmission or similar writing), and shall be
delivered to the persons addressed as follows:
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(a) If to Seller:
Orbital Sciences Corporation
3380 South Price Road
Chandler, AZ. 85248
Attention: Ms. Debra B. Dreher
Senior Contracts Administrator
(b) If to Buyer:
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Mary Ellen Seravalli
Senior Vice President and General Counsel
with a copy to:
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Robert Vence
Senior Vice President Engineering & Operations
ARTICLE IX
DISPUTES
(a) Any material controversy or claim that may arise under, out
of, in connection with or relating to this Agreement or any breach hereof,
shall be submitted to a representative management panel of Buyer and Seller.
Each of Buyer and Seller may appoint up to three individuals to such panel.
Such appointments shall be made within ten (10) days of the receipt by the
appointing party of notice of the existence of such controversy or claim. A
joint decision and agreement of such panel shall resolve the controversy or
claim. If the panel is unable to resolve such matter within thirty (30) days
of the submission of such controversy or claim to such individuals, either
party may remove the controversy or claim for arbitration in accordance with
Article IX(b).
(b) Any material controversy or claim that is not resolved under
Article IX(a) shall be settled by final and binding arbitration in the
Commonwealth of Virginia, in accordance with the then existing United States
domestic rules of the American Arbitration Association (to the extent not
modified by this Article IX). In the event that more than one claim or
controversy arises under this Agreement, such claims or controversies may be
consolidated in a single arbitral proceeding. The arbitral tribunal shall be
composed of three arbitrators. Each of Buyer and Seller shall appoint one
arbitrator. If any party shall fail to appoint an arbitrator within thirty
(30) days from the date on which another party's request for arbitration has
been communicated to the first party,
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such appointment shall be made by the American Arbitration Association (the
"AAA"). The two arbitrators so appointed shall agree upon the third arbitrator
who shall act as chairman of the arbitral tribunal and who shall be an expert
in the construction, operation and maintenance of electro-mechanical,
computer-controller tracking antenna systems used in satellite-based
communications networks. If the two appointed arbitrators fail to nominate a
chairman within ten (10) days from the date as of which both arbitrators shall
have been appointed, such chairman shall be selected by the AAA. In all cases,
the arbitrators shall be fluent in English. Judgment upon any award rendered
by the arbitrators may be entered in any court having jurisdiction or
application may be made for judicial acceptance of the award and an order of
enforcement, as the case may be. The parties agree that if it becomes
necessary for any party to enforce an arbitral award by a legal action or
additional arbitration or judicial methods, the party against whom enforcement
is sought shall pay all reasonable costs and attorneys' fees incurred by the
party seeking to enforce the award.
ARTICLE X
TERMINATION FOR ORBCOMM'S CONVENIENCE
ORBCOMM may terminate this Agreement, in whole or in part, at any time
for its convenience by providing written notice to Orbital ("Termination
Notice"). The Termination Notice will indicate if any completed but not yet
accepted supplies and/or services as well as work-in process will be purchased
by ORBCOMM. On receipt of a Termination Notice, Orbital shall immediately stop
work as specified therein, and, within 30 days thereafter, submit a termination
claim ("Termination Claim") to ORBCOMM. The Termination Claim shall be for (a)
the applicable prices herein for any completed and accepted work not yet paid
for by ORBCOMM; (b) the applicable prices herein for any completed but not yet
accepted work to be purchased by ORBCOMM; (c) Orbital's reasonable costs for
any work-in-process to be purchased by ORBCOMM; and (d) Orbital's reasonable,
non-recoverable costs for any work performed that ORBCOMM will not purchase.
The costs shall not exceed the applicable prices herein for such work and
Orbital shall use all reasonable efforts to mitigate any non-recoverable costs
pursuant to (d). Orbital shall provide ORBCOMM with access to Orbital's
premises and records to verify the costs submitted as part of the Termination
Claim. If Orbital fails to submit a Termination Claim within the 30-day period
set forth above, ORBCOMM may determine, on the basis of information available
to it, the amount, if any due to Orbital with respect to the Termination
Notice, and such determination shall be final and binding on the parties This
clause shall not apply if the Agreement is terminated, in whole or in part, due
to Orbital's default.
ARTICLE XI
TERMINATION FOR DEFAULT
(a) Subject to paragraphs (b), (c), (d) and (e) below, Buyer may
by written notice of default to the Seller, terminate the Agreement in whole or
in part if the Seller fails to:
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(i) Comply with any of the covenants and agreements set forth
in this Agreement and such failure shall not be cured within twenty
(20) days of the receipt by Seller of written notice at such default;
or
(ii) Make progress, so as to endanger performance of this
Agreement, and such failure is not cured within twenty (20) days of
receipt by Seller of written notice of such default.
(b) If Buyer terminates this Agreement in part for default, Buyer
shall (a) pay the applicable prices herein for any completed or partially
completed and accepted work not yet paid for; (b) pay Orbital's reasonable
costs for any work-in-process or non-recoverable costs for any work performed
unrelated to the reason for default. Seller shall continue the work not
terminated.
(c) If this Agreement is terminated for default (i) Buyer may
require Seller to transfer title and deliver to Buyer any (A) completed or
partially completed work deliverable under this Agreement and not previously
delivered to, and accepted by, Buyer to the extent Seller received payment
therefore, and (B) other property, including agreement rights, specifically
produced or acquired for the terminated portion of the Agreement; and/or (ii)
Buyer may direct Seller to repay to Buyer any amounts paid by Buyer not covered
by the deliveries specified in this sub-section (c) above. Seller shall take
into account in its determinations as to the amount of the progress payments to
be repaid to Buyer, the extent to which Buyer exercises its rights under this
sub-section (c).
(d) After termination, if it is determined that Seller was not in
default, or that the default was excusable, the parties shall negotiate an
equitable settlement. Failure to agree on an equitable adjustment shall
constitute a dispute and shall be resolved in accordance with Article IX of
this Agreement.
(e) Subject to the terms and conditions of Article XIX, the rights
and remedies of Buyer and Seller under this Article XI are in addition to any
other rights and remedies provided by law or under this Agreement.
ARTICLE XII
CHANGES
(a) Upon mutual agreement of both parties, Buyer by modification
may make changes within the general scope of this Agreement in any of the
following areas:
(i) Schedule of Routine Maintenance Service;
(ii) Schedule of Spares delivery;
(iii) Final quantity of delivered Spares ;
(iv) Additional Supplies or Services
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(b) If any change causes an increase or decrease in the cost of,
or the time required for performance of any part of the work, whether or not
directly changed by the order, Buyer and Seller shall negotiate an equitable
adjustment to the agreed price, delivery schedule, or other provision of this
Agreement. Seller shall not begin the work as changed until a bilateral
modification has been issued.
(c) Failure to agree to any adjustment shall be a dispute and
settled in accordance with Article IX of this Agreement.
ARTICLE XIII
ORDER OF PRECEDENCE
(a) Inconsistencies between or among Articles of this Agreement
and/or any attachments shall be resolved in the following order of precedence:
(i) Articles 1 through XXVI of this Agreement;
(ii) Attachment 1, SOW (including all documents referenced
therein)
(iii) ORBCOMM GES Operations & Maintenance Manual, TM-11292
(iv) ORBCOMM GES Acceptance Test Procedure, 10664
(v) Standard Operating Procedure (SOP), TM-2945
(vi) Product Assurance Manual, TM-110
(v) Attachment 2, Payment Schedule
(b) The Attachments hereto are incorporated by reference into this
Agreement.
ARTICLE XIV
F.O.B. POINT AND SHIPMENTS
All Spares are sold and delivery made F.O.B. origin, defined as
Orbital's facility in Chandler, AZ. Packaging shall be according to Orbital's
best commercial, but no less than reasonable, practices. Shipping costs to the
U.S. GES sites and insurance during shipment to such site shall be paid by
ORBCOMM, and where possible shall be charged against ORBCOMM's airbill account
number.
ARTICLE XV
INSPECTION AND ACCEPTANCE OF SERVICES AND SPARES
Acceptance of services (CLINs 1, and 3-7) shall take place on the date
services are rendered including all required reports and documentation
associated therewith. Acceptance of Spares (CLIN 2) shall take place in
accordance with SOW Table 4-3, and upon delivery of the Spares at Orbital's
Chandler, AZ. facility and completion of testing. A certificate demonstrating
completion will be delivered to ORBCOMM within five business days of such
testing.
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<PAGE> 13
ARTICLE XVI
TAXES
The prices set forth herein do not include sales, use, excise or other
federal, state or local taxes. In addition to the price, the amount of any
present or future sales, use, excise or other tax levied upon or measured by
the sale, the sales price or the use of the Goods or performance of the
services required hereunder shall be paid by Buyer, unless Buyer supplies a tax
exemption certificate acceptable to taxing authorities.
ARTICLE XVII
INTELLECTUAL PROPERTY
To the extent Seller has any right or title to any designs, inventions
(whether or not patented), processes, technical data, drawings, intellectual
property and/or confidential information related to the Goods or services to be
purchased by Buyer hereunder, they shall remain the exclusive property of
Seller notwithstanding Seller's disclosure of any information or delivery of
any Goods to or the performance of any services for Buyer or Buyer's payment to
Seller. The parties acknowledge the execution of the Restated Proprietary
Information and Non-Competition Agreement dated as of September 12, 1995 among
Orbital, Orbital Communications Corporation, Teleglobe Inc., Teleglobe Mobile
Partners, ORBCOMM, ORBCOMM USA, L.P. and ORBCOMM International Partners, L. P.
and agree to abide by the terms thereof.
ARTICLE XVIII
WARRANTY AND REMEDY
(a) Seller represents and warrants that: (i) it has and will have
sole and good legal and equitable title to any and all goods (including the
Spares) to be delivered pursuant to this Agreement including the SOW (the
"Goods"), free and clear of any and all security interests, liens, claims,
charges and encumbrances of any kind or nature whatsoever, together with full
power and lawful authority to sell and deliver the Goods and services to be
furnished under this Agreement including the SOW, (ii) neither the performance
of the services nor the furnishing of the Goods hereunder shall in any way
constitute an infringement or other violation of any copyright, trade secret,
trademark, patent, invention, proprietary information, nondisclosure agreement
or other rights of any third party, and (iii) the furnishing of the Goods and
the performance of the services hereunder shall be in compliance with all
applicable United States laws, rules and regulations.
(b) Seller represents and warrants that each of the Goods
furnished by it, or to the extent applicable, the services performed by it
under this Agreement shall be in good operating condition and be free of
defects in material and workmanship at the time of delivery. The warranty
period ("Warranty Period") shall be a period of one year after completion of
manufacture and initial testing of Orbital-manufactured Goods or, for non
Orbital-manufactured Spares, a period of six months after initial testing
thereof by Orbital on receipt in accordance
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<PAGE> 14
with the SOW. Any vendor Goods that have vendor warranties extending beyond
six months shall be automatically extended to Buyer. Seller's obligation
during the Warranty Period shall be limited to repair or replacement of any
defective Goods.
(c) Notice of all claimed defects must be provided in writing to
Seller within the applicable Warranty Period with respect to each Good. Seller
shall determine to its satisfaction, after inspection, that the Good or part
thereof was, in fact defective. If it is necessary to repair Goods at Seller's
Chandler, AZ. facility, Seller shall pay shipping and insurance expense to
return spares to Seller's Chandler, AZ. facility. Any remaining warranty for
any Goods or part thereof repaired or replaced shall not extend the original
warranty period. THE WARRANTY SET FORTH HEREIN IS BUYER'S EXCLUSIVE REMEDY
AGAINST SELLER FOR DEFECTIVE GOODS AND IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(d) The warranty set forth herein shall not extend to any Goods
that, upon Seller's examination are found to have been (i) mishandled, misused,
subjected to negligence, accident or abuse (other than as a result of actions
taken by Seller or one of its representatives); (ii) installed, operated or
maintained by Buyer contrary to Seller's specifications or instructions or
otherwise used improperly; (iii) tampered with or damaged as evidenced by, for
example, broken seals, unauthorized modifications, damaged packaging containers
and the like; (iv) repaired/altered by anyone other than Seller or its
representatives without Seller's express advance approval; or (v) delivered to
Seller not in conformance with notice requirements set forth in this Article
XVIII, provided that so long as Seller receives written notice from Buyer of a
claimed defect within the Warranty Period, Buyer shall be deemed to have
complied with the notice requirements set forth in this Article XVIII. If
Seller determines that the items were found to conform to the specifications
and requirements of this Agreement, they will be repaired/replaced/shipped at
Buyer's expense.
ARTICLE XIX
LIMITATION OF LIABILITY
(a) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IN
NO EVENT SHALL EITHER PARTY HAVE ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR
REMEDY TO THE OTHER UNDER THIS AGREEMENT FOR LOSS OF USE, REVENUE OR PROFIT OR
FOR ANY OTHER INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
(b) Regardless of fault, under no circumstances shall Seller be
liable for any damages greater than the price of the Goods sold or services
performed hereunder for any claim made, whether arising from Seller's breach
of contract, breach of express or implied warranty, arising in tort, at law or
in equity including any law giving rise to a claim of strict liability or for
any other cause.
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<PAGE> 15
ARTICLE XX
AMENDMENT AND WAIVER
Except as provided otherwise herein, this Agreement may not be amended
nor may any rights hereunder be waived except by an instrument in writing
signed by the parties hereto. Failure of either party to enforce, at any time,
any of the provisions of this Agreement shall not constitute a waiver of such
provisions, or a waiver of the right of the respective party to enforce any or
all provisions.
ARTICLE XXI
APPLICABLE LAW
This Agreement, including all attachments hereto, shall be construed
in accordance with and governed by the laws of the Commonwealth on Virginia,
USA, without giving effect to the provisions, policies or principles thereof
relating to choice or conflict of laws.
ARTICLE XXII
BINDING EFFECT AND ASSIGNMENT
This Agreement shall be binding upon and shall inure to the benefit of
the parties and their respective successors and permitted assigns. Neither
this Agreement nor any interests or obligations hereunder shall be assigned or
transferred (by operation of law or otherwise) to any person without the prior
written consent of the other party.
ARTICLE XXIII
FORCE MAJEURE
Neither party shall be responsible to the other for any failure or
delay in performance or delivery that is the result of an act of God, the
public enemy, embargo, governmental act, fire, accident, war, riot, strikes,
inclement weather or other causes of a similar nature that are beyond the
control of the parties. In the event of such occurrence, this Agreement shall
be amended by mutual agreement to reflect to an extension in the period of
performance and /or time of delivery. Failure to agree on an equitable
adjustment shall be considered a dispute and resolved in accordance with
Article IX of the Agreement. However, Orbital agrees to repair or replace any
Spares, as identified in SOW Table 4-3, that are damaged or destroyed while in
Orbital's Chandler, AZ facility during the performance period of this
Agreement.
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<PAGE> 16
ARTICLE XXV
ENTIRE AGREEMENT
This Agreement, including attachments hereto, constitutes the entire
agreement among the parties with respect to the subject matter hereof, and
supersedes any prior writing or agreement or understanding among the parties
with respect to the subject matter hereof and shall not be varied,
supplemented, qualified or interpreted by any prior course of dealing between
the parties or by any usage of trade.
ARTICLE XXVI
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ORBITAL SCIENCES CORPORATION ORBCOMM GLOBAL, L.P.
By By
---------------------------------- ---------------------------------
Name: Ms. Debra B. Dreher Name: Mr. Alan L. Parker
Title: Senior Contracts Administrator Title: President
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<PAGE> 17
ATTACHMENT 2
MILESTONE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
MILESTONE PAYMENT
--------- -------
<S> <C>
1. Completion of 1st Quarter 25% of CLIN 1 Value
Maintenance Support
2. Completion of 2nd Quarter 25% of CLIN 1 Value
Maintenance Support
3. Completion of 3rd Quarter 25% of CLIN 1 Value
Maintenance Support
4. Completion of 4th Quarter 25% of CLIN 1 Value
Maintenance Support
5. Place P.O.s for vendor spares and 25% of CLIN 2 Value
and Orbital manufactured spares.
6. Receipt, Test and Acceptance of Spares 75% of CLIN 2 Value
7. Completion of 1st Quarter 25% of CLIN 3 Value
Site Representation Support
8. Completion of 2nd Quarter 25% of CLIN 3 Value
Site Representation Support
9. Completion of 3rd Quarter 25% of CLIN 3 Value
Site Representation Support
10. Completion of 4th Quarter 25% of CLIN 3 Value
Site Representation Support
11. Completion of Preliminary 25% of CLIN 5 Value
Shelter Drawings
12. Delivery of Released Baseline 50% of CLIN 5 Value
Drawings
13. Delivery of Red-Lined Drawings 25% of CLIN 5 Value
for other 3 U.S. GES sites
14. Completion of 1st Launch 50% of CLIN 6 Value
15. Completion of 2nd Launch 50% of CLIN 6 Value
</TABLE>
<PAGE> 1
EXHIBIT 10.19
SUBSCRIBER COMMUNICATOR MANUFACTURE AGREEMENT
This Subscriber Communicator Manufacture Agreement
("Agreement") is made and entered into as of the 31st day of July, 1996 between
Magellan Corporation ("Magellan") whose principal business address is 960
Overland Court, San Dimas, California 91773, and ORBCOMM Global, L.P.
("ORBCOMM"), whose principal business address is 21700 Atlantic Boulevard,
Dulles, Virginia 20166.
W I T N E S S E T H
WHEREAS, Orbital Communications Corporation ("OCC"), an
affiliate of ORBCOMM, has obtained a license from the Federal Communications
Commission (the "FCC") to operate in the United States a system of up to 36
low-Earth orbit satellites that is intended to provide two-way data
communications, messaging and position determination services throughout the
world;
WHEREAS, ORBCOMM, through its affiliates, ORBCOMM USA, L.P.
("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), and their international licensees intend to provide ORBCOMM
System services and generally to rely on selected companies on a non-exclusive
basis to design, test, manufacture, sell, support and service Subscriber
Communicators using the ORBCOMM System; and
WHEREAS, Magellan desires to design, develop, test,
manufacture, sell, support and service Subscriber Communicators to be used with
the ORBCOMM System under the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS.
(a) "Applicable Benchmark Specification" shall mean the Benchmark
Specification in effect on the later of the (i) date of original manufacture and
(ii) the date of any re-manufacture, repair, change or modification as a result
of a recall, as required by this Agreement or as voluntarily initiated by
Magellan.
(b) "Benchmark Specification" shall mean the version of the
Specifications that are the current version in effect on the latest of (i) the
date of execution of this Agreement, (ii) ninety (90) days prior to acceptance
for Type Approval testing of a Candidate Subscriber Communicator, and (iii) the
date of the last Type 1 or Type 2 change to the Specifications.
