<PAGE> 1
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(Exact Name of Registrants as Specified in their Charters)
<TABLE>
<S> <C>
54-1698039
DELAWARE 54-1841164
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization of Registrants) Identification Nos.)
</TABLE>
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)
Indicate by check mark whether the Registrants: (1) have 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
Registrants were required to file such reports); and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,586 $ 3,799
Investments 0 390
Other receivables 968 248
Prepaid expenses 2,458 0
Product development 843 0
Inventory 9,975 6,688
------------- ---------------
Total Current Assets 22,830 11,125
Mobile Communications Satellite System, net 328,055 327,946
Other assets, net 6,015 4,690
Investments in and advances to affiliates 5,974 2,483
Goodwill, net 371 390
------------- ---------------
TOTAL ASSETS $ 363,245 $ 346,634
============= ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt $ 609 $ 1,190
Accounts payable and accrued liabilities 15,202 19,255
Accounts payable - Orbital Sciences Corporation 72,312 50,800
------------- ---------------
Total Current Liabilities 88,123 71,245
Revenue participation accrued interest 1,278 599
Long-term debt 170,000 170,000
------------- ---------------
Total Liabilities 259,401 241,844
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 58,972 56,520
Orbital Communications Corporation 44,872 48,270
------------- ---------------
Total Partners' Capital 103,844 104,790
------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 363,245 $ 346,634
============= ===============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
------------------------- ------------------------ JUNE 30,
1999 1998 1999 1998 1999
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service and product sales $ 550 $ 507 $ 1,064 $ 727 $ 3,173
Distribution fees 0 0 0 0 1,000
----------- ----------- ----------- ---------- ------------
Total revenues 550 507 1,064 727 4,173
EXPENSES:
Cost of product sales 657 502 1,147 717 3,174
Engineering expenses 6,395 4,671 11,663 7,325 42,283
Marketing, administrative and other expenses 11,220 8,899 19,032 13,203 73,055
----------- ----------- ----------- ---------- ------------
Total expenses 18,272 14,072 31,842 21,245 118,512
----------- ----------- ----------- ---------- ------------
LOSS FROM OPERATIONS BEFORE DEPRECIATION
AND AMORTIZATION (17,722) (13,565) (30,778) (20,518) (114,339)
Depreciation 12,306 2,435 23,757 4,338 48,351
Goodwill amortization 10 0 19 0 19
----------- ----------- ----------- ---------- ------------
LOSS FROM OPERATIONS (30,038) (16,000) (54,554) (24,856) (162,709)
OTHER INCOME AND EXPENSES:
Interest income 88 353 185 781 10,397
Interest expense and other financial charges (6,668) (210) (13,168) (420) (17,122)
Equity in net income (losses) of affiliates 2,348 (1,225) (509) (3,233) (19,110)
----------- ----------- ----------- ---------- ------------
NET LOSS $ (34,270) $ (17,082) $ (68,046) $ (27,728) $ (188,544)
=========== =========== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
--------------------------- JUNE 30,
1999 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(68,046) $(27,728) $(188,544)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Depreciation 23,757 4,338 48,351
Goodwill amortization 19 0 19
Amortization of financing fees 513 420 2,490
Equity in net losses of affiliates 509 3,233 19,110
--------- --------- ----------
SUB-TOTAL (43,248) (19,737) (118,574)
Net changes in non-cash working capital items:
Decrease (increase) in other receivables (720) 509 (968)
Increase in prepaid expenses (2,458) (2,914) (2,458)
Increase in product development (843) 0 (843)
Increase in inventory (3,287) (801) (9,975)
Increase (decrease) in accounts payable and accrued liabilities (4,053) 2,530 15,202
Increase in accounts payable - Orbital Sciences Corporation 0 0 4,648
Increase in revenue participation accrued interest 679 0 1,278
--------- --------- ----------
NET CASH USED IN OPERATING ACTIVITIES (53,930) (20,413) (111,690)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,354) (26,122) (308,742)
Increase in investments in and advances to affiliates (4,050) (5,240) (25,113)
Purchase of investments 0 (5,195) (190,885)
Proceeds from sale of investments 390 17,380 190,884
Other 0 0 (390)
--------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES (6,014) (19,177) (334,246)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term debt 0 0 169,475
Repayment of long-term debt (581) (530) (4,390)
Partners' contributions 67,150 30,000 294,950
Financing fees paid and other (1,838) 0 (5,513)
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 64,731 29,470 454,522
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,787 (10,120) 8,586
CASH AND CASH EQUIVALENTS:
Beginning of period 3,799 16,106 0
--------- --------- ----------
CASH AND CASH EQUIVALENTS:
End of period $ 8,586 $ 5,986 $ 8,586
========= ========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 11,944 $ 11,995 $ 60,741
========= ========= ==========
Non-cash capital expenditures $ 21,512 $ 15,080 $ 67,664
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) 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. (the "Company"), a
Delaware limited partnership. 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-based 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.
In 1998, the Company purchased the assets of Dolphin Software Systems
Inc. ("Dolphin") and established two wholly owned subsidiaries. Dolphin
Information Services, Inc. ("DIS"), a Delaware corporation, distributes outside
Canada software products that enable customers to more easily access and manage
information obtained from or regarding their remote or mobile assets using the
ORBCOMM system (collectively, the "Dolphin Software"). Dolphin Software
Services ULC, a Nova Scotia unlimited liability company, develops modifications
and enhancements to, and distributes in Canada, the Dolphin Software. The
value attributed to assets acquired from Dolphin is not material to the
Company's total assets.
In April 1999, the Company and ORBCOMM Enterprises Corporation, a
Delaware corporation and wholly owned subsidiary of the Company, formed ORBCOMM
Enterprises, L.P., a Delaware limited partnership ("ORBCOMM Enterprises"), as
an unrestricted subsidiary of the Company for the purpose of marketing and
distributing the Company's monitoring, tracking and messaging services to
customers and developing applications with respect thereto.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company as of June 30, 1999, the results of its operations for the three-month
and six-month periods ended June 30, 1999 and 1998, its cash flows for the
six-month periods ended June 30, 1999 and 1998, and the period from June 30,
1993 (date of inception) through June 30, 1999. These condensed consolidated
financial statements are unaudited and do not include all related footnote
disclosures and, therefore, should be read in conjunction with the audited
consolidated financial statements and the footnotes thereto for the year ended
December 31, 1998 filed with the Securities and Exchange Commission. Operating
results for the three months and six months ended June 30, 1999 are not
necessarily indicative of the results of operations expected in the future,
although the Company anticipates a net loss for the year 1999. The Company
expects to emerge from development stage during 1999.
5
<PAGE> 6
ORBCOMM GLOBAL L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS
The Company paid Orbital $536,000 and $2,254,000 for the six months
ended June 30, 1999 and 1998, respectively, and approximately $200,600,000 for
the period June 30, 1993 (date of inception) through December 31, 1998, for work
performed pursuant to the ORBCOMM System Design, Development and Operations
Agreement, the ORBCOMM System Procurement Agreement (the "Procurement
Agreement") and the Administrative Services Agreement (for provision of ongoing
administrative support to the Company). Additionally, Orbital has deferred
invoicing $72,312,000 and $50,800,000 under the Procurement Agreement as of June
30, 1999 and December 31, 1998, respectively, and has indicated that it will
continue to defer invoicing of certain amounts under the Procurement Agreement
and, to the extent applicable, a new procurement agreement dated as of February
1, 1999 between the Company and Orbital until other funding arrangements for the
Company are secured.
In May 1999, ORBCOMM USA transferred to ORBCOMM Enterprises
approximately $700,000 of its product development assets associated with the
marketing and distribution of the Company's monitoring, tracking and messaging
services and associated applications.
The Company sold an aggregate of $381,000, $503,000, $871,000 and
$587,000 of product to ORBCOMM USA and ORBCOMM International for the three
months and six months ended June 30, 1999 and 1998, respectively, and $1,763,000
for the period June 30, 1993 (date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
USA and ORBCOMM International their respective share of expenses incurred by the
Company on behalf of ORBCOMM USA and ORBCOMM International. For the three-month
and six-month periods ended June 30, 1999, the Company charged ORBCOMM USA and
ORBCOMM International $2,000,000 and $5,843,000, respectively (none for the same
periods of 1998).
(4) LONG-TERM DEBT
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior
Notes due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint
and several basis by 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.
The Company also has a $5,000,000 secured note with a financial
institution of which $609,000 and $1,190,000 was outstanding as the current
portion of the long-term debt as of June 30, 1999 and December 31, 1998,
respectively. The note bears interest at a rate of 9.2% per annum, is secured
by equipment located at certain of the U.S. gateway Earth stations and the
network control center and is guaranteed by Orbital.
6
<PAGE> 7
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(5) STOCK OPTION PLAN
During the second quarter of 1999, the Company and ORBCOMM Corporation,
a Delaware corporation and wholly owned subsidiary of the Company (the
"Corporation"), adopted The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM
Global, L.P. (the "Equity Plan"). The Equity Plan provides for grants of
incentive or non-qualified stock options to purchase common stock of the
Corporation to officers, employees, consultants and independent directors of
the Corporation and its affiliates and to officers, employees and consultants
of the Company. To date, no options have been granted under the Equity Plan.
In 1998, DIS adopted the Dolphin Information Services, Inc. 1998 Stock
Option Plan (the "DIS Plan"). The DIS Plan provides for grants of incentive or
non-qualified stock options to purchase DIS common stock to officers, employees
and outside directors of DIS, the Company and their respective affiliates. As
of June 30, 1999, 1,237,500 options to acquire shares of DIS common stock had
been granted to DIS employees and officers at an exercise price of U.S.$0.08,
which price represents the fair market value of DIS common stock on the date of
grant. DIS has elected to account for stock-based compensation by applying the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and providing the pro forma disclosure provisions of the
Statement of Financial Accounting Standards 123, "Accounting for Stock-Based
Compensation".
7
<PAGE> 8
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 205 $ 220
Inventory 0 309
Other assets 151 113
Product development 0 569
--------- ---------
TOTAL ASSETS $ 356 $ 1,211
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 111 $ 717
--------- ---------
Total Current Liabilities 111 717
Amount due to affiliates 17,113 13,342
--------- ---------
Total Liabilities 17,224 14,059
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
ORBCOMM Global, L.P. (16,531) (12,591)
Orbital Communications Corporation (337) (257)
--------- ---------
Total Partners' Capital (16,868) (12,848)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 356 $ 1,211
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
8
<PAGE> 9
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
-------------------- ---------------------- JUNE 30,
1999 1998 1999 1998 1999
-------- ------ -------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service and product sales $ 326 $ 269 $ 591 $ 333 $ 1,762
Contract revenues 0 0 0 0 4,203
-------- ------ -------- -------- ---------
Total revenues 326 269 591 333 5,965
EXPENSES:
Cost of sales 150 302 390 368 1,833
Marketing expenses 1,306 678 4,221 2,241 21,010
-------- ------ -------- -------- ---------
Total expenses 1,456 980 4,611 2,609 22,843
-------- ------ -------- -------- ---------
NET LOSS $(1,130) $(711) $(4,020) $(2,276) $(16,878)
======== ====== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
9
<PAGE> 10
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------- JUNE 30,
1999 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,020) $(2,276) $(16,878)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable 15 (269) (205)
Decrease in inventory 309 0 0
Increase in other assets (38) 0 (151)
Decrease (increase) in product development 569 (77) 0
Increase (decrease) in accounts payable and accrued
liabilities (606) (563) 111
-------- -------- ---------
NET CASH USED IN OPERATING ACTIVITIES (3,771) (3,185) (17,123)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to affiliates 3,771 3,185 17,113
Partners' contributions 0 0 10
-------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,771 3,185 17,123
-------- -------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
-------- -------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
10
<PAGE> 11
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) 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. (the "Company"), a
Delaware limited partnership. 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-based 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.
In April 1999, the Company and ORBCOMM Enterprises Corporation, a
Delaware corporation and wholly owned subsidiary of the Company, formed ORBCOMM
Enterprises, L.P., a Delaware limited partnership ("ORBCOMM Enterprises"), as
an unrestricted subsidiary of the Company for the purpose of marketing and
distributing the Company's monitoring, tracking and messaging services to
customers and developing applications with respect thereto.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of ORBCOMM USA as
of June 30, 1999, the results of its operations for the three-month and
six-month periods ended June 30, 1999 and 1998, its cash flows for the
six-month periods ended June 30, 1999 and 1998, and the period from June 30,
1993 (date of inception) through June 30, 1999. These condensed financial
statements are unaudited and do not include all related footnote disclosures
and, therefore, should be read in conjunction with the audited financial
statements and the footnotes thereto for the year ended December 31, 1998 filed
with the Securities and Exchange Commission. Operating results for the three
months and six months ended June 30, 1999 are not necessarily indicative of the
results of operations expected in the future. ORBCOMM USA expects to emerge
from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM USA had a payable of $17,113,000 to the
Company for amounts advanced to support ORBCOMM USA's efforts to establish
commercial and government markets in the United States ($13,660,000 as of
December 31, 1998) none of which is currently payable. ORBCOMM USA is
currently in development stage, and still obtains funds to support operations
through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM USA had a receivable of $318,000 from
ORBCOMM International (none as of June 30, 1999).
11
<PAGE> 12
ORBCOMM USA, L.P.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
In May 1999, ORBCOMM USA transferred to ORBCOMM Enterprises
approximately $700,000 of its product development assets associated with the
marketing and distribution of the Company's monitoring, tracking and messaging
services and associated applications.
ORBCOMM USA purchased $358,000, $304,000, $526,000 and $370,000 of
product from the Company for the three months and six months ended June 30,
1999 and 1998, respectively, and $1,402,000 for the period June 30, 1993 (date
of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
USA its respective share of expenses incurred by the Company on behalf of
ORBCOMM USA. For the three-month and six-month periods ended June 30, 1999,
the Company charged ORBCOMM USA $1,171,000 and $3,769,000, respectively (none
for the same periods of 1998).
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint
and several basis by 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.
12
<PAGE> 13
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED BALANCE SHEETS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $13,568 $ 1,023
Current portion of deferred and prepaid contract costs 11,336 14,733
--------- --------
Total Current Assets 24,904 15,756
Deferred and prepaid contract costs, net of current portion 6,876 6,146
--------- --------
TOTAL ASSETS $31,780 $21,902
========= ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 1,673 $ 530
Current portion of deferred revenue 12,863 11,254
--------- --------
Total Current Liabilities 14,536 11,784
Amount due to affiliates 4,247 7,389
Deferred revenue, net of current portion 15,252 8,840
--------- --------
Total Liabilities 34,035 28,013
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners (45) (122)
ORBCOMM Global, L.P. (2,210) (5,989)
--------- --------
Total Partners' Capital (2,255) (6,111)
--------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $31,780 $21,902
========= ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
13
<PAGE> 14
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
------------------ ---------------------- JUNE 30,
1999 1998 1999 1998 1999
------- ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service and product sales $6,826 $ 39 $12,976 $ 144 $ 23,983
EXPENSES:
Cost of sales 2,606 104 7,391 193 18,444
Marketing expenses 441 474 1,729 975 7,804
------- ------ ------- -------- ---------
Total expenses 3,047 578 9,120 1,168 26,248
------- ------ ------- -------- ---------
NET INCOME (LOSS) $3,779 $(539) $ 3,856 $(1,024) $ (2,265)
======= ====== ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
14
<PAGE> 15
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
------------------------------ JUNE 30,
1999 1998 1999
--------- -------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,856 $(1,024) $ (2,265)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net changes in non-cash working capital items:
Increase in accounts receivable (12,545) 0 (13,568)
Decrease (increase) in deferred and prepaid contract costs 2,667 (8,637) (18,212)
Increase in accounts payable and accrued liabilities 1,143 917 1,673
Increase in deferred revenue 8,021 6,688 28,115
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,142 (2,056) (4,257)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to affiliates (3,142) 2,056 4,247
Partners' contributions 0 0 10
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,142) 2,056 4,257
--------- -------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS 0 0 0
CASH AND CASH EQUIVALENTS:
Beginning of period 0 0 0
--------- -------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 0 $ 0 $ 0
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
15
<PAGE> 16
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) 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. (the "Company"), a
Delaware limited partnership. 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-based 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.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed financial
statements reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the financial position of ORBCOMM
International as of June 30, 1999, the results of its operations for the
three-month and six-month periods ended June 30, 1999 and 1998, its cash
flows for the six-month periods ended June 30, 1999 and 1998, and the period
from June 30, 1993 (date of inception) through June 30, 1999. These condensed
financial statements are unaudited and do not include all related footnote
disclosures and, therefore, should be read in conjunction with the audited
financial statements and the footnotes thereto for the year ended December 31,
1998 filed with the Securities and Exchange Commission. Operating results for
the three months and six months ended June 30, 1999 are not necessarily
indicative of the results of operations expected in the future. ORBCOMM
International expects to emerge from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM International had a payable of $4,247,000
to the Company for amounts advanced to support ORBCOMM International's efforts
to establish commercial markets outside the United States ($7,071,000 as of
December 31, 1998) none of which is currently payable. ORBCOMM International
is currently in development stage, and still obtains funds to support its
operations through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM International had a payable of
$318,000 to ORBCOMM USA (none as of June 30, 1999).
ORBCOMM International purchased $23,000, $199,000, $345,000 and
$217,000 of product from the Company for the three months and six months ended
June 30, 1999 and 1998, respectively, and $361,000 for the period June 30, 1993
(date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
International its respective share of expenses incurred by the Company on
behalf of ORBCOMM International. For the three-month and six-
16
<PAGE> 17
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
month periods ended June 30, 1999, the Company charged ORBCOMM International
$829,000 and $2,074,000, respectively (none for the same periods of 1998).
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint
and several basis by 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.
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the purchase of 20 gateway Earth stations that have
been or will be installed around the world. During the first half of 1999,
installation and final acceptance of gateways in Brazil, Argentina and Malaysia
occurred. The related revenue and the associated costs have been properly
reflected in the condensed consolidated statements of operations. Additionally,
as of June 30, 1999, ORBCOMM International had $18,212,000 of deferred and
prepaid contract costs ($20,879,000 as of December 31, 1998), of which
$10,976,000 represents advance payments to manufacturers for gateways that have
not yet been completed ($12,718,000 as of December 31, 1998). Total
commitments under the gateway manufacturing agreements approximated $22,000,000
of which approximately $6,100,000 was outstanding as of June 30, 1999. Included
in deferred and prepaid contract costs is the portion of engineering direct
labor costs that relates to the construction of gateways. As of June 30, 1999,
$1,968,000 of such costs had been included in deferred and prepaid contract
costs ($1,114,000 as of December 31, 1998).
In the second quarter of 1999, ORBCOMM International recognized
$3,137,000 in revenue reflecting payments made by its former international
licensees SEC ORBCOMM (Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus
Communications Ltd. ("CEC Bosphorus") under their respective service license
agreements and other associated agreements with ORBCOMM International. ORBCOMM
International had terminated these licensees for non-performance and deferred
recognizing this revenue pending the outcome of a motion for a preliminary
injunction filed by SATCOM International Group PLC, the alleged successor-in-
interest to each of SEC ORBCOMM and CEC Bosphorus ("SATCOM"). SATCOM's motion
for a preliminary injunction was denied by the district court on March 18, 1999.
17
<PAGE> 18
ORBCOMM INTERNATIONAL PARTNERS, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1999, ORBCOMM International had signed 16 agreements with
international licensees, ten of which had 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 in their designated territories. As of June
30, 1999, $28,115,000 was recorded as deferred revenue under these agreements
and the associated gateway procurement agreements ($20,094,000 as of December
31, 1998). ORBCOMM International is obligated to construct and deliver ten
gateways to certain international licensees under certain of these agreements
(see note 4).
18
<PAGE> 19
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10 $ 10
Accounts receivable and other current assets 445 1,247
--------- ---------
Total Current Assets 455 1,257
Investments in affiliates 54,708 56,111
--------- ---------
TOTAL ASSETS $ 55,163 $ 57,368
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable and other accrued liabilities $ 114 $ 724
--------- ---------
Total Current Liabilities 114 724
Due to affiliates 157,955 123,677
--------- ---------
Total Liabilities 158,069 124,401
Non-controlling interest in net assets of consolidated subsidiary (8,266) (6,296)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $0.01;
8,000,000 shares authorized;
4,798,392 and 4,783,892 shares issued;
4,702,820 and 4,688,320 shares outstanding, respectively 48 48
Additional paid-in capital 657 452
Treasury stock, at cost, 95,572 shares (770) (770)
Accumulated deficit (94,575) (60,467)
--------- ---------
Total Stockholders' Deficit (94,640) (60,737)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 55,163 $ 57,368
========= =========
</TABLE>
See accompanying footnotes to the condensed consolidated financial statements.