(c) "Benchmark Version of the ORBCOMM Software" shall mean the
version of the ORBCOMM Software that is the current version in use on the latest
of (i) the date of execution of this Agreement, (ii) ninety (90) days prior to
acceptance for Type Approval testing of a Candidate Subscriber Communicator and
(iii) the date of the last Type 1 or Type 2 change to the Network Software
and/or Subscriber Communicator Software.
(d) "Candidate Subscriber Communicator" shall mean the equipment
that could be used to
<PAGE> 2
provide access to the ORBCOMM System for which Magellan is seeking "Type
Approval" by ORBCOMM pursuant to the terms of this Agreement.
(e) "Device Control Number" shall mean the control number issued by
ORBCOMM with which a specific pair of Radio Identification Codes is associated.
The Device Control Number provides a means to refer to a pair of Radio
Identifications Codes without disclosing such codes.
(f) "Lot" shall mean the smaller of the number of Subscriber
Communicators produced in a consecutive production run and the number of
Subscriber Communicators produced in a twenty-four (24) hour period.
(g) "Manufacturer's Serial Number" shall mean that unique number
assigned to a Subscriber Communicator by Magellan for the purpose of
identification of such Subscriber Communicator.
(h) "Network Software" shall mean the software in the Satellites and
ORBCOMM Gateways that affect the Subscriber Communicator.
(i) "Network Test Set" shall mean a device that simulates the
non-Subscriber Communicator elements of the ORBCOMM System to the extent
necessary in the design and testing of a Candidate Subscriber Communicator or
Subscriber Communicator.
(j) "ORBCOMM Gateway" shall mean the facilities consisting of earth
stations, computers, displays, control consoles, communications equipment and
other hardware that transport and control the flow of data and message
communications and other information for the ORBCOMM System.
(k) "ORBCOMM Software" shall mean the software contained in the
Satellites, the ORBCOMM Gateways and the Subscriber Communicators that ORBCOMM
has developed, purchased or licensed and has tested to develop the ORBCOMM
System.
(l) "ORBCOMM System" shall mean the low-Earth orbit two-way message
and data communications and position determination system developed, built,
launched and operated by ORBCOMM or any successors and assigns thereof.
(m) "ORBCOMM System Numbers" shall mean the unique numbers assigned
to each Subscriber Communicator. For purposes of this Agreement, each Subscriber
Communicator shall have a Manufacturer's Serial Number assigned by Magellan and
a Device Control Number and associated Radio Identification Codes.
(n) "Radio Identification Codes" shall mean the pair of codes that
will be used by the ORBCOMM System to identify the Subscriber Communicator and
that have been provided by ORBCOMM to Magellan pursuant to the terms of this
Agreement.
(o) "Satellites" shall mean any of the low-Earth orbit satellites
comprising the constellation portion of the ORBCOMM System.
(p) "Specifications" shall mean the functional and design
requirements the Subscriber Communicator must meet that are contained in Exhibit
A.
(q) "Subscriber Communicator" shall mean the equipment to be
manufactured by Magellan and used to provide access to the ORBCOMM System that
has been "Type Approved" by ORBCOMM
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<PAGE> 3
and to which ORBCOMM System Numbers have been assigned. A Subscriber
Communicator can be either a finished product (an "End User Subscriber
Communicator"), or it can be a Subscriber Communicator that is incorporated in
another finished product ("OEM Subscriber Communicator").
(r) "Subscriber Communicator Software" shall mean the
ORBCOMM-developed communications software that is integrated into a Subscriber
Communicator.
(s) "Type Approval" shall mean the approval for use with the ORBCOMM
System granted by ORBCOMM for each model of Candidate Subscriber Communicator
(also referred to as "Type") based on ORBCOMM's determination that such Type of
Candidate Subscriber Communicator meets the requirements of the Specifications
and successfully meets the testing requirements specified in Section 6 of this
Agreement. Each Candidate Subscriber Communicator Type shall require a separate
Type Approval.
2. TERM.
Subject to the provisions of Section 17 hereof, this
Agreement shall have a term of ten (10) years, commencing on the effective
date of this Agreement.
3. DUTIES OF MAGELLAN.
(a) Magellan has designated Mr. Bill Neill, Project Manager, ORBCOMM
Subscriber Communicators, as the single point of contact within Magellan's
organization responsible for coordinating all activities related to this
Agreement including but not limited to Specifications, technical requirements,
warranty issues and any and all other information Magellan reasonably requires
regarding the ORBCOMM System as currently designed or as may be planned in the
future; provided that the Project Manager, ORBCOMM Subscriber Communicators
shall not be authorized to amend or modify or to waive any provisions of this
Agreement. Such designated Project Manager, ORBCOMM Subscriber Communicators may
be changed by Magellan on written notice to ORBCOMM.
(b) Magellan agrees to employ the highest standards of business
conduct in the performance of its obligations hereunder and to manufacture and
distribute Subscriber Communicators in a manner so as not to injure
intentionally the reputation of ORBCOMM, its affiliates, the ORBCOMM System or
other Subscriber Communicator manufacturers.
(c) Magellan acknowledges that changes made to the Network Software
may affect the operation of the Subscriber Communicators. Magellan shall be
responsible for ensuring that each Subscriber Communicator Type is compatible
with the current version of the Network Software in accordance with Section 11.
(d) During the term of this Agreement, Magellan shall manufacture or
cause to be manufactured the Subscriber Communicators in accordance with the
Specifications.
(e) Magellan shall establish a or use its existing sales,
distribution, and service organization as appropriate for each major market in
which it intends to sell Subscriber Communicators. Such organization shall be
capable of answering technical questions, shall have the authority to negotiate
sales of Subscriber Communicators with resellers, agents and customers of the
ORBCOMM System and shall be capable of providing warranty and out-of-warranty
repair service.
(f) For Subscriber Communicators placed into service prior to the
termination or expiration
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<PAGE> 4
of this Agreement, Magellan shall, for a period of two years from the
discontinuation of the manufacture of a Type of Subscriber Communicator,
maintain sufficient replacement units or sufficient parts, components, and
repair capabilities for each market to comply with its obligations under Section
12.
(g) Magellan shall request from ORBCOMM in writing the Device
Control Number and associated Radio Identification Codes at least ten (10)
business days before Magellan requires such numbers for allocation to Subscriber
Communicators, provided that such requests shall occur no more frequently than
once per month. After receipt of the Device Control Number and associated Radio
Identification Codes, Magellan shall assign to each Subscriber Communicator the
ORBCOMM System Numbers. Magellan and its OEM customers shall at no time reassign
from one Subscriber Communicator or OEM Subscriber Communicator to another any
of the ORBCOMM System Numbers.
(h) Magellan shall deliver to ORBCOMM within fifteen (15) days of
the end of each calendar month a list of all Subscriber Communicators, and the
corresponding Manufacturer's Serial Numbers cross-referenced to the Device
Control Numbers, (i) shipped to ORBCOMM resellers, agents, or customers during
the preceding month or (ii) returned to Magellan or its OEM customers for
warranty or out-of-warranty service during the preceding month, together with a
description of the service problem identified for each returned Subscriber
Communicator.
(i) Prior to entering into any agreement pursuant to which Magellan
would manufacture OEM Subscriber Communicators for a third party that is not an
affiliate of Magellan or its parent company, Magellan shall submit sufficient
technical details of the proposed incorporation of the OEM Subscriber
Communicator into another device so as to enable ORBCOMM to determine to its
satisfaction that such incorporation would not invalidate the Type Approval.
Such OEM customer shall be obligated to implement the incorporation of the OEM
Subscriber Communicator into such end-product in accordance with the technical
details so supplied by Magellan. Magellan shall require its OEM customers to
comply with, and shall include in any agreement it enters into with its OEM
customers, the applicable provisions of Sections 3(g) and 3(h)(ii).
4. DUTIES OF ORBCOMM.
(a) ORBCOMM shall provide technical support related to this
Agreement including but not limited to Specifications, technical requirements,
warranty issues and any and all other information regarding the ORBCOMM System
as currently designed or as may be planned in the future. ORBCOMM has designated
Mr. Marc Fine, as the ORBCOMM Product Manager. The ORBCOMM Product Manager shall
be the single point of contact within ORBCOMM's organization responsible for
coordinating activities and providing such technical support. The ORBCOMM
Product Manager shall not be authorized to amend or modify or to waive any
provisions of this Agreement. Such designated ORBCOMM Product Manager may be
changed by ORBCOMM on written notice to Magellan.
(b) ORBCOMM shall provide to Magellan the Specifications and any
other technical documentation or material ORBCOMM reasonably determines may be
required by Magellan to perform its obligations hereunder.
(c) ORBCOMM shall provide to Magellan one Network Test Set and a
Network Test Set manual, which Magellan shall be entitled to use for the term of
this Agreement. ORBCOMM shall maintain the Network Test Set in good working
order, normal wear and tear excepted; provided however, that (i) for repair work
by ORBCOMM the Network Test Set shall be shipped to a facility designated by
ORBCOMM, all shipping and handling charges to such facility prepaid by Magellan
and all shipping and
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<PAGE> 5
handling charges from such facility back to Magellan prepaid by ORBCOMM and (ii)
Magellan shall reimburse ORBCOMM for any and all expenses incurred by ORBCOMM in
maintaining such Network Test Set which, in the opinion of ORBCOMM, are
attributable to misuse, mishandling or tampering, modification or other
unauthorized action by Magellan. On expiration or termination of this Agreement,
the Network Test Set and manual shall be immediately returned to ORBCOMM in good
working order, normal wear and tear excepted. In the event ORBCOMM reasonably
determines that Magellan would require the use of a Network Test Set to fulfill
its obligations under Section 12 that survive the expiration or termination of
this Agreement, ORBCOMM shall make available to Magellan one Network Test Set
and one manual for the duration of such surviving obligations. On the expiration
of such period, the Network Test Set and manual shall be immediately returned to
ORBCOMM in good working order.
(d) Within ten (10) business days of receipt of the request from
Magellan specified in Section 3(g), ORBCOMM shall provide a sufficient quantity
of Device Control Numbers and associated Radio Identification Codes for use by
Magellan in accordance with the terms of this Agreement.
(e) ORBCOMM agrees to employ the highest standards of business
conduct in the performance of its obligations hereunder in a manner so as not to
injure intentionally the reputation of Magellan or its affiliates.
5. COMMUNICATOR TYPE APPROVAL.
(a) ORBCOMM shall grant Type Approval for each Type of Candidate
Subscriber Communicator that ORBCOMM determines meets the Benchmark
Specifications and successfully meets the testing requirements specified in
Section 6 of this Agreement. ORBCOMM shall be entitled to revoke or suspend Type
Approval for each Subscriber Communicator Type that, after receipt of initial
Type Approval, fails to meet the Specifications or the testing requirements
specified in Section 6 of this Agreement that were in effect at the time of
grant of such initial Type Approval.
(b) ORBCOMM hereby authorizes Magellan to manufacture and sell each
Type of Subscriber Communicator that has received Type Approval from ORBCOMM.
Magellan shall not be entitled to sell any Candidate Subscriber Communicator
Type until ORBCOMM provides Type Approval thereof.
(c) Magellan shall immediately notify ORBCOMM of any changes in
design or functionality of any Subscriber Communicator Type subsequent to
ORBCOMM's providing the initial Type Approval thereof; provided however, that
Magellan shall not be required to provide ORBCOMM with notice of (i) cosmetic
design changes or (ii) changes to hardware and/or software encapsulated in the
same case as a Subscriber Communicator Type if such hardware and/or software (A)
is not interconnected to such Subscriber Communicator Type or (B) does not
provide functionality required by the Applicable Benchmark Specification. Within
five (5) business days after receipt of such notice, ORBCOMM shall notify
Magellan: (i) whether such changes in design or functionality require that a
Subscriber Communicator Type be resubmitted for Type Approval testing; or (ii)
that ORBCOMM cannot make the determination specified in (i) until it has
received and evaluated two (2) subscriber communicators of such new Type. In the
event ORBCOMM has determined that it requires two (2) such subscriber
communicators, such units shall be provided to ORBCOMM for such evaluation and
testing. Within ten (10) business days of receipt of such units, ORBCOMM shall
notify Magellan that such changes in design or functionality require that a
Subscriber Communicator Type be resubmitted for Type Approval testing or that
such requirement for additional Type Approval testing is waived.. In the event
that ORBCOMM determines that additional Type Approval testing in required,
Magellan shall, at its
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<PAGE> 6
option, (A) withdraw its request for that such changes in design or
functionality be permitted under the previously granted Type Approval or (B)
submit a subscriber communicator incorporating such changes in design or
functionality as a Candidate Subscriber Communicator through the standard Type
Approval process.
(d) If at any time following Type Approval by ORBCOMM of any
Subscriber Communicator Type, such Type is determined by the applicable
governmental authority to violate any applicable law, rule or regulation of any
governmental authority or agency in any country, province, state, municipality
or other political subdivision (a "Geo-Political Entity") in which the
Subscriber Communicators is expected to be sold and/or operated (a "Regulatory
Violation"), Magellan shall (i) notify ORBCOMM of such Regulatory Violation,
(ii) cease sale of such Subscriber Communicator Type in the affected
Geo-Political Entity and (iii) promptly notify all registered owners in the
affected Geo-Political Entity of such Subscriber Communicator Type of such
Regulatory Violation and arrange for the prompt repair of all previously sold
Subscriber Communicators of such Type in the affected Geo-Political Entity so
that such Subscriber Communicator conforms to such law, rule or regulation.
(e) If at any time following Type Approval by ORBCOMM of any
Subscriber Communicator Type, any Subscriber Communicator is found, as a result
of internal quality assurance testing, as a result of tests performed on
returned Subscriber Communicators or otherwise, to not be performing in
accordance with the Applicable Benchmark Specifications (a "Specification
Violation"), the following provisions shall apply: (i) if from two (2) to five
(5) percent of any Lot of Subscriber Communicators has a Specification
Violation, Magellan shall notify ORBCOMM of such event and shall set forth in
detail the course of action and procedures, including manufacturing and quality
assurance changes, Magellan intends to undertake to reduce such Specification
Violations to less than two (2) percent of any Lot and (ii) if more than five
(5) percent of any Lot of Subscriber Communicators has a Specification
Violation, Magellan shall, in addition to providing the information required by
(i) above, cease manufacture and sale of such Subscriber Communicator of such
Type until such time as such Specification Violation is corrected and recall and
promptly repair all Subscriber Communicator of such Type to the extent required
by ORBCOMM.
6. TESTING REQUIREMENTS.
(a) Prior to Type Approval testing, ORBCOMM shall provide to
Magellan a Type Approval test plan for the Candidate Subscriber Communicators,
which test plan shall provide a mechanism for evaluating the Candidate
Subscriber Communicators against the Specifications. Thereafter, Magellan shall
submit to ORBCOMM: (i) a request for Type Approval testing, and (ii) Type
Approval test procedures for the Candidate Subscriber Communicators, which test
procedures shall provide a mechanism for evaluating the Candidate Subscriber
Communicators against the Benchmark Specifications. Such Type Approval test
procedures must be approved in writing by ORBCOMM prior to testing. ORBCOMM
shall have fifteen (15) business days to either approve or provide written
comments regarding the content of the Type Approval test procedures submitted by
Magellan. In the event ORBCOMM provides Magellan with written comments, Magellan
shall revise its Type Approval test procedures, taking into account such
comments, and resubmit such Type Approval test procedures to ORBCOMM for its
approval. ORBCOMM shall schedule the Type Approval test for the Candidate
Subscriber Communicator within the later of forty-five (45) days of receipt by
ORBCOMM of the request for Type Approval testing and the approval by ORBCOMM of
the Type Approval test procedures. Within sixty (60) days after completion of
Type Approval testing, Magellan shall provide a test report to ORBCOMM.
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(b) Magellan agrees to conduct testing of the Candidate Subscriber
Communicators in accordance with the ORBCOMM Type Approval test plan and its
ORBCOMM-approved Type Approval test procedures. ORBCOMM shall be entitled to
witness the Type Approval testing performed by Magellan at Magellan's designated
facilities. ORBCOMM reserves the right to withhold Type Approval for any
Candidate Subscriber Communicator Type failing to meet the minimum performance
requirements of the Type Approval tests and the Benchmark Specifications.
(c) Prior to production of the Subscriber Communicators, Magellan
shall provide to ORBCOMM, for its prior written approval, an ongoing quality
assurance test plan. The quality assurance test plan shall contain usual and
customary terms and conditions for the wireless communications equipment, taking
into account the intended purpose for which the Subscriber Communicator will be
used, and shall specify, at a minimum, appropriate manufacturing Lot sizes,
sample sizes, testing techniques, brand and model of test equipment and the
manner of calibrating such test equipment to a traceable, internationally
accepted standard. In addition, the quality assurance test plan shall test the
Subscriber Communicators comprehensively to ensure full compliance with the
Benchmark Specifications. The quality assurance test plan shall be used by
Magellan for the manufacture of Subscriber Communicators for the term of this
Agreement. Within thirty (30) days of receiving the quality assurance test plan,
ORBCOMM must either approve the plan or detail where the plan is deficient.
(d) Magellan agrees to allow ORBCOMM, during normal business hours
and without prior notice, to inspect and witness production testing of the
Subscriber Communicators. ORBCOMM shall be entitled to select any number of
Subscriber Communicators from any Lot to test for compliance with the terms and
conditions specified in this Agreement. Any such Subscriber Communicators shall
remain the property of Magellan and shall be returned to Magellan promptly after
testing.
7. COSTS.
Except as provided in Section 10 hereof, each party
shall bear its own costs and expenses in connection with the preparation,
negotiation and performance of its obligations under this Agreement, and neither
party shall be liable for the costs of the other.
8. NON-DISCLOSURE.
Each party acknowledges the execution of a Mutual
Non-Disclosure Agreement, dated __________, 1996 between ORBCOMM and Magellan.
Each party agrees to abide by the terms and conditions of such agreement;
provided, however, that Section II(a) shall be amended to change the phrase
"three years from the date of disclosure" appearing therein to "the later of (i)
ten (10) years from the date of disclosure and (ii) three years after the
termination or expiration of the Subscriber Communicator Manufacturing Agreement
dated as of July 31, 1996 between ORBCOMM Global, L.P. and Magellan
Corporation."
9. LABELING.
(a) All End User Subscriber Communicators shall have on the exterior
of the unit bear an appropriate "ORBCOMM" mark. All OEM Subscriber Communicators
shall bear an appropriate "ORBCOMM" mark if a Magellan mark is displayed on the
exterior of the unit. During the term of this Agreement, ORBCOMM grants to
Magellan the right to use the "ORBCOMM" mark only for such purpose or for
purposes of manufacturing, selling or advertising such Subscriber Communicators.
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Magellan shall be required to obtain the advance written approval of the use of
the ORBCOMM mark unless such mark complies with the display and other
requirements set forth in the ORBCOMM Identity Manual, a copy of which is
attached hereto as Exhibit B. Any use of the word "ORBCOMM", or phrase "ORB"
combined with any other word or phrase, for a logo, trademark, service mark or
trade name shall require the prior written approval of ORBCOMM.
(b) All Subscriber Communicators shall have displayed on the
exterior of the unit any statements that may be required by the governmental
authorities or agencies of the countries in which the Subscriber Communicators
shall be sold and/or operated. Current FCC rules require that the following
statement be set forth on each Subscriber Communicator: "THIS DEVICE MAY NOT BE
OPERATED WHILE ON BOARD A CIVIL AIRCRAFT. IT MUST BE TURNED OFF AT ALL TIMES
WHILE ON BOARD SUCH AN AIRCRAFT".
(c) All Subscriber Communicators shall have displayed on the
exterior of the unit the Manufacturer's Serial Number assigned by Magellan and
reported to ORBCOMM as being associated with a specific Device Control Number.
Magellan shall require any OEM customer for whom it manufactures OEM Subscriber
Communicators to display the Magellan Manufacturer's Serial Number on the
exterior of the final end-product in which such OEM Subscriber Communicator is
incorporated.
(d) All Subscriber Communicators shall have displayed on the
exterior of the unit the legend "ORBCOMM Type Approved" together with the
ORBCOMM-assigned type approval number (collectively, the "ORBCOMM Type Approval
Legend"). Magellan shall require any OEM customer for whom it manufactures OEM
Subscriber Communicators to display the appropriate ORBCOMM Type Approval Legend
on the exterior of the final end-product in which such OEM Subscriber
Communicator is incorporated.
10. FEES AND ROYALTIES.
(a) There shall be no payments by ORBCOMM to Magellan for the
development, manufacture or delivery of any Subscriber Communicators not
specifically purchased by ORBCOMM. Magellan agrees to develop, manufacture and
deliver the Subscriber Communicators on the foregoing basis.
(b) The parties acknowledge that Orbital Sciences Corporation, on
behalf of Magellan, has previously paid to ORBCOMM a non-refundable fee in the
amount of $40,000, as payment for services and support to be provided by ORBCOMM
during the term of this Agreement, including, but not limited to, the loan and
maintenance of one Network Test Set.
(c) For all Subscriber Communicators sold that have been
manufactured by or on behalf of Magellan, Magellan shall pay or cause to be paid
to ORBCOMM a royalty equal to US$2.00 per Subscriber Communicator; provided that
Magellan shall be entitled to a credit against any future royalties owed by
Magellan hereunder in the event a Subscriber Communicator that is defective is
replaced, at Magellan's option, by another Subscriber Communicator and the
Device Control Number and associated Radio Identification Numbers for such
defective Subscriber Communicator is returned to ORBCOMM, which return occurs on
the reporting of the replacement of the defective Subscriber Communicator.
ORBCOMM shall invoice Magellan monthly for such royalty fee minus any applicable
credits as provided hereunder for all Device Control Numbers provided by ORBCOMM
to Magellan during the previous calendar month. Payment of such invoices is due
ninety (90) days from the receipt of the invoice.
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11. SUBSCRIBER COMMUNICATOR HARDWARE AND SOFTWARE.
(a) In accordance with the terms of this Agreement, ORBCOMM grants
Magellan the right to use or have used the Subscriber Communicator Software in
Subscriber Communicators Magellan offers for sale to ORBCOMM or any other buyer.
ORBCOMM grants Magellan the right to modify such software to enable Magellan's
specific hardware/software design to interface with the Network Software,
provided Magellan-initiated changes to the Subscriber Communicator Software do
not, in any way, change the functionality of such software; provided, that for
purposes of this Section 11(a), Magellan shall not be deemed to have changed the
functionality of such software if Magellan deletes portions of the Subscriber
Communicator Software and (i) it otherwise replaces such deleted functionality
or (ii) such deletion does not prevent the Candidate Subscriber Communicator
from receiving Type Approval. Magellan shall not sell, convey, or otherwise
transfer the Subscriber Communicator Software, in either its original or
modified form, to any other person or entity, except as specifically provided in
this Section 11(a).
(b)(i) Because the ORBCOMM System will be continuously evolving in
response to market demands and other factors, the ORBCOMM Software will be
subject to continuing development and configuration changes. ORBCOMM therefore
reserves the right to continue to make changes in the Specifications and/or the
ORBCOMM Software according to the following classifications:
(A) Type 1: Changes required to respond to,
or to avoid, a network anomaly that materially affects or would materially
effect, service within the ORBCOMM System;
(B) Type 2: Changes required to comply with
a regulation, statute, or other requirement imposed by a governmental authority
or standards organization having jurisdiction over all or a portion of the
ORBCOMM System;
(C) Type 3: Changes required to correct, or
implement work-arounds for, system anomalies, including but not limited to
hardware problems, software bugs, or other network operational problems; and
(D) Type 4: Changes not otherwise classified
as Type 1, Type 2, or Type 3.
(ii) Magellan acknowledges that changes to the ORBCOMM
System may be made after design conception but prior to Type Approval of a
Candidate Subscriber Communicator and Magellan shall be obligated to ensure that
Candidate Subscriber Communicators shall comply with the Benchmark
Specifications, and be compatible with the Benchmark Version of the ORBCOMM
Software.
(c)(i) In the event Type 1 or Type 2 changes to the Specifications,
the Network Software and/or Subscriber Communicator Software have been
determined by ORBCOMM to be required and ORBCOMM has determined that such
changes require or may require modification to the design of a Subscriber
Communicator or a Candidate Subscriber Communicator, ORBCOMM shall:
(A) provide Magellan with as much advance
notice as is reasonable given the circumstances, which notice shall include a
description of the functional changes to the Specifications, the Network
Software and/or Subscriber Communicator Software;
(B) to the extent required and as soon as
reasonably practicable, provide Magellan with new Subscriber Communicator
Software and/or a new version of the Network Test Set Software; and
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(C) to the extent required, as soon as
reasonably practical, provide a test report showing the current or new
Subscriber Communicator Software to be compatible with the current or new
Network Test Set Software, as the case may be.
(ii) Magellan shall, immediately upon receipt of such
notice, and to the extent that such notice directs Magellan to take such action:
(A) cease production of any Subscriber
Communicators that do not incorporate the revised Subscriber Communicator
Software or that do not comply with the revised Specifications;
(B) suspend shipment of any Subscriber
Communicators that do not incorporate the revised Subscriber Communicator
Software or that do not comply with the revised Specifications; and
(C) notify its customers of OEM Subscriber
Communicators that do not incorporate the revised Subscriber Communicator
Software or that do not comply with the revised Specifications, that they must
immediately suspend any shipment of such OEM products that contain non-compliant
OEM Subscriber Communicators.
(d)(i) In the event Type 3 changes to the Specifications, Network
Software and/or the Subscriber Communicator Software have been determined by
ORBCOMM to be required and ORBCOMM has determined that such changes require or
may require modification to the design of a Subscriber Communicator or a
Candidate Subscriber Communicator, ORBCOMM shall:
(A) at least ten (10) days before such
changes become effective, provide Magellan with notice thereof, which notice
shall include a description of the functional changes to the Specifications,
Network Software and/or Subscriber Communicator Software;
(B) to the extent required and as soon as
reasonably practical, provide Magellan with new Subscriber Communicator Software
and/or a new version of the Network Test Set Software; and
(C) to the extent required, as soon as
reasonably practical, provide a test report showing the current or new
Subscriber Communicator Software to be compatible with the current or new
Network Test Set Software, as the case may be.
(ii) To the extent that such notice directs Magellan to
take such action, Magellan shall, on a date or dates to be mutually agreed on,
provided that in no event shall such date be later than sixty (60) days from the
date of such notice:
(A) cease production of any Subscriber
Communicators that do not incorporate the revised Subscriber Communicator
Software or that do not comply with the revised Specifications;
(B) suspend shipment of any Subscriber
Communicators that do not incorporate the revised Subscriber Communicator
Software or that do not comply with the revised Specifications; and
(C) notify its customers of OEM Subscriber
Communicators that do not
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incorporate the revised Subscriber Communicator Software or that do not comply
with the revised Specifications, that they must immediately suspend any shipment
of such non-compliant OEM Subscriber Communicators.
(e)(i) In the event Type 4 changes to the Specifications, Network
Software and/or Subscriber Communicator Software have been determined by ORBCOMM
to be required and ORBCOMM has determined that such changes require or may
require modification to the design of a Subscriber Communicator or a Candidate
Subscriber Communicator, ORBCOMM shall:
(A) at least sixty (60) days before such
changes become effective, provide to Magellan notice of upcoming changes to the
Specifications, Network Software and/or Subscriber Communicator Software that
ORBCOMM believes will require Magellan to make corresponding changes to its
Subscriber Communicators; and
(B) not less that thirty (30) days after
such notice, provide to Magellan the following:
(x) a description of the
functional changes to the Specifications, Network Software and/or Subscriber
Communicator Software;
(y) to the extent required, new
Subscriber Communicator Software and/or a new Network Test Set Software version;
and
(z) to the extent required, a
test report showing the current or new Subscriber Communicator Software to be
compatible with the current or new Network Test Set Software, as the case may
be.
(ii)(A) Within thirty (30) days of receipt of the notice
specified in Section 11(e)(i)(A), Magellan shall notify ORBCOMM that it agrees
with the results of the test report provided by ORBCOMM pursuant to
11(e)(i)(B)(z) or provide ORBCOMM with a list of backward compatibility issues
that would result from using such new software.
(B) In the event Magellan does not provide
ORBCOMM with a list of such backward compatibility issues within such thirty
(30) day period or has accepted the results of the test report, ORBCOMM shall be
entitled to make the proposed Specification, Network Software and/or Subscriber
Communicator Software changes on the proposed date, and, subject to any
previously granted waivers under Section 11(f), Magellan shall be required to
implement such changes as are required into production Subscriber Communicators
immediately on the effective date of such change.
(C) If Magellan provides ORBCOMM with a list
of backward compatibility issues that would adversely effect the currently
manufactured Magellan Subscriber Communicators, ORBCOMM shall have ten (10)
business days to review such list. Thereafter, ORBCOMM and Magellan shall have
thirty (30) days to endeavor to develop a change that meets the intent of the
original proposed change but does not adversely effect the currently
manufactured Magellan Subscriber Communicator, provided that Magellan
acknowledges that ORBCOMM has entered into agreements with other subscriber
communicator manufacturers. If during such thirty (30) day period, the parties
are unable to develop a mutually agreeable change, ORBCOMM shall be entitled to
either implement its original proposed change or delay such implementation. If
ORBCOMM determines to implement its original proposed change, subject to any
previously granted waivers under Section 11(f), Magellan shall
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be required to implement such changes as are required into production Subscriber
Communicators immediately on the effective date of such change.
(f) Magellan may request a waiver from compliance with the
Specifications. If ORBCOMM in its sole discretion determines that the requested
waiver is acceptable, ORBCOMM may make an appropriate modification to the
Specifications or provide a waiver of the applicable Specification to Magellan
for a particular Subscriber Communicator Type.
(g) The Specifications and any modifications thereto, irrespective
of the source of such modifications, shall be owned solely by ORBCOMM and
Magellan shall retain no right or title to any portion of such modifications.
Notwithstanding the foregoing, ORBCOMM shall have no right to any intellectual
property developed by Magellan that implements any modification to the
Specifications proposed by Magellan.
12. WARRANTIES AND REPAIRS.
(a) Magellan shall provide to all Subscriber Communicator customers
and users, a warranty for the Subscriber Communicators. Magellan shall submit to
ORBCOMM a draft version of the warranty agreement. ORBCOMM reserves the right to
approve the warranty agreement to ensure compliance with the provisions of this
Agreement including this Section 12 prior to shipment of the first Subscriber
Communicator, which approval shall not be unreasonably withheld.
(b) At a minimum, the following warranties shall be given by
Magellan:
(i) Magellan warrants that for twelve (12) months
following activation thereof on the ORBCOMM System by a subscriber (the
"Warranty Period"), the Subscriber Communicators, used under normal operating
conditions and not subject to misuse or abuse, shall be free from defects in
material, workmanship and design and shall operate and conform to the
performance capabilities, specifications, functions and other descriptions and
standards applicable thereto as set forth in the Applicable Benchmark
Specifications;
(ii) In the event that defects or other failures to
comply with the applicable warranty are discovered during the Warranty Period,
Magellan shall be responsible for the prompt repair or replacement (at
Magellan's option) of the Subscriber Communicator and associated accessories
included with such Subscriber Communicator;
(iii) For Subscriber Communicators returned outside the
Warranty Period, Magellan shall provide the subscriber a written quotation of
the cost to repair the Subscriber Communicator and any associated accessories
included with the Subscriber Communicator. The subscriber shall be given the
opportunity to accept or decline the quotation and if the subscriber declines
the quotation to repair the Subscriber Communicator, Magellan shall return the
Subscriber Communicator to the subscriber. If the subscriber accepts the
quotation, Magellan shall repair such Subscriber Communicator and associated
accessories included with such Subscriber Communicator and return such repaired
Subscriber Communicator to the subscriber; and
(iv) For all repairs, Magellan shall be responsible for
ensuring that the repaired Subscriber Communicator meets all requirements and,
at a minimum, the Specifications that were in effect at the time such Subscriber
Communicator was manufactured, subject to normal wear and tear and appearance.
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(c) For all Subscriber Communicators purchased by ORBCOMM, whether
for resale or otherwise, the following additional provisions shall apply:
(i) In the event ORBCOMM resells any Subscriber
Communicator purchased by it from Magellan, ORBCOMM shall be entitled to pass
through any warranties it is entitled to under this Section 12;
(ii) In the event that defects or other failures to
comply with the applicable warranty are discovered during the Warranty Period,
Magellan shall repair or replace such equipment within ten (10) business days of
receipt thereof and shall pay for all costs of return shipment of such equipment
to the subscriber;
(iii) For Subscriber Communicators returned outside the
Warranty Period, Magellan shall provide the subscriber a written quotation of
the cost to repair the Subscriber Communicator within ten (10) business days of
receipt of the Subscriber Communicator. If the subscriber accepts the quotation,
Magellan shall return the repaired Subscriber Communicator and associated
accessories included with such Subscriber Communicator to the subscriber within
ten (10) business days of receipt of the acceptance of the quotation.
13. SEGREGATION OF DESIGN AND DEVELOPMENT ACTIVITIES.
Magellan agrees that it shall segregate the design and
development efforts under this Agreement with respect to subscriber
communicators for the ORBCOMM System and the persons who have access to ORBCOMM
proprietary information from the design and development efforts for other
two-way data communication devices intended for use with commercial low-Earth
orbit mobile satellite systems using radio frequencies below 1 GHz.
14. INTELLECTUAL PROPERTY.
Each party shall retain title to the tangible or
intangible property it develops with its own funds. No element of ORBCOMM
intellectual property, including, but not limited to, versions of the
Specifications or the ORBCOMM Software, in either draft or final form, may be
(a) used by Magellan except pursuant to this Agreement or (b) patented by
Magellan. In the event Magellan patents any technical aspect of the Subscriber
Communicator, and ORBCOMM determines, in its sole discretion, that such patented
intellectual property is essential to the manufacture of all Subscriber
Communicators in accordance with the then existing Specifications (the
"Essential Intellectual Property") or such Essential Intellectual Property
pertains to the design of another Subscriber Communicator of another
manufacturer, Magellan shall grant to ORBCOMM and its designees, on a
non-discriminatory basis and on commercially reasonable terms, a perpetual
world-wide license to use and have used any such Essential Intellectual Property
for use only with the ORBCOMM System; provided that in making the determination
regarding whether intellectual property is Essential Intellectual Property,
ORBCOMM shall exclude Magellan's inventions that are not necessary to the
operation of the ORBCOMM System but only improve the performance of the ORBCOMM
System.
15. INTELLECTUAL PROPERTY INDEMNIFICATION.
(a) Matters Subject to Indemnification.
(i) By Magellan. Magellan agrees to indemnify and hold
harmless ORBCOMM and to pay all reasonable out-of-pocket costs and expenses
(including, but not limited to, reasonable
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attorney's fees and court costs) incurred by ORBCOMM and any damages finally
awarded against ORBCOMM with respect to any allegation, claim, suit, or
proceeding based on the assertion that the Subscriber Communicators or any Type
thereof violates the intellectual property rights of a third party (including
but not limited to rights relating to patents, copyrights, know-how, mask works,
trademarks, or trade secrets). Magellan shall not, however, be obligated to
indemnify or hold harmless ORBCOMM with regard to:
(A) use of any Subscriber Communicator in
combination with other items unless Magellan sold, made, or specifically
recommended such a combination, or such Subscriber Communicator is commonly put
to use in such a combination in the normal course of its usage;
(B) failure by ORBCOMM to modify the
Specifications, the Benchmark Specifications, or the Applicable Benchmark
Specification (collectively "the ORBCOMM Specifications") in ways recommended by
Magellan, if (i) the modification is consistent with ORBCOMM's business and
technical objectives, (ii) the modification would not materially increase the
costs incurred by ORBCOMM or its customers, and (iii) the modification would
enable Magellan to avoid a claim of infringement;
(C) incorporation of a specific design
feature in any Subscriber Communicator at the insistence of ORBCOMM, provided
that the ORBCOMM Specifications shall not be deemed a "specific design feature"
for purposes of this Section 15(a)(i)(C); or
(D) an allegation, claim, suit, or
proceeding for which ORBCOMM is required to indemnify and hold harmless Magellan
under Section 15(a)(ii) below.
(ii) By ORBCOMM. ORBCOMM agrees to indemnify and hold
harmless Magellan and to pay all reasonable out-of-pocket costs and expenses
(including, but not limited to, reasonable attorney's fees and court costs)
incurred by Magellan and any damages finally awarded against Magellan with
respect to any allegation, claim, suit, or proceeding against Magellan primarily
and directly based on the express or implied assertion that the ORBCOMM
Specifications cannot be implemented without violating the intellectual property
rights of a third party (including but not limited to rights relating to
patents, copyrights, know-how, mask works, trademarks, or trade secrets), or the
assertion that Magellan's use of an authorized ORBCOMM trademark or service mark
in connection with Subscriber Communicators as specified in Section 9 infringes
the rights of a third party. ORBCOMM shall not, however, be obligated to
indemnify or hold harmless Magellan with regard to:
(A) to the extent Magellan has the right to
so insist, changes made to the ORBCOMM Specifications at the insistence of
Magellan; or
(B) to the extent Magellan has the right to
object to modifications by ORBCOMM of the ORBCOMM Specifications, failure by
Magellan to permit ORBCOMM to make a modification requested by ORBCOMM, if (x)
the modification is consistent with Magellan's business and technical
objectives, (y) the modification would not materially increase the costs
incurred by Magellan or its customers, and (z) the modification would enable
ORBCOMM to avoid a claim that the ORBCOMM Specifications cannot be implemented
without infringing the intellectual property rights of a third party.