19
<PAGE> 20
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Service and product sales $ 327 $ 269 $ 593 $ 333
EXPENSES:
Cost of product sales 150 302 390 368
Marketing, administrative and other expenses 1,309 682 4,228 2,257
--------- -------- --------- ---------
Total expenses 1,459 984 4,618 2,625
--------- -------- --------- ---------
LOSS FROM OPERATIONS (1,132) (715) (4,025) (2,292)
OTHER INCOME AND EXPENSES:
Equity in net losses of affiliates (16,581) (8,193) (32,053) (12,749)
Non-controlling interest in net losses of
consolidated subsidiary 553 349 1,970 1,115
--------- -------- --------- ---------
NET LOSS $(17,160) $(8,559) $(34,108) $(13,926)
========= ======== ========= =========
</TABLE>
See accompanying footnotes to the condensed consolidated financial statements.
20
<PAGE> 21
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,108) $(13,926)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Equity in net losses of affiliates 32,053 12,749
Non-controlling interest in net losses of consolidated subsidiary (1,970) (1,115)
--------- ---------
SUB-TOTAL (4,025) (2,292)
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable and other current assets 802 (350)
Decrease in accounts payable and other accrued liabilities (610) (555)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (3,833) (3,197)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (30,650) (15,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (30,650) (15,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees 205 102
Purchases of treasury stock, net of reimbursement from
ORBCOMM Global, L.P. 0 (41)
Net borrowings from affiliates 34,278 18,122
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 34,483 18,183
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS 0 (14)
CASH AND CASH EQUIVALENTS:
Beginning of period 10 34
--------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 10 $ 20
========= =========
</TABLE>
See accompanying footnotes to the condensed consolidated financial statements.
21
<PAGE> 22
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Orbital Communications Corporation ("OCC") is a majority owned and
controlled 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"). Each of OCC and Teleglobe Mobile is a 50% general
partner in ORBCOMM, and ORBCOMM is a 98% general partner in each of the two
marketing partnerships. Additionally, OCC is a 2% general partner in ORBCOMM
USA, and Teleglobe Mobile is a 2% general partner in ORBCOMM International.
Directly and indirectly, OCC currently holds and controls 51% and 49% of
ORBCOMM USA and ORBCOMM International, respectively. Consequently, OCC
consolidates the financial results of ORBCOMM USA.
In April 1999, ORBCOMM formed ORBCOMM Enterprises, L.P., a Delaware
limited partnership ("ORBCOMM Enterprises"), as an unrestricted subsidiary of
the Company for the purpose of marketing and distributing ORBCOMM's monitoring,
tracking and messaging services to customers and developing applications with
respect thereto. In May 1999, ORBCOMM USA transferred certain of its assets to
ORBCOMM Enterprises.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position of OCC as
of June 30, 1999, the results of its operations for the three and six-month
periods ended June 30, 1999 and 1998, and its cash flows for the six-month
periods ended June 30, 1999 and 1998. These condensed consolidated financial
statements are unaudited and do not include all related footnote disclosures
and, therefore, should be read in conjunction with the audited consolidated
financial statements and the footnotes thereto for the year ended December 31,
1998 filed with the Securities and Exchange Commission. The results of
operations for the three and six months ended June 30, 1999 are not necessarily
indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
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 arrangement. As of June 30, 1999 and December 31, 1998,
OCC owed Orbital $140,744,000 and $110,287,000, respectively, none of which is
currently payable. As of June 30, 1999 and December 31, 1998 OCC owed ORBCOMM
$98,000 and $48,000, respectively.
ORBCOMM USA currently obtains all of its funding from ORBCOMM via a
non-interest bearing intercompany borrowing arrangement. As of June 30, 1999
and December 31, 1998, ORBCOMM USA owed ORBCOMM $17,113,000 and $13,342,000,
respectively, none of which is currently payable. In May 1999, ORBCOMM USA
transferred approximately $700,000 of its product development assets associated
with the marketing and distribution of ORBCOMM's monitoring, tracking and
messaging services and associated applications to ORBCOMM Enterprises.
22
<PAGE> 23
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
During the second quarter of 1999 and 1998, ORBCOMM USA purchased
$358,000 and $304,000, respectively, of products from ORBCOMM. For the first
half of 1999 and 1998, these purchases were $526,000 and $370,000,
respectively. Effective January 1, 1999, ORBCOMM commenced allocating to
ORBCOMM USA its respective share of expenses incurred by ORBCOMM on behalf of
ORBCOMM USA. For the three and six-month periods ended June 30, 1999, ORBCOMM
charged ORBCOMM USA $1,171,000 and $3,769,000, respectively (none for the same
periods of 1998).
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 senior unsecured notes due in 2004 (the "Notes") to institutional
investors. The Notes bear interest at a fixed rate of 14% and provide for
noteholder participation in future ORBCOMM system revenues. The Notes are fully
and unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International. The guarantees are non-recourse
to OCC's shareholders (including Orbital) and Teleglobe Mobile's partners
(including Teleglobe).
23
<PAGE> 24
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1 $ 11
Accounts receivable 13,568 1,023
Current portion of deferred and prepaid contract costs 11,336 14,733
--------- ---------
Total Current Assets 24,905 15,767
Deferred and prepaid contract costs, net of current portion 6,876 6,146
Investments in affiliates 58,795 58,467
--------- ---------
TOTAL ASSETS $ 90,576 $ 80,380
========= =========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 1,786 $ 651
Current portion of deferred revenue 12,863 11,254
--------- ---------
Total Current Liabilities 14,649 11,905
Amount due to affiliates 4,247 7,389
Deferred revenue, net of current portion 15,252 8,840
--------- ---------
Total Liabilities 34,148 28,134
Non-controlling interest in net assets of ORBCOMM International
Partners, L.P. (1,105) (2,994)
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile, L.P. 56,958 54,688
Teleglobe Mobile Investment Inc. 575 552
--------- ---------
Total Partners' Capital 57,533 55,240
--------- ---------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 90,576 $ 80,380
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
24
<PAGE> 25
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
THREE MONTHS ENDED SIX MONTHS ENDED STAGE
JUNE 30, JUNE 30, THROUGH
---------------------- ----------------------- JUNE 30,
1999 1998 1999 1998 1999
--------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Service and product sales $ 6,826 $ 39 $ 12,976 $ 144 $ 23,983
EXPENSES:
Cost of sales 2,606 104 7,391 193 18,444
Marketing, administrative and other expenses 455 519 1,771 1,051 10,392
--------- -------- --------- --------- ---------
Total expenses 3,061 623 9,162 1,244 28,836
--------- -------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 3,765 (584) 3,814 (1,100) (4,853)
OTHER INCOME AND EXPENSES:
Interest income 0 15 0 35 2,289
Financial charges 0 0 0 0 (288)
Equity in net losses of ORBCOMM Global, L.P. (19,104) (8,394) (36,147) (13,596) (94,691)
Non-controlling interest in net losses (income) of
ORBCOMM International Partners, L.P. (1,851) 264 (1,889) 502 1,110
--------- -------- --------- --------- ---------
NET LOSS $(17,190) $(8,699) $(34,222) $(14,159) $(96,433)
========= ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
25
<PAGE> 26
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
SIX MONTHS ENDED STAGE
JUNE 30, THROUGH
----------------------- JUNE 30,
1999 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,222) $(14,159) $ (96,433)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Items not affecting cash:
Equity in net losses of ORBCOMM Global, L.P. 36,147 13,596 94,691
Non-controlling interest in net losses (income) of ORBCOMM
International Partners, L.P. 1,889 (502) (1,110)
--------- --------- ----------
SUB-TOTAL 3,814 (1,065) (2,852)
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable (12,545) 31 (13,568)
Decrease (increase) in deferred and prepaid contract costs 2,667 (8,637) (18,212)
Increase in accounts payable and accrued liabilities 1,135 574 1,786
Increase in deferred revenue 8,021 6,688 28,115
--------- --------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,092 (2,409) (4,731)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (36,500) (15,000) (154,525)
--------- --------- ----------
NET CASH USED IN INVESTING ACTIVITIES (36,500) (15,000) (154,525)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in amount due to affiliates (3,142) 2,056 4,247
Partners' contributions 36,540 15,000 155,005
Non-controlling interest in net assets of ORBCOMM
International Partners, L.P. 0 0 5
--------- --------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 33,398 17,056 159,257
--------- --------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (10) (353) 1
CASH AND CASH EQUIVALENTS:
Beginning of period 11 1,439 0
--------- --------- ----------
CASH AND CASH EQUIVALENTS:
End of period $ 1 $ 1,086 $ 1
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
25
<PAGE> 27
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Teleglobe Mobile Partners, a Delaware general partnership (the
"Partnership"), was formed in 1993 for purposes of acting as a general and a
limited partner in ORBCOMM Global, L.P. (the "Company"), a Delaware limited
partnership providing data and messaging communications services using a
low-Earth orbit satellite-based communications system (the "ORBCOMM System").
The Partnership holds a 50% participation percentage ("Participation
Percentage") in the Company, which in turn holds a 98% Participation Percentage
in each of ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International
Partners, L.P. ("ORBCOMM International"), two other partnerships formed to
market the ORBCOMM System. The Partnership also holds directly a 2%
Participation Percentage in ORBCOMM International, bringing its direct and
indirect Participation Percentage in ORBCOMM International to 51%.
Consequently, the Partnership consolidates the financial results of ORBCOMM
International.
(2) BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Partnership as of June 30, 1999, the results of its operations for the
three-month and six-month periods ended June 30, 1999 and 1998, its cash
flows for the six-month periods ended June 30, 1999 and 1998, and the period
from July 21, 1993 (date of inception) through June 30, 1999. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and, therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the
year ended December 31, 1998 filed with the Securities and Exchange Commission.
Operating results for the three months and six months ended June 30, 1999 are
not necessarily indicative of the results of operations expected in the future.
The Partnership expects to emerge from development stage during 1999.
(3) RELATED PARTY TRANSACTIONS
As of June 30, 1999, ORBCOMM International had a payable of $4,247,000
to the Company for amounts advanced to support ORBCOMM International's efforts
to establish commercial markets outside the United States ($7,071,000 as of
December 31, 1998), none of which is currently payable. ORBCOMM International
is currently in development stage, and still obtains funds to support its
operations through non-interest bearing advances from the Company.
As of December 31, 1998, ORBCOMM International had a payable of
$318,000 to ORBCOMM USA (none as of June 30, 1999).
ORBCOMM International purchased $23,000, $199,000, $345,000 and
$217,000 of product from the Company for the three months and six months ended
June 30, 1999 and 1998, respectively, and $361,000 for the period June 30, 1993
(date of inception) through December 31, 1998.
Effective January 1, 1999, the Company commenced allocating to ORBCOMM
International its respective share of expenses incurred by the Company on
behalf of ORBCOMM International. For the three-month and six-
26
<PAGE> 28
TELEGLOBE MOBILE PARTNERS
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) RELATED PARTY TRANSACTIONS - (CONTINUED)
month periods ended June 30, 1999, the Company charged ORBCOMM International
$829,000 and $2,074,000, respectively (none for the same periods of 1998).
In 1996, the Partnership entered into an administrative services
agreement with Teleglobe. Under this agreement, Teleglobe provides management
services to the Partnership. As of June 30, 1999 and December 31, 1998, the
Partnership owed Teleglobe $68,000 and $74,000, respectively, under this
agreement.
(4) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, the Company and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint
and several basis by the Partnership, Orbital Communications Corporation
("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.
Construction of Gateways
In October 1996, ORBCOMM International entered into agreements with
certain manufacturers for the purchase of 20 gateway Earth stations that have
been or will be installed around the world. During the first half of 1999,
installation and final acceptance of gateways in Brazil, Argentina and Malaysia
occurred. The related revenue and the associated costs have been properly
reflected in the condensed consolidated statements of operations. Additionally,
as of June 30, 1999, ORBCOMM International had $18,212,000 of deferred and
prepaid contract costs ($20,879,000 as of December 31, 1998), of which
$10,976,000 represents advance payments to manufacturers for gateways that have
not yet been completed ($12,718,000 as of December 31, 1998). Total
commitments under the gateway manufacturing agreements approximated $22,000,000
of which approximately $6,100,000 was outstanding as of June 30, 1999. Included
in deferred and prepaid contract costs is the portion of engineering direct
labor costs that relates to the construction of gateways. As of June 30, 1999,
$1,968,000 of such costs had been included in deferred and prepaid contract
costs ($1,114,000 as of December 31, 1998).
In the second quarter of 1999, ORBCOMM International recognized $3,137,000
in revenue reflecting payments made by its former international licensees SEC
ORBCOMM (Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus Communications Ltd.
("CEC Bosphorus") under their respective service license agreements and other
associated agreements with ORBCOMM International. ORBCOMM International had
terminated these licensees for non-performance and deferred recognizing this
revenue pending the outcome of a motion for a preliminary injunction filed by
SATCOM International Group PLC, the alleged successor-in-interest to
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<PAGE> 29
TELEGLOBE MOBILE PARTNERS
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) COMMITMENTS AND CONTINGENCIES-(CONTINUED)
each of SEC ORBCOMM and CEC Bosphorus ("SATCOM"). SATCOM's motion for a
preliminary injunction was denied by the district court on, March 18, 1999.
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 1999, ORBCOMM International had signed 16 agreements with
international licensees, ten of which had 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 in their designated territories. As of June
30, 1999, $28,115,000 was recorded as deferred revenue under these agreements
and the associated gateway procurement agreements ($20,094,000 as of December
31, 1998). ORBCOMM International is obligated to construct and deliver ten
gateways to certain international licensees under certain of these agreements
(see note 4).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1993, Orbital Sciences Corporation ("Orbital"), acting through
Orbital Communications Corporation ("OCC"), and Teleglobe Inc., acting through
Teleglobe Mobile Partners ("Teleglobe Mobile"), formed ORBCOMM Global, L.P.
("ORBCOMM"). OCC and Teleglobe Mobile each acquired and currently owns a 50%
partnership interest in us. Concurrently with our formation, OCC and Teleglobe
Mobile formed two marketing partnerships, ORBCOMM USA, L.P. and ORBCOMM
International Partners, L.P., with the exclusive right to market our services
in the United States and internationally, respectively. We are a 98% general
partner in each of ORBCOMM USA and ORBCOMM International, while OCC and
Teleglobe Mobile hold the remaining 2% of ORBCOMM USA and ORBCOMM
International, respectively. OCC retains control over the licenses granted to
it by the Federal Communications Commission (the "FCC") for the ORBCOMM system,
consistent with FCC regulations.
ORBCOMM Global Capital Corp. ("Capital"), a wholly owned subsidiary of
ours, was formed in July 1996 to act as a co-issuer with us in connection with
the issuance of $170,000,000 aggregate amount of our 14% senior notes due 2004.
Capital has nominal assets and does not conduct any operations. In 1998, we
purchased the assets of Dolphin Software Systems Inc. ("Dolphin") and
established two wholly owned subsidiaries. Dolphin Information Services, Inc.,
a Delaware corporation ("DIS"), distributes outside Canada software products
that enable customers to more easily access and manage information obtained from
or regarding their remote or mobile assets using the ORBCOMM system
(collectively, the "Dolphin Software"). Dolphin Software Services ULC, a Nova
Scotia unlimited liability company ("DSS"), develops modifications and
enhancements to, and distributes in Canada, the Dolphin Software. The value
attributed to assets acquired from Dolphin is not material to our total assets.
On February 25, 1999, we formed ORBCOMM Investment Corporation, a Delaware
corporation, as an unrestricted subsidiary for the purpose of making strategic
investments in existing and prospective international service licensees, other
service distributors and various third parties. In April 1999, we formed,
together with ORBCOMM Enterprises Corporation, a Delaware corporation and wholly
owned subsidiary of ours, ORBCOMM Enterprises, L.P., a Delaware limited
partnership ("ORBCOMM Enterprises"), as an unrestricted subsidiary for the
purpose of marketing and distributing our monitoring, tracking and messaging
services to customers and developing applications with respect thereto.
We market our services within the United States indirectly through
value-added resellers ("VARs") through ORBCOMM USA and directly through
internally developed value-added resellers ("Internal VARs") through ORBCOMM
Enterprises, and internationally through international service licensees
("International Licensees") through ORBCOMM International. The International
Licensees may distribute our services directly or through a distribution
network including through VARs and Internal VARs.
OUR ORGANIZATIONAL STRUCTURE; BASIS OF OUR FINANCIAL REPORTING
Our consolidated financial statements include our accounts and the accounts
of our subsidiaries, DIS, DSS, Capital, ORBCOMM Corporation, ORBCOMM Investment
Corporation, ORBCOMM Enterprises and ORBCOMM Enterprises Corporation. Since OCC
and Teleglobe Mobile have effective control over ORBCOMM USA and ORBCOMM
International, respectively, we account for each of ORBCOMM USA and ORBCOMM
International using the equity method of accounting. We do not consolidate
either ORBCOMM USA or ORBCOMM International, and therefore do not report in our
condensed consolidated financial statements, either of ORBCOMM USA's or ORBCOMM
International's assets, liabilities and operating revenues and expenses.
Instead, our proportionate share of the net income and
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<PAGE> 31
losses of each of ORBCOMM USA and ORBCOMM International is recorded under the
caption "Equity in net income (losses) of affiliates" in our condensed
consolidated financial statements. Correspondingly, our investment in each of
ORBCOMM USA and ORBCOMM International 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". In February 1999, we completed the purchase of additional shares
of ORBCOMM Japan Ltd., our International Licensee for Japan, increasing our
equity interest in ORBCOMM Japan to approximately 32%. With the purchase of
this additional ownership interest, we now account for our investment in ORBCOMM
Japan using the equity method of accounting. In April 1999, ORBCOMM Investment
Corporation acquired a 20% interest in ORBCOMM Middle East & Central Asia Ltd.,
our International Licensee for the Middle East and Central Asia region.
ORBCOMM USA pays to OCC an 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) of the ORBCOMM system located
in the United States (the "System Assets"). In consideration of the
construction and financing by us of the System Assets, OCC, in turn, pays to us
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 and
does not owe any portion of the system charge to us.
ORBCOMM International pays to Teleglobe Mobile an 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 us 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 us 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, then Teleglobe Mobile is not required to pay and does
not owe any portion of the system charge to us.
ROLL-OUT OF OUR SERVICES
The ORBCOMM system provides 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. To date, we have launched 28
satellites.
In November 1998, we formally announced the launch of full commercial
service in North America. The U.S. ground segment, including the network
control center and four gateway Earth stations, is operational. In addition,
gateways located in Italy, Japan, Brazil, Argentina, Malaysia and South Korea
have successfully completed acceptance testing. Our International Licensees for
Europe, a portion of South America, Japan and Malaysia have launched commercial
service. Collectively, these four International Licensees cover approximately
50 countries. During the remainder of 1999, we expect that our International
Licensees for Malaysia, North Africa, the remaining portion of South America and
the south Caribbean region, Mexico and the north Caribbean region will launch
commercial service as well, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals.
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REVENUES
We expect to emerge from development stage in 1999. Domestically,
ORBCOMM USA generates revenues from the direct sale of satellite access and
usage to VARs, which sales to date have been primarily for resale to customers.
The pricing of satellite access and usage is based on many variables, including
the availability and cost of substitute services, the cost of providing service
and the nature of the user 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 a flat-rate fee
for usage. In the future, we intend to implement usage-sensitive billing.
Domestically, ORBCOMM Enterprises also generates revenues from the sale of
our data and messaging communications services as well as applications developed
and distributed by the Internal VARs. The pricing of services provided by the
Internal VARs is based on a pricing structure similar to the VAR pricing
structure except that the Internal VAR pricing structure generates additional
revenues from value-added software and customer services, as well as hardware,
provided to the customer. In addition, ORBCOMM Enterprises expects to generate
revenues internationally from the sale of our data and messaging communications
services and applications developed by the internal VARS.
Internationally, ORBCOMM International generates revenues through
license fees paid by and through the sale of gateways to International
Licensees. In addition, all International Licensees in commercial service pay
a monthly satellite usage fee based on a percentage of gross operating
revenues. In the future, we expect ORBCOMM International to be able to charge
the International Licensees 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 an agreement, International Licensees purchase a gateway or
gateway components from ORBCOMM International pursuant to a gateway procurement
contract or arrange 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.
OPERATING EXPENSES
We own and operate the assets that comprise the ORBCOMM system, other
than the licenses from the FCC, which are held by OCC. Satellite-based
communications systems are characterized by high initial capital expenditures
and relatively low marginal costs for providing service. On November 30, 1998,
we announced the commencement of full commercial service in North America and
commenced depreciation of our 28-satellite system. Additionally, we incur:
- engineering expenses related to the development and operation of the
ORBCOMM system;
- marketing expenses related to the marketing of our services; and
- general, administrative and other expenses related to the operation
of the ORBCOMM system.
Prior to April 1999, ORBCOMM USA incurred expenses related to the
development of Internal VARs, which were included in ORBCOMM USA's marketing
expenses. In April 1999, with the formation of ORBCOMM Enterprises and the
transfer of Internal VAR assets to ORBCOMM Enterprises, ORBCOMM Enterprises
began to incur such expenses. It is anticipated that ORBCOMM
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Enterprises' expenses related to the continued development and operation of the
Internal VARs, including the development of applications for customers, will
increase substantially as ORBCOMM Enterprises expands the marketing and
distribution efforts of the Internal VARs.
RESULTS OF OPERATION - ORBCOMM
We have generated substantial negative cash flows to date. Our
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 and execution of agreements with International
Licensees;
- the negotiation and execution of agreements with VARs;
- the development of Internal VARs;
- the development of customer software and hardware applications;
- marketing and sales activities associated with our commercial
operations; and
- the hiring of key personnel.