(b) Options in the Event of Claim of Infringement.
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(i) By Magellan. If the making, sale, or use of any
Subscriber Communicator becomes, or in the reasonable opinion of Magellan may
become the subject of any claim, suit, or proceeding, or if the manufacture or
sale of any Subscriber Communicator is enjoined, Magellan may, at its own option
and expense:
(A) obtain for its customers including
ORBCOMM the right to use such Subscriber Communicator;
(B) modify such Subscriber Communicator so
that it becomes noninfringing or replace such Subscriber Communicator with a
noninfringing Subscriber Communicator, in either case in such a manner as to
minimize the effect of such changes on ORBCOMM and to retain compliance with the
ORBCOMM Specifications, or
(C) temporarily suspend delivery of such
Subscriber Communicator while the infringement claim is being investigated.
If none of the above options is reasonably feasible,
Magellan may instead:
(D) cease to deliver such Subscriber
Communicator, and/or
(E) require ORBCOMM to return such
Subscriber Communicator in its possession or control to Magellan, and pay
ORBCOMM an amount equal to the price paid by ORBCOMM less depreciation (based on
a five-year life, with straight-line depreciation) up to the time that the
ORBCOMM ceases to use such Subscriber Communicator as a result of such claim.
(ii) By ORBCOMM. If a third party commences any
allegation, claim, suit, or proceeding based on the express or implied assertion
that the ORBCOMM Specifications, when implemented by Magellan will necessarily
violate the third party's intellectual property rights, or that use of an
authorized ORBCOMM trademark or service mark in connection with Subscriber
Communicators infringes the rights of a third party, or if in the reasonable
opinion of ORBCOMM a third party may initiate such an allegation, claim, suit,
or proceeding, ORBCOMM may, at its own option and expense:
(A) modify the ORBCOMM Specifications or the
relevant trademark or service mark to resolve any such concern; or
(B) require Magellan to cease the
manufacture and sale of Subscriber Communicators.
(c) Notice of infringement. Each party shall promptly notify the
other party of any allegation, claim, suit, or proceeding relating to a matter
subject to indemnification under this Section 15. Each party's obligation to
indemnify and hold the other party harmless under this Section 15 shall be
contingent on the indemnified party's provision of reasonably prompt notice to
the indemnifying party, provided that the obligation to indemnify shall be
modified only if and to the extent that the failure to provide reasonably prompt
notice to the indemnifying party materially prejudices the defenses of the
indemnifying party.
(d) Counsel. The indemnifying party shall defend any indemnified
matter through attorneys chosen and paid for by the indemnifying party.
(e) Limitations On Liability. NEITHER PARTY SHALL BE LIABLE TO THE
OTHER
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PARTY FOR ANY LOST PROFITS OR CONSEQUENTIAL DAMAGES INCURRED BY THE OTHER
PARTY, OR FOR ANY PUNITIVE DAMAGES AWARDED BECAUSE OF THE CONDUCT OF THE
INDEMNIFIED PARTY. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY UNDER THIS SECTION 15 FOR
MORE THAN TWO MILLION DOLLARS.
(f) Duty To Indemnify And Hold Harmless Related Entities And
Persons. The undertakings by Magellan and ORBCOMM in this Section 15 to
indemnify and hold one another harmless in the circumstances specified above
apply equally to the subsidiaries, parents, affiliates, officers, directors, and
employees of the indemnified party, and to the successors and assigns of those
entities or individuals.
(g) Entire Liability. This Section 15 sets forth the entire
liability of the parties to one another with respect to infringement of the
intellectual property rights of third parties.
16. LIMITATION OF LIABILITY.
(a) ORBCOMM HAS NOT AND SHALL NOT BE DEEMED TO HAVE MADE ANY
REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT TO THE ORBCOMM SYSTEM, ANY
ORBCOMM PRODUCTS AND SERVICES, THE NETWORK SOFTWARE, THE ORBCOMM SOFTWARE, THE
SUBSCRIBER COMMUNICATOR SOFTWARE, THE APPLICABLE BENCHMARK SPECIFICATIONS, THE
BENCHMARK SPECIFICATIONS OR THE SPECIFICATIONS. ORBCOMM EXPRESSLY DISCLAIMS AND
MAGELLAN HEREBY EXPRESSLY WAIVES, RELEASES AND RENOUNCES ALL WARRANTIES,
OBLIGATIONS AND LIABILITIES OF ORBCOMM AND ITS AFFILIATES AND ALL RIGHTS, CLAIMS
AND REMEDIES OF MAGELLAN AGAINST ORBCOMM, EXPRESS OR IMPLIED, ARISING BY LAW OR
OTHERWISE, WITH RESPECT TO, INCLUDING BUT NOT LIMITED TO: (i) ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, (ii) ANY
IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE
OF TRADE, (iii) ANY WARRANTIES AS TO THE ACCURACY, AVAILABILITY OR CONTENT OF
THE ORBCOMM SYSTEM, ANY ORBCOMM PRODUCTS OR SERVICES, THE NETWORK SOFTWARE, THE
ORBCOMM SOFTWARE, THE SUBSCRIBER COMMUNICATOR SOFTWARE, THE APPLICABLE BENCHMARK
SPECIFICATIONS, THE BENCHMARK SPECIFICATIONS OR THE SPECIFICATIONS, (iv) ANY
OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY UNDER ANY THEORY OF LAW, INCLUDING
ANY TORT, NEGLIGENCE, STRICT LIABILITY, CONTRACT OR OTHER LEGAL OR EQUITABLE
THEORY. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING BUT NOT
LIMITED TO, STATEMENTS REGARDING CAPACITY OR SUITABILITY FOR USE, NOT CONTAINED
IN THIS AGREEMENT SHALL BE DEEMED TO BE A WARRANTY BY ORBCOMM.
(b) Each of the parties acknowledges and understands that (i) the
ORBCOMM System may be operated under licenses granted by governmental
authorities or agencies ; (ii) one of the conditions to the use of such licenses
is non-interference with other users of the frequency bands covered by such
licenses; (iii) at any time and for any reason, such governmental authorities or
agencies may revoke, terminate or render unusable any or all of the licenses
granted to ORBCOMM for use in connection with the ORBCOMM System; and (iv) the
ORBCOMM System is an untested, new business venture involving a new satellite
system design that entails a high degree of risk of delay in or cancellation of
deployment, launch vehicle, satellite and other equipment or software failure or
impaired performance and there can be no assurance that the ORBCOMM System will
be an economically viable system even if successfully deployed. IF ANY OF THE
EVENTS ENUMERATED IN THIS SECTION 16(b)
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SHALL OCCUR, NEITHER ORBCOMM NOR MAGELLAN SHALL BE LIABLE TO THE OTHER FOR ANY
DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSSES, LIABILITIES, CLAIMS, COSTS OR
EXPENSES OF ANY KIND OR NATURE WHATSOEVER, INCLUDING BUT NOT LIMITED TO, ANY
ECONOMIC LOSS OR OTHER LOSS OF PROFITS, BUSINESS OR GOODWILL.
(c) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IN NO
EVENT SHALL EITHER PARTY HAVE ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY
TO OR AGAINST THE OTHER UNDER THIS AGREEMENT FOR LOSS OF USE, REVENUE OR PROFIT
OR FOR ANY OTHER INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17. TERMINATION.
(a) Either party has the right to terminate this Agreement upon the
occurrence of any of the following events (an "Event of Default"):
(i) Breach. If the other party breaches any obligation
hereunder, which breach has not been cured within thirty (30) calendar days
after receipt of notice of such breach; or
(ii) Acts of Insolvency. If the other party becomes
insolvent, makes a general assignment for the benefit of creditors, files a
voluntary, or becomes subject to any proceedings under any bankruptcy or
insolvency law, whether domestic or foreign, and such proceedings (if
involuntary) are not dismissed within sixty (60) days after initiation, or has
wound up or liquidated, voluntarily or otherwise.
(b) Remedies. Upon the occurrence of an Event of Default, the
non-defaulting party shall be entitled to terminate this Agreement and shall
have such other rights and remedies granted to such party by law or equity,
subject to the terms and conditions of this Agreement.
18. ASSIGNMENT.
This Agreement shall be binding upon the parties and
their permitted successors and assigns. Neither the interest of either party to
this Agreement nor any other right or obligation hereunder may be assigned or
transferred (by operation of law or otherwise) to any person without the prior
written consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that ORBCOMM may assign this Agreement and its
rights and obligations hereunder to any parent, subsidiary or affiliate of
ORBCOMM, to any person acquiring all or substantially all of ORBCOMM's assets
whether by purchase, merger, acquisition of shares or any other means, or to a
successor in interest to the line of business within ORBCOMM that will perform
this Agreement.
19. DISPUTES.
(a) Any controversy or claim arising out of or relating to this
Agreement or the breach hereof shall be settled by final and binding arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules. Such arbitration shall take place in Washington, D.C. before
a panel of three (3) neutral arbitrators selected pursuant to such Rules, at
least one of whom shall be expert in the manufacture of wireless communication
equipment. The arbitrators' award shall include an allocation of arbitration
fees, expenses and compensation, and may include an award to the prevailing
party of its attorneys' fees, costs and expenses in connection with the
arbitration. A judgment
17
<PAGE> 18
on the award rendered by the arbitrators may be entered in and enforced by any
court having jurisdiction thereof, each party hereby consenting to the
jurisdiction of such court over it and waiving, to the fullest extent permitted
by law, any defense or objection relating to in personam jurisdiction, subject
matter jurisdiction, venue or convenience of the forum. All matters arising in
any action to enforce an arbitral award shall be determined in accordance with
the law and practice of the forum court.
(b) Notwithstanding the existence of any such disagreement of
dispute and pending resolution thereof, each of ORBCOMM and Magellan shall
proceed diligently with the performance of this Agreement, including all
performance relating to the disputed matter.
20. GOVERNING LAW.
The construction, interpretation and performance of this
Agreement, as well as the legal relations of the parties arising hereunder,
shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia, without giving effect to the conflict or choice of law
provisions hereof.
21. NOTICES AND REQUESTS.
All notices and other communications hereunder shall be
in writing and shall be deemed given on receipt if delivered personally or
by facsimile (answer back received), one (1) business day after being sent by
reputable overnight courier (signature required on receipt), or three (3)
business days after being sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties at the following addresses (or such
other address for a party as shall be specified by like notice, provided that
such notice shall be effective only upon receipt thereof):
(a) If to ORBCOMM:
ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, Virginia 20166
Attention: David M. Baum
Senior Vice President, Engineering and Operations
Facsimile Number: +1.703.406.3504
With a copy to:
Mary Ellen Seravalli
Vice President and General Counsel
at the above address and to the following facsimile
number: +1.703.404.8012
Technical communications and day-to-day correspondence
may be sent to the designated ORBCOMM Product Manager at the above address.
(b) If to Magellan:
Magellan Corporation
960 Overland Court
San Dimas, California 91773
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<PAGE> 19
Attention: Bill Neill, Project Manager,
ORBCOMM Subscriber Communicator
Facsimile Number: +1.909.394.7050
22. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together
shall constitute one and the same agreement.
23. WAIVER.
It is understood and agreed that no failure or delay by
either ORBCOMM or Magellan in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof, or the exercise
of any other right, power or privilege hereunder. No waiver of any terms or
conditions of this Agreement shall be deemed to be a waiver of any subsequent
breach of any term or condition. All waivers must be in writing and signed by an
authorized representative of both parties.
24. TITLES AND HEADINGS.
Titles and headings to sections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
25. ENTIRE AGREEMENT.
This Agreement and all attachments (which are hereby
made part of this Agreement) contain the entire understanding between Magellan
and ORBCOMM and supersede all prior written and oral understandings relating to
the subject hereof. Any modification or amendment of this Agreement must be in
writing and signed by an authorized representative of both parties.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and do each hereby warrant and represent that their
respective signatory, whose signature appears below, has been duly authorized by
all necessary and appropriate corporate action, to execute this Agreement.
ORBCOMM GLOBAL, L.P. MAGELLAN CORPORATION
By:______________________ By:_______________________
Name: Alan L. Parker Name: Randy Hoffman
Title: President Title: President
19
<PAGE> 1
EXHIBIT 10.20
ORBCOMM USA, L.P.
RESELLER AGREEMENT
WITH
ORBITAL SCIENCES CORPORATION
ITS GROUP
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 - NON-EXCLUSIVE LICENSE . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3 - TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4 - RESPONSIBILITIES OF RESELLER . . . . . . . . . . . . . . . . . 4
SECTION 5 - RESPONSIBILITIES OF ORBCOMM USA . . . . . . . . . . . . . . . . 8
SECTION 6 - TRADE NAME, TRADEMARKS, AND OTHER RIGHTS AND INTERESTS . . . . 8
SECTION 7 - NON-COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 8 - FEES AND PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . 10
SECTION 9 - RESELLER REPRESENTATIONS, WARRANTIES AND COVENANTS . . . . . . 10
SECTION 10 - PROPRIETARY INFORMATION . . . . . . . . . . . . . . . . . . . 10
SECTION 11 - RESTRICTIONS ON ACCESS . . . . . . . . . . . . . . . . . . . . 11
SECTION 12 - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 13 - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 14 - DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY . . . . . 13
SECTION 15 - DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 16 - TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 17 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 3
ORBCOMM USA, L.P.
RESELLER AGREEMENT
This Reseller Agreement ("Agreement") is entered into this ___ day of January,
1997 by and between ORBCOMM USA, L.P., a Delaware limited partnership ("ORBCOMM
USA"), with its offices located at 21700 Atlantic Boulevard, Dulles, Virginia
20166, and ORBITAL SCIENCES CORPORATION ITS GROUP, a Delaware corporation
("Reseller"), with its offices located at 20301 Century Boulevard, Germantown,
Maryland 20874.
W I T N E S S E T H:
WHEREAS, ORBCOMM USA and its affiliates intend to operate a system to
provide low-Earth orbit satellite mobile message and data communications and
position determination service throughout the world; and
<PAGE> 4
WHEREAS, Reseller desires to market and to sell access to and use of
such system in accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 - DEFINITIONS
(a) "Actual Billing Cycle Amount" shall mean the sum of (i) the
activation charges for new Subscribers incurred in the previous monthly billing
cycle, (ii) the access charges for new Subscribers incurred during the previous
monthly billing cycle pro rated for such cycle and the access charges for all
current Subscribers for the succeeding monthly billing cycle and (iii) actual
Subscriber usage charges incurred during the preceding monthly billing cycle,
calculated using the prices set forth in the ORBCOMM USA Reseller Pricing Rate
Schedule.
(b) "Affiliate" shall mean, with respect to any Person (i) any
Person that directly, or indirectly through one or more intermediaries,
controls such Person or (ii) any Person that is controlled by or is under
common control with a controlling Person. As used herein, the term "control"
means possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
(c) "Agent" shall mean a Person who is an independent business
separate from Reseller that is authorized by contract with Reseller to solicit
customers and Subscribers on Reseller's behalf for ORBCOMM Products and
Services, provided that such Agent shall have been approved in advance in
writing by ORBCOMM USA.
(d) "Facilities" shall mean the satellites, ground segment
equipment, network control equipment, gateway earth stations and other
equipment comprising the ORBCOMM System.
(e) "FCC" shall mean the United States Federal Communications
Commission or any successor agency thereto.
(f) "Governmental Authority" shall have the meaning assigned
thereto in Section 4(c) hereof.
(g) "Multinational Account" shall mean an account pursuant to
which a customer who may be a reseller or other intermediary or an end-user,
access the ORBCOMM System, using some or all of its Subscriber Communicators,
in more than one territory; such Subscriber Communicators may be permanently
located in one specific territory, or they may be located in two or more
territories and roam between such territories.
(h) "ORBCOMM Global" shall mean the Delaware limited partnership
formed
4
<PAGE> 5
pursuant to the Agreement of Limited Partnership of ORBCOMM Global, L.P.
(i) "ORBCOMM Products and Services" shall mean products and
services provided by ORBCOMM USA using the ORBCOMM System.
(j) "ORBCOMM Reseller Operations Manual" shall mean the document
attached hereto as Exhibit B, as such document may be amended or modified from
time to time by ORBCOMM USA.
(k) "ORBCOMM System" shall mean the low-Earth orbit two-way
message and data communications and position determination system developed,
built, launched and operated by ORBCOMM Global or any successors and assigns
thereof.
(l) "ORBCOMM System Address" shall mean the unique subscriber
communicator address or addresses assigned to a "Subscriber Communicator."
(m) "ORBCOMM USA Reseller Pricing Rate Schedule" shall mean the
ORBCOMM USA Reseller Pricing Rate Schedule, a current copy of which is attached
hereto as Exhibit C and which may be amended by ORBCOMM USA upon 90 days prior
written notice.
(n) "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or any other entity or organization.
(o) "Subagent" shall mean a Person who is an independent business
separate from an Agent that is authorized by contract with the Agent to solicit
customers and Subscribers on Reseller's behalf for ORBCOMM Products and
Services, provided that such Subagent shall have been approved in advance in
writing by ORBCOMM USA.
(p) "Subscriber" shall mean a customer purchasing access to the
ORBCOMM System from Reseller, provided that a customer purchasing access to the
ORBCOMM System from an Agent or Subagent shall be deemed a Subscriber of
Reseller.
(q) "Subscriber Communicator" shall mean the equipment used by a
remote Subscriber to provide access to the ORBCOMM System that has been "Type
Approved" by or on behalf of ORBCOMM USA and to which a physical serial number,
device control number, associated radio identification codes and ORBCOMM System
Address have been assigned.
(r) "Territory" shall mean the geographic or other market
territory set forth as Exhibit A hereto.
(s) "Type Approved" shall mean the approval for use with the
ORBCOMM System granted by ORBCOMM Global for each model or type of candidate
subscriber communicator based on ORBCOMM Global's determination that such type
of candidate subscriber communicator meets the requirements of the
specifications and successfully meets the testing
5
<PAGE> 6
requirements specified in each applicable subscriber communicator manufacturing
agreement.
SECTION 2 - NON-EXCLUSIVE LICENSE
(a) ORBCOMM USA hereby grants to Reseller a non-exclusive license
to resell ORBCOMM Products and Services, either directly or through Agents, or
Subagents, in the Territory in accordance with ORBCOMM USA standards as set
forth in the ORBCOMM Reseller Operations Manual and all applicable laws, rules
and regulations of any Governmental Authority.
(b) Reseller may license Agents or Subagents to distribute ORBCOMM
Products and Services under this Agreement, provided that:
(i) Reseller is responsible for the observance by
its Agents and Subagents of all of the terms and conditions of this
Agreement; and
(ii) Reseller is liable for all payments due to
ORBCOMM USA for ORBCOMM Products and Services from Subscribers
solicited by Reseller and Reseller's Agents and Subagents.
(c) This Agreement only licenses the authorized use, promotion,
and resale of ORBCOMM Products and Services within the Territory.
SECTION 3 - TERM OF AGREEMENT
Subject to Section 13 hereof, the term of this Agreement shall
commence on the date hereof and continue for a period of one (1) year; provided
that in the event Reseller enters into agreements with subscribers during the
term of this Agreement, subject to Section 13, the term of this Agreement shall
be coextensive with the completion of Reseller's obligations in such Subscriber
Agreement; and provided further that Reseller shall not be entitled to enter
into agreements with subscribers with terms longer than three years.
Thereafter, this Agreement shall be renewed automatically for further terms of
one (1) year each unless either party gives to the other written notice of
termination at least sixty (60) days prior to the expiration of any such term.
SECTION 4 - RESPONSIBILITIES OF RESELLER
(a) Reseller shall promote, solicit and market and use all
reasonable efforts to secure and retain Subscribers for the ORBCOMM System in
the Territory and shall maintain an adequate staff to perform such functions.
(b) Any representations by Reseller concerning the ORBCOMM System
shall be
6
<PAGE> 7
consistent with the ORBCOMM Reseller Operations Manual.
(c) Reseller shall employ the highest standards of business
conduct in the performance of its obligations hereunder and shall not do
anything that would tend to discredit, dishonor, reflect adversely on or injure
the reputation of ORBCOMM USA, ORBCOMM Products and Services, the ORBCOMM
System, Reseller, or any Agent or Subagent of Reseller. Reseller shall comply
with all applicable laws, rules and regulations of any United States or foreign
Federal, state or local governmental agency or authority ("Governmental
Authority") in the performance of its obligations hereunder.
(d) Reseller shall provide adequate support and training to its
Agents, Subagents and Subscribers with respect to the use and operation of the
ORBCOMM System.
(e) Reseller shall be solely responsible for (i) billings to and
collections from its Subscribers and (ii) all amounts due to ORBCOMM USA under
Section 8 in accordance with invoices rendered by ORBCOMM USA with respect to
any ORBCOMM System Address assigned to a Subscriber until twenty-four (24)
hours after receipt by ORBCOMM USA of written notice from Reseller to
disconnect any such ORBCOMM System Address.
(f) As between ORBCOMM USA and Reseller, Reseller shall be
responsible for ensuring that only Type Approved Subscriber Communicators are
sold or otherwise distributed by it or its Agents or Subagents and that all
Subscriber Communicators sold or otherwise distributed by it or its Agents or
Subagents and used by its Subscribers in connection with the ORBCOMM System and
each Subscriber's use thereof at all times meets the regulatory requirements of
the FCC and any other applicable Governmental Authority. In the event any
Subscriber Communicator does not meet the regulatory requirements of the FCC or
any other applicable Governmental Authority, Reseller shall immediately remove
all non-conforming Subscriber Communicators from the ORBCOMM System and ORBCOMM
USA shall have the right to terminate immediately without notice such
Subscriber Communicator's access to the ORBCOMM System.
(g) Reseller shall provide at its cost an adequate staff to
respond to customer inquiries relating to billing, Subscriber Communicators and
related software and operation of the ORBCOMM System. Reseller shall
diligently investigate any complaints from Subscribers relating to the
operation of the ORBCOMM System, and shall promptly report in writing to
ORBCOMM USA any such complaints only after Reseller has confirmed that such
complaint is based on a reason other than the misuse or malfunctioning of
Subscriber's equipment or the failure of such equipment to meet technical
standards for compatibility with the ORBCOMM System. To accomplish the
foregoing, Reseller shall maintain, at its own cost and expense, adequate staff
and equipment to test Subscriber's equipment to verify the cause of any
complaints received by Reseller relating to the ORBCOMM System. In the event
Reseller fails to perform its obligations set forth in this Section 4(g),
ORBCOMM USA may at its sole discretion charge the Reseller a maintenance or
service charge for the performance by ORBCOMM USA of such obligations, the
amount of such charge to be in accordance with the ORBCOMM USA Reseller Pricing
Rate Schedule.
7
<PAGE> 8
(h) Reseller shall, and shall cause each of its Agents or
Subagents, to enter into a contract with each of its Subscribers, which
contract shall include, at a minimum, the following language (and any other
language that ORBCOMM USA, on a prospective basis, may from time to time
reasonably require the Reseller or Reseller's Agents or Subagents to include);
(i) Subscriber shall not have and shall not
acquire any proprietary interest in the ORBCOMM System Address or any
other numbers or codes associated with or allocated to a Subscriber
Communicator.
(ii) NONE OF ORBCOMM USA, ANY AFFILIATES OF
ORBCOMM USA OR THE RESELLER HAS MADE, OR SHALL BE DEEMED TO HAVE MADE
ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT TO THE
ORBCOMM SYSTEM OR THE ORBCOMM PRODUCTS AND SERVICES. ORBCOMM USA, ANY
AFFILIATES OF ORBCOMM USA AND THE RESELLER EXPRESSLY DISCLAIMS WITH
RESPECT TO SUBSCRIBER AND SUBSCRIBER EXPRESSLY WAIVES, RELEASES AND
RENOUNCES ALL OTHER WARRANTIES OF ORBCOMM USA, ANY AFFILIATES OF
ORBCOMM USA OR RESELLER ARISING BY LAW OR OTHERWISE, WITH RESPECT TO
INCLUDING, BUT NOT LIMITED TO: (A) ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) ANY IMPLIED
WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE; (C) ANY WARRANTIES AS TO THE ACCURACY, AVAILABILITY OR
CONTENT OF THE ORBCOMM SYSTEM OR ORBCOMM PRODUCTS AND SERVICES; AND
(D) ANY WARRANTY UNDER ANY THEORY OF LAW, INCLUDING ANY TORT,
NEGLIGENCE, STRICT LIABILITY, CONTRACT OR OTHER LEGAL OR EQUITABLE
THEORY. NO REPRESENTATION OR OTHER AFFIRMATION OF FACT, INCLUDING,
BUT NOT LIMITED TO, STATEMENTS REGARDING CAPACITY OR SUITABILITY FOR
USE, THAT IS NOT CONTAINED IN THIS AGREEMENT SHALL BE DEEMED TO BE A
WARRANTY BY ORBCOMM USA, ANY AFFILIATE OF ORBCOMM USA OR RESELLER.
(iii) Subscriber acknowledges and understands that
it shall bear all responsibility, risk and cost associated with
developing and maintaining its respective business, and none of the
ORBCOMM Entities shall be liable to Subscriber for costs or damages
caused by any schedule delays, failure or impaired performance of the
ORBCOMM System or any component thereof..
(iv) Subscriber acknowledges that ORBCOMM USA
shall supply the service that is the subject of this Agreement on a
good faith efforts basis and that service failures and interruptions
may occur and are difficult to assess as to cause or resulting
damages. The parties agree that ORBCOMM USA, its affiliates and
Reseller shall not be liable to Subscriber for any losses or damages
arising out of any failure of performance, error, omission,
interruption, deletion, defect, delay in operation or transmission,
8
<PAGE> 9
communication line failure, theft or destruction or unauthorized
access to, alteration of, or use of records, associated with the
ORBCOMM System or ORBCOMM Products and Services, whether for breach of
contract, tortious behavior, negligence, or under any other cause of
action.
(v) IN NO EVENT SHALL ORBCOMM USA, ITS AFFILIATES
OR RESELLER HAVE ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY TO
THE SUBSCRIBER UNDER THIS AGREEMENT FOR LOSS OF USE, REVENUE OR PROFIT
OR ANY OTHER INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. In
addition, in no event shall any liability of ORBCOMM USA or Reseller
exceed an amount equivalent to the proportionate charge to Subscriber
for the period of the service disruption or the amount of one thousand
U.S. dollars ($1,000.00), whichever is less.
(vi) Use of the ORBCOMM System outside the United
States has not yet been authorized by the applicable foreign
Governmental Authorities. Until such time as all necessary permits,
approvals and authorizations to do so have been received from such
foreign Governmental Authorities and an appropriate agreement has been
executed with the service licensee for such territory, use of the
ORBCOMM System outside the United States is not authorized.
(i) In all advertising and promotional materials for the
Territory, Reseller shall identify the ORBCOMM System and the ORBCOMM Products
and Services as being provided by ORBCOMM USA. All advertising and promotional
materials that contain references to the ORBCOMM System or ORBCOMM USA shall be
in accordance with the ORBCOMM Identity Manual attached hereto as Exhibit D
(the "ORBCOMM Identity Manual"). Reseller shall be required to obtain the
prior written consent of ORBCOMM USA for all such advertising and promotional
materials, provided that if the Reseller complies with the terms of the ORBCOMM
Identity Manual with respect to references to the ORBCOMM System, the ORBCOMM
Products and Services or ORBCOMM USA, the advance written approval of ORBCOMM
USA shall not be required. Any use of the word "ORBCOMM" or the phrase "ORB"
combined with any other word or phrase for a logo, trademark, service mark or
trade name shall also require the prior written approval of ORBCOMM USA;
provided that ORBCOMM USA acknowledges that Reseller uses and shall be entitled
to use the trademarks/service marks "ORBCAD" and "ORBTRAC".
(j) Reseller shall maintain a sufficient inventory of Subscriber
Communicators for the ORBCOMM System in good working order for purposes of
spares, demonstration and new account sales. Reseller shall work directly with
the providers of the Subscriber Communicators to ensure that Subscriber
Communicators in need of repair shall be promptly exchanged or repaired.
(k) Reseller shall promptly notify ORBCOMM USA, in a manner
prescribed by ORBCOMM USA in the ORBCOMM Reseller Operations Manual, of each
Subscriber addition, ORBCOMM System Address change or Subscriber deletion from
the ORBCOMM System.
9
<PAGE> 10
(l) Reseller shall not abuse or fraudulently use the ORBCOMM
System in violation of Section 11 hereof.
(m) Reseller shall promptly investigate all instances of
questionable subscriber high usage (exceeding a predicted normal usage) after
receipt of notification from ORBCOMM USA that such subscriber usage has
exceeded normal historic trends. Such findings shall be reported immediately
to ORBCOMM USA for evaluation.
(n) During the term of this Agreement, Reseller shall be
responsible for all federal, state, or local licenses, permits, or clearances
that may be required in connection with the performance of its obligations
hereunder.
(o) Except in connection with a Multinational Account, Reseller
shall not (i) submit for activation of ORBCOMM service Subscriber
Communicators, the billing address for which is outside the United States or
(ii) solicit any third party, establish an office outside the United States for
the purpose of soliciting any third party or accept unsolicited offers from any
third party that will use Subscriber Communicators with the ORBCOMM System, if
such use will occur primarily in the territory (other than Canada) of any one
other ORBCOMM System service licensee. In the event Reseller wishes to have
ORBCOMM USA activate ORBCOMM service for a Subscriber that will use Subscriber
Communicator(s) in the United States and in other countries, Reseller shall
contact ORBCOMM USA and request that ORBCOMM USA use all commercially
reasonable efforts to establish a Multinational Account with the ORBCOMM System
licensee in such other country or territory. During the term of this
Agreement, on the anniversary date of the execution of this Agreement, Reseller
shall provide ORBCOMM USA with an officer's certificate certifying to its
compliance with the terms of this Section 4(o).
(p) Reseller shall not withhold service from qualified customers
that have purchased Subscriber Communicators from sources other than Reseller
("Other Subscriber Communicators") provided that such customers meet Reseller's
standard credit criteria and sign up to Reseller's standard terms and
conditions applicable to customers who purchase Other Subscriber Communicators.
(q) Prior to implementation, Reseller shall provide to ORBCOMM USA
for the purpose of performing certification testing, which shall be in
accordance with the ORBCOMM Applications Developers Handbook (the "Applications
Handbook"), which was previously provided to Reseller, a copy of all
application code object code Reseller or its Agents or Subagents intend to use
in connection with the ORBCOMM System. After initial certification by ORBCOMM
USA, Reseller shall at all times ensure that such applications software remains
certified in accordance with the Applications Handbook.
SECTION 5 - RESPONSIBILITIES OF ORBCOMM USA
10
<PAGE> 11
(a) ORBCOMM USA shall provide to Reseller and to its Subscribers
access to the ORBCOMM System and, subject to the terms of the Section 14
hereof, shall use its good faith efforts to provide continuous network service.
(b) ORBCOMM USA shall establish standards for its service marks,
trademarks and trade names, as contained in the ORBCOMM Identity Manual, for
all advertising, promotional and Subscriber training materials to be used or
distributed by Reseller or its Agents or Subagents that relate to ORBCOMM USA,
the ORBCOMM System or any ORBCOMM Products and Services.
(c) Subject to the provisions of Section 14(b)(i), ORBCOMM USA
shall maintain all licenses necessary or required by the FCC or any other
Governmental Authority for ORBCOMM USA to provide ORBCOMM Products and Services
in the United States.
(d) Upon receipt of the notice referred to in Section 4(k) hereof,
ORBCOMM USA shall perform the action requested within three (3) business days.
(e) ORBCOMM USA shall provide to Reseller on a timely basis raw
usage data setting forth its Subscriber's use of the ORBCOMM System so that the
Reseller may bill its Subscribers.
(f) Upon receipt of a request described in Section 4(o), ORBCOMM
USA shall attempt to establish a Multinational Account with the appropriate
ORBCOMM System licensee.
(g) ORBCOMM USA shall review all application software object code
provided by Reseller pursuant to Section 4(q) within thirty (30) days of
receipt in accordance with the procedures set forth in the Applications
Handbook.
(h) ORBCOMM USA shall provide Reseller with reasonable
applications engineering and technical support in the development and
certification of Reseller's application for the Territory.
SECTION 6 - TRADE NAME, TRADEMARKS, AND OTHER RIGHTS AND INTERESTS
(a) Both parties agree and acknowledge that "ORBCOMM" and all
related designs are service marks, trademarks and a trade name that are owned
by ORBCOMM Global, Orbital Communications Corporation, or any of their
Affiliates. ORBCOMM USA hereby grants to Reseller and its Agents and Subagents
the right to use such service marks and all related designs, trademarks and
trade names in the Territory solely in connection with activities authorized
under this Agreement and in furtherance of the purposes of this Agreement,
provided that such rights to use the ORBCOMM name and all related designs shall
terminate immediately and without further action upon the termination or
expiration of this Agreement. Reseller and its Agents and
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<PAGE> 12
Subagents shall use such service marks, trademarks and trade names in all of
their printed and electronic media material that refer to ORBCOMM USA, the
ORBCOMM System or ORBCOMM Products and Services either directly or indirectly,
and all such use shall (i) conform to all ORBCOMM USA requirements for use of
its service marks, trademarks, trade names and designs including registry and
trademark symbols set forth in the ORBCOMM Identity Manual, and (ii) identify
ORBCOMM Products and Services as products and services of ORBCOMM USA and/or
its Affiliates, as the case may be.
(b) Reseller shall cooperate with ORBCOMM USA in providing support
and any information that may be required in defense of ORBCOMM service marks,
trademarks, trade names, designs or patents as a result of their use by
Reseller pursuant to this Agreement.
(c) ORBCOMM USA reserves the right to revoke the license to use
its service marks, trademarks or trade names or designs if in its sole
discretion it determines that the Reseller or its Agents or Subagents has
improperly used such material.
(d) Reseller and its Agents and Subagents agree not (i) to engage
in any activities or commit any acts, directly or indirectly, that may contest,
dispute or otherwise impair such right, title and interest or (ii) to
re-license use of ORBCOMM USA's service marks, trademarks or trade names to any
other Person, other than with respect to Reseller its Agents or Subagents
without the express written consent of ORBCOMM USA. After the expiration or
termination of this Agreement, Reseller and its Agents and Subagents agree not
to register or use any service marks, trademarks or trade names that are the
same as, or confusingly similar to, service marks, trademarks or trade names of
ORBCOMM USA or any Affiliate of ORBCOMM USA. Reseller and its Agents and
Subagents agree to promptly return to ORBCOMM USA all such material or to
destroy it upon express instructions from ORBCOMM USA.
SECTION 7 - NON-COMPETITION
During the term of this Agreement and for a period not less than two
(2) years after the termination or expiration thereof, except if such
termination is caused by the default of ORBCOMM USA as provided in Section 12
hereof, Reseller shall not directly or indirectly, and shall cause its
Affiliates not to directly or indirectly, engage in or invest in, or be an
owner, officer, director, partner, five (5%) percent or more shareholder, or
employee of, or a consultant to or for, any operation, venture or business that
conducts or resells any wireless, two-way, low-Earth orbit, non-geostationary,
non-voice, mobile satellite communications or messaging services using radio
frequencies below 1GHz that are or will be in competition with ORBCOMM USA.
Reseller shall require its Agents and Subagents to execute a non-competition
agreement substantially identical to the foregoing and Reseller agrees to
terminate its relationship with such Agent or Subagent in the event such Agent
or Subagent, as the case may be, violates the terms of such non-competition
agreement.
SECTION 8 - FEES AND PAYMENT TERMS
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<PAGE> 13
(a) During the term of this Agreement, Reseller shall pay to
ORBCOMM USA for each monthly billing cycle the Actual Billing Cycle Amount for
such monthly billing cycle. Notwithstanding the foregoing, prices charged by
Reseller to its Subscribers for ORBCOMM Products and Services shall be
determined solely by Reseller.
(b) ORBCOMM USA reserves the right to require Reseller to make a
cash deposit or to supply ORBCOMM USA with an irrevocable standby letter of
credit in favor of ORBCOMM USA issued by a bank acceptable to ORBCOMM USA,
based on ORBCOMM USA's review of Reseller's credit worthiness.
(c) Payment of any invoice shall be made by Reseller thirty (30)
days from date of invoice, payable in U.S. dollars by check or wire transfer in
accordance with ORBCOMM USA's written instructions. Payments must be received
by the due date to be considered paid on time.