In October 1998, we purchased substantially all of the assets of Dolphin
and established two wholly owned subsidiaries, DIS and DSS. It is expected that
most DIS and DSS product sales will be to consolidated affiliates. As such, we
do not expect DIS or DSS to have a material impact on our financial results.
Revenues. Product sales of $550,000, $507,000, $1,064,000 and $727,000
for the three months and six months ended June 30, 1999 and 1998, respectively,
relate primarily to the sale of subscriber units by us to ORBCOMM USA and
ORBCOMM International, which units in turn are sold to customers.
Cost of product sales. Cost of product sales for the three months and
six months ended June 30, 1999 and 1998 was $657,000, $502,000, $1,147,000 and
$717,000, respectively. Cost of product sales consists of the cost of the sale
of subscriber units sold by us to ORBCOMM USA and ORBCOMM International, which
units in turn are sold to customers.
Engineering expenses. We incurred $6,395,000, $4,671,000, $11,663,000
and $7,325,000 in ORBCOMM system engineering expenses for the three months and
six months ended June 30, 1999 and 1998, respectively. We are capitalizing a
portion of engineering direct labor costs that relates to hardware and system
design and development and coding of the software products that enhance the
operation of the ORBCOMM system. Engineering expenses, which consist primarily
of salaries and employee-related expenses, were higher in 1999 due in
substantial part to a lower capitalization of engineering expenses and a
greater number of employees.
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Marketing, administrative and other expenses. We incurred $11,220,000,
$8,899,000, $19,032,000 and $13,203,000 of marketing, administrative and other
expenses for the three months and six months ended June 30, 1999 and 1998,
respectively. These expenses were higher quarter-over-quarter due in
substantial part to increased costs relating to a greater number of employees.
Depreciation. We incurred $12,306,000, $2,435,000, $23,757,000 and
$4,338,000 in ORBCOMM system depreciation expense for the three months and six
months ended June 30, 1999 and 1998, respectively. Depreciation expense
increased in 1999 as a result of the launch of full commercial service in North
America in the fourth quarter of 1998, at which time we commenced depreciation
of our 28-satellite system. We expect depreciation expense in 1999 to be
approximately $49,000,000.
Interest income. We recognized $88,000, $353,000, $185,000 and
$781,000 of interest income for the three months and six months ended June 30,
1999 and 1998, respectively. Interest income consists of interest earned on the
invested portion of the net proceeds of our 14% senior notes due 2004, our
$5,000,000 note from MetLife Capital Corporation and the investment of unused
capital contributions from our partners. Interest income was lower
quarter-over-quarter primarily due to the use of the proceeds of our notes and
the Metlife note to fund our operations.
Interest expense and other financial charges. We recognized interest
expense and other financial charges of $6,668,000, $210,000, $13,168,000 and
$420,000 for the three months and six months ended June 30, 1999 and 1998,
respectively. Interest expense consists primarily of interest on our notes.
Interest expense increased in 1999 as a result of the launch of full commercial
service in North America in the fourth quarter of 1998, at which time we
stopped capitalizing interest expense related to the ORBCOMM system.
Equity in net income (losses) of affiliates. We recognized $2,348,000,
($1,225,000), ($509,000) and ($3,233,000) of equity in net income (losses) of
affiliates for the three months and six months ended June 30, 1999 and 1998,
respectively. Equity in net income (losses) of affiliates represents our share
of ORBCOMM USA's net losses, consisting primarily of marketing expenses,
ORBCOMM International's net income (losses) and ORBCOMM Japan's net losses.
RESULTS OF OPERATION - ORBCOMM USA
Revenues. ORBCOMM USA recognized revenues relating to the provision of
products and services of $326,000, $269,000, $591,000 and $333,000 for the
three months and six months ended June 30, 1999 and 1998, respectively. Total
revenues increased in 1999 due in substantial part to an increase in service
revenues received by ORBCOMM USA.
Cost of sales. Cost of sales for the three months and six months ended
June 30, 1999 and 1998 was $150,000, $302,000, $390,000 and $368,000,
respectively. Cost of sales consists primarily of the cost of the sale of
subscriber units sold to customers.
Marketing expenses. ORBCOMM USA incurred $1,306,000, $678,000,
$4,221,000 and $2,241,000 of marketing expenses for the three months and six
months ended June 30, 1999 and 1998, respectively. Marketing expenses
decreased from the first quarter to the second quarter of 1999 because,
beginning in April 1999, ORBCOMM Enterprises, as opposed to ORBCOMM USA, began
incurring marketing expenses related to the development of the Internal VARs.
The increase in marketing expenses from 1998 to 1999 is a result of an increase
in employee-related expenses.
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RESULTS OF OPERATION - ORBCOMM INTERNATIONAL
Revenues. ORBCOMM International recognized revenues relating to the
provision of products and services of $51,000, $39,000, $233,000 and $144,000
for the three months and six months ended June 30, 1999 and 1998, respectively.
These revenues consist primarily of revenues from the sale of subscriber units
to customers.
Service license or similar agreements. As of June 30, 1999, ORBCOMM
International had executed 16 service license or similar agreements ("SLAs")
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 in their respective territories. License fees
from SLAs are accounted for as deferred revenues and recognized over the term of
the agreements. ORBCOMM International recognized $250,000 and $475,000 as
amortization of license fees associated with SLAs for the three months and six
months ended June 30, 1999, respectively (none for the same periods of 1998).
In the second quarter of 1999, ORBCOMM International recognized $3,137,000
in revenue reflecting payments previously made by its former International
Licensees SEC ORBCOMM (Middle East) Ltd. and CEC Bosphorus Communications Ltd.
under their respective SLAs and associated agreements with ORBCOMM
International. ORBCOMM International had terminated these licensees for
non-performance and had deferred recognizing this revenue pending the outcome of
a motion for a preliminary injunction filed by SATCOM International Group PLC,
the alleged successor-in-interest to each of SEC ORBCOMM and CEC Bosphorus.
SATCOM's motion for a preliminary injunction was denied by the district court on
March 18, 1999.
Construction of gateways. In October 1996, ORBCOMM International
entered into agreements with certain manufacturers for the purchase of 20
gateway Earth stations that have been or will be installed around the world.
During the first half of 1999, installation and final acceptance of gateways in
Brazil, Argentina and Malaysia occurred. As a result, ORBCOMM International
recognized $3,388,000 and $9,131,000 as product sales for the three months and
six months ended June 30, 1999, respectively (none for the same periods of
1998). Cost of sales associated with the construction and delivery of these
gateways was $2,581,000 and $7,217,000 for the three months and six months
ended June 30, 1999, respectively (none for the same periods of 1998).
Marketing expenses. ORBCOMM International incurred $441,000, $474,000,
$1,729,000 and $975,000 of marketing expenses for the three months and six
months ended June 30, 1999 and 1998, respectively. The variance in marketing
expenses results primarily from an increase in employee-related expenses.
SUPPLEMENTAL DATA
Set forth below is certain supplemental data for the ORBCOMM system
comprising data of ORBCOMM, ORBCOMM USA and ORBCOMM International for the six
months ended June 30, 1999. Such supplemental data should be read in
conjunction with our condensed consolidated financial statements and the
condensed financial statements of ORBCOMM USA and ORBCOMM International, and
the notes thereto located elsewhere in this report.
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SUPPLEMENTAL DATA
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORBCOMM ELIMINATION
ORBCOMM ORBCOMM USA INTERNATIONAL ENTRIES TOTAL
---------------- ------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Total revenue(1) $ 1,064 $ 591 $ 12,976 $ (871) $ 13,760
Expenses 55,618(2) 4,611 9,120 871 68,478
Income (loss) from operations (54,554) (4,020) 3,856 (54,718)
Interest income 185 0 0 185
Interest expense 13,168(3) 0 0 13,168
Net income (loss) (67,885)(4) (4,020) 3,856 (68,049)
Capital expenditures 23,866(5) 0 0 23,866
</TABLE>
SUPPLEMENTAL DATA
AS OF JUNE 30, 1999
(IN THOUSANDS, EXCEPT FOR SUBSCRIBER UNIT DATA)
<TABLE>
<CAPTION>
ORBCOMM ORBCOMM
ORBCOMM USA INTERNATIONAL TOTAL
------------------ ------------------ ----------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 8,586 $ 0 $ 0 $ 8,586
Mobile Communications Satellite System, net 328,055 0 0 328,055
Total debt 170,609 0 0 170,609
Subscriber units (6) 0 6,964 3,181 10,145
</TABLE>
- ------------------------------
(1) ORBCOMM, ORBCOMM USA and ORBCOMM International are development stage
enterprises.
(2) Includes depreciation expenses and goodwill amortization of $23,776,000.
(3) Includes $513,000 of amortization of deferred financing fees.
(4) Excludes equity in net losses of ORBCOMM USA and ORBCOMM International of
$161,000.
(5) Represents capital expenditures, principally for the construction of the
space and ground network system elements.
(6) Represents units that are activated on ORBCOMM's network, some of which
are not revenue-generating.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative net losses from inception and have financed
our operations to date primarily with capital contributions from our partners
and through financing activities. For the six months ended June 30, 1999 and
1998, net cash used in operating activities was $53,930,000 and $20,413,000,
respectively, primarily as a result of a net loss (excluding items not
affecting cash for depreciation, amortization and equity in net income (losses)
of affiliates) of $43,248,000 and $19,737,000, respectively. The increased net
loss for the six months ended June 30, 1999, excluding items not affecting
cash, is primarily attributable to higher operating expenses related to the
roll-out of global commercial services and because interest expense is no
longer capitalized as it was during the construction phase of the ORBCOMM
system.
Cash flows from investing activities for the six months ended June 30, 1999
used cash of $6,014,000, primarily as a result of additional capital
expenditures and additional investments in and advances to affiliates. In the
first half of 1999, we invested $2,354,000 for the design, development and
construction of satellites, launch services and the design and construction of
the U.S. ground segment, excluding $21,512,000 of accrued milestone obligations
under the September 1995 procurement agreement with Orbital. Further, in April
1999, we invested $3,000,000 in Aeris Communications, Inc., a provider of
two-way, digital cellular-based data communications with whom we have executed a
service provider agreement. For the six months ended June 30, 1998, cash used in
investing activities was $19,177,000, primarily for capital expenditures,
advances to affiliates and purchases and sales of investments.
Cash flows from financing activities for the six months ended June 30,
1999 and 1998 provided cash
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of $64,731,000 and $29,470,000, respectively. The increase quarter-over-quarter
is primarily attributable to increased capital contributions from our current
partners, which were $67,150,000 and $30,000,000 for the six months ended June
30, 1999 and 1998, respectively.
Expected future uses of cash include employee-related expenses, additional
capital expenditures related to the replenishment or enhancement of our
satellite constellation, debt servicing and working capital requirements. In
addition, we intend to continue to increase marketing and product development
expenditures in anticipation of expanded commercial operations. The total cost
of our enhanced satellite system through December 31, 1999 is expected to be
approximately $337,000,000, excluding capitalized interest as well as amounts
under the new procurement agreement with Orbital. Of this amount:
- $249,000,000 is for the design, development and construction of the
satellite constellation and launch services;
- $39,000,000 is for the design and construction of the U.S. ground
segment;
- $17,000,000 is for insurance; and
- approximately $32,000,000 is for other system costs such as
engineering and billing system costs.
As of February 1, 1999, we signed a new procurement agreement with
Orbital under which we will procure, at a minimum, eight additional satellites
and two separate Pegasus launch vehicles, at a total cost of approximately
$70,000,000. In addition, under this agreement we have the option to procure up
to 22 additional satellites and associated launch services using the Pegasus
launch vehicle. We expect that these additional satellites will be used, among
other things, to meet certain of the milestones set forth in the license
granted by the FCC on March 31, 1998 authorizing OCC to launch an additional 12
low-Earth orbit ("LEO") satellites, as replenishment satellites, as ground
spares or to enhance the satellite constellation.
As of June 30, 1999, $319,317,000 had been expended for the ORBCOMM
system, excluding a total of $57,089,000 of interest expense that had been
capitalized. The foregoing information reflects our current estimate of our
funding requirements for the ORBCOMM system through 1999. Actual amounts may
vary from such estimates for a variety of reasons, including satellite
failures.
We expect to continue to generate negative cash flows for at least the next
several quarters. We expect that a portion of our cash requirements will be met
through revenues from operations. Our ability to generate significant revenues
is subject to numerous uncertainties. Our service and equipment contracts are
U.S. dollar-based and, hence, not subject to foreign currency risk. Through June
30, 1999, OCC and Teleglobe Mobile had made capital contributions to us totaling
$294,950,000. While they are not contractually required to do so, our partners
are currently funding our operations. We will require additional capital this
year and may seek to raise such additional capital through additional
contributions or loans from our current partners, other equity or debt
financings or operating lease arrangements or we may seek to enter into
strategic arrangements. We cannot assure you, however, that other equity or debt
financing or operating lease arrangements will be available and, if so, that
they will be available on terms acceptable to us or that strategic arrangements
will be possible and, if so, that they will be possible on terms acceptable to
us.
We have issued $170,000,000 of notes that mature in August 2004. The
notes earn a 14% fixed interest as well as a 5% revenue participation interest
on service and certain other revenues. The market
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price for these notes may fluctuate as a function of market interest rate
changes, investors' perception of the risk and our revenue growth.
RISK FACTORS
Many statements contained in this report are not historical and are
forward-looking in nature. Examples of such forward-looking statements include
statements concerning:
- our operations, funding needs and financing sources;
- our launch and commercial service schedules;
- our cash flows and profitability;
- future regulatory approvals;
- expected characteristics of competing systems; and
- expected actions of third parties such as equipment suppliers, VARs
and International Licensees.
These forward looking statements are inherently predictive and
speculative, and are based on our current views and assumptions regarding
future events and operating performance. The following are some of the risks
that could cause actual results to differ significantly from those expressed or
implied by such statements.
WE HAVE AN UNPROVEN TRACK RECORD
We expect to incur continued net losses. We incurred cumulative
net losses of approximately $188,500,000 through June 30, 1999 and expect
losses to continue for at least the next several quarters. Our continued
business development will require substantial capital expenditures, most of
which we will incur before we realize significant revenues from the ORBCOMM
system. Together with our operating expenses, these capital expenditures will
result in negative cash flows unless or until we establish an adequate
revenue-generating customer base. We cannot assure you that we will have
positive cash flows or that we will become profitable.
We have a limited operating and financial history. You have limited
operating and financial data on which to evaluate our business performance. We
have conducted full commercial operations for only a limited period of time.
Our ability to provide commercial service globally or even in key markets and
to generate positive operating cash flows will depend on our ability to, among
other things:
- successfully operate and maintain the satellites in the
constellation;
- integrate the various ORBCOMM system segments, including the
satellites, the ground and control infrastructure and the hardware
and software used in customer applications;
- develop distribution capabilities within the United States and
licensing and distribution arrangements outside the United States
sufficient to capture and retain an adequate customer base;
- successfully and timely launch an additional plane of satellites to
create an enhanced satellite constellation;
- install the necessary ground infrastructure and obtain the necessary
regulatory and other approvals outside the United States; and
- provide for the timely design, manufacture and distribution of
subscriber units to customers in
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sufficient quantities, with appropriate functional characteristics
and at competitive prices for various applications.
WE WILL HAVE SIGNIFICANT ADDITIONAL FUNDING REQUIREMENTS
Additional funding required to provide global service could be
significant. To complete and maintain our enhanced satellite constellation and
to expand global service, we will require significant additional capital
expenditures. We currently expect that the total cost of our enhanced satellite
constellation from June 30, 1993 (date of inception) through December 31, 1999
will be approximately $337,000,000, excluding capitalized interest as well as
amounts under the February 1999 procurement agreement with Orbital. Through
June 30, 1999, we had spent approximately $319,300,000 on satellite
constellation design, construction and launch services, design and construction
of the U.S. ground segment and insurance and other system costs, excluding
approximately $57,000,000 of capitalized interest. To finance these
expenditures, Orbital, through OCC, and Teleglobe, through Teleglobe Mobile,
had invested $294,950,000 in us through June 30, 1999. In addition, we received
net proceeds of approximately $164,000,000 from the sale of our notes and
$5,000,000 from the MetLife note. While they are not contractually required to
do so, our partners are currently funding our operations. We will require
additional capital this year and may seek to raise such additional capital
through additional contributions or loans from our current partners, other
equity or debt financings or operating lease arrangements or we may seek to
enter into strategic arrangements. We cannot assure you, however, that other
equity or debt financing or operating lease arrangements will be available and,
if so, that they will be available on terms acceptable to us or that strategic
arrangements will be possible and, if so, that they will be possible on terms
acceptable to us.
Developing, marketing and distributing data and messaging
communications services to customers, constructing certain components of the
ground infrastructure or procuring and launching additional satellites may
require us to make significant expenditures that are not currently planned.
These additional expenditures may arise as a result of, among other things:
- a decision to establish additional Internal VARs;
- the requirement that we construct international gateways because
International Licensees are unable or unwilling to do so; or
- the requirement that we procure and launch satellites to replace
satellites in the event of, for example, an uninsured loss.
Interest expense on our notes represents a significant cash requirement
for us. We do not expect to be able to generate sufficient cash from operations
to cover all these requirements for at least several more quarters. Moreover,
we may need additional funding to cover delays or increased costs in the
future. If this additional funding becomes necessary, we cannot assure you that
additional funding will be available from the public or private markets or from
our partners on favorable terms or on a timely basis, if at all.
Our substantial debt service obligations could affect our
competitiveness. We have a highly leveraged capital structure. As of June 30,
1999, our liabilities totaled approximately $259,000,000. Our debt service
requirements could negatively affect our market value because of the following:
- our ability to obtain additional financing for future working
capital needs or for other purposes may be limited;
- a substantial portion of our cash flows from operations will be
dedicated to paying principal and interest on our indebtedness,
thereby reducing funds available for operations and business
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expansion; and
- we may have greater exposure to adverse economic conditions than
competing companies that are not as highly leveraged.
These factors could negatively affect our financial condition and
results of operations.
Restrictive covenants in the indenture could prevent us from taking
otherwise sound business action. The indenture governing our notes contains
certain restrictive covenants. The restrictions in the indenture affect, and in
some cases significantly limit or prohibit, our ability to, among other things:
- incur additional indebtedness;
- make prepayments of certain indebtedness;
- make distributions;
- make investments;
- engage in transactions with affiliates;
- issue capital stock;
- create liens;
- sell assets; and
- engage in mergers and consolidations.
If we fail to comply with the restrictive covenants in the indenture
governing the Notes, our obligation to repay the Notes may be accelerated.
MARKET DEMAND FOR OUR PRODUCTS AND SERVICES IS NOT CERTAIN
Customer acceptance depends on several factors. The success of the
ORBCOMM system will depend on customer acceptance of our services, which is
contingent on a number of factors, including:
- the number of satellites that are operational at any time;
- completion and performance of the necessary ground infrastructure;
- receipt of the necessary regulatory and other approvals to operate
in a particular country;
- the availability of subscriber units that are compatible with the
ORBCOMM system and meet the varying needs of customers;
- the price of our services and related subscriber units; and
- the extent, availability and price of alternative data and messaging
communications services.
As with any new communications service, we cannot assure you that the
market will accept our services.
In addition, we believe that market acceptance of certain of our
services depends on the design, development and commercial availability of
integrated hardware and software applications that support the specific needs
of our target customers. Each of our VARs, Internal VARs and applications
developers is responsible for developing and/or marketing such applications. To
date, approximately 100
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applications have been developed by or on behalf of VARs and Internal VARs for
use with the ORBCOMM system. If there is a lack of, or a delay in the
availability of the components necessary to fulfill our customers' business
requirements, market acceptance of ORBCOMM services could be adversely
affected.
Currently over 100 companies are using or are in the process of
evaluating the ORBCOMM system. Our business plan assumes that our potential
customers will accept certain limitations inherent in satellite communications
services. For example, the ORBCOMM system's line-of-sight limitation,
particularly in "urban canyons," and its limited ability to penetrate buildings
and other objects could limit customers' use of the ORBCOMM system and
services. In addition to the limitations that the ORBCOMM system architecture
imposes, our services will not be available in those countries where we or our
International Licensees have not obtained the necessary regulatory and other
approvals. Certain potential customers may find these limitations on the
availability of our services to be unacceptable.
In addition to the 28 satellites currently in orbit, we have procured and
plan to launch additional satellites in 1999 and thereafter to, among other
things, increase overall system capacity, enhance service quality in key markets
and meet certain technical and regulatory requirements. To help meet these
objectives, we are in the process of evaluating the preferred orbital position
for the satellites currently scheduled to be launched in 1999 and those
satellites expected to be launched thereafter.