SECTION 9 - RESELLER REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) Reseller represents and warrants to ORBCOMM USA that (i)
Reseller is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation, (ii) the execution, delivery
and performance of this Agreement by Reseller have been duly authorized by all
necessary action on the part of Reseller, (iii) this Agreement has been duly
executed and delivered by Reseller and constitutes a legally valid and binding
obligation of Reseller, enforceable against Reseller in accordance with its
terms, (iv) Reseller has and shall have all licenses, permits and other
authorizations from all Governmental Authorities necessary for Reseller to
perform its obligations under this Agreement, (v) Reseller shall not violate
any copyright, trade secret, trademark, patent, invention, proprietary
information, privacy, non-disclosure or any other statutory or common law
rights of any third party in the performance of its obligations under this
Agreement and (vi) Reseller is reselling ORBCOMM Products and Services to third
parties and has provided ORBCOMM USA with a copy of a valid resale tax
certificate, and accordingly, ORBCOMM USA is not required to collect from
Reseller any sales, use, excise or other similar tax on ORBCOMM Products and
Services provided by ORBCOMM USA to Reseller.
(b) Reseller agrees to indemnify and hold harmless ORBCOMM USA and
its Affiliates, officers, directors, employees, agents and representatives
against all claims, demands or liabilities (including reasonable attorneys'
fees) of third parties arising from or in connection with Reseller's breach of
any representations, warranties, covenants or agreements contained herein.
SECTION 10 - PROPRIETARY INFORMATION
The parties acknowledge the execution of the Proprietary Information
and Non-Competition Agreement dated as of June 30, 1993 among ORBCOMM Global,
L.P. (formerly
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<PAGE> 14
known as ORBCOMM Development Partners, L.P.), ORBCOMM USA, L.P. (formerly known
as ORBCOMM U.S. Partners, L.P.), ORBCOMM International Partners, L.P., Orbital
Sciences Corporation, Teleglobe Inc. and Teleglobe Mobile Partners, and agree
to observe the provisions thereof.
SECTION 11 - RESTRICTIONS ON ACCESS
(a) Access to the ORBCOMM System is furnished subject to the
condition that there be no abuse or fraudulent use of the ORBCOMM System by the
Reseller or its Agents or Subagents or their Subscribers. The Reseller shall
not abuse or fraudulently use the ORBCOMM System and shall take any and all
steps necessary to control and prevent abuse or fraudulent use of the ORBCOMM
System by its Agents, Subagents or Subscribers. Abuse and fraudulent use of
the ORBCOMM System includes, but is not limited to:
(i) Attempting or assisting another Person (A) to
access, alter or interfere with the communications and/or information
of a Subscriber by rearranging, tampering or making an unauthorized
connection with any Facilities of ORBCOMM USA or (B) to use any
scheme, false representation or false credit device, with the intent
to avoid payment for, in whole or in part, ORBCOMM Products and
Services;
(ii) Using the ORBCOMM System in such a manner so
as to interfere unreasonably with the use of the ORBCOMM System by
subscribers; or
(iii) Using the ORBCOMM System to convey
information that is deemed to be, in ORBCOMM USA's sole judgment,
obscene, salacious or prurient, or to convey information of an
unlawful nature or in an unlawful manner.
(b) ORBCOMM USA may, by written notice to Reseller, require
Reseller to cancel the right to use the ORBCOMM System of any Subscriber
determined by ORBCOMM USA or Reseller to be abusing or fraudulently using the
ORBCOMM System within fifteen (15) days of receipt by Reseller of such notice.
Notwithstanding the foregoing, if any Agent, Subagent or Subscriber is abusing
or fraudulently using the ORBCOMM System as specified in Section 11(a)(iii),
Reseller shall immediately cancel such Agent's, Subagent's or Subscriber's
access to the ORBCOMM System.
(c) The parties understand and acknowledge that from time to time
one or more resellers or subscribers may deliberately interfere with the
operation of the ORBCOMM System in such a way as to impair the quality of
service provided by ORBCOMM USA to its other resellers and subscribers.
Accordingly, in order to maintain the quality of service for all users of the
ORBCOMM System upon discovery of, or upon reasonable suspicion of any such
deliberate interference or abuse by a reseller or subscriber ORBCOMM USA shall
have the right to discontinue service to such reseller or subscriber who is the
offending party.
(d) Reseller shall notify its Subscribers regarding the foregoing
restrictions on
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<PAGE> 15
fraudulent use, deliberate interference, and abuse.
SECTION 12 - DEFAULT
The following events shall constitute events of default ("Events of
Default") under this Agreement:
(a) Reseller shall fail to observe or perform any
of its covenants or agreements contained in the second sentence of
each of Section 4(f) or Section 11(b) or the Reseller shall abuse or
fraudulently use the ORBCOMM System in violation of Section
11(a)(iii);
(b) A party shall fail to observe or perform any
of its covenants or agreements contained in this Agreement (other than
as specified in Section 12(a) or Section 12(e)) or in any other
agreement or document executed pursuant hereto and such failure
remains uncured for a period of thirty (30) days after receipt by the
breaching party of written notice of such failure;
(c) Any representation or warranty of Reseller
contained in this Agreement shall prove to be false or misleading in
any material respect;
(d) (i) A party shall (A) make an assignment for
the benefit of creditors, (B) file a petition in bankruptcy, (C) be
adjudicated insolvent or bankrupt, (D) petition or apply to any
tribunal for any receiver or for any trustee for it under any
reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute or (ii) a party shall have commenced
against it any such proceeding or an order for relief shall be entered
that remains undismissed for a period of sixty (60) days, such party
by any act indicates its consent to, approval of, or acquiescence in,
any such proceeding, order for relief or the appointment of any
receiver of or any trustee for it or suffers any such receivership or
trusteeship to continue undischarged for a period of sixty (60) days;
or
(e) The Reseller fails to pay any amount to
ORBCOMM USA when due if such failure shall continue unremedied for a
period of ten (10) days after Reseller's receipt of notice thereof
from ORBCOMM USA.
SECTION 13 - TERMINATION
(a) Upon the occurrence of an Event of Default, the party not in
default shall have the right to terminate this Agreement immediately, provided
that the covenants, agreements and obligations specified in Sections 6(d), 7,
8, 9(b), 10, 13, 14, 15 and 17(d) shall survive the termination of this
Agreement as specified herein.
15
<PAGE> 16
(b) Upon termination of this Agreement by ORBCOMM USA pursuant to
Section 13(a), ORBCOMM USA shall be entitled to contact each Subscriber for the
purpose of advising such Subscribers as to how such Subscribers may maintain
access to the ORBCOMM System after termination of this Agreement. In such
event or upon expiration of this Agreement, Reseller (i) shall cooperate with
ORBCOMM USA to enable all Subscribers to continue to have access to the ORBCOMM
System with minimal disruption, including, but not limited to, arranging for
another reseller or ORBCOMM USA to provide ORBCOMM Products and Services to
such Subscriber or (ii) shall promptly provide ORBCOMM USA with sufficient
information on Reseller's Subscribers so that ORBCOMM USA can arrange for the
provision of ORBCOMM Products and Services to such Subscribers, provided that
ORBCOMM USA shall be under no obligation (A) to ensure that any such Subscriber
is able to continue to have access to the ORBCOMM System or (B) to arrange for
any transfer of equipment owned or leased by Reseller.
(c) In the event ORBCOMM USA terminates this Agreement pursuant to
Section 13(a), without incurring any liability to the Reseller or its Agents,
Subagents or Subscribers, ORBCOMM USA may terminate or temporarily discontinue
furnishing service to Reseller. Reseller shall indemnify and hold harmless
ORBCOMM USA from any such liability for such termination or temporary
discontinuation of service to Reseller's Agents, Subagents or Subscribers.
(d) Subject to Section 14, termination of this Agreement by the
party not in default in accordance with the terms hereof shall be without
prejudice to any other rights or remedies such party shall have by law.
(e) After termination of this Agreement, Reseller shall remain
solely responsible for its obligations to its Subscribers existing immediately
prior to termination
(f) Upon the giving or receiving of any notice of termination,
ORBCOMM USA shall be entitled to, without liability, cancel any previously
accepted orders for ORBCOMM System Address that have not yet been connected.
(g) Upon termination, Reseller shall return promptly all ORBCOMM
property, including manuals and equipment other than equipment that has been
paid for in full by Reseller.
SECTION 14 - DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
(a) Disclaimer of Warranties.
(i) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, NONE OF
ORBCOMM USA OR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE
ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT TO THE ORBCOMM SYSTEM
OR THE ORBCOMM PRODUCTS AND SERVICES. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW,
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<PAGE> 17
ORBCOMM USA AND ITS AFFILIATES EXPRESSLY DISCLAIM WITH RESPECT TO RESELLER AND
ITS AGENTS, SUBAGENTS, AND SUBSCRIBERS, AND RESELLER (ON ITS OWN BEHALF AND ON
BEHALF OF ITS AGENTS, SUBAGENTS, AND SUBSCRIBERS) HEREBY EXPRESSLY WAIVES,
RELEASES AND RENOUNCES ALL OTHER WARRANTIES OF ORBCOMM USA AND ITS AFFILIATES
ARISING BY LAW OR OTHERWISE, WITH RESPECT TO, INCLUDING, BUT NOT LIMITED TO:
(A) ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE; (B) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF
DEALING OR USAGE OF TRADE; (C) ANY WARRANTIES AS TO THE ACCURACY, AVAILABILITY
OR CONTENT OF THE ORBCOMM SYSTEM OR ORBCOMM PRODUCTS AND SERVICES; AND (D) ANY
WARRANTY UNDER ANY THEORY OF LAW, INCLUDING ANY TORT, NEGLIGENCE, STRICT
LIABILITY, CONTRACT OR OTHER LEGAL OR EQUITABLE THEORY. NO REPRESENTATION OR
OTHER AFFIRMATION OF FACT, INCLUDING, BUT NOT LIMITED TO, STATEMENTS REGARDING
CAPACITY OR SUITABILITY FOR USE, THAT IS NOT CONTAINED IN THIS AGREEMENT SHALL
BE DEEMED TO BE A WARRANTY BY ORBCOMM USA.
(ii) Reseller shall ensure that all of its Agents and Subagents
agree to the foregoing waiver of rights and claims as well as those set forth
in Section 14(b)(i) as a precondition to use the ORBCOMM System.
(b) Limitation of Liability.
(i) Each of the parties acknowledges and understands that (A) the
ORBCOMM System may be operated under licenses granted by the FCC; (B) one of
the conditions to the use of such licenses is non-interference with other users
of the frequency bands covered by such licenses; (C) at any time and for any
reason, the FCC may revoke, terminate or render unusable any or all of the
licenses granted to Orbital Communications Corporation for use in connection
with the ORBCOMM System; and (D) the ORBCOMM System is an untested, new
business venture involving a new satellite system design and entails a high
degree of risk of delay in or cancellation of deployment, launch vehicle,
satellite and other equipment or software failure or impaired performance and
there can be no assurance that the ORBCOMM System will be an economically
viable system even if successfully deployed. IF ANY OF THE EVENTS ENUMERATED
IN THIS SECTION 14(b)(i) SHALL OCCUR, NEITHER ORBCOMM USA NOR RESELLER SHALL BE
LIABLE TO THE OTHER FOR ANY DIRECT, INDIRECT, OR CONSEQUENTIAL DAMAGES, LOSSES,
LIABILITIES, CLAIMS, COSTS OR EXPENSES OF ANY KIND OR NATURE WHATSOEVER,
INCLUDING, BUT NOT LIMITED TO, ANY ECONOMIC LOSS OR OTHER LOSS OF PROFITS,
BUSINESS OR GOODWILL.
(ii) Reseller acknowledges that ORBCOMM USA shall supply the
service that is the subject of this Agreement on a good faith efforts basis and
that service failures and interruptions may occur and are difficult to assess
as to cause or resulting damages. The parties agree that ORBCOMM USA and its
Affiliates shall not be liable to Reseller or any of its Agents, Subagents and
Subscribers for any losses or damages arising out of any failure of
performance,
17
<PAGE> 18
error, omission, interruption, deletion, defect, delay in operation or
transmission, communications line failure, theft or destruction or unauthorized
access to, alteration of, or use of records, associated with the ORBCOMM System
or ORBCOMM Products and Services, whether for breach of contract, tortious
behavior, negligence, or under any other cause of action.
(iii) Neither ORBCOMM USA nor any of its Affiliates shall be liable
for any act or omission of Reseller or any other Person furnishing equipment,
products or services to Reseller or its Agents, Subagents or Subscribers, nor
shall ORBCOMM USA or any of its Affiliates be liable for any damages or losses
due to the fault or negligence of Reseller or its Agents, Subagents or
Subscribers or the failure of such equipment, products or services.
(iv) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IN
NO EVENT SHALL EITHER PARTY HAVE ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR
REMEDY TO THE OTHER UNDER THIS AGREEMENT FOR LOSS OF USE, REVENUE OR PROFIT OR
FOR ANY OTHER INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES. In addition, in
no event shall any liability of ORBCOMM USA or its Affiliates exceed an amount
equivalent to the proportionate charge to Reseller for the period of the
service disruption or the amount of ten thousand U.S. dollars ($10,000),
whichever is less.
SECTION 15 - DISPUTE RESOLUTION
Any controversy or claim arising out of or relating to this Agreement,
or the breach hereof, shall be settled by final and binding arbitration
administered by the American Arbitration Association under its Commercial
Arbitration Rules. Such arbitration shall take place in Washington, D.C.
before a panel of three (3) neutral arbitrators selected pursuant to such
Rules. The arbitrators' award shall include an allocation of arbitration fees,
expenses, and compensation, and may include an award to the prevailing party of
its attorney's fees, costs, and expenses in connection with the arbitration. A
judgment on the award rendered by the arbitrators may be entered in and
enforced by any court having jurisdiction thereof, each party hereby consenting
to the jurisdiction of such court over it and waiving, to the fullest extent
permitted by law, any defense or objection relating to in personam
jurisdiction, subject matter jurisdiction, venue, or convenience of the forum.
All matters arising in any action to enforce an arbitral award shall be
determined in accordance with the law and practice of the forum court.
SECTION 16 - TAXES
Reseller shall be responsible for the payment of all federal, state,
and local taxes, including but not limited to sales, use, gross receipts, and
excise taxes, that arise from the performance of its duties under this
Agreement, including all taxes owed by or collected from its Subscribers.
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<PAGE> 19
SECTION 17 - MISCELLANEOUS
(a) Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt if delivered personally or
by facsimile (answer back received), one (1) business day after being sent by
express or courier mail, or three (3) business days after being sent by
registered or certified mail, return receipt requested, postage prepaid, to the
parties at the following addresses (or such other address for a party as shall
be specified by like notice, provided that such notice shall be effective only
upon receipt thereof):
ORBCOMM USA:
ORBCOMM USA, L.P.
21700 Atlantic Boulevard
Dulles, VA 20166
Attention: Vice President and General Counsel
Facsimile: (703) 404-8012
RESELLER:
Orbital Sciences Corporation ITS Group
20301 Century Boulevard
Germantown, Maryland 20874
Attention: Joan Deoul, Contracts Manager, ITS Group
Facsimile: (301) 428-6466
(b) Binding Effect; Assignment. This Agreement shall be binding
upon the parties and their permitted successors and assigns. Neither this
Agreement nor any interests or obligations hereunder, including, but not
limited to, Reseller's Subscriber accounts, shall be assigned or transferred
(by operation of law or otherwise) to any Person without the prior written
consent of the other party; provided that ORBCOMM USA may assign this Agreement
without the prior consent of Reseller to any Person acquiring all or
substantially all of the assets of ORBCOMM USA whether by purchase, merger,
acquisition of shares, or any other means.
(c) Entire Agreement. This Agreement and all attachments (which
are hereby made part of this Agreement) contain the entire understanding
between Reseller and ORBCOMM USA and supersede all prior written and oral
understandings relating to the subject hereof. No representations, agreements,
modifications or understandings not contained herein shall be valid or
effective unless agreed to in writing and signed by both parties. Any
modification or amendment of this Agreement must be in writing and signed by
both parties.
(d) Governing Law. The construction, interpretation and
performance of this Agreement, as well as the legal relations of the parties
arising hereunder, shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia, without giving effect to the conflict or
choice of law provisions hereof. Neither party may bring any action for a
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<PAGE> 20
claim under this Agreement later than one (1) year after the termination of
this Agreement; provided that claims under any provision of this Agreement that
survives termination of this Agreement may be brought within one (1) year of
the later of the occurrence of the event giving rise to the claim and actual
knowledge thereof by the party asserting such claim.
(e) Waiver. It is understood and agreed that no failure or delay
by either ORBCOMM USA or Reseller in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof, or the
exercise of any other right, power or privilege hereunder. No waiver of any
terms or conditions of this Agreement shall be deemed to be a waiver of any
subsequent breach of any term or condition. All waivers must be in writing and
signed by the party sought to be bound.
(f) Severability. If any part of this Agreement shall be held
invalid or unenforceable, such determination shall not affect the validity or
enforceability of any remaining portion, which shall remain in force and effect
as if this Agreement had been executed with the invalid or unenforceable
portion thereof eliminated.
(g) Headings. Headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
(h) Costs and Expenses. Except as otherwise specifically provided
herein, each party shall bear all costs and expenses incurred in the
performance by it of its obligations hereunder.
(i) Other Resellers. Reseller acknowledges and agrees that
ORBCOMM USA may market ORBCOMM Products and Services through other resellers
and directly to Subscribers for its own account and that Subscribers of
Reseller may wish to obtain ORBCOMM Products and Services directly from ORBCOMM
USA or through other resellers.
(j) Independent Parties. Each party is an independent contractor.
Except as provided in this Agreement, neither party shall have the right, power
or authority to act or to create any obligation, express or implied, on behalf
of the other party. All sales by Reseller shall be in its own name and for its
own account. No provision of this Agreement shall be construed as vesting in
Reseller any control over or interest in the Facilities or operations of
ORBCOMM USA or the ORBCOMM System. Reseller shall not represent itself as a
federal or state certified licensee of the ORBCOMM System.
(k) Tariffs. In the event that any ORBCOMM Products and Services
or the charges made therefore are currently subject, or at any time become
subject to any federal, state or local regulation or tariff, then the terms and
conditions of this Agreement, including the prices set forth in the ORBCOMM USA
Reseller Pricing Rate Schedule, shall be deemed amended to conform to any
conflicting terms and conditions in effect under such regulation or tariff.
All non-conflicting terms and conditions of this Agreement shall remain valid
and in full force and effect.
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<PAGE> 21
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ORBCOMM USA, L.P.
By:
--------------------------------
Name: Alan L. Parker
Title: President
ORBITAL SCIENCES CORPORATION ITS GROUP
By:
--------------------------------
Name: Joan Deoul
Title: Contracts Manager, ITS Group
21
<PAGE> 22
EXHIBIT A
AUTHORIZED TERRITORY
The Reseller is granted the non-exclusive right to resell ORBCOMM Products and
Services for Intelligent Transportation System monitoring, tracking and
messaging applications to Federal, State and local Government accounts.
Excluded from this territory definition is the right to resell ORBCOMM Products
and Services (a) to for hire U.S.-based truckload and less-than truckload motor
carriers, (b) for barge tracking and monitoring applications on the inland
waters of the United States, and (c) to United States-based rail companies for
the specific purposes of monitoring rail cars used exclusively for the
transportation of automobiles and trucks.
22
<PAGE> 23
EXHIBIT B
RESELLER OPERATIONS MANUAL
TO FOLLOW.
23
<PAGE> 24
EXHIBIT C
ORBCOMM USA RESELLER PRICING RATE SCHEDULE
ACCESS AND USAGE
<TABLE>
<S> <C>
Activation $35.00/Subscriber Communicator
Access and Usage $15.00/Month/Subscriber Communicator
Globalgram $1.00/Message
</TABLE>
24
<PAGE> 25
EXHIBIT D
ORBCOMM IDENTITY MANUAL
COPY ATTACHED.
25
<PAGE> 1
EXHIBIT 10.20.1
AMENDMENT NO. 1
TO
RESELLER AGREEMENT
This Amendment No. 1 to Reseller Agreement ("Amendment No. 1") is
made and entered into as of this 2nd day of September, 1997 by and among
ORBCOMM USA, L.P. ("ORBCOMM USA") and Orbital Sciences Corporation ITS Group
("Reseller").
WITNESSETH
WHEREAS, ORBCOMM USA and Reseller previously entered into a Reseller
Agreement dated as of March 3, 1997 (the "Reseller Agreement"); and
WHEREAS, ORBCOMM USA and Reseller desire to amend and modify certain
terms of the Reseller Agreement;
NOW, THEREFORE, the parties agree as follows:
SECTION 1 Terms used but not otherwise defined herein shall have the
meanings assigned thereto in the Reseller Agreement.
SECTION 2 Exhibit A - Authorized Territory of the Reseller Agreement
shall be deleted in its entirety and replaced with the following:
The Reseller is granted the non-exclusive right to resell ORBCOMM
Products and Services for Intelligent Transportation System
monitoring, tracking and messaging applications to Federal, State
and local Government and commercial accounts. Excluded from this
territory definition is the right to resell ORBCOMM Products and
Services (a) for barge tracking and monitoring applications on the
inland waters of the United States, and (b) to United States-based
rail companies for the specific purposes of monitoring and/or
tracking rail cars used exclusively for the transportation of
automobiles and trucks, which rail cars are know as "Autorack
Railcars".
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1
as of the day and year first above written.
ORBCOMM USA, L.P.
By:
-----------------------------
Name: Robert F. Latham
Title: President
ORBITAL SCIENCES CORPORATION ITS GROUP
By:
------------------------------
Name: Joan Deoul
Title: Contracts Manager, ITS Group
<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of this
15th day of May 1997 between ORBCOMM GLOBAL, L.P. (the "Company") and ROBERT F.
LATHAM (the "Executive").
W I T N E S S E T H:
WHEREAS, the Executive has heretofore for many years served in
an executive capacity with various entities and as a consequence thereof has
acquired significant management skills and experience; and
WHEREAS, the Company desires to employ the Executive as its
Executive Vice President and Chief Operating Officer for the term of employment
stated herein subject to the conditions hereof; and
WHEREAS, the Executive is willing and able to undertake
employment with the Company subject to the terms and conditions stated herein.
NOW, THEREFORE, the Company and the Executive each agree as
follows:
1. Employment; Duties. The Company hereby employs the
Executive and the Executive accepts employment as Executive Vice President and
Chief Operating Officer of the Company and President of ORBCOMM USA, L.P. In
such capacity, the Executive shall perform such executive duties and exercise
such powers for the Company and its subsidiaries (if any) as the General
Partners of the Company may assign to or vest in him from time to time
commensurate with his position as an Executive Vice President and Chief
Operating Officer of the Company and that until further notice by the General
Partners of the Company, such duties shall include management of the deployment
and operation of the Company's low-Earth orbit satellite communications system,
U.S. marketing and sales and financial operations and administration. During the
period of employment with the Company, the Executive will devote his best
efforts to the interest of the Company and will not engage in other employment
or in any activities detrimental to the best interests of the Company without
the prior written consent of the President and Chief Executive Officer of the
Company. The Company understands and agrees that, notwithstanding the foregoing,
and subject to Section 10(a), the Executive may serve during the term of this
Agreement as a director on the boards of directors of business, civic or
community corporations or entities other than the Company, if he shall obtain
the prior written approval of the Company's General Partners, which approval may
be withheld if the Company's General Partners reasonably determine that the
Executive's so serving as a director for any such
<PAGE> 2
corporation or entity would interfere with the performance of the Executive's
duties hereunder or would conflict with the best interests of the Company.
2. Term. This Agreement shall have a term of three years,
commencing on May 15, 1997 and ending on May 14, 2000, unless the term is
terminated earlier in accordance with this Agreement. This Agreement shall be
automatically extended from year to year thereafter for additional one year
periods under the same terms and conditions, unless either the Company or the
Executive notifies the other, in accordance with this Agreement, no later than
three months prior to the expiration of the then current term of this Agreement
of its intent to terminate this Agreement. On the expiration (but not
termination) of this Agreement at the end of term hereof, Executive shall be
eligible to become a Vice President, Special Projects and remain employed by the
Company, on terms and conditions to be mutually agreed to by the Company and
Executive, for a period of up to one year, provided that if Executive becomes
employed by another person or entity during such one year period, Executive
shall no longer be employed by the Company.
3. Compensation. During the term of this Agreement, the
Company shall pay to the Executive the following compensation:
(a) Base Salary. The Company shall pay to the
Executive compensation equal to an annual base salary at the
rate of one hundred eighty thousand dollars ($180,000) per
annum, prorated for any partial employment year, payable in
bi-weekly installments in arrears. During the term of this
Agreement, the Executive's compensation shall be reviewed by
the General Partners of the Company at least once every 12
months.
(b) Signing Bonus. The Company shall pay to the
Executive a signing bonus equal to $75,000, payable within
five business days of the date hereof, provided that, in the
event that within five years of the date hereof the Executive
receives any refunds or payments from any Country Club or
similar entity or transferee for membership dues repaid to the
Executive on the Executive's withdrawal from membership, the
Executive shall pay to the Company such refund up to $25,000.
(c) Bonus Plan. The Executive shall also participate
in the Company's Annual Incentive Bonus Plan (the "Bonus
Plan"), a copy of which is attached hereto as Attachment A,
provided that the Company, President and Chief Executive
Officer and the Executive agree to review and thereafter
revise the terms of the Bonus Plan by mutual agreement of the
Executive and the Company. For purposes of the Bonus Plan and
bonus amounts that may be payable to Executive for calendar
year 1997, Executive shall be deemed to have commenced
employment with the Company on January 1, 1997. From and after
the date hereof, the Executive shall be entitled to receive an
annual bonus of up to 50% (or any additional amount as may be
specified in the Bonus Plan as it may be modified as specified
herein or therein) of his annual base salary determined and
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<PAGE> 3
payable in accordance with the terms and conditions of the
Bonus Plan as it may be modified as specified herein and
therein. The Executive and the Company shall mutually agree on
1997 Company and personal objectives as required by the Bonus
Plan.
(d) Stock Options. On the date hereof, the Executive
has been granted options (the "Options") to purchase 55,000
shares of the Common Stock, par value $.01 per share (the
"Common Stock"), of Orbital Communications Corporation
("OCC"). Each Option shall be exercisable for one share of
Common Stock at an exercise price of $26.50 (subject to
adjustment for any stock split, reclassification or
recapitalization of the Common Stock) per share and shall
otherwise be governed by the terms of the Orbital
Communications Corporation 1992 Stock Option Plan (the "Option
Plan"), the form of stock option agreement, a copy of which is
attached hereto as Attachment B and, where applicable, this
Agreement. Subject to the terms of Sections 7 and 8, the
Options shall vest and be exercisable in equal one-quarter
increments as follows:
(i) 25% of the Options shall be vested on the
date hereof;
(ii) 25% of the Options shall vest on the first
anniversary of the date hereof;
(iii) 25% of the Options shall vest on the second
anniversary of the date hereof; and
(iv) 25% of the Options shall vest on the third
anniversary of the date hereof.
4. Other Compensation and Benefits. In addition to the
compensation specified in Section 3, the Company shall provide the following to
the Executive:
(a) Relocation. The Company shall pay the Executive's
actual and reasonable relocation expenses to the United States
as outlined in its Relocation Policy, as modified (the
"Relocation Policy"), a copy of which is attached hereto as
Attachment C, up to a maximum of $50,000; provided that
relocation expenses incurred to move the Executive from
England to the United States and reimbursed by the Executive's
last employer shall not be reimbursable by the Company. At the
termination of this Agreement or the Executive's death or
disability resulting in the termination of his employment, the
Company shall pay the Executive's or any surviving spouse's
actual and reasonable relocation expenses to Canada (of the
types specified in the Relocation Policy), up to a maximum of
$50,000.
(b) Bridge Loan. In addition, at the Executive's
request at any time during the first year of his employment
with the Company, the Company shall provide the Executive with
a bridge loan in the amount of up to $50,000 to assist in the
purchase of a home in the Washington area. The loan shall be
an interest
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<PAGE> 4
free loan. The Loan shall be payable within one
year from the date made, provided that, if the Executive is
terminated without Cause (as defined in Section 9), the term
of the loan shall be extended one year.
(c) Legal Review of this Agreement. The Company shall
pay the Executive's actual legal expenses incurred in the
review of any offer letter previously provided by the Company
to the Executive and this Agreement, up to $2,000.
(d) Benefits. During the term of this Agreement, the
Executive shall be entitled to paid vacation and sick leave as
made generally available to the senior executives of the
Company, and to participate in any profit sharing plan,
retirement plan, group life insurance plan or other insurance
plan or medical expense plan maintained by the Company for its
senior executives generally and, if applicable, their family
members. The Company reserves the right to discontinue or to
amend such plans to conform to legal requirements or for other
reasons, as determined by the Company to be in the best
interest of the business.
(e) Directors and Officers Insurance. The Company
shall use all commercially reasonable efforts to maintain
Directors and Officers Insurance covering such claims and in
such amounts as the Company shall determine to be appropriate.
5. Business Expenses; Professional Memberships. The Company
shall reimburse the Executive for all reasonable and necessary (a) business
expenses, including, but not limited to, travel expenses and telephone usage
charges incurred by him in the performance of his duties under this Agreement,
and (b) professional membership dues, against presentation of proper receipts or
other proof of expenditure, and subject to such reasonable guidelines or
limitations provided to the Executive, and which are to be applied prospectively
only as the General Partners or the Chief Executive Officer of the Company may
impose. Executive shall be furnished with a portable computer and two
appropriate docking stations one for use in his office and one for use in his
home, as well as a printer for use in his home.
6. Termination on Death or Disability. This Agreement shall
automatically terminate on the death or disability of the Executive. The
Executive shall be deemed to be disabled if the General Partners of the Company
shall determine that the Executive is unable to perform substantially all of his
duties under this Agreement for a continuous period in excess of ninety (90)
days because of a disabling illness or injury. During any disability period, the
Executive shall be entitled to compensation as specified in any relevant written
employment/benefit policies and procedures of the Company as may be in effect
from time to time.
7. Change of Control. In the event a person other than OCC or
Teleglobe Mobile Partners owns a majority of the general partnership interests
(or other similar equity interests) of the Company (a "Change of Control"), the
Executive shall have the option,
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<PAGE> 5
exercisable within three months of the Change of Control, to terminate his
employment with the Company and receive the following benefits:
(a) Within 30 days of the exercise of such option by
the Executive, payment of (i) the remaining balance of the
Executive's base salary through the end of the term of this
Agreement plus (ii) an amount equal to 50% of the Executive's
then current annual base salary;
(b) Automatic vesting of all unvested Options; and
(c) Payment of the Executive's actual and reasonable
expenses to relocate to Canada (of the types specified in the
Relocation Policy), up to a maximum of $50,000.
8. Termination Without Cause. During the term of this
Agreement, the Company shall be entitled to terminate the Executive without
Cause, provided that if the Executive is terminated without Cause, the Executive
shall be entitled to receive the following benefits:
(a) A lump sum amount equal to 12 months annual base
salary, payable within 30 days of such termination;
(b) The vesting schedule for the Options shall be
revised for unvested options such that, vesting of the next
annual installment (e.g. 12,500) would occur in equal quarters
amounts (e.g. 3,125) for each full calendar quarter the
Executive was employed by the Company (from the last annual
vesting date) prior to the Executive's termination. In
addition, on the exercise of any vested options, payment of
any withholding taxes then due could be made by (i)
surrendering Common Stock held by the Executive having a fair
market value equal to such withholding tax obligation or (ii)
requesting that OCC withhold from the shares to be delivered
to the Executive on the exercise of vested Options a number of
shares of Common Stock having a fair market value equal to
such withholding tax obligation; and
(c) Payment of the Executive's actual and reasonable
expenses to relocate to Canada (of the types specified in the
Relocation Policy), up to a maximum of $50,000.
9. Termination For Cause or on Death. Notwithstanding any
other provision of this Agreement, the employment of the Executive and this
Agreement may be terminated by the Company on the death of the Executive or for
Cause. Termination for Cause shall be effective as of the date the Company gives
notice to the Executive in accordance with this Agreement. Termination for Cause
shall be limited to the following acts by, or conditions with respect to, the
Executive, as shall be determined by the General Partners acting in their
reasonable discretion:
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<PAGE> 6
(a) chronic alcoholism;
(b) drug addiction;
(c) the Executive's (i) conviction for a felony or
any crime involving moral turpitude, fraud, or
misrepresentation or (ii) misappropriation or embezzlement of
funds or assets from the Company;
(d) any intentional act having the purpose and effect
of materially injuring the reputation, business or business
relationships of the Company;
(e) any breach by the Executive of the provisions of
this Agreement, including, without limitation, the agreements
contained in Sections 10(a) and (b) hereof; or
(f) committing acts amounting to gross negligence or
willful misconduct to the detriment of the Company or its
affiliates.
10. Company Matters.
(a) Proprietary Information and Inventions.
Concurrently with the execution of this Agreement, the
Executive has executed an Employee Non-Disclosure Agreement, a
copy of which is attached hereto as Attachment D. The
Executive agrees to abide by the terms and conditions set
forth therein.
(b) Non-Solicitation of Employees. The Executive
agrees that, during the term of his employment and for a
period of one year thereafter, he will not solicit or
encourage any employee of the Company to terminate his or her
employment with the Company or to accept employment with any
other employer with whom the Executive might become affiliated
subsequent to his termination.
(c) Resignation on Termination. On termination of his
employment, the Executive shall immediately resign any
directorships, offices or other positions that he may hold in
the Company or any of its affiliates.
11. Miscellaneous.
(a) Work Authorization. The Company shall be
responsible for obtaining all appropriate work authorization
papers necessary for the Executive to be employed by the
Company during the term of this Agreement.
(b) Entire Agreement; Binding Effect. This Agreement
sets forth the entire understanding between the parties as to
the subject matter of this Agreement and merges and supersedes
all prior agreements, commitments, representations, writings
and discussions between them; and neither of the parties shall
be bound by any obligations, conditions, warranties or
representations with
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<PAGE> 7
respect to the subject matter of this Agreement, other than as
expressly provided in this Agreement or as duly set forth on
or subsequent to the date hereof in writing and signed by the
proper and duly authorized representative of the party to be
bound hereby. This Agreement is binding on the Executive and
on the Company and its successors and assigns (whether by
assignment, by operation of law or otherwise).
(c) Notices. All notices, approvals, consents,
requests or demands required or permitted to be given under
this Agreement shall be in writing and shall be deemed
sufficiently given three business days after being deposited
in the mail, registered or certified, postage prepaid, on
receipt if hand delivered or sent by facsimile (answerback
received) or one business day after being given to a reputable
overnight courier and addressed to the party entitled to
receive such notice at the following address (or other such
addresses as the parties may subsequently designate):
The Company: ORBCOMM Global, L.P.
21700 Atlantic Boulevard
Dulles, Virginia 20166
The Executive: 2121 Wilkes Ct.
Herndon, Virginia
If notice is given by any other method, it shall be deemed effective
when the written notice is actually received.
(d) Waivers. No party shall be deemed to have waived
any right, power or privilege under this Agreement or any
provisions hereof unless such waiver shall have been duly
executed in writing and acknowledged by the party to be
charged with such waiver. The failure of any party at any time
to insist on performance of any of the provisions of this
Agreement shall in no way be construed to be a waiver of such
provisions, nor in any way to affect the validity of this
Agreement or any part hereof. No waiver of any breach of this
Agreement shall be held to be a waiver of any other subsequent
breach.
(e) Governing Law; Jurisdiction. This Agreement shall
be governed by, and construed and enforced in accordance with,
the laws of the Commonwealth of Virginia, without giving
effect to the conflict or choice of law provisions thereof. In
addition, each party hereto irrevocably and unconditionally
agrees that any suit, action or other legal proceeding arising
out of this Agreement may be brought only in the Commonwealth
of Virginia.
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<PAGE> 8
IN WITNESS WHEREOF, this parties hereto have executed this
Agreement as of the day and year first written above.
ORBCOMM Global, L.P.
By: ______________________________
Name: Alan L. Parker
Title: President
__________________________________
Robert F. Latham
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<PAGE> 9
ORBCOMM GLOBAL, L.P.
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement (the "Agreement") is made and
entered into this 7th day of April, 1997 by and between ORBCOMM Global, L.P.
("ORBCOMM"), a Delaware corporation, with its principal place of business
located at 21700 Atlantic Boulevard, Dulles, Virginia 20166, and Robert F.
Latham ("Latham").