Competition comes from several sources. Competition in the
communications industry is intense, fueled by rapid and continuous
technological advances and alliances among industry participants seeking to use
such advances internationally to capture significant market share. Although
currently no other company is providing the same global, satellite-based
commercial data communications services that we provide, we anticipate that the
ORBCOMM system will face competition from numerous existing and potential
alternative communications services. We expect that potential competitors may
include:
- operators or users of other LEO satellite networks similar to the
ORBCOMM system whose satellites operate below 1GHz;
- operators or users of networks of LEO satellites operating above
1GHz that offer voice telephony as well as data services;
- operators or users of medium-Earth orbit satellite systems that use
satellites with orbits located between 2,000 and 18,000 miles above
the Earth;
- operators or users of geostationary or geosynchronous satellite
systems that use satellites with orbits located approximately 22,300
nautical miles directly above the equator; and
- operators and users of terrestrial-based data communications
systems.
If any of our competitors succeeds in marketing and deploying systems
with services having functions and prices similar to those we expect to offer,
our ability to compete in markets served by such competitors may be adversely
affected.
Some of our actual or potential competitors have financial, personnel
and other resources that are substantially greater than our resources. In
addition, a continuing trend toward consolidation and strategic alliances in
the communications industry could give rise to significant new competitors.
Furthermore, any foreign competitor may benefit from subsidies from, or other
protective measures taken by, its home country. Some of these competitors could
develop more technologically advanced systems than the ORBCOMM system or could
provide more efficient or less expensive services than those that we expect to
provide.
We may also face competition in the future from companies using new
technologies including new satellite systems. A number of these new
technologies, even if they are not ultimately successful, could
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negatively affect us. Additionally, our business could be adversely affected if
competitors begin or expand their operations or if existing or new
communications service providers are able to penetrate our target markets.
RELIANCE ON THIRD PARTIES COULD AFFECT OUR OPERATIONS
We will rely heavily on VARs within the United States. In the United
States, we intend to rely heavily on VARs to market and distribute many of our
services to customers. Our success depends, in part, on our ability to attract
and retain qualified VARs. We cannot assure you that we will be able to enter
into VAR agreements for additional markets at the times or on the terms we
expect or that we will be able to retain our existing VARs when the terms of
their respective agreements end.
We believe that for the VARs to successfully market our services, they
will need to design, develop and make commercially available data and messaging
applications that support the specific needs of our target customers. This will
require the VARs to commit substantial financial and technological resources.
Certain VARs are or are likely to be newly formed ventures with limited
financial resources, and these entities may not be successful in designing data
and messaging applications or marketing our services effectively. The inability
of VARs to provide data and messaging applications to customers could
negatively affect market acceptance of our services. Also, if VARs fail to
develop data and messaging applications, we may do so, which will increase our
expenses. Furthermore, our reseller agreements provide that VARs will use all
reasonable commercial efforts to market and distribute our services, although
generally the VARs are not required to meet established sales objectives. We
cannot assure you that VARs will successfully develop a market for and
distribute our services.
Although we are developing VARs internally, we currently act primarily
as a wholesaler to VARs. Thus, the cost to customers for our services purchased
through VARs is largely beyond our control. Furthermore, we will have no rights
independently to offer particular data and messaging applications developed by
VARs or to use the associated software unless we enter into appropriate
licensing agreements. By developing Internal VARs, we may create actual or
apparent conflicts with certain VARs, which could adversely affect such VARs'
willingness to invest resources in developing and distributing data and
messaging applications for the ORBCOMM system.
We will rely heavily on International Licensees outside the United
States. Outside the United States, we enter into agreements with International
Licensees. The International Licensees are responsible in their territories for
procuring and installing the necessary gateways, obtaining the necessary
regulatory and other approvals to provide services using the ORBCOMM system and
marketing and distributing our services. We select the International Licensees
primarily by evaluating their ability to market and distribute our services
successfully. Although we consider many elements in evaluating potential
International Licensees, an individual International Licensee may not satisfy
any one or more of these elements. Our success depends, in part, on our ability
to attract and retain qualified International Licensees. We cannot assure you
that we will be able to enter into agreements with International Licensees for
additional territories at the times or on the terms we expect, or that we will
be able to retain our existing International Licensees when the terms of their
respective agreements end. In addition, each agreement we have executed with an
International Licensee provides that the International Licensee may terminate
the agreement upon one year's written notice, and any International Licensee
may decide to do so. Also, ORBCOMM International has the right under the terms
of these agreements to terminate such agreements based on the non-performance
of the licensee as described therein.
We are required to give one of our International Licensees satellite
usage fee credits as a result of our failure to meet certain ORBCOMM system
launch milestones. Moreover, certain of the agreements grant International
Licensees the right to terminate their agreements if they are unable to obtain
the necessary
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regulatory and other approvals within certain time parameters. Our
International Licensees may not be successful in obtaining the necessary
regulatory and other approvals, and, even if successful, the International
Licensees may not develop a market and/or a distribution network for our
services.
Certain International Licensees are or are likely to be newly formed
ventures with limited financial resources. These entities may not be successful
in procuring and installing the necessary gateways, obtaining the necessary
regulatory approvals or successfully marketing and distributing our services.
The general form of our service license agreement does not obligate us or give
us the contractual right to construct the necessary gateway if an International
Licensee is unable or unwilling to construct one. In the future, and if an
International Licensee is unable or unwilling to do so, we may desire to
construct, or finance the construction of, the necessary gateway. However, the
International Licensee or the relevant governmental authority may not permit us
to construct the gateway, or we may not be able to bear the cost of
constructing the gateway, which cost may be significant.
We will rely heavily on subscriber unit manufacturers to satisfy
customer demand. Our success depends in part on manufacturers developing, on a
timely basis, relatively inexpensive subscriber units. While we have executed
six subscriber unit manufacturing agreements and have type approved or are
finalizing type approval of at least 13 different subscriber unit models, a
sufficient supply of these subscriber units may not be available to customers
at prices or with functional characteristics that meet customers' needs. As of
June 30, 1999, we had procured for our own inventory, and our customers and
distributors had either received or ordered, a total of over 80,000 subscriber
units. On occasion, we have found it advisable to purchase or to subsidize the
purchase of subscriber units and may do so in the future. The cost of these
purchases or subsidies could be significant. Generally, we expect to sell these
subscriber units to VARs, Internal VARs and International Licensees at prices
equal to or greater than cost, although we cannot assure you that we will be
able to do so. If subscriber unit manufacturers are unable to develop and
manufacture subscriber units successfully at cost-effective prices that both
meet the needs of customers and are available in sufficient numbers, market
acceptance of the ORBCOMM system and the quality of our services could be
affected, which, in turn, could negatively affect our financial condition and
results of operations.
We rely heavily on Orbital for our most important assets. We do not
independently have, and do not intend to acquire, except by contracting with
other parties, the ability to design, construct or launch the ORBCOMM
satellites. Under the September 1995 procurement agreement, we have contracted
with Orbital to provide these services on a fixed-price basis, subject to
adjustments for out-of-scope work. We may terminate this procurement agreement
if Orbital fails to achieve certain milestones within 56 weeks after the
contracted completion date or if Orbital fails to comply materially with any
terms of the procurement agreement. We may not, however, withhold payments
under this procurement agreement solely because Orbital fails to achieve
certain milestones by the dates originally planned. As of February 1, 1999, we
executed a new procurement agreement with Orbital under which we will procure,
at a minimum, among other things, eight additional satellites and two separate
Pegasus launch vehicles, at a total cost of approximately $70,000,000. In
addition, we have an option to procure up to 22 additional satellites and
associated launch services using the Pegasus launch vehicle. Depending on the
product or service being purchased, we are required to pay Orbital a fixed fee,
subject to certain incentive payments and other adjustments, or on a time and
materials basis. Under this procurement agreement, we are entitled to withhold
payments from Orbital based on the failure to achieve certain milestones, until
such time as such milestones are achieved or we have waived in writing the
requirement to achieve such milestones.
An adverse effect on Orbital and its business for whatever reason may
adversely affect Orbital's ability to perform under these procurement
agreements. We have not identified any alternate provider of the services
Orbital currently provides. An alternate service provider may not be available
or, if available,
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may not be available at a cost or on terms acceptable to us.
We rely heavily on third parties to control access to our proprietary
information. Our success and ability to compete depend to a certain degree on
our proprietary technology, and we depend on Orbital's intellectual property
rights relating to the ORBCOMM system. Under the September 1995 procurement
agreement and the February 1999 procurement agreement, Orbital or its
subcontractors generally own the intellectual property relating to the work
performed by Orbital under the procurement agreements, including the ORBCOMM
satellites, other than certain communications software, and the U.S. ground
segment. We rely primarily on copyright and trade secret law to protect our
technology. While we have applied for two patents, none of our patent
applications has yet been granted. We have entered into confidentiality
agreements with each of our employees, consultants and vendors, which
agreements, where appropriate, obligate the signatory to assign to us
proprietary technology developed during performance under the agreements and
generally to control access to and distribution of our software, documentation
and other proprietary information. Notwithstanding these precautions, it may be
possible for a third party to copy or otherwise obtain and use our software or
other proprietary information without authorization or to develop similar
software independently. In addition, absent the appropriate licensing
agreements, we have no rights independently to offer particular applications
developed by VARs or to use the software included in these applications.
Enforcing intellectual property rights to these products will depend on VARs.
Furthermore, the laws of countries outside the United States may afford us and
the VARs little or no effective protection of our intellectual property. Losing
protection of these intellectual property rights could negatively affect our
financial condition and results of operations.
The steps we have taken may not prevent misappropriation of our
technology, and agreements entered into for that purpose may not be
enforceable. In addition, we may have to resort to litigation in the future to
enforce our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. This litigation, whether
or not successful, could result in substantial costs and diverted resources,
each of which could negatively affect our financial condition and results of
operations.
RISKS RELATED TO SATELLITES COULD AFFECT OUR OPERATIONS
A significant portion of our tangible assets are our LEO satellites and
the related ground infrastructure. The loss or failure of satellites in the
constellation could negatively affect us.
Useful life of satellites; Damage to or loss of satellites. There are
many factors that contribute to and may affect the useful life of any
satellites, including our satellites, such as the quality of the satellites'
design and construction and the durability and expected gradual environmental
degradation of their electrical and other components.
The first generation of ORBCOMM satellites have eight-year design
lives, with the exception of the first two satellites placed in orbit in April
1995, each of which has a design life of four years. We cannot assure you that
any satellite will operate for the full duration of its design life.
In addition, loss of or damage to our satellites may result from a
variety of causes, including:
- electrostatic storms;
- collisions with other objects, including space debris, man-made
objects or certain space phenomena such as comets, meteors or meteor
showers;
- random failure of satellite components; or
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- high levels of radiation.
Also, loss of or damage to our satellites may result from the failure
of the launch vehicle that was to place the satellites in orbit.
The ORBCOMM system was designed to provide for redundancy in the event
of the loss or failure of one or more satellites in the constellation, whether
due to a satellite reaching the end of its design life or some other cause.
However, the loss or failure of satellites in the constellation may cause:
- gaps in service availability;
- significantly degraded service quality;
- increased costs; or
- loss of revenue for the period that service is interrupted or
impaired.
Satellite anomalies. In addition to the factors discussed above, there
are a number of factors that may cause anomalies with respect to the operation
or performance of satellites in orbit. In connection with the deployment of our
satellite constellation, we experienced certain anomalies with respect to
several of our satellites. These anomalies include reduced power levels on
certain satellites and the failure of certain satellites to transmit data to
subscriber units. While we have bypassed the data transmission anomaly, the
coverage footprint of such satellites is reduced. Moreover, implementation of
the bypass requires that certain manufacturers modify certain subscriber
communicator models to enable them to work with the modified satellites. Also,
in the second quarter of 1999, we concluded that one of our initial two
satellites launched in April 1995, which had experienced an outage of certain
of its electronic systems and subsystems since early 1998, was non-recoverable
and no longer capable of providing commercial service. You should also note
that:
- anomalies such as those described above, or other anomalies that
have comparable effects, could occur in the future with respect to
the in-orbit satellites or additional satellites launched by us; and
- while the anomalies described above have not materially affected our
business, if we are unable to correct such anomalies, if applicable,
or should additional anomalies occur in the future with respect to
the other in-orbit satellites or additional satellites that we
launch, such events could negatively affect our business.
Launch-related risks. To date, we have successfully launched 28 satellites
into their proper orbits. Currently, we plan to launch additional satellites on
a Pegasus launch vehicle in 1999. Satellite launches are subject to significant
risks, including:
- failure of the launch vehicle due to a crash or explosion, which
could cause disabling damage to or loss of the satellites;
- damage to the satellites during loading into the launch vehicle,
during the launch itself or as the satellites are deployed by the
launch vehicle;
- failure of the satellites to achieve their proper orbits; and
- unreasonable delays related to poor weather conditions or prior
launch failures.
We bear the risk of loss of a launch vehicle and satellites upon
release of the Pegasus launch vehicle from Orbital's L-1011 aircraft. Our
insurance against the loss of a launch vehicle and its satellite payload may be
limited.
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If our next satellite launch fails, or if we should need to procure
launch services from an alternate provider for any reason, the resulting delays
would increase the costs to deploy our enhanced satellite constellation.
Cost increases from satellite enhancements, launch failures and other
sources could negatively affect our financial performance. We could experience
an increase in costs over those currently estimated to be necessary to complete
our enhanced satellite constellation. These additional cost increases could
come from, for example, launch or uninsured satellite failures and further
modifications to all or a portion of the ORBCOMM system design to work out
technical difficulties or to accommodate changes in market conditions, customer
needs, system requirements or regulatory requirements. Significant cost
increases related to launching and implementing our enhanced satellite
constellation could negatively affect our financial condition and results of
operations.
Limited insurance exposes us to significant risks of loss. Our
insurance may not adequately mitigate the adverse effects of a launch failure
or a loss of satellites in-orbit. Unless there is a failure of any of the three
planes of satellites currently in orbit, as discussed below, our insurance
program does not currently cover the next planned Pegasus launch (the "Fourth
Pegasus Launch") with respect to the cost to replace the launch vehicle or the
satellites, although it could be modified to do so. Absent a failure, as
discussed below, we intend to modify our existing insurance program to cover
the cost of replacing the launch vehicle used in the Fourth Pegasus Launch. Our
decision whether to modify our existing insurance program to cover the cost of
replacing the satellites to be launched in the Fourth Pegasus Launch will
depend on, among other things, whether we decide to use any of the additional
satellites we will procure from Orbital pursuant to the February 1999
procurement agreement as ground spares.
We have procured insurance against the in-orbit failure of satellites in
each of the first three planes of eight satellites launched using the Pegasus
launch vehicle. If there is a failure of any of the three planes of eight
satellites currently in orbit, where "failure" is defined as the loss of three
or more satellites in any such plane, our insurance program would cover the
costs of a replacement launch vehicle and thereafter would cover the cost of the
launch vehicle and the satellites, as well as the increased insurance premium
thereon, for subsequent launches. In the event such a failure occurs prior to
the Fourth Pegasus Launch, and we decided to launch the satellites currently
intended to be launched in the Fourth Pegasus Launch as replacement satellites,
our insurance would cover the cost to procure the launch vehicle used in the
Fourth Pegasus Launch and the satellites launched in connection with the Fourth
Pegasus Launch.
We have no insurance against in-orbit satellite failure for the two
satellites that were launched in April 1995 or for the two satellites launched
in February 1998.
Schedule delays could affect our commercial operations in certain
areas. In the past, we have had to delay satellite launches primarily because
of subcontractor late deliveries and enhancements made to the satellites'
design based on, among other things, information we obtained from operating the
two satellites launched in April 1995.
Additional delays in implementing our enhanced satellite constellation
could result from a variety of causes, including, among others:
- a delay or failure of the launch of the satellites planned for
1999; and
- delays caused by design reviews in the event of a launch vehicle
failure or the loss of a satellite or other event beyond our
control.
We cannot assure you that these or other factors, some of which are
beyond our control, will not delay
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the implementation of our enhanced satellite constellation, which could
negatively affect our financial condition and results of operations.
The costs of maintaining the space segment may outstrip funds generated
from operations. The ORBCOMM satellites, which constitute a substantial portion
of our total assets, have limited useful lives. We anticipate using funds from
operations to develop a second generation of satellites to replenish and expand
the constellation. If sufficient funds from operations are not available and we
are unable to obtain financing for the second generation satellites, we will
not be able to replace the first generation satellites at the end of their
useful lives. We cannot assure you that additional capital would be available
to develop the second generation satellites on favorable terms or on a timely
basis, if at all.
Lack of adequate security for communications via the Internet could
affect customer acceptance of our services. Like many other modern
communications networks, we currently deliver a substantial portion of data to
our customers over the Internet and expect to continue to use the Internet as a
primary delivery method for data collected from subscriber units and
satellites. We currently take certain measures to ensure the security of
customer data, but despite these measures, persons seeking unauthorized access
to our customer data may be able to gain such access. We believe that if
unauthorized access to our customer data were to occur, or if our potential
customers were to perceive that such unauthorized access was likely, the market
for our services would be negatively affected.
We could experience difficulty integrating all of the components and
sub-components of the ORBCOMM system. While the ORBCOMM system has successfully
transmitted approximately ten million messages to date, the ORBCOMM system is
exposed to the risks inherent in any large-scale complex communications system
using advanced technologies. Operating the ORBCOMM system requires that we
design and integrate communications technologies and devices ranging from
satellites operating in space to ground infrastructure located around the
world. Even if built to specifications, the ORBCOMM system may not function as
expected. If any of the diverse and dispersed elements of the system fails to
function and coordinate as required, that failure could delay full deployment
of the ORBCOMM system or render it unable to perform at the quality and
capacity levels required for us to operate our business successfully.
REGULATORY RISKS PRESENT POTENTIAL OBSTACLES TO GLOBAL OPERATION OF THE ORBCOMM
SYSTEM
Obtaining and maintaining the necessary U.S. licenses could cause
delays. Our business may be affected by the regulatory activities of various
U.S. government agencies, primarily the FCC. Although each of OCC's licenses
for the ORBCOMM system (collectively, the "FCC Licenses") is currently valid,
the FCC could revoke these licenses if OCC fails to satisfy certain conditions
or to meet certain prescribed milestones, including:
- the December 2000 milestone by which OCC must have launched 36
satellites;
- the September 2002 milestone by which OCC must launch two of the 12
additional satellites licensed in March 1998; and
- the March 2004 milestone by which OCC must launch the remaining ten
of these satellites,
unless the FCC grants extensions for accomplishing the required milestones. OCC
is required to apply for a license renewal three years before each FCC License
expires. While, based on past experience, OCC believes the FCC generally grants
the renewal applications of existing licensees where the licensee has satisfied
the requirements of the license, it is possible that the FCC will not, in fact,
renew either of the FCC Licenses. Should the FCC revoke or fail to renew the
FCC Licenses, or if OCC fails to satisfy any of the conditions of the FCC
Licenses, such event would negatively affect our financial condition and
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results of operations.
The FCC has licensed OCC to operate as a private carrier. Because of
our method of distributing services, we believe that OCC currently is not
subject to the restrictions that apply to common carriers or to providers of
Commercial Mobile Radio Services ("CMRS"). We plan to distribute our services
to customers indirectly through VARs and directly through Internal VARs. In
most cases, we will provide our customers with enhanced services and will not
be interconnected with the public switched telephone network. Therefore, we do
not believe that the FCC will regard these services as common carrier or CMRS.
In the future, however, we may provide services that the FCC deems common
carrier or CMRS, or the FCC may exercise its discretionary authority to apply
the common carrier or CMRS rules to our operations. Applying these rules could
negatively affect our financial condition and results of operations by, for
instance, subjecting us to rate regulation and certain tariff filing
requirements, limiting some foreign ownership in us and subjecting us to state
regulation, if we were deemed to be a common carrier.
Our financial condition and results of operations could be adversely
affected if the United States adopts new laws, policies or changes in the
interpretation or application of existing laws, policies and regulations that
modify the present regulatory environment.
The failure to obtain regulatory approvals in other countries could
hinder global service offerings. Our business is affected by the regulatory
authorities of the countries in which we or the International Licensees will
operate and in which we plan to offer our services. Our International Licensees
will be required to obtain local regulatory approvals to offer our services, to
operate gateways and to sell subscriber units within their territories. Thus,
the International Licensees must obtain numerous approvals before we can offer
full global coverage. Our current business plan is based on our receiving
regulatory approvals in several foreign jurisdictions within specified time
periods. To date, 39 countries have granted approvals to provide full
commercial or other limited services using the ORBCOMM system. Certain of these
licenses permit a range of activities including the right to test and
demonstrate or operate the ORBCOMM system on a temporary or otherwise limited
basis. While each International Licensee is responsible for obtaining
regulatory approvals in its territory, each International Licensee may not be
successful in doing so. If any International Licensee is not successful, we
will not be able to offer services in the affected territory.
Although many countries have moved to privatize communications services
and permit competition in providing these services, some countries continue to
require that a government-owned entity provide all communications services.
While we anticipate that substantially all of the International Licensees will
be private entities, we may be required to offer our services through a
government-owned or -controlled entity in those territories where government
monopolies prevail.
Our inability to offer service in a foreign country or countries could
negatively affect our financial condition and results of operations. Regulatory
provisions in countries in which we or the International Licensees seek to
operate may impose impediments on our or the International Licensees'
operations, and such restrictions could be unduly burdensome. Our business may
also be adversely affected by regulatory changes resulting from judicial
decisions and/or the adoption of treaties, legislation or regulations by the
national authorities of countries or territories where we plan to operate the
ORBCOMM system.
Coordination with the International Telecommunications Union ("ITU")
poses risks of delays. Frequency coordination through the ITU is a necessary
prerequisite to obtaining interference protection from other satellite systems.
There is no penalty for launching a satellite system before completing the ITU
coordination process, although protection from interference through this
process is only afforded as of the date that the ITU notifies the ORBCOMM
system that the coordination process has been successfully completed. OCC has
completed the ITU coordination process with respect to our enhanced
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satellite constellation with all administrations except Russia and France. OCC
expects that it will successfully complete the ITU coordination process with
Russia and France by December 1999, at which time the ORBCOMM system will be
fully registered with the ITU. The FCC has modified OCC's ITU documentation to
include the proposed launch of the 12 additional satellites for which OCC has
been licensed. We do not expect this modification to affect coordination of the
our enhanced satellite constellation. Moreover, supplemental coordination of
these 12 satellites is not required for countries for which the United States
previously completed coordination.
Any delay in or failure to complete the ITU coordination process
successfully may result in interference to the ORBCOMM system by other mobile
satellite systems operating internationally, and this interference could
negatively affect our financial condition and results of operations.
Furthermore, International Licensees working with their respective governments
are required to complete ITU coordination of subscriber units and gateways
located in their territories with countries located within distances determined
by ITU recommendations. These coordinations may not be completed successfully
or in a timely manner, which could result in delayed availability of ORBCOMM
services in the affected territories.
OPERATING RISKS COME FROM SEVERAL SOURCES
Multinational operations and developing markets pose unique operating
challenges. Since we expect to derive substantial revenues by providing
communications services globally, we are subject to certain multinational
operating risks, such as:
- changes in domestic and foreign government regulations and
communications standards;
- licensing requirements;
- tariffs or taxes and other trade barriers;
- price, wage and exchange controls;
- political, social and economic instability;
- inflation;
- interest rate and currency fluctuations; and
- U.S. law prohibitions from operating in certain countries.
Many of these risks may be greater in developing countries or regions.
In addition, although we anticipate that the International Licensees will make
all payments in U.S. dollars, currency control restrictions may prevent the
International Licensees in those countries from being able to do so. Because we
expect to receive most payments in U.S. dollars, we do not intend to hedge
against exchange rate fluctuations.
OUR BUSINESS IS SUBJECT TO CERTAIN STRUCTURAL AND MARKET RISKS
We are controlled by two strategic partners. We are a limited
partnership whose current partners, OCC and Teleglobe Mobile, each holds 50% of
our partnership interests. Under our current partnership agreement,
substantially all actions taken by us require the approval of at least a
majority-in-interest, i.e., partners holding a majority of the partnership
interests. As such, the partners must agree with respect to any and all
decisions that require approval of a majority-in-interest, or in the event the
partners fail to agree, such failure will result in deadlock between the
partners. Such failure of the partners to agree with respect to any decision
requiring the approval of a majority-in-interest could negatively affect us.
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Potential conflicts of interest with Orbital or Teleglobe could
negatively affect us. Orbital and Teleglobe each has a substantial ownership
interest in ORBCOMM. A conflict of interest may exist between us and Orbital
under either of the procurement agreements and the other related agreements
between Orbital and OCC. Also, Orbital is a majority owner of Magellan
Corporation, one of our subscriber unit manufacturers. A conflict of interest
also may exist between us and Teleglobe by virtue of Teleglobe's majority
ownership of ORBCOMM Canada Inc., our International Licensee for Canada.
Further, under our partnership agreement, transactions between us and either of
Orbital or Teleglobe or any of their affiliates are subject to the approval of
the other partner. Any potential conflict of interest between us and either of
these entities could negatively affect our results of operations.
THE YEAR 2000 POSES CERTAIN RISKS
We have initiated a Year 2000 readiness program, which is being
implemented by a program management office composed of, among others, certain
of our senior managers and certain outside consultants. The program has five
phases: inventory, assessment, remediation, testing and deployment, and our
primary area of focus is the critical system segment, which comprises eight
operational areas including the satellites and the ground infrastructure for
the ORBCOMM system.
We have completed an inventory of each product, component or software
program in the critical system segment that uses date fields, contains embedded
systems or that may otherwise be impacted by the Year 2000 issue. All products,
components and software identified in the inventory phase have been assessed to
determine whether they are Year 2000 ready. For products, components or
software obtained from third party vendors, including Orbital, we surveyed each
such vendor to ascertain whether the product, component or software provided by
such vendor is Year 2000 ready, which may include obtaining a certification or
statement from each such vendor regarding Year 2000 readiness. Based on our
efforts to date, we estimate that the eight operational areas of the critical
system segment are between 80% and 100% ready.
We have upgraded, repaired, replaced or otherwise brought into
readiness the products, components and software programs in the critical system
segment identified in the assessment phase of the program as being non-Year
2000 ready and will upgrade, repair, replace or otherwise bring into readiness
any products, components and software programs that may be identified in the
testing phase of the program as being non-Year 2000 ready. We anticipate that
for some custom applications in the critical system segment, we may use
replacements to or upgrades of existing applications that are already in
development, which replacements or upgrades may obviate the need for
remediation with respect to such applications. With respect to those products,
components and software programs identified in the assessment phase of the
program as being non-Year 2000 ready, the remediation phase was completed in
the first quarter of 1999.
We have prepared a master test plan, which includes, with respect to
the critical system segment, testing within each of the eight operational areas
at both the unit or functional level, followed by end-to-end testing of the
entire ORBCOMM system. We have substantially completed unit and functional
level testing, and are in the process of performing end-to-end tests, of the
ORBCOMM system. In connection therewith, we have deployed Year 2000 ready
software for the satellites and the ground system segment in the United States,
and are currently deploying Year 2000 ready software for those international
ground systems that are our responsibility, which deployment is expected to be
completed in the third quarter of 1999.
We have also successfully completed testing of the satellite and the
ground system segments with respect to the so-called "GPS roll-over date,"
August 21, 1999. Despite these efforts, however, we cannot
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assure you that other factors, such as the interaction of external GPS
receivers with the ORBCOMM system, will not adversely effect the operation
and/or use of the ORBCOMM system on the GPS roll-over date.
We are encouraging our International Licensees and VARs to implement a
comprehensive Year 2000 readiness program. We have identified and will continue
to assess the extent to which the elements comprising our business
infrastructure, including our applications developed for customers, information
systems, telephone systems, heating, cooling and electrical systems, building
security and other building operations, as well as back-up systems, are Year
2000 ready. To accomplish this, we have surveyed the applicable third party
vendors and other entities to ascertain whether their systems are Year 2000
ready, which has included, where possible, obtaining, a certification or
statement from each such vendor or other entity regarding Year 2000 readiness.
The total estimated cost of the program, including the planned cost to
replace systems that are impacted by the Year 2000 issue, is not expected to be
material to our financial condition or results of operations. To date, we have
not deferred work on any information technology programs or systems as a result
of its efforts in connection with the program.
In connection with the program, we have engaged in ongoing
communications with our customers and distribution partners regarding our Year
2000 status. While uncertainties surrounding the significance and likely impact
of the Year 2000 problem make it nearly impossible for us to identify a
reasonably likely worst case scenario for the Year 2000 issue, such scenario
could include:
- interruptions or failures of data or messaging communications using
the ORBCOMM system;
- the temporary inability of third parties to pay amounts due to us,
and
- the temporary inability of vendors to provide goods or services to
us.
We have developed a contingency plan designed to address potential
issues that may arise in connection with the Year 2000 roll-over, particularly
with regard to the satellites and the ground system segment of the ORBCOMM
network. Despite our ongoing efforts in connection with the program, we cannot
assure you that we have identified or will identify all Year 2000 affected
systems or that the program will be successfully implemented or implemented on
a timely basis.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On December 18, 1998, ORBCOMM International terminated for
non-performance its service license agreements with SEC ORBCOMM
(Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus
Communications Ltd. ("CEC Bosphorus"), which agreements together
covered 20 countries. On December 23, 1998, SATCOM International
Group PLC ("SATCOM"), the alleged successor-in-interest to SEC
ORBCOMM's and CEC Bosphorus' interests in these agreements, filed
an action (98 Civ. 9095, S.D.N.Y.) claiming that the termination
of these agreements was unjustified. The suit sought damages and a
preliminary and permanent injunction effectively awarding the
licenses to SATCOM. The district court denied SATCOM's application
for a temporary restraining order on December 28, 1998. Following
an evidentiary hearing, on March 18, 1999, the district court
denied SATCOM's request for a preliminary injunction. SATCOM
appealed the district court's denial of its request for a
preliminary injunction; however, SATCOM subsequently withdrew this
appeal. On March 29, 1999, SATCOM moved for an order staying the
district court action pending arbitration before the American
Arbitration Association. On May 27, 1999, the district court
denied SATCOM's motion for a stay of the district court action and
granted a cross-motion filed by ORBCOMM International, staying the
arbitration SATCOM had initiated and enjoining SATCOM from
proceeding with such arbitration. SATCOM has appealed the district
court's May 27, 1999 ruling.
While none of these decisions represents a final adjudication of
all of SATCOM's claims against ORBCOMM International, the district
court, in denying SATCOM's request for preliminary injunction,
concluded that SATCOM was unlikely to prevail on the merits.
ORBCOMM International has executed an agreement with a new
International Licensee for the countries formerly covered by these
service license agreements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) A complete list of the exhibits required to be filed with
this Report on Form 10-Q is provided in the Exhibit Index
that precedes the exhibits filed with this report.
(b) On April 29, 1999, ORBCOMM Global, L.P. filed a Report on
Form 8-K and on May 14, 1999, ORBCOMM Global, L.P. filed a
Report on Form 8-K/A, in each case in connection with a
change in accountants.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrants have duly caused this report to be signed on their behalf by
the undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
ORBCOMM GLOBAL, L.P.
<S> <C>
Date: August 16, 1999 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ RICHARD G. TENNANT
-----------------------
Richard G. Tennant
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
ORBCOMM GLOBAL CAPITAL CORP.
Date: August 16, 1999 By: /s/ SCOTT L. WEBSTER
---------------------
Scott L. Webster
President
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ RICHARD G. TENNANT
-----------------------
Richard G. Tennant
Vice President and Treasurer
(Principal Financial Officer)
</TABLE>
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EXHIBIT INDEX
The following exhibits are filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ----------------------------------------------------------
<S> <C>
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 Exhibit10.24.6 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 ORBCOMM and Orbital.
10.5.2(b) Amendment No. 2 to Procurement Agreement dated March 24,
1997 between ORBCOMM and Orbital.
10.5.3(e) Amendment No. 3 to ORBCOMM System Procurement
Agreement, dated as of March 31, 1998 by and
between ORBCOMM and Orbital.
10.5.4(e) Amendment No. 4 to ORBCOMM System Procurement
Agreement, dated as of March 31, 1998 by and
between ORBCOMM and Orbital.
10.5.5(g) Amendment No. 5 to ORBCOMM System Procurement Agreement,
dated as of July 30, 1998 by and between ORBCOMM and Orbital.
10.5.6(g) Amendment No. 6 to ORBCOMM System Procurement Agreement,
dated as of September 21, 1998 by and between ORBCOMM and
Orbital.
10.5.7(g) Amendment No. 7 to ORBCOMM System Procurement Agreement,
dated as of December 31, 1998 by and between ORBCOMM and
Orbital.
10.5.8*+ Procurement Agreement, dated as of February 1,
1999, by and between ORBCOMM and Orbital.
10.5.9* Amendment No. 8 to ORBCOMM System Procurement
Agreement, dated as of March 24, 1999 by and
between ORBCOMM and Orbital.
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
</TABLE>
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<TABLE>
<S> <C>
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.
10.12(a) Service License Agreement, dated as of October
15, 1996, between ORBCOMM International and
European Company for Mobile Communicator
Services, B.V., ORBCOMM Europe.
10.14(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(f) Orbital Communications Corporation 1992 Stock Option Plan.
10.16.1* The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM
Global, L.P.
10.16.2* Dolphin Information Services, Inc. 1998 Stock Option Plan.
10.17(f) Amended and Restated Administrative Services
Agreement, dated as of January 1, 1997 by and
between ORBCOMM and Orbital.
10.19(f) Subscriber Communicator Manufacture Agreement
dated as of July 31, 1996 by and between ORBCOMM
and Magellan Corporation.
10.20(f) Reseller Agreement dated as of March 3, 1997 by
and between ORBCOMM USA and Orbital Sciences
Corporation (the "Reseller Agreement").
10.20.1(f) Amendment No. 1 to the Reseller Agreement dated as of
September 2, 1997.
10.21(f) Employment Agreement dated as of May 15, 1997 by and between
ORBCOMM and Robert F. Latham.
10.22(f) Consulting Agreement dated as of March 18, 1998 by and
between ORBCOMM and ORBCOMM Canada Inc.
21* Subsidiaries of ORBCOMM.
27* Financial Data Schedule of ORBCOMM Global, L.P.
</TABLE>
- ----------
* Filed herewith.
+ Confidential treatment was granted pursuant to Rule 406 under the
Securities Act of 1933, as amended, in connection with this report. Certain
portions of the exhibit have been omitted. The omitted portions of the
exhibit have been filed separately with the Commission.
(a) Incorporated by reference to the identically numbered exhibit to our
Registration Statement on Form S-4, as amended (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by
us on May 14, 1997.
(c) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 filed by us
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 of Orbital, filed by
Orbital on March 27, 1997.
(e) Incorporated by reference to the identically numbered exhibit to Amendment
No. 1 to our Registration Statement on Form S-1, as amended (Reg. No.
333-50599).
(f) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 filed by us
on March 31, 1998.
(g) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 filed by us
on March 31, 1999.
55
<PAGE> 1
ORBCOMM PROCUREMENT AGREEMENT
This ORBCOMM Procurement Agreement (this "AGREEMENT") is made and
entered into as of the 1st day of February, 1999 (the "EFFECTIVE DATE") 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 Orbital Sciences Corporation, a Delaware corporation
("ORBITAL") with its principal place of business located at 21700 Atlantic
Boulevard, Dulles, Virginia 20166.
WITNESSETH
WHEREAS ORBCOMM Global and Orbital previously entered into the
ORBCOMM System Procurement Agreement dated September 12, 1995, as amended (the
"ORIGINAL PROCUREMENT AGREEMENT"), and into other agreements for the
development, construction, operation and marketing of a global digital satellite
communications system of low-Earth orbit satellites and certain terrestrial
facilities to provide two-way data and message communications and position
determination services throughout the world (the "ORBCOMM SYSTEM") and related
activities in connection therewith;
WHEREAS ORBCOMM Global desires to contract with Orbital for the
overall construction, integration, test, launch and operation of a certain
number of replenishment satellites to complement the ORBCOMM System; and
WHEREAS, to maintain ORBCOMM Global's FCC license to deploy a
constellation of 48 satellites, two of the Firm Satellites (as defined in
Section 2.1(a)) are being constructed for insertion into a high inclination
orbit;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1 - DEFINITIONS
Except as otherwise specifically defined herein, capital terms shall
have the meanings ascribed to such terms in the Original Procurement Agreement.
"LAB" shall mean the high fidelity lab equipment as defined in the
Satellite Statement of Work.
1
<PAGE> 2
"LAUNCHES" shall mean the Firm Launches and the Optional Launches,
collectively, as set forth in Section 2.2.
"LAUNCH VEHICLE STATEMENT OF WORK AND SPECIFICATIONS" shall mean the
launch vehicle statement of work and specifications attached hereto as Exhibit
A, Part 2.
"OPTIONS" shall mean the Satellite Option, the Launch Option and the
Lab Option, collectively, as set forth in Sections 2.1, 2.2 and 2.3.
"SATELLITES" shall mean the Firm Satellites and the Optional
Satellites, collectively, as set forth in Section 2.1.
"SATELLITE SPECIFICATIONS" shall mean the satellite specifications
attached hereto as Exhibit A, Part 1B.
"SATELLITE STATEMENT OF WORK" shall mean the satellite statement of
work attached hereto as Exhibit A, Part 1A.
ARTICLE 2 - SCOPE OF WORK
Consistent with the terms and conditions set forth herein, Orbital
shall furnish the management, labor, facilities and materials required for the
performance by it of the following work (collectively, the "WORK"):
Section 2.1 - Construction of Satellites. (a) Orbital shall
construct and deliver to ORBCOMM Global eight satellites (the "FIRM SATELLITES")
in accordance with the Satellite Statement of Work and the Satellite
Specifications.
(b) ORBCOMM Global shall have the option (the "SATELLITE OPTION") to
require Orbital to construct and deliver to ORBCOMM Global up to six additional
satellites or, if the 68302 Processor Tests (as defined and described in the
Satellite Statement of Work) are successful, up to 22 additional satellites (the
"OPTIONAL SATELLITES").
(c) The Satellite Option shall be exercisable, in whole or in part,
at any time and from time to time on or before December 31, 2000, provided that
any one exercise of the Satellite Option after October 15, 1999 must be for a
minimum of six Optional Satellites.
(d) At the written direction of ORBCOMM Global, Orbital may be
required to store any Satellite (the "STORED SATELLITES") for an undetermined
period of time. During the storage of any Stored Satellite, Orbital shall be
required to safeguard the Stored Satellite and to insure the Stored Satellite at
ORBCOMM Global's expense in accordance with Section 4.8 against damage and/or
loss to cover repair and/or replacement costs. ORBCOMM Global shall provide
Orbital
2
<PAGE> 3
with 30 days' prior written notice of ORBCOMM Global's intent to remove
a Stored Satellite for shipment to the launch site. Prior to shipment of a
Stored Satellite, Orbital shall be required to retest, restore and/or reassemble
the Stored Satellite and verify the Stored Satellite for flight worthiness in
accordance with the Satellite Specifications. The costs associated for the work
performed by Orbital during this phase shall be reimbursed as set forth in
Section 2.5.
Section 2.2 - Provision of Launch Vehicle Launch Services. (a)
Orbital shall provide to ORBCOMM Global launch services for up to 16 Satellites
using two Pegasus XL Launch Vehicles (the "FIRM LAUNCHES") in accordance with
the Launch Vehicle Statement of Work and Specifications. The exact number of
Satellites to be launched on any of the Firm Launches shall be determined at the
sole discretion of ORBCOMM Global on written notice given to Orbital at the
latest six months prior to any such Firm Launch or, in the event ORBCOMM Global
exercises the Launch Pause Option (as defined in Section 2.2(c)), within 14 days
of the end of the Pause Period (as defined in Section 2.2(c)).
(b) ORBCOMM Global shall have the option (the "LAUNCH OPTION") to
require Orbital to provide to ORBCOMM Global launch services for up to eight
Satellites per launch using one or more Pegasus XL Launch Vehicles (the
"OPTIONAL LAUNCHES"). The Launch Option shall be exercisable, in whole or in
part, at any time and from time to time on or before December 31, 2000. Subject
to the negotiation of mutually agreeable terms, conditions, price and delivery
schedule, ORBCOMM Global may purchase additional launch services from Orbital
beyond December 31, 2000.
(c) ORBCOMM Global shall have the option (the "LAUNCH PAUSE OPTION")
to require Orbital to pause the work (the "PAUSE PERIOD") on the second of the
Firm Launches.
Section 2.3 - Construction of Lab. ORBCOMM Global shall have the
option (the "LAB OPTION"), exercisable at any time on or before October 15,
1999, to require Orbital to construct and deliver to ORBCOMM Global one set of
high fidelity laboratory equipment, as defined in the Satellite Statement of
Work (the "LAB").
Section 2.4 - Other Documentation. Orbital shall prepare, develop
and submit to ORBCOMM Global the documentation set forth in the CDRLs of the
Satellite Statement of Work.
Section 2.5 - Satellite Storage and Launch Campaign. Orbital shall
provide ORBCOMM Global, on a time and materials basis (including a fee not to
exceed ten percent (10%) to be mutually agreed upon by Orbital and ORBCOMM
Global), technical services associated with the storage of Satellites and the
conduct of launch campaigns for all the Satellites as and when required by
ORBCOMM Global, relating to the ORBCOMM System.
Section 2.6 - Right Ascension Ascending Nodes ("RAAN") Target
Accuracy. Notwithstanding the RAAN target accuracy parameters set forth in the
Launch Vehicle Statement
3
<PAGE> 4
of Work and Specification and the Satellite Statement of Work, ORBCOMM Global
shall, with at least 30-days' prior written notice to Orbital, inform Orbital as
to the RAAN accuracy ORBCOMM Global requires for each Launch, and Orbital shall
use reasonable efforts to meet such target accuracy. If ORBCOMM Global sets the
RAAN target accuracy below 2.5 degrees (the "NEW RAAN") and the Launch flight is
aborted solely due to the failure of Orbital to meet the New RAAN (as opposed to
other reasons), then ORBCOMM Global shall pay the costs associated with trying
again during the next Launch window.
Section 2.7 - Regulatory Matters. Orbital, directly or indirectly
through its subsidiaries, shall use all commercially reasonable efforts (a) to
obtain and maintain the required United States regulatory authority needed to
construct and launch the Satellites, and (b) to take reasonable actions in any
regulatory proceedings to defend any claims against any regulatory authority
granted to Orbital or any of its subsidiaries in connection with the Satellites.