WHEREAS, Latham will provide consulting services to ORBCOMM
and in connection therewith will receive ORBCOMM proprietary or confidential
information;
NOW, THEREFORE, the parties hereto agree as follows:
1. PROPRIETARY INFORMATION. For purposes of this Agreement,
"ORBCOMM Proprietary Information" shall mean written, documentary or oral
information of any kind, including, but not limited to, (a) information of a
business, planning, marketing or technical nature, (b) models, tools, hardware
and software disclosed by ORBCOMM to Latham or generated by Latham in the course
of performing work under this Agreement, and (c) any documents, reports,
memoranda, notes, files or analyses that contain, summarize or are based upon
any of the foregoing. With respect to ORBCOMM Global, "Proprietary Information"
shall include any of the foregoing information of any of ORBCOMM USA, L.P. or
ORBCOMM INTERNATIONAL PARTNERS, L.P. Proprietary Information" shall not include
information that:
(i) is publicly available prior to the date of
this Agreement;
(ii) becomes publicly available after the date
of this Agreement through no wrongful act
of Latham;
(iii) is furnished to others by ORBCOMM without
similar restrictions on their right to use
or disclose;
(iv) is known by Latham without any proprietary
restrictions at the time of receipt of such
information from ORBCOMM or becomes
rightfully known to Latham without
proprietary restrictions from a source
other than ORBCOMM;
(v) is independently developed by Latham by
persons who did not have access, directly
or indirectly, to the Proprietary
Information; or
(vi) is obligated to be produced under order of
a court of competent jurisdiction or a
valid administrative or congressional
subpoena, provided that Latham promptly
notifies ORBCOMM of such event so that
ORBCOMM
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<PAGE> 10
may seek an appropriate protective
order or waive compliance by Latham with
the terms of this Agreement.
2. CONFIDENTIALITY.
a. Latham shall protect all ORBCOMM Proprietary
Information as confidential information and, except with the prior written
consent of ORBCOMM or as otherwise specifically provided herein, shall not
disclose, copy or distribute the ORBCOMM Proprietary Information to any other
individual, corporation or entity for a period of three (3) years from the date
of disclosure by ORBCOMM or creation by Latham.
b. Latham shall not make any use of the ORBCOMM
Proprietary Information for his or her own benefit or for the benefit of any
other individual, corporation or entity.
c. Latham shall not disclose all or any part of the
ORBCOMM Proprietary Information to his or her affiliates, agents or
representatives (collectively, "Representatives") except on a need-to-know
basis. Latham agrees to inform any of his or her Representatives who receive
ORBCOMM Proprietary Information of the confidential and proprietary nature
thereof and of such Representative's obligations with respect to the maintenance
of the ORBCOMM Proprietary Information in conformance with the terms of this
Agreement.
d. Latham shall maintain the ORBCOMM Proprietary
Information with at least the same degree of care Latham uses to maintain his or
her own proprietary information. Latham represents that such degree of care
provides adequate protection for his or her own proprietary information.
e. Latham shall immediately advise ORBCOMM in writing
of any misappropriation or misuse by any person of the ORBCOMM Proprietary
Information of which Latham is aware.
f. Any documents or materials that are furnished by
or on behalf of ORBCOMM, and all other ORBCOMM Proprietary Information in
whatever form, including documents, reports, memoranda, notes, files or analyses
prepared by or on behalf of Latham, including all copies of such materials,
shall be promptly returned by Latham to ORBCOMM upon written request by ORBCOMM
for any reason.
3. NO LICENSES OR WARRANTIES. No license to Latham under any
trade secrets or patents is granted or implied by conveying ORBCOMM Proprietary
Information or other information to Latham; and none of the information
transmitted or exchanged by ORBCOMM shall constitute any representation,
warranty, assurance, guaranty or inducement by ORBCOMM to Latham with respect to
the infringement of patents or other rights of others.
4. REMEDY FOR BREACH. Latham acknowledges that the ORBCOMM
Proprietary Information is central to ORBCOMM's business and was developed by or
for
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<PAGE> 11
ORBCOMM at a significant cost. Latham further acknowledges that damages
would not be an adequate remedy for any breach of this Agreement by Latham or
his or her Representatives and that ORBCOMM may obtain injunctive or other
equitable relief to remedy or prevent any breach or threatened breach of this
Agreement by Latham or any of his or her Representatives. Such remedy shall not
be deemed to be the exclusive remedy for any such breach of this Agreement, but
shall be in addition to all other remedies available at law or in equity to
ORBCOMM.
5. MISCELLANEOUS.
a. This Agreement contains the entire understanding
between Latham and ORBCOMM and supersedes all prior written and oral
understandings relating to the subject hereof. This Agreement may not be
modified except by a writing signed by both parties.
b. The construction, interpretation and performance
of this Agreement, as well as the legal relations of the parties arising
hereunder, will be governed by and construed in accordance with the laws of the
Commonwealth of Virginia, without regard to the choice or conflict of law
provisions thereof.
c. It is understood and agreed that no failure or
delay by ORBCOMM in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege hereunder. No waiver of any terms or conditions of
this Agreement shall be deemed to be a waiver of any subsequent breach of any
term or condition. All waivers must be in writing and signed by the party sought
to be bound.
d. If any part of this Agreement shall be held
unenforceable, the remainder of this Agreement will, nevertheless, remain in
full force and effect.
IN WITNESS WHEREOF, each of the parties of this Agreement has
caused this Agreement to be signed as of the day and year first above written.
ORBCOMM GLOBAL, L.P.
By: ______________________________ ____________________________
Mary Ellen Seravalli Robert F. Latham
Senior Vice President and General Counsel
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<PAGE> 1
EXHIBIT 10.22
ORBCOMM GLOBAL, L.P.
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into as of
the 18th day of March, 1998, by and between ORBCOMM GLOBAL, L.P., a Delaware
limited partnership ("ORBCOMM Global"), with its principal place of business
located at 2455 Horse Pen Road, Suite 100, Herndon, Virginia 20171, and ORBCOMM
CANADA INC. (the "Consultant"), with its principal place of business located at
1000 rue de la Gauchetiere ouest, 25th Floor, Montreal, Quebec, H3B 4X5,
Canada.
W I T N E S S E T H:
WHEREAS, the Consultant has expertise in particular areas relevant to
ORBCOMM Global's business;
WHEREAS, the Consultant desires to provide business and industry
consultancy services to ORBCOMM Global that draw upon such expertise; and
WHEREAS, ORBCOMM Global desires to engage the Consultant to render
services to ORBCOMM Global that draw upon the Consultant's expertise.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I - SCOPE
(a) During the term of this Agreement as provided in Article II
hereof, the Consultant shall furnish to ORBCOMM Global the business and
industry consultancy services described in Exhibit A hereto (the "Services").
The Services shall be performed at such times as are mutually agreeable to the
parties. All the Services shall be furnished at the offices of ORBCOMM Global
or at such other places as may be directed by ORBCOMM Global.
(b) The Consultant is an independent contractor and nothing in
this Agreement shall be construed as creating the relationship of employer and
employee between the parties. The Consultant is not subject to or entitled to
any benefits under the provisions of ORBCOMM Global's Employee Relations
policies.
ARTICLE II - TERM
Notwithstanding the date set forth on page 1 of this Agreement, this
Agreement shall cover services provided by Consultant for the period from
January 1, 1998 through and including December 31, 1998, unless earlier
terminated by one of the parties in accordance with Article VI.
<PAGE> 2
ARTICLE III - CONSIDERATION
(a) Subject to the terms and conditions of this Agreement, as
compensation for the Services, ORBCOMM Global shall pay the Consultant, for the
Services of Mr. William J. Meder, at the rate of One Thousand Dollars
(U.S.$1,000) per day, but in any event not to exceed Four Thousand Dollars
(U.S.$4,000) in any calendar week.
(b) ORBCOMM Global shall reimburse the Consultant for reasonable
expenses incurred by the Consultant for pre-authorized travel outside a fifty
(50) mile radius of the Consultant's office. Expenses shall include reasonable
coach class transportation and room and board expenses associated with such
travel. An accounting of such travel and expenses, including all receipts,
shall be submitted along with the invoices presented in accordance with Article
IV.
(c) The Consultant shall have no authority to purchase goods or
services for or on behalf of ORBCOMM Global under the terms of this Agreement.
ARTICLE IV - INVOICING
The Consultant shall present an invoice for professional
services detailing the time spent and the Services rendered under this
Agreement. Payments by ORBCOMM Global for the Services rendered shall be due
upon presentation and shall be made within 30 days of receipt of an invoice
submitted by the Consultant, provided that payments shall not be made more
frequently than once per month. All invoices shall be delivered to the
authorized representative set forth in Article XIV.
ARTICLE V - DRAWINGS, RECORDS AND OTHER DATA
All drawings, designs, specifications, data and other memoranda or
records of value prepared by, or otherwise under the control of the Consultant
in connection with the Services shall be and shall remain the property of
ORBCOMM Global.
ARTICLE VI - TERMINATION
ORBCOMM Global or the Consultant may, at any time, by giving the other
party ten (10) days' notice in writing, terminate this Agreement. This
Agreement may also be terminated immediately upon any breach of its terms by
either party. In the event of termination, ORBCOMM Global shall be subject to
no liability, except to pay the Consultant for the Services performed up to and
including the date of termination in accordance with Article III. The
provisions contained in Articles V, VII, VIII, IX and X shall survive
expiration of this Agreement.
ARTICLE VII - PATENTS AND COPYRIGHTS; PROPRIETARY RIGHTS
The Consultant hereby irrevocably assigns to ORBCOMM Global all right,
title and interest in and to all inventions and discoveries, whether or not
patentable and whether or not reduced to practice, and all other work product
of any nature, whether or not copyrightable, made, conceived or authored by the
Consultant in the course of performing the Services or any other work under
this Agreement and all
<PAGE> 3
tangible embodiments of the foregoing ("Work Product") and all patents,
copyrights, trademarks, trade secrets and all other intellectual property
rights therein and any extensions and renewals thereof. The Consultant shall
promptly furnish ORBCOMM Global with complete information with respect to all
Work Product whenever made, conceived or authored by the Consultant. All
copyrightable Work Product created by the Consultant in the course of
performing the Services or any other work under this Agreement shall be deemed
to be a "work made for hire" in accordance with 17 U.S.C. Section 101 belonging
exclusively to ORBCOMM Global. ORBCOMM Global shall have the exclusive right
to obtain and hold solely in its own name all patents, copyrights,
registrations, trademark registrations, trade secrets and other such protection
for the Work Product as may be appropriate to the subject matter, and any
extensions or renewals thereof. The Consultant shall provide ORBCOMM Global,
and any person designated by ORBCOMM Global, all reasonably necessary
cooperation in connection with ORBCOMM Global's perfection of its patent,
trademark, copyright, trade secret and other rights in the Work Product and
ORBCOMM Global's ownership thereof, including without limitation signing all
documents reasonably requested by ORBCOMM Global both before and after the
termination of this Agreement.
ARTICLE VIII - NON-COMPETITION
During the term of this Agreement and for a period of twelve (12)
months thereafter, the Consultant shall not perform any services or render
similar business and industry consultancy services to any third party or
parties or for the Consultant's own account, if such parties or the Consultant
provide services or products that compete, directly or indirectly, with the
satellite-based mobile data and message communication services or products
supplied by ORBCOMM Global or its affiliates.
ARTICLE IX - PROTECTION OF PROPRIETARY INFORMATION
Information disclosed by one party to the other shall be subject to
the terms and conditions of the Mutual Non-Disclosure Agreement dated DECEMBER
19, 1995 between the parties, and the parties agree to abide by the terms and
conditions set forth therein.
ARTICLE X - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, without giving effect to the conflict
or choice of law provisions thereof. The Consultant agrees to comply with all
international traffic in arms regulations and with the Prohibited Foreign Trade
Practices Act, the current forms of which are attached as Exhibits B and C.
ARTICLE XI - ASSIGNMENT
This Agreement and the rights and obligations of the parties hereunder
may not be assigned in whole or in part, by Consultant without the prior
written consent of ORBCOMM.
<PAGE> 4
ARTICLE XII - SEVERABILITY
If any provision of this Agreement, or the application thereof, shall,
for any reason and to any extent, be invalid or unenforceable, the remainder of
this Agreement and the application of such provisions to other persons or
circumstances shall not be affected thereby, but rather shall be enforced to
the maximum extent permissible under applicable law.
ARTICLE XIII - NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed given upon receipt if delivered personally or by facsimile
(answerback received), one (1) business day after being sent by express or
overnight mail, or three (3) business days after being sent by registered or
certified mail, return receipt required, postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice, provided that such notice shall be effective only upon receipt
thereof):
a. If to ORBCOMM Global:
ORBCOMM Global, L.P.
2455 Horse Pen Road
Suite 100
Herndon, Virginia 20171
Attention: Legal Department
Telephone: (703) 406-5521
Facsimile: (703) 406-5399
b. If to Consultant:
ORBCOMM Canada Inc.
1000 rue de la Gauchetiere ouest
25th Floor
Montreal, Quebec, H3B 4X5
Canada
Attention: Mr. William J. Meder
Telephone: (514) 868-7262
Facsimile: (514) 868-8186
ARTICLE XIV - DESIGNATION OF ORBCOMM GLOBAL AUTHORIZED REPRESENTATIVE
The person authorized to direct the Consultant on behalf of ORBCOMM
Global (as referred to in Article I) is Scott Webster.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ORBCOMM GLOBAL, L.P. ORBCOMM CANADA INC.
By: By:
------------------------- -------------------------
Name Robert F. Latham Name:
Title: President Title:
Telephone: (703) 406-5586 Telephone:
Facsimile: (703) 406-3508 Facsimile:
<PAGE> 6
EXHIBIT A
CONSULTING SERVICES TO BE PERFORMED
The Consultant shall perform the following Services:
A. Arrange meetings with Senior Executives of "Fortune 100" companies
with the objective of developing business relationships for ORBCOMM
Global services.
B. Act as an executive sales contact for selected ORBCOMM USA National
Accounts. Provide advice and counsel to ORBCOMM Marketing Executives
to build and extend ORBCOMM and Business Partner relationships.
C. Maintain current understanding and act as the executive contact for
certain application developers, manufacturers, and related vendors.
This will include, but not be limited to, companies such as
International Business Machines Corporation, Torrey Science
Corporation and Dolphin Software Inc.
D. As requested, provide advice and counsel to ORBCOMM Global management
as it develops and improves business processes - with a particular
focus on sales and pricing policies and practices.
E. Establish strategic relationships with key partners on a global basis.
<PAGE> 7
EXHIBIT B
COMPLIANCE WITH INTERNATIONAL TRAFFIC IN ARMS REGULATIONS
Although this Agreement is not intended to be a technical assistance
agreement as defined in Part 120.20 of the International Traffic in Arms
Regulations, to the extent any part of this Agreement is deemed to be a
technical assistance agreement, the following provisions of Part 124.8, as
amended from time to time, shall apply with respect to that part of this
Agreement:
A. The applicable part of this Agreement shall not enter into
force, and shall not be amended or extended, without the prior
written approval of the Department of State of the U.S.
Government.
B. The applicable part of this Agreement and any information
furnished hereunder is subject to all United States laws and
regulations relating to exports and to all administrative acts
of the U.S. Government pursuant to such laws and regulations.
C. The parties to this Agreement agree that the obligations
contained in this Agreement shall not affect the performance
of any obligations created by prior contracts or subcontracts
that the parties may have individually or collectively with
the U.S. Government.
D. No liability will be incurred by or attributed to the U.S.
Government in connection with any possible infringement of
privately owned patent or proprietary rights, either domestic
or foreign, by reason of the U.S. Government's approval of
this Agreement.
E. Any technical data or service exported from the United States
in furtherance of this Agreement and any article that may
be produced or manufactured from such technical data or
service may not be transferred to a person in a third country
or to a national of a third country unless the prior written
approval of the Department of State has been obtained.
F. All provisions in this Agreement that refer to the U.S.
Government and the Department of State will remain binding on
the parties after the termination of this Agreement.
<PAGE> 8
EXHIBIT C
COMPLIANCE WITH THE PROHIBITED FOREIGN TRADE PRACTICES ACT
A. The Consultant agrees that, in connection with this Agreement,
it will not, directly or indirectly, give, offer or promise,
or authorize or tolerate to be given, offered or promised,
anything of value to an official or employee of a government
or of any subdivision thereof with the intent to (i) influence
any official act or decision of such official or employee, or
(ii) induce such official or employee to use his or her
influence to affect or influence any act or decision of a
government or of any subdivision thereof, to assist ORBCOMM
Global in obtaining or retaining business, or in directing
business to any person.
B. The Consultant agrees that, in connection with this Agreement,
it will not, directly or indirectly, give, offer or promise,
or authorize or tolerate to be given, offered or promised,
anything of value to any person, knowing or having reason to
know that such thing of value is to be given, offered or
promised to an official or employee of a government or of any
subdivision thereof with the intent to (i) influence any
official act or decision of such official act or decision of
such official or employee, or (ii) induce such official or
employee to use his or her influence to affect or influence
any act or decision of a government or of any subdivision
thereof, to assist ORBCOMM Global in obtaining or retaining
business, or in directing business to any person.
C. The Consultant agrees that, in rendering the Services and in
carrying out its other duties and responsibilities under this
Agreement, Consultant will neither undertake, nor cause nor
permit to be undertaken, any activity that either (i) is
illegal under any laws, decrees, rules or regulations in
effect in any country in the Territory, or (ii) would have the
effect of causing ORBCOMM Global to be in violation of any
laws, decrees, rules or regulations in effect in the United
States or in any country whose laws are applicable to the
performance of this Agreement (the "Territory").
D. The Consultant hereby covenants that neither the Consultant,
nor any employee, representative or agent of the Consultant,
is an official or employee of the government of any country of
the Territory or any subdivision thereof. The Consultant
further agrees to notify ORBCOMM Global immediately in the
event that this covenant ceases to be true.
E. The Consultant agrees to notify ORBCOMM Global immediately of
any extorsive solicitation, demand or other request for
anything of value, by or on behalf of any official or employee
of the government of any country of the Territory or of any
subdivision thereof, relating to the subject matter of this
Agreement.
F. If the Consultant breaches any of the covenants set forth in
A, B, C or E above, (i) this Agreement shall become void, (ii)
ORBCOMM Global shall have a cause of action against the
Consultant for, among other things, the amount of any monetary
payment or thing of value given by the Consultant in breach of
any of the above-mentioned covenants and (iii) all obligation
by ORBCOMM Global to compensate the Consultant pursuant to
Article III of this Agreement shall cease and terminate
immediately.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 16,106
<SECURITIES> 22,756
<RECEIVABLES> 1,931
<ALLOWANCES> 0
<INVENTORY> 2,160
<CURRENT-ASSETS> 42,593
<PP&E> 276,925
<DEPRECIATION> 13,546
<TOTAL-ASSETS> 316,969
<CURRENT-LIABILITIES> 39,361
<BONDS> 171,190
0
0
<COMMON> 0
<OTHER-SE> 106,418<F1>
<TOTAL-LIABILITY-AND-EQUITY> 316,969
<SALES> 517
<TOTAL-REVENUES> 527
<CGS> 517
<TOTAL-COSTS> 28,095
<OTHER-EXPENSES> 3,868<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0<F3>
<INCOME-PRETAX> (31,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,436)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Represents Total Partners' Capital.
<F2>Net of Equity in losses of affiliates and interest income.
<F3>$24,060 if interest expense was Capitalized.
</FN>
</TABLE>