ARTICLE 3 - WORK SCHEDULE AND DELIVERY
Section 3.1 - Delivery. (a) Orbital understands and agrees that
timely completion of the milestones as set forth in Exhibit B - 'Work Schedule
and Delivery' (the "MILESTONES") is of the essence of this Agreement. Completion
of Milestones shall be determined as described in Section 5.4.
(b) Firm Satellites. The first three Firm Satellites shall be ready
for a Launch at the latest 19 months following the Effective Date. The balance
of the Firm Satellites (being five Firm Satellites) shall be ready for one or
more Launches or for storage, at ORBCOMM Global's sole discretion, at the latest
22 months following the Effective Date. Orbital shall use all commercially
reasonable efforts to prepare any stored Satellite for Launch within six months
from ORBCOMM Global's written instructions to do so.
(c) Optional Satellites. Optional Satellites shall be ready for one
or more Launches at the latest 20 months after the date of exercise of a
Satellite Option if six Optional Satellites are ordered, subject to any revised
schedule to be agreed upon between the parties as may be reasonably required
giving effect to the timing of the exercise of the Satellite Option and the
number of Optional Satellites ordered.
(d) Firm Launches. The first of the Firm Launches shall take place
at the latest 20 months following the Effective Date. The second of the Firm
Launches shall take place at the latest on December 31, 2000, subject to the
good faith negotiation of a reasonable revised delivery schedule (not to exceed
six months from the end of the Pause Period, unless caused solely by manifest
constraints) in the event of the exercise by ORBCOMM Global of a Launch Pause
Option.
(e) Optional Launches. Any Optional Launch shall take place
according to standard delivery practice at the time of exercise of the Launch
Option, provided however that such
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<PAGE> 5
Optional Launch shall take place no later than 24 months following the date of
exercise of the Launch Option.
(f) Launch Pause Option. For the second of the Firm Launches, the
Launch Pause Option may be exercised by ORBCOMM Global, with prior written
notice to Orbital, only once, on one of the two following dates: (i) 12 months
from the Effective Date or (ii) 16 months from the Effective Date. Within 30
days of Orbital's receipt of ORBCOMM Global's notice to exercise the Launch
Pause Option, Orbital shall inform ORBCOMM Global of the date at which the Pause
Period shall begin, which in any event, shall be no later that 18 months after
the Effective Date. The duration of the Pause Period shall not be pre-determined
but shall be no shorter than 90 days and no longer than 24 months. ORBCOMM
Global shall provide Orbital with a 45-day prior written notice of the date of
termination of the Pause Period.
(g) Lab Option. The Lab shall be delivered to ORBCOMM Global 14
months after the date of exercise of the Lab Option.
ARTICLE 4 - CONSIDERATION
Section 4.1 - Price. The price for the Firm Satellites and the Firm
Launches (the "PRICE") is as follows:
<TABLE>
<S> <C> <C>
(a) Firm Satellites $[CONFIDENTIAL
TREATEMENT
REQUESTED](1)
(Quantity of Eight (8) at $[CONFIDENTIAL TREATMENT REQUESTED] each)
(b) Firm Launches $[CONFIDENTIAL
TREATMENT
REQUESTED](2)
(Quantity of Two (2) at $[CONFIDENTIAL TREATMENT REQUESTED] each)
----------------------
TOTAL $72,200,000
</TABLE>
(1)The $[CONFIDENTIAL TREATMENT REQUESTED] price for the
Firm Satellites represents a price cap (the "SATELLITE
PRICE CAP"). However, if at the time of delivery of the
last of the Firm Satellites, the actual total costs
incurred by Orbital plus the 15% fee are less than
$[CONFIDENTIAL TREATEMENT REQUESTED] (the "ACTUAL
PRICE"), then ORBCOMM Global shall pay to Orbital an
amount equivalent to 60% of the difference between the
Satellite Price Cap and the Actual Price (the
"DIFFERENCE PAYMENT") within 30 days of the receipt by
ORBCOMM Global of the invoice certifying that the work
for the Firm
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<PAGE> 6
Satellites has been completed and that all work subject
to the Satellite Price Cap has been invoiced.
(2)The $[CONFIDENTIAL TREATMENT REQUESTED] price for the
Firm Launches is a fixed price (the "LAUNCH PRICE").
Notwithstanding the foregoing, the $[CONFIDENTIAL
TREATMENT REQUESTED] price for the second of the Firm
Launches is exclusive of interest payments and
adjustments which are separately set forth in Section
5.2(b) and Section 5.2(c).
Section 4.2 - Price for Options. The prices for the Options (the
"OPTION PRICES") are as follows:
<TABLE>
<S> <C> <C>
(a) Price per Optional Satellite for any Satellite Option
(the "SATELLITE OPTION PRICE"):
(i) if exercised on or before October 15, 1999 $[CONFIDENTIAL
TREATMENT
REQUESTED](3)
(ii) if exercised between October 16, 1999 $[CONFIDENTIAL
and December 31, 2000 TREATMENT
REQUESTED](3)
(b) Price per Optional Launch for any Launch Option (the
"LAUNCH OPTION PRICE"):
(i) if exercised on or before September 30, 1999 $[CONFIDENTIAL
TREATMENT
REQUESTED](4)
(ii) if exercised between October 1, 1999 $[CONFIDENTIAL
and December 31, 2000 TREATMENT
REQUESTED](4)
(iii) additional Launch(es) on or after $TBD(5)
January 1, 2001
(c) Lab Option Price $[CONFIDENTIAL
TREATMENT
REQUESTED]
</TABLE>
(3)In addition to the Satellite Option Price, an
equitable adjustment shall be negotiated in good faith
by the parties if the Satellite Option is exercised for
the delivery of a total of more than six Optional
Satellites to reflect reasonable additional costs
incurred by Orbital, if any, as a result of
modifications to be implemented following completion of
the 68302 Processor Tests as set forth in the Satellite
Statement of Work.
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<PAGE> 7
(4)The Launch Option Price(s) shall be subject in all
cases to the good faith negotiation of an equitable
adjustment in case of high inclination Launches.
(5)The price and terms of any such additional launches
shall be no less favorable to ORBCOMM Global than those
made available by Orbital to [CONFIDENTIAL TREATMENT
REQUESTED], without any obligation on ORBCOMM Global to
pay [CONFIDENTIAL TREATMENT REQUESTED] prices.
Section 4.3 - Technical Assistance. For technical assistance tasks,
other than those set forth in Section 2.5, the following shall apply:
(a) Orbital shall provide to ORBCOMM Global, on
a time and materials basis (including a fee
not to exceed ten percent (10%) to be
mutually agreed upon by Orbital and ORBCOMM
Global), technical services, the cost for
which is estimated to be less than One
Hundred Thousand Dollars ($100,000), as and
when required by ORBCOMM Global, relating to
the Satellites, the Launches or the Lab.
Orbital shall be required to submit to
ORBCOMM Global a monthly report in writing
that outlines the total hours expended
during the month and the total dollar amount
spent, including cumulative amount.
(b) Orbital shall provide to ORBCOMM Global, on
a time and materials basis (including a fee
not to exceed fifteen percent (15%) to be
mutually agreed upon by Orbital and ORBCOMM
Global), technical services, the cost for
which is estimated to exceed One Hundred
Thousand Dollars ($100,000), as and when
required by ORBCOMM Global, relating to the
Satellites, the Launches or the Lab. Orbital
shall be required to submit to ORBCOMM
Global a monthly report in writing that
details the subtotaled expenditures by each
subsystem (current month and cumulative for
the task), including but not limited to, (i)
the total labor hours expended, including
the dollar amounts, (ii) material costs,
with itemization of single items exceeding
$5,000, (iii) cost of subcontracts, and (iv)
other direct costs.
(c) Orbital shall not be obligated to perform
any individual task on a time and materials
basis which, in the reasonable opinion of
the parties, will amount to more than One
Million Dollars ($1,000,000).
Section 4.4 - Increase to Satellite Price Cap. For each Satellite
Option that is exercised, if any, or if the Lab Option is exercised, it shall
have the effect of increasing the Satellite Price Cap in an amount equal to the
price of the Optional Satellite(s) and/or the Lab Option; and, for each
Satellite Option that is exercised, the Milestones and delivery schedule shall
be renegotiated in good faith between the parties. The Milestones and delivery
schedule shall not be affected by the exercise of the Lab Option.
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<PAGE> 8
Section 4.5 - Launch Pause Option Monthly Fee. Should ORBCOMM Global
exercise the Launch Pause Option, ORBCOMM Global shall be obligated to pay
Orbital a fixed monthly payment of Ninety-six Thousand Dollars ($96,000) (the
"LAUNCH PAUSE OPTION FEE") for each complete month during the Pause Period. It
is agreed between the parties that this Launch Pause Option Fee shall cover all
costs for all work required during the Pause Period as outlined in the Launch
Vehicle Statement of Work and Specifications.
Section 4.6 - Incentive Fee. In addition to the Price, ORBCOMM
Global shall pay to Orbital an incentive fee of One Hundred Thousand Dollars
($100,000) per functional Satellite if more than two-thirds of the Satellites in
any one Launch are functional, as determined on a date that is six months after
the date of such Launch (the "INCENTIVE FEE"). The functionality of a Satellite
shall be determined in accordance with the definition set forth in Schedule 4.6.
Orbital undertakes not to insure the Incentive Fee.
Section 4.7 - Taxes. (a) The Price (to include any Option Prices)
does not include any federal, state or local sales, use or excise taxes levied
upon or measured by the sale, the sales price, or the use of the items to be
delivered or services required to be performed hereunder. Orbital shall list
separately on its invoice any such tax lawfully applicable to the items to be
delivered or services required to be performed hereunder and payable by ORBCOMM
Global. The Price shall not however include any taxes on property owned by the
United States Government, or any U.S. or foreign federal, state or local income
taxes imposed on Orbital.
(b) In cases where Orbital and/or ORBCOMM Global are wholly or
partially exempt from such taxes and duties or otherwise entitled to relief by
way of protest, refund claims, litigation or other proceedings, Orbital shall
take all necessary steps to facilitate such exemption or relief by:
(i) Using reasonable efforts to bring about the exemption or relief
before submitting the invoices to ORBCOMM Global; and
(ii) Complying with all formalities necessary to enable ORBCOMM
Global to claim reimbursement with respect to taxes and duties that
have been paid. For this purpose, Orbital shall comply with the
reasonable instructions given to it by ORBCOMM Global and provide in
due time the information that ORBCOMM Global reasonably requires.
If any such tax is determined to be legally due from either Orbital or ORBCOMM
Global, ORBCOMM Global shall pay it separately. ORBCOMM Global shall pay, or
reimburse Orbital for all out-of-pocket expenses incurred in connection with the
activities contemplated by this Subsection 4.7(b).
Section 4.8 - Insurance. (a) The Price does not include the cost of
Launch or Satellite insurance (but includes Satellite on-ground transportation
insurance and property insurance for the pre-launch phase), which insurance
shall be procured by ORBCOMM Global or, at ORBCOMM Global's discretion, by
Orbital for ORBCOMM Global's account. ORBCOMM
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<PAGE> 9
Global shall pay or promptly reimburse Orbital for all expenses incurred by
Orbital, on behalf of ORBCOMM Global in obtaining Launch and/or Satellite
insurance, upon receipt of Orbital's invoice therefor.
(b) The Price does not include the cost to insure the Satellites
during any period of time in which the Satellites are put into storage. Orbital
shall obtain the appropriate level(s) of insurance required to cover the repair
or replacement costs, as the case may be, of the Satellites during storage.
ORBCOMM Global shall pay or promptly reimburse Orbital for all expenses incurred
by Orbital, on behalf of ORBCOMM Global in obtaining the Satellite storage
insurance, upon receipt of Orbital's invoice therefor.
ARTICLE 5 - PAYMENT TERMS AND INVOICING
Section 5.1 - Satellites. Orbital shall be entitled to provide
ORBCOMM Global with monthly invoices, up to the maximum applicable limits set
forth in Schedule 5.1, as reasonably adjusted following an exercise of a
Satellite Option and/or the Lab Option, representing the costs incurred by
Orbital during the previous month for the fulfillment of the required work for
the Satellites and/or the Lab Option, as applicable, plus fifteen percent (15%).
ORBCOMM Global shall pay such invoices as follows:
(a) Seventy-five percent (75%) of the invoiced amount shall be paid
within 30 days of the receipt of the applicable invoice, and
(b) Twenty-five percent (25%) of the invoiced amount will be
accumulated and be paid on the latest of (i) the completion of the next
Milestone as shown in Exhibit B plus 30 days and (ii) the target date of such
Milestone, less 30 days.
Section 5.2 - Launches. (a) Subject to Section 5.2(b), Orbital shall
be entitled to provide ORBCOMM Global with monthly invoices, up to the maximum
applicable limits set forth in Schedule 5.2, as adjusted according to Section
5.2(b) in the event of the exercise by ORBCOMM Global of the Launch Pause
Option, representing the costs incurred by Orbital during the previous month for
the fulfillment of the required work for the Launches and ORBCOMM Global shall
pay such invoices as follows:
(i) Seventy-five percent (75%) of the invoiced amount shall be
paid within 30 days of the receipt of the applicable invoice, and
(ii) Twenty-five percent (25%) of the invoiced amount will be
accumulated and be paid on the latest of (A) the completion of the next
Milestone as shown in Exhibit B plus 30 days and (B) the target date of such
Milestone, less 30 days.
(b) On the exercise by ORBCOMM Global of a Launch Pause Option,
starting on the first day of the Pause Period, Orbital shall cease to provide
ORBCOMM Global with any further
9
<PAGE> 10
invoice (other than for the fixed monthly payment as set forth in Section 4.5)
and shall be entitled to provide ORBCOMM Global with:
(i) A Five Hundred Thousand Dollar ($500,000) invoice if
ORBCOMM Global has provided Orbital with prior written notice of the exercise of
the Launch Pause Option on the sixteenth month following the Effective Date
(i.e., June 1, 2000), or
(ii) A Two Hundred Fifty Thousand Dollar ($250,000) invoice if
ORBCOMM Global has provided Orbital prior written notice of the exercise of the
Launch Pause Option on the twelfth month following the Effective Date (i.e.,
February 1, 2000); and
(iii) ORBCOMM Global shall pay any such invoice within 30 days
of the receipt thereof.
(c) During the Pause Period, if Orbital makes use of the launch
vehicle motor for another launch other than ORBCOMM Global's (subject to the
approval of ORBCOMM Global to be given at the sole discretion of ORBCOMM
Global), then Orbital shall promptly refund to ORBCOMM Global the amount of Two
Hundred Fifty Thousand Dollars ($250,000) and the parties shall negotiate in
good faith additional terms (such as a revised schedule and an appropriate
revision of the time and materials charges). The unpaid balance of the cost of
the second Firm Launch shall be subject to a five percent (5%) annual fee as
interest and Schedule 5.2 shall be adjusted accordingly.
Section 5.3 - Incentive Fee. The Incentive Fee shall be payable
within 30 days of the functionality determination as provided in Section 4.6 and
the provision of an invoice by Orbital to ORBCOMM Global.
Section 5.4 - Invoicing. For all invoices for progress payments,
Milestones and/or time and material tasks, Orbital shall provide a certificate,
signed by the Vice President and Controller of Orbital or by any other officer
designated by the Vice President and Controller of Orbital, certifying the
accuracy of the costs incurred that are the subject of the respective invoice.
The invoices shall include, but not be limited to, a listing of labor cost,
including labor hours by bid rate group, material, subcontracts and ODC's as to
enable ORBCOMM Global to fully comprehend the total monthly charges being
invoiced by Orbital. Invoices shall be submitted to the following address:
ORBCOMM Global, L.P.
Attn: Controller
2455 Horse Pen Road, Suite 100
Herndon, Virginia 20171
Section 5.5- Milestone Achievement. (a) A Milestone shall be deemed
achieved upon the successful demonstration by Orbital that the Work that is the
subject of the Milestone has been completed in accordance with the requirements
of this Agreement, and that all conditions
10
<PAGE> 11
established by this Agreement as prerequisites to payment of the invoice have
been fulfilled to ORBCOMM Global's reasonable satisfaction.
(b) In the event that Orbital fails to achieve any Milestone on or
before the scheduled completion date shown in Exhibit B, ORBCOMM Global shall be
relieved of its obligation to pay the applicable amounts specified for such
Milestone until such time as Orbital achieves such Milestone or obtains a waiver
in writing from ORBCOMM Global for such achievement. A Milestone attached to a
Launch shall be considered completed when all reports, documentation and
analyses pertaining to the Launch have been delivered to ORBCOMM Global and, in
the case of a failed Launch, when the final failure analysis report of the
Failure Review Board is delivered to ORBCOMM Global. The invoicing and payment
procedure referred to Section 5.1(b) and Section 5.2(a)(ii) shall then apply
mutatis mutandis. This, together with any additional rights and remedies ORBCOMM
Global may have under Article 12, shall constitute ORBCOMM Global's exclusive
right and remedy for Orbital's failure to achieve any or all such Milestones.
Orbital's failure to timely complete any Milestone shall not relieve ORBCOMM
Global from its obligation to pay for other achieved Milestones.
(c) If ORBCOMM Global concludes that the Milestone event for which
any invoices have been submitted has not been successfully completed in
accordance with the requirements of this Agreement or that any condition
established by this Agreement as prerequisite to payment has not been fulfilled,
it shall provide Orbital written exceptions within ten (10) business days after
receipt of the invoice, specifying in detail the non-conformance. The applicable
payments shall be made within five (5) business days after ORBCOMM Global's
receipt of Orbital's response, in writing, addressing in detail each of ORBCOMM
Global's exceptions; provided, however, if, with respect to any such Milestone,
ORBCOMM Global reasonably concludes that Orbital's response to ORBCOMM Global's
exceptions to be non-responsive and so notifies Orbital as provided in
Subsection 5.5(c)(i) below, ORBCOMM Global may, at its sole discretion, defer
any unpaid amount of the relevant Milestone payment until the resolution of the
matter as described in Subsection 5.5(c)(i) below.
(i) In the event ORBCOMM Global concludes that Orbital has been
non-responsive to ORBCOMM Global's exception to a Milestone, ORBCOMM Global
shall notify Orbital thereof in writing (the "EXCEPTION NOTIFICATION") within
ten (10) business days after receipt of Orbital's response to ORBCOMM Global's
written exception. The Exception Notification shall (A) specify in detail the
reason(s) ORBCOMM Global believes Orbital's response to be non-responsive, and
(B) advise Orbital formally that ORBCOMM Global intends to withhold payment for
such Milestone(s) until Orbital demonstrates to the reasonable satisfaction of
ORBCOMM Global that such Milestone(s) has been achieved. On receipt of an
Exemption Notification from ORBCOMM Global, Orbital shall have thirty (30) days
to demonstrate the achievement of the relevant Milestone to the reasonable
satisfaction of ORBCOMM Global. If Orbital is unable to make such demonstration,
either party may submit the matter to be resolved as provided in Section 15.4
hereof.
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<PAGE> 12
Section 5.6 - Auditor Review of Submitted Invoices. In order to
ensure ORBCOMM Global that the invoices that are submitted accurately reflect
(i) the actual incurred costs and (ii) the correct percentage of costs to be
invoiced under the terms of this Agreement, an outside auditor firm selected by
ORBCOMM Global may review the accuracy of submitted invoices under this
Agreement against Orbital's accounting books and records. In the event that an
error was made and ORBCOMM Global was overcharged, the amount of the overcharge
shall be determined by the auditors and the overcharged amount, plus interest to
be calculated at the prime rate of Morgan Guaranty Trust Company of New York in
effect on the first business day for each relevant month from the date of
overpayment, shall be refunded to ORBCOMM Global within five (5) business days
from the date of notification by the auditors. All expenses of such audits shall
be paid by ORBCOMM Global except that, to the extent that there is an overcharge
greater than Fifty Thousand Dollars ($50,000) finally determined and that such
determination is binding upon the parties, Orbital shall pay audit expenses with
respect to any invoices for which an overcharge is so determined. To the extent
that Orbital does not agree with the auditors' determination, such dispute shall
be settled in accordance with Section 15.4.
ARTICLE 6 - SECONDARY PAYLOADS
ORBCOMM Global shall have the right to refuse, for technical reasons, the
inclusion of any secondary payload on any of the Launches. However, tertiary
payloads can be included at Orbital's discretion, so long as such payload does
not increase the risk of the ORBCOMM Global mission, as solely determined by
ORBCOMM Global acting reasonably. In addition, ORBCOMM Global shall have the
right to approve the price charged by Orbital for the inclusion of a secondary
payload. The price of any secondary payload included on a Launch shall be
allocated as follows: (a) the first One Million Five Hundred Thousand
($1,500,000) to Orbital, and (b) the balance to be allocated 60/40 between the
parties, with 60% being allocated to the party that identified and presented the
customer for the secondary payload to Orbital.
ARTICLE 7 - ACCESS AND ACCEPTANCE
Section 7.1 - Access. Subject to the receipt of any and all required
governmental approvals, ORBCOMM Global's authorized representatives shall have
the right, on a not-to-interfere basis, at all reasonable times during the
performance of this Agreement, to monitor the Work in progress (including
without limitation all test activities with access to related computer program
information to the extent reasonable safeguards can be implemented) at the
plant(s) of Orbital. Orbital shall use all commercially reasonable efforts to
incorporate in all of its subcontracts, Orbital's and ORBCOMM Global's rights to
monitor work in progress as provided herein, provided that any additional direct
expenses associated with the exercise or implementation of such rights shall be
borne by ORBCOMM Global.
Section 7.2 - Inspection and Acceptance. ORBCOMM Global's authorized
representatives shall promptly conduct a final inspection of the Satellites and
Launch Vehicle in accordance with
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<PAGE> 13
the Verification and Test Plan or, at ORBCOMM Global's option, witness such
inspection by Orbital and shall either approve them for launch in writing or
promptly notify Orbital in writing of the particulars in which they are
non-conforming with the applicable Specifications. If no objections have been
sent by ORBCOMM Global within fifteen (15) days of the inspection, the relevant
Satellite and Launch Vehicle shall be deemed to have received approval for
launch by ORBCOMM Global. Corrections required to render the Satellites and
Launch Vehicle in conformance with the applicable Specification shall be made by
Orbital at its cost, whether the required corrections were the fault of Orbital
or Orbital's subcontractors. The decision as to how to make the corrections
shall be at Orbital's sole discretion and an item found to be non-conforming
during or after testing performed under this Agreement shall, at ORBCOMM
Global's request and without charge to ORBCOMM Global, be re-tested by Orbital
after Orbital has remedied the non-conformance. ORBCOMM Global may be assisted
in all inspections by its consultants or advisors.
Section 7.3 - Corrections in Unlaunched Satellites. (a) If at any
time, either Orbital or ORBCOMM Global becomes aware that defects exist in any
unlaunched Satellite as a result of the operation of on-orbit Satellites
(including any Satellite of the ORBCOMM System) or otherwise, then the following
shall occur: (i) if by Orbital, Orbital shall notify promptly ORBCOMM Global of
such defects and to the extent that ORBCOMM Global determines that such defects
would, in the reasonable opinion of ORBCOMM Global, materially and adversely
affect the operation of the Satellites or the ORBCOMM System, Orbital shall take
prompt and appropriate corrective measures to eliminate any such defects from
all unlaunched Satellites, or (ii) if by ORBCOMM Global, ORBCOMM Global shall
notify promptly Orbital of such defects that would, in the reasonable opinion of
ORBCOMM Global, materially and adversely affect the operation of the Satellites
or the ORBCOMM System, Orbital shall be obligated within ten days to verify and
respond to ORBCOMM Global's notification of defective unlaunched Satellites,
and, in the event the defect has been verified, Orbital shall take prompt and
appropriate corrective measures to eliminate any such defects from all
unlaunched Satellites. The decision as to how to make the corrections shall be
at Orbital's sole discretion.
(b) ORBCOMM Global shall pay the costs of such corrections
identified in Section 7.3(a) (to be in addition to the Satellite Price Cap) and
Orbital shall charge no markup or fee on such corrections; provided, however,
that if the material defect is found as a result of on-ground testing of the
Satellites by Orbital or Orbital's subcontractors, then the corrections shall be
deemed to be in the scope of Work subject to the Satellite Price Cap. Orbital's
obligation to correct such material defects in the Satellites at cost shall end
22 months following the Effective Date irrespective of whether or not a
Satellite Option has been exercised. After such date, corrections to unlaunched
Satellites shall be made at no more than cost plus ten percent (10%). ORBCOMM
Global shall decide whether or not to proceed with the corrections of such
material defects.
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<PAGE> 14
ARTICLE 8 - TITLE AND RISK OF LOSS
With respect to the Launch Vehicles and to the Satellites, unless
otherwise provided in this Agreement, title to, beneficial ownership of, and
right to possession to and risk of loss of or damage to the Launch Vehicles and
the corresponding Satellites shall pass to ORBCOMM Global upon intentional
separation of the Launch Vehicle from the carrier aircraft. However, ORBCOMM
Global shall bear risk of loss to Stored Satellites, with such risks covered by
insurance provided by Orbital pursuant to Section 4.8(b). Correction of such
damage by Orbital shall be compensated by such insurance proceeds.
ARTICLE 9 - CHANGES
Section 9.1 - Changes. At any time and by written order, ORBCOMM
Global may make changes within the general scope of this Agreement in (a) the
Specifications or the Statements of Work, (b) the method of packing or shipment,
(c) place or time of delivery, or (d) the quantity or type of the items to be
delivered or services required to be performed hereunder.
Section 9.2 - Adjustments to Agreement. (a) If any change causes an
increase or decrease in the Price, or in the time required for performance of
any part of the Work, whether or not directly changed by the order, ORBCOMM
Global and Orbital shall negotiate an equitable adjustment to such Price,
delivery schedule or other provision of this Agreement. Orbital shall perform
the Work as changed pending resolution of any negotiation under this Article 9.
(b) Orbital must assert in a written proposal that addresses its
right to an adjustment under this Article 9 within sixty (60) days from receipt
of the written order; provided that, if Orbital requires additional time to
finalize its written proposal, it shall request an extension within the initial
sixty (60) day period, which request shall not be unreasonably denied by ORBCOMM
Global.
(c) If Orbital's proposal includes the cost of replacing property
made obsolete or excess by the change, ORBCOMM Global shall have the right to
prescribe the manner of the disposition of the obsolete or excess property.
(d) Failure to agree to any adjustment shall be a dispute and
settled in accordance with Section 15.4, provided that nothing in this Section
9.2 shall excuse Orbital from proceeding with the Work as changed.
(e) The exercise of any Option contemplated by this Agreement shall
not be considered a change to this Agreement.
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<PAGE> 15
ARTICLE 10 - REPRESENTATIONS AND WARRANTIES
Section 10.1 - Representations and Warranties. Orbital represents
and warrants that (a) it has, and it shall deliver to ORBCOMM Global at the time
of title passing pursuant to Article 8, sole and good legal and equitable title
to the items to be delivered or to the extent applicable, the services required
to be performed pursuant to Article 2, 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, deliver and
perform the items to be delivered or to the extent applicable, the services
required to be performed under Article 2, (b) the items to be delivered or to
the extent applicable, the services required to be performed shall be free from
defects in design, material and workmanship and shall operate and conform to the
performance capabilities, specifications, functions and other descriptions set
forth in the Specifications (as such Specifications may be modified from time to
time), (c) neither the delivery of the items nor the performance of the services
required to be performed by Orbital shall in any way constitute an infringement
or other violation of any copyright, trademark or patent or other validly
registered enforceable intellectual property right of any third party and (d)
the items to be delivered and the services required to be performed hereunder
shall be in compliance with all applicable United States laws, rules and
regulations.
Section 10.2 - Remedies for Breach of Warranty and Warranty Period.
For the Launch Vehicle Launch Services and the Satellites, following intentional
separation of the Launch Vehicle from the carrier aircraft, ORBCOMM Global's
sole remedy for launch failure, defects, failure to conform with applicable
Specifications or any other requirements shall be limited to (i) the potential
non-payment to Orbital of the related incentive payments and (ii) termination
remedies under Article 12.
Section 10.3 - Limitation of Liability. (a) ORBITAL SHALL NOT BE
LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR OTHER DAMAGES RESULTING FROM
THE USE OF ANY OF THE GOODS OR SERVICES TO BE PROVIDED HEREUNDER, OTHER THAN THE
LIABILITY EXPRESSLY STATED HEREIN. THE WARRANTY SET FORTH HEREIN IS IN LIEU OF
ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(b) Except as otherwise provided herein, regardless of fault, under
no circumstances shall Orbital be liable for any damages greater than Three
Million Dollars ($3,000,000) for any claim made, including any special,
incidental or consequential damages of any nature whatsoever, whether arising
from Orbital'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.
Section 10.4 - Patent Indemnification. (a) In the event of a breach
of the representation and warranty set forth in Section 10.1(c), Orbital agrees
to indemnify and hold harmless ORBCOMM Global and its permitted successors and
assigns of its products from and against all
15
<PAGE> 16
loss, damages, claims, demands and suits at law or in equity, for actual or
alleged claims, demands and suits at law or in equity, arising out of such
breach or alleged breach.
(b) Notwithstanding the provisions of Sections 10.1(c), 10.3(b) and
10.4(a), ORBCOMM Global agrees that Orbital shall be relieved of its obligations
referenced in Section 10.4(a), unless ORBCOMM Global notifies Orbital in writing
promptly, but in any event, no later than sixty (60) days after ORBCOMM Global
becomes aware of any such claim, suit or proceeding and, at Orbital's expense,
cooperates with and gives Orbital all necessary information and assistance to
mitigate, settle and/or defend any such claim, suit or proceeding; provided,
however, that ORBCOMM Global shall not be obligated to suspend service using the
ORBCOMM System in mitigation of Orbital's liability. In the event that the
actual liability of Orbital as a consequence of a claim, suit or proceeding in a
particular country, exceeds One Million Five Hundred Thousand Dollars
($1,500,000) in such country, excluding any country listed in Schedule 10.4(b)
for which the claim, suit or proceeding shall exceed Three Million Dollars
($3,000,000), and excluding the United States of America for which the claim,
suit or proceeding shall exceed the Price, then ORBCOMM Global shall release
Orbital from any obligation for liability for copyright, trademark and patent
infringement in such country in excess of the applicable limit. Notwithstanding
anything to the contrary herein contained, under no circumstances shall Orbital
be liable for any copyright, trademark or patent indemnification for countries
other than the United States of America, greater than Fifteen Million Dollars
($15,000,000) and copyrights, trademark or patent indemnification for all
countries including the United States of America greater than the Price.
(c) The patent indemnification in Sections 10(a) and 10(b) is
distinct from and shall not have the effect of modifying or limiting in any way
the patent indemnification set forth in the Original Procurement Agreement.
ARTICLE 11 - STOP WORK
Section 11.1 - Stop Work Order. ORBCOMM Global may, at any time, by
written order to Orbital, require Orbital to stop all, or any part, of the Work
called for by this Agreement for a period of sixty (60) days or for any further
period to which the parties may agree. The order shall be specifically
identified as a Stop Work issued under this Article 11. Upon receipt of the
order, Orbital shall immediately comply with its terms and take all reasonable
steps to minimize costs allocable to the work covered by the order during the
period of work stoppage. Within a period of sixty (60) days after a stop-work is
delivered to Orbital, or within any extension of that period to which the
parties agree, ORBCOMM Global shall either (a) cancel the stop-work order and
make an equitable adjustment to this Agreement for the delay or (b) terminate
the Work as provide in Article 12 hereof if applicable or if Orbital otherwise
agrees to terminate.
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<PAGE> 17
ARTICLE 12 - TERMINATION
Section 12.1 - Termination. ORBCOMM Global may, by written notice of
termination to Orbital, terminate this Agreement upon the failure of Orbital (a)
to achieve any of the Milestones within forty weeks after the scheduled
completion date set forth in Exhibit B, provided that scheduled completion dates
shall be extended by any excusable delays as a result of a force majeure event
under Section 15.2; (b) to comply in any material respect with any of the
provisions of this Agreement and to correct such failure, within sixty (60) days
from the date of Orbital's receipt of written notice thereof from ORBCOMM
Global's authorized representative, setting forth in detail ORBCOMM Global's
basis for termination of the Agreement. However, damages to Stored Satellites
caused by other than gross negligence or willful misconduct on the part of
Orbital shall not be an event of termination under this Article.
Section 12.2 - Remedies Upon Termination. (a) In the event of
termination of this Agreement by ORBCOMM Global, as provided for hereinabove,
Orbital shall:
(i) To the extent it is permitted to do so by law,
regulation and third parties, deliver to ORBCOMM Global all
completed items to be delivered under Article 2, work-in-progress,
drawings, and other technical data associated with the Work
developed as part of the performance of the completed Milestones of
this Agreement along with appropriate licenses to the intellectual
property embodied in all such items (excluding any Launch Vehicle
Launch Services data), drawings and other technical data to use,
make and have made such items (excluding any Launch Vehicle Launch
Services data), provided, that such data and licenses shall be used
exclusively for purposes related to the ORBCOMM System and shall be
subject to appropriate confidentiality obligations;
(ii) Take all commercially reasonable steps to protect
and preserve the property referred to in (i) above in the possession
of Orbital until delivery to ORBCOMM Global;
(iii) At ORBCOMM Global's request and to the fullest
extent permitted by law, and subject to applicable laws and
regulations, transfer the approvals, permits, and licenses relating
to the ORBCOMM System and held by Orbital to ORBCOMM Global.
(iv) Be liable to ORBCOMM Global for liquidated
damages in the amount of Three Million Dollars ($3,000,000).
(b) In the event of ORBCOMM Global's proper exercise of its rights
under this Article 12, Orbital shall protect ORBCOMM Global, hold ORBCOMM Global
harmless and indemnify ORBCOMM Global from all claims (and related liabilities
and costs) by Orbital's customers or third parties, derived from or relating to
Orbital's rights under this Agreement, subject to any limitation provided in
Section 10.3 hereof.
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<PAGE> 18
(c) Any disagreement under this provision, including disagreements
with respect to ORBCOMM Global's right to seek a termination and the appropriate
remedies for termination, shall be resolved in accordance with Article 15.4 of
this Agreement.
ARTICLE 13- OWNERSHIP OF INTELLECTUAL PROPERTY
Section 13.1. (a) Except as set forth in Sections 13.1(b) and
13.1(c), all designs, inventions (whether or not patented), processes, technical
data, drawings and/or confidential information related to the Work, including
without limitation the Satellites and Launch Vehicle Launch Services are the
exclusive property of Orbital and/or its subcontractors. All rights, title and
interest in and to all underlying intellectual property relating to the Work
shall remain exclusively in Orbital and/or its subcontractors, notwithstanding
Orbital's disclosure of any information or delivery of any data items to ORBCOMM
Global or ORBCOMM Global's payment to Orbital for engineering or non-recurring
charges. ORBCOMM Global shall not use or disclose such information or property
to any third party without the prior written consent of Orbital. Title to all
tools, test equipment and facilities not furnished by ORBCOMM Global or
specifically paid for by ORBCOMM Global and delivered to ORBCOMM Global under
this Agreement shall remain in Orbital and/or its subcontractors. ORBCOMM Global
agrees that it will not directly or through any third party reverse engineer the
Work.
(b) Except for the document jointly owned by ORBCOMM Global and
Orbital, those documents (the "DOCUMENTS") (including their underlying
intellectual property) set forth in Schedule 13.1 hereto are the exclusive
property of ORBCOMM Global. All rights, title and interest in and to all
underlying intellectual property relating to the Documents shall remain
exclusively in ORBCOMM Global, notwithstanding ORBCOMM Global's disclosure of
any information or delivery of any data items to Orbital. Orbital shall not use
or disclose such information or property to any third party without the prior
written consent of ORBCOMM Global.
(c) With respect to the document jointly owned by ORBCOMM Global and
Orbital as set forth in Schedule 13.1 hereto, each party shall jointly have all
rights, title and interest in and to all underlying intellectual property
relating to the jointly owned document. Without any prior consent of the other
party, a party may use, or license others to use, such underlying intellectual
property at its discretion.
Section 13.2. To the extent that computer software, source codes,
programming information and other related documentation relating to the Work,
other than the Launch Vehicles (the "BACKGROUND INFORMATION") are not
deliverable data under this Agreement (or to the extent that they are
deliverable data, that no ownership or license rights are being transferred to
ORBCOMM Global), Orbital, to the extent that it has the right to do so, shall
provide to ORBCOMM Global, on an as needed basis, the right to access and copy
such Background Information. ORBCOMM Global shall have the right to use such
Background Information to support its analysis of the ORBCOMM System, to develop
alternative solutions for technical
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<PAGE> 19
problems affecting the operation and management of the ORBCOMM System and to
design modifications to the Background Information but in any event, not for any
reprocurement. To the extent that ORBCOMM Global designs modifications to the
Background Information, it shall not have the right to implement such
modifications without the prior written consent of Orbital. However, if ORBCOMM
Global decides to implement such modifications without the prior written consent
of Orbital, ORBCOMM Global shall be deemed to have waived its right to the
unpaid portion of the Incentive Fee and shall pay to Orbital within thirty (30)
days of the implementation of the modification such unpaid portion of the
Incentive Fee.
Section 13.3. Each party grants to the other party a non-exclusive
license for use of the other party's intellectual property as defined in
Section's 13.1 and 13.2 for purposes of performing the Work under this
Agreement.
ARTICLE 14 - SPECIAL PROVISIONS RELATING TO LAUNCH SERVICES
Section 14.1 - Cross-Waiver of Liability Relating to the Launch of
the Orbital Satellites. (a) In accordance with the applicable Department of
Transportation commercial launch license requirements, ORBCOMM Global agrees to
enter into an agreement with Orbital for a no-fault, no-subrogation,
inter-participant waiver of liability pursuant to which each shall not bring a
claim against or sue the employees of the other, or any of them, or the United
States Government, and each party agrees to be responsible for and to absorb the
financial and any other consequences of any Property Damage it incurs or for any
Bodily Injury to, or Property Damage incurred by, its own employees resulting
from activities carried out under this Agreement, irrespective of whether such
Bodily Injury or Property Damage is caused by ORBCOMM Global, Orbital or by
their contractors, subcontractors, officers, directors, agents, servants and
employees and the Government and regardless of whether such Bodily Injury or
Property Damage arises through negligence or otherwise.
(b) ORBCOMM Global and Orbital shall each be responsible for such
insurance as they deem necessary to protect their respective property. Any
insurance carried in accordance with this Article 14 and any policy taken out in
substitution or replacement for any such policy shall provide that the insurers
shall waive any rights of subrogation against ORBCOMM Global, Orbital, and the
United States Government, as the case may be, and their contractors and
subcontractors at every tier.
(c) ORBCOMM Global and Orbital hereby agree to obtain a similar
waiver in the form set forth above from any party with which it enters into an
agreement relating to the activities (launch of the Satellites) contemplated by
this Article, including without limitation, all of its respective contractors,
subcontractors and suppliers at every tier, and all persons and entities to whom
it assigns all or any part of its rights or obligations under this Agreement.
(d) As used herein, "BODILY INJURY" means bodily injury, sickness,
disease, disability, shock, mental anguish or mental injury sustained by any
person including death and damages for
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<PAGE> 20
care and loss of services resulting therefrom. "PROPERTY DAMAGE" means injury to
or destruction of tangible property including the loss of use of such injured or
destroyed property.
Section 14.2 - Flight Readiness Assessment. Orbital shall brief
ORBCOMM Global on the technical status of each Launch prior to the mating of the
Satellites and/or Optional Satellites to the launch vehicle. Thereafter, Orbital
shall promptly inform Orbital of significant technical issues as they arise. In
the case of disagreement concerning whether or not to proceed with a Launch,
ORBCOMM Global, at any time, shall be allowed to discuss the issue(s) and
ORBCOMM Global's position concerning the issue(s) with the Chief Executive
Officer of Orbital. If after due consideration of the status of the launch
vehicle, spacecraft, and other launch support systems, ORBCOMM Global does not
agree that the mission is ready for Launch, ORBCOMM Global shall retain the
right to direct the delay to the Launch, at any time during a Launch campaign,
under the terms of the Changes provision of this Agreement.
Section 14.3 - Final Countdown Launch Authorization. ORBCOMM Global
shall also be polled in the final countdown procedure during status checks and
shall retain the right to concur or not to concur in the "GO" for launch.
ORBCOMM Global's designated representative shall be authorized to make such a
decision. If ORBCOMM Global does not concur, it may declare a "HOLD" and delay
the launch. If ORBCOMM Global calls for delay and the cause for such delay
cannot be shown to be attributable to Orbital's performance, or to have been
within its control or due to its fault or negligence, Orbital shall receive an
equitable adjustment to the Agreement price and schedule.
Section 14.4 - Range Support. Orbital is responsible for the range
costs, interface, and all coordination with the Government Agencies that control
the launch ranges required to launch each payload.
ARTICLE 15 - MISCELLANEOUS
Section 15.1 - Notices. (a) Except as otherwise specified herein,
all notices, requests 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 sent either by certified or registered mail,
return receipt requested, by telecopy or delivered in person addressed as
follows:
(i) if to Orbital, to it at:
21700 Atlantic Boulevard
Dulles, Virginia 20166
Telecopy: (703) 406-5572
Attention: Senior Vice President and General Counsel
20
<PAGE> 21
(ii) If to ORBCOMM Global, to it at:
2455 Horse Pen Road, Suite 100
Herndon, Virginia 20171
Telecopy: (703) 406-3508
Attention: President & COO
with copies to:
Orbital Sciences Corporation
21700 Atlantic Boulevard
Dulles, Virginia 20166
Telecopy: (703) 406-3509
Attention: Executive Vice President and General Manager,
Communication and Information Systems Group
Teleglobe Mobile Partners
c/o Teleglobe Inc.
1000 de la Gauchetiere Street West
Montreal, Quebec
Canada H3B 4X5
Telecopy: (514) 868-7719
Attention: President, Teleglobe World Mobility
or to such other persons or addresses as any party may designate by written
notice to the others. Each such notice, request or other communication shall be
effective (i) if given by telecopy, when such telecopy is transmitted and the
appropriate answerback is received, (ii) if given by reputable overnight
courier, one (1) business day after being delivered to such courier, (iii) if
given by certified mail (return receipt requested), three (3) business days
after being deposited in the mail with first class postage prepaid, or (iv) if
given by any other means, when received at the address specified in this Section
15.1.
Section 15.2 - Force Majeure. Neither party shall be responsible for
failure or delay in performance or delivery if such failure or delay is the
result of an act of God, the public enemy, embargo, governmental act, fire,
accident, war, riot, strikes, inclement weather or other cause of a similar
nature that is beyond the control of the parties. In the event of such
occurrence, this Agreement shall be amended by mutual agreement to reflect an
extension in the period of performance and/or time of delivery. Failure to agree
on an equitable extension shall be considered a dispute and resolved in
accordance with Section 15.4 hereof.
Delays in the launch of Satellites caused by the actions or
inactions of Orbital in connection with this Agreement, including without
limitation any Launch Vehicle Launch Service failure, directly or pursuant to
its subcontracts shall not constitute a force majeure event under this Section
15.2. All other delays in launches of Satellites arising for whatever reason
21
<PAGE> 22
shall constitute a force majeure event, including but not limited to delays in
the launch(es) of Satellite(s) due to delays of any other launches (i.e., not
under the Launch Vehicle Launch Service under this Agreement) preceding any of
the ORBCOMM System scheduled launches.
Section 15.3 - Licenses and Permits. Launches of the ORBCOMM System
Satellites shall be accomplished under the Commercial Space Launch Act (49
U.S.C. Section 2601, et seq.). Orbital shall be responsible for obtaining the
necessary licenses, permits and clearances that may be required by the United
States Department of Transportation, Department of Commerce, or other
governmental agency in order to operate as a launch service contractor.
Section 15.4 - Resolution of Disputes. (a) Any 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
ORBCOMM Global, Orbital and Teleglobe Mobile. Each of ORBCOMM Global, Orbital
and Teleglobe Mobile may appoint up to two (2) 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. The unanimous
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 panel, it shall be brought
before the Presidents of ORBCOMM Global and Orbital and a designee of Teleglobe
Mobile for final resolution. If such individuals are unable to resolve the
matter within thirty (30) days of the submission of such controversy or claim to
such individuals by way of unanimous decision, either party may remove the
controversy or claim for arbitration in accordance with Section 15.4(b).
(b) Any controversy or claim that is not resolved under Section
15.4(a) shall be settled by final and binding arbitration in New York, New York,
in accordance with the then existing United States domestic rules of the
American Arbitration Association (the "AAA") (to the extent not modified by this
Section 15.4). In the event that claims or controversies arise under this
Agreement and any of the Definitive Agreements, such claims or controversies may
be consolidated in a single arbitral proceeding. The arbitral tribunal shall be
composed of three (3) arbitrators who are expert in satellite communications
systems and/or launch vehicles as may be appropriate depending on the nature of
the dispute. Each of ORBCOMM Global and Orbital shall appoint one (1)
arbitrator. If any party fails 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, such appointment shall be made by the AAA. The
two (2) arbitrators so appointed shall agree upon the third arbitrator who shall
act as chairman of the arbitral tribunal. If the two (2) 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 into 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.
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<PAGE> 23
Section 15.5 - Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia, USA,
without giving effect to the provisions, policies or principles thereof relating
to choice or conflict of laws.
Section 15.6 - Binding Effect; 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 interest 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,
provided that any party may assign this Agreement and its interest and
obligations hereunder to any wholly owned subsidiary of such party.
Section 15.7 - Order of Precedence. Inconsistencies between or among
Articles of Agreements and/or any attachment shall be resolved in the following
order of precedence:
(a) Article 1 through Article 15 of this Agreement;
(b) the Statements of Work; and
(c) the Specifications.
Section 15.8 - Export Regulations. ORBCOMM Global acknowledges that
if Goods or technical data purchased, provided or produced hereunder are to be
exported, they are subject to applicable U.S. Commerce and/or State Department
export regulations. ORBCOMM Global accepts full responsibility for and agrees to
comply fully with such regulations, including obtaining export licenses and
re-export permission.
Section 15.9 - Key Personnel. Orbital agrees that those individuals
identified in Exhibit C are necessary for the successful completion of the Work
to be performed under this Agreement. Such key personnel shall be removed only
after proper advanced (two weeks minimum) consultation with ORBCOMM Global.
Advanced consultation shall include identification/qualifications of the
replacement and a transition plan. Orbital shall take considerable effort to
replace Key Personnel with personnel of substantially equal qualifications and
ability. In the event of a dispute, ORBCOMM Global shall communicate the concern
to Orbital's senior management to negotiate a mutually agreed upon alternative.
Notwithstanding its role in reviewing Key Personnel adjustments, ORBCOMM Global
shall have no supervisory control over Key Personnel work, and nothing in this
Section 15.9 shall relieve Orbital of any of its obligations under this
Agreement, or of its responsibility for any acts or omissions of its personnel.
To the extent that the Key Personnel voluntarily resign, ORBCOMM Global shall be
consulted in the selection of the replacement personnel but shall not have the
right to approve such replacement personnel.
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<PAGE> 24
Section 15.10 - Counterparts. This Agreement may be executed in any
number of counterparts of the signature pages, each of which shall be considered
an original, but all of which together shall constitute one and the same
instrument.
Section 15.11 - Headings. This section and other headings contained
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
Section 15.12 - Amendment Waiver. Except as provided otherwise
herein, this Agreement may not be amended nor may any rights hereunder by waived
except by an instrument in writing signed by the parties hereto.
Section 15.13 - Entire Agreement. This Agreement and all exhibits
(which are hereby made part of this Agreement) contain the entire understanding
between the parties and supersede the December 31, 1998 authorization to proceed
letter sent to Orbital by ORBCOMM Global and all other 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.
ARTICLE 16 - LIST OF EXHIBITS AND SCHEDULES
Exhibits
Exhibit A STATEMENT OF WORK AND SPECIFICATIONS
Part 1A Satellite Statement of Work
Part 1B Satellite Specifications
Part 2 Launch Vehicle Statement of Work and Specifications
Exhibit B Work Schedule and Delivery
Exhibit C Key Personnel
Schedules
Schedule 4.6 Working Satellites for Incentive Payment
Schedule 5.1 Maximum Cumulative Payments - Firm Satellites
Schedule 5.2 Maximum Cumulative Payments - Firm Launches
Schedule 10.4(b) Patent Indemnification - List of Countries
Schedule 13.1 Intellectual Property Listing
24
<PAGE> 25
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
ORBITAL SCIENCES CORPORATION
By:
-------------------------------------------
Name:
Title:
ORBCOMM GLOBAL, L.P.
By:
--------------------------------------------
Name: Scott L. Webster
Title: Chairman and Chief Executive Officer
25
<PAGE> 1
AMENDMENT NO. 8 TO
ORBCOMM SYSTEM PROCUREMENT AGREEMENT
This Amendment No.8 ("Amendment No. 8") to the ORBCOMM System
Procurement Agreement is entered into this 24th day of March, 1999 between
ORBCOMM Global, L.P. ("ORBCOMM Global") and Orbital Sciences Corporation
("Orbital").
WITNESSETH
WHEREAS, the parties previously entered into the ORBCOMM System
Procurement Agreement dated September 12, 1995 (the "Procurement Agreement") and
Amendments No. 1, No. 2, No. 3, No. 4, No. 5, No. 6 and No. 7 thereto; and
WHEREAS, the parties wish to set forth their agreement on orbit
parameters for the launch of ORBCOMM Plane D (also known as the "Equatorial
Plane") and to change the number of Satellites, from eight to seven, that shall
be launched into an equatorial orbit using the Pegasus launch vehicle.
NOW THEREFORE, the parties agree as follows:
ARTICLE 1 - DEFINITIONS
Terms used herein and not otherwise defined shall have the meanings
assigned thereto in the Procurement Agreement.
ARTICLE 2 - AMENDMENTS
Section 2.1 Section 5.1(b)(v) of the Procurement Agreement shall be
deleted in its entirety and replaced with the following:
"(v) Satellites 27 - 33 and Launch Vehicle Aug. 1999
Launch Service No. 4"
Section 2.2 The Table in Section 3.1.1 of the Statement of Work and
Specifications for the ORBCOMM-4 Launch Services (as included in Amendment No. 4
to the Procurement Agreement) shall be deleted in its entirety and replaced with
the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------- -----------------------------
Parameter Plane D
(Equatorial Plane)
--------------------------------------------------------------------- -----------------------------
<S> <C>
Target mean altitude 1000 km, circular
Maximum apogee altitude Target + 20 km
Minimum perigee altitude Target - 20 km
Target inclination 0.0 deg.
Inclination accuracy +/- 0.1 deg.
</TABLE>
<PAGE> 2
Section 2.3 Table 3.1 in Section 3.1.1 of Exhibit A, Part 1B
Satellite Specifications of the Procurement Agreement shall be deleted in its
entirety and replaced with the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Parameter Plane A Plane B Plane C Plane D
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Target mean altitude 825 km, circular 818.5 km 818.5 km 1000 km
Maximum apogee altitude 882 km Target + 15 km Target + 15 km Target + 20 km
Minimum perigee altitude 767 km Target - 15 km Target - 15 km Target - 20 km
Target inclination 45 deg. 45.02 deg. 45.02 deg. 0.0 deg
Inclination accuracy +/- 0.3 deg. +/- 0.1 deg. +/- 0.1 deg +/- 0.1 deg
Target right ascension of Unconstrained 120 deg. East of Plane A 120 deg. West of Plane A N/A
ascending nodes
Accuracy of ascending node N/A +/- 2.5 deg. +/- 2.5 deg. N/A
</TABLE>
SECTION 3 - MISCELLANEOUS
Section 3.1 This Amendment No. 8 shall be construed in accordance
with and governed by the laws of the Commonwealth of Virginia, without giving
effect to the provisions, policies or principles thereof related to choice or
conflict of laws.
Section 3.2 No changes to the Procurement Agreement are authorized
hereby except as otherwise specified in this Amendment No. 8.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment No. 8
as of the day and year first above written.
ORBCOMM GLOBAL, L.P.
By:
---------------------------------------
Name: Scott L. Webster
Title: Chairman and Chief Executive Officer
ORBITAL SCIENCES CORPORATION
By:
---------------------------------------
Name:
Title:
3
<PAGE> 1
THE 1999 EQUITY PLAN
OF
ORBCOMM CORPORATION AND ORBCOMM GLOBAL, L.P.
ORBCOMM Corporation, a Delaware corporation (the "Company"), and
ORBCOMM Global, L.P., a Delaware limited partnership (the "Partnership"), have
adopted The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P.
(the "Plan"), effective May 6, 1999, for the benefit of their eligible officers,
employees, consultants and directors and those of their affiliates. The Plan
consists of two plans, one for the benefit of the officers, employees,
consultants and independent directors of the Company and its affiliates and one
for the benefit of the officers, employees and consultants of the Partnership
and its affiliates.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, officers, key
employees and consultants of the Company and of the Partnership and of their
affiliates to further the growth, development and financial success of the
Company by personally benefiting through the ownership of Company stock; and
(2) To enable the Company, the Partnership and their respective
affiliates to obtain and retain the services of directors, officers, key
Employees and consultants considered essential to the long range success of the
Company and the Partnership by offering them an opportunity to own stock in the
Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they
shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Award Limit. "Award Limit" shall mean 100,000 shares of Common
Stock in any one calendar year, as adjusted pursuant to Section 7.3.
1.3. Board. "Board" shall mean the Board of Directors of the
Company.
1.4. Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
(a) any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Company)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of securities
possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders
that the Board does not recommend such stockholders to accept; or
<PAGE> 2
(b) there is a change in the composition of the Board
over a period of 36 consecutive months (or less) such that a
majority of the Board members (rounded up to the nearest whole
number) ceases, by reason of one or more proxy contests for the
election of Board members, to be comprised of individuals who either
(i) have been Board members continuously since the beginning of such
period or (ii) have been elected or nominated for election as Board
members during such period by at least a majority of the Board
members described in clause (i) who were still in office at the time
such election or nomination was approved by the Board.
1.5. Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.6. Committee. "Committee" shall mean, (a) with respect to the
Company and any Company Subsidiary or affiliate of the Company other than the
Partnership, the Compensation Committee of the Board, or another committee or
subcommittee of the Board, appointed as provided in Section 6.1 and, (b) with
respect to the Partnership, the Compensation Committee of the Partnership;
provided, however, that in the case of a person who is an "officer or director
of the issuer" within the meaning of Rule 16-3(a) under the Exchange Act or who
is a Section 162(m) Participant and also an "officer or director of the issuer",
the grant of any Option under the Plan to such person shall be made by the
Compensation Committee of the Board.
1.7. Common Stock. "Common Stock" shall mean the common stock of the
Company, par value $.001 per share, and any equity security of the Company
issued or authorized to be issued in the future, but excluding any preferred
stock and any warrants, options or other rights to purchase Common Stock. Debt
securities of the Company convertible into Common Stock shall be deemed equity
securities of the Company.
1.8. Company. "Company" shall mean ORBCOMM Corporation, a Delaware
corporation.
1.9. Company Employee. "Company Employee" shall mean any officer or
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company or of any Company Subsidiary.
1.10. Company Subsidiary. "Company Subsidiary" shall mean (a) a
corporation, association or other business entity of which 50% or more of the
total combined voting power of all classes of capital stock is owned, directly
or indirectly, by the Company or by one or more Company Subsidiaries or by the
Company and one or more Company Subsidiaries, (b) any partnership or limited
liability company of which 50% or more of the capital and profits interests is
owned, directly or indirectly, by the Company or by one or more Company
Subsidiaries or by the Company and one or more Company Subsidiaries, and (c) any
other entity not described in clauses (a) or (b) above of which 50% or more of
the ownership and the power, pursuant to a written contract or agreement, to
direct the policies and management or the financial and the other affairs
thereof, are owned or controlled by the Company or by one or more other Company
Subsidiaries or by the Company and one or more Company Subsidiaries.
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1.11. Compensation Committee of the Board. "Compensation Committee
of the Board" shall mean the Compensation Committee of the Board of Directors of
the Company established by resolution of the Board.
1.12. Compensation Committee of the Partnership. "Compensation
Committee of the Partnership" shall mean the Compensation Committee of the
Partnership established by resolution of the general partners of the
Partnership.
1.13. Director. "Director" shall mean a member of the Board.
1.14. Employee. "Employee" shall mean any Company Employee or
Partnership Employee.
1.15. Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.16. Fair Market Value. "Fair Market Value" of a share of Common
Stock as of a given date shall be (a) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index that includes such
principal exchange), on such date, or if shares were not traded on such date,
then on the next preceding date on which a trade occurred, or (b) if Common
Stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, the mean between the closing representative bid and asked
prices for the Common Stock on such date as reported by Nasdaq or such successor
quotation system; or (c) if Common Stock is not publicly traded on an exchange
and not quoted on Nasdaq or a successor quotation system, the fair market value
of a share of Common Stock as established by the Compensation Committee of the
Board (or the Board, in the case of Options granted to Independent Directors)
acting in good faith. Notwithstanding anything to the contrary herein, the Fair
Market Value at the time of grant of a share of Common Stock underlying an
option grant or other award made under the Plan and in connection with the
initial public offering of the Company shall be the initial offering price per
share.
1.17. Incentive Stock Option. "Incentive Stock Option" shall mean an
option that conforms to the applicable provisions of Section 422 of the Code and
that is designated as an Incentive Stock Option by the Committee.
1.18. Independent Director. "Independent Director" shall mean a
member of the Board who is not a Company Employee or an officer or affiliate of
the Company or a subsidiary or division thereof, or a relative of a principal
executive officer, and who is not an individual member of an organization that
acts as an advisor, consultant or legal counsel to, or receives compensation on
a continuing basis from the Company (other than as consideration for services as
a director).
1.19. IPO Date. "IPO Date" shall mean the date of the consummation
of the first registered, underwritten public offering of any Common Stock.
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1.20. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall
mean an Option that is not designated as an Incentive Stock Option by the
Committee.
1.21. Option. "Option" shall mean a stock option granted under
Article III of the Plan. An Option granted under the Plan shall, as determined
by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to anyone other than Company
Employees shall be Non-Qualified Stock Options.
1.22. Optionee. "Optionee" shall mean an Employee, consultant or
Director granted an Option under the Plan.
1.23. Partnership. "Partnership" shall mean ORBCOMM Global, L.P., a
Delaware limited partnership.
1.24. Partnership Agreement. "Partnership Agreement" shall mean the
Amended and Restated Agreement of Limited Partnership of ORBCOMM Global, L.P.,
as the same may be amended, modified or restated from time to time.
1.25. Partnership Employee. "Partnership Employee" shall mean any
officer or employee (as defined in accordance with Section 3401(c) of the Code)
of the Partnership, or any entity that is then a Partnership Subsidiary.
1.26. Partnership Subsidiary. "Partnership Subsidiary" shall mean
(a) a corporation, association or other business entity of which 50% or more of
the total combined voting power of all classes of capital stock is owned,
directly or indirectly, by the Partnership or by one or more Partnership
Subsidiaries or by the Partnership and one or more Partnership Subsidiaries, (b)
any partnership or limited liability company of which 50% or more of the capital
and profits interests is owned, directly or indirectly, by the Partnership or by
one or more Partnership Subsidiaries or by the Partnership and one or more
Partnership Subsidiaries, and (c) any other entity not described in clauses (a)
or (b) above of which 50% or more of the ownership and the power, pursuant to a
written contract or agreement, to direct the policies and management or the
financial and the other affairs thereof, are owned or controlled by the
Partnership or by one or more other Partnership Subsidiaries or by the
Partnership and one or more Partnership Subsidiaries.
1.27. Plan. "Plan" shall mean The 1999 Equity Plan of ORBCOMM
Corporation and ORBCOMM Global, L.P.
1.28. QDRO. "QDRO" shall mean a qualified domestic relations order
as defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.29. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
under the Exchange Act, as such Rule may be amended from time to time.
1.30. Section 16 Person. "Section 16 Person" shall mean any person
who at the time of determination is subject to the provisions of Section 16 of
the Exchange Act.
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1.31. Section 162(m) Participant. "Section 162(m) Participant" shall
mean any Employee designated by the Committee whose compensation for the fiscal
year in which the Employee is so designated or a future fiscal year may be
subject to the limit on deductible compensation imposed by Section 162(m) of the
Code.
1.32. Subsidiary. "Subsidiary" shall mean any Company Subsidiary or
Partnership Subsidiary.
1.33. Termination of Consultancy. "Termination of Consultancy" shall
mean the time when the engagement of an Optionee as a consultant to the Company,
a Company Subsidiary, the Partnership or a Partnership Subsidiary is terminated
for any reason, with or without cause, including, but not by way of limitation,
by resignation, discharge, death or retirement; but excluding a termination
where there is a simultaneous commencement of employment with the Company, a
Company Subsidiary, the Partnership or a Partnership Subsidiary. The Committee,
in its sole discretion, shall determine the effect of all matters and questions
relating to Termination of Consultancy, including, but not by way of limitation,
the question of whether a Termination of Consultancy resulted from a discharge
for cause, and all questions of whether a particular leave of absence
constitutes a Termination of Consultancy. Notwithstanding any other provision of
the Plan, the Company, a Company Subsidiary, the Partnership or a Partnership
Subsidiary has an absolute and unrestricted right to terminate a consultant's
service at any time for any reason whatsoever, with or without cause, except to
the extent expressly provided otherwise in writing.
1.34. Termination of Directorship. "Termination of Directorship"
shall mean the time when an Optionee who is an Independent Director ceases to be
a Director for any reason, including, but not by way of limitation, a
termination by resignation, failure to be elected, death or retirement; but
excluding, at the discretion of the Committee, a termination (a) where there is
a simultaneous reemployment or continuing employment of an Optionee by the
Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary or
(b) which is followed by the simultaneous establishment of a directorship with
the Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary.
The Board, in its sole discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship in accordance with the
Company's Bylaws.
1.35. Termination of Employment. "Termination of Employment" shall
mean the time when the employee-employer relationship between an Optionee and
the Company or Partnership or any of their respective affiliates, is terminated
for any reason, with or without cause, including, but not by way of limitation,
a termination by resignation, discharge, death, disability or retirement; but
excluding (a) a termination where there is a simultaneous reemployment or
continuing employment of an Optionee by the Company, a Company Subsidiary, the
Partnership, a Partnership Subsidiary or any of their respective affiliates, (b)
at the discretion of the Committee, a termination that results in a temporary
severance of the employee-employer relationship, or (c) at the discretion of the
Committee, a termination that is followed by the simultaneous establishment of a
consulting relationship by the Company, a Company Subsidiary, the Partnership, a
Partnership Subsidiary or any of their respective affiliates with the former
employee. The Committee, in its sole discretion, shall determine the effect of
all matters and questions relating to Termination of Employment, including, but
not by way of limitation, the
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question of whether a Termination of Employment resulted from a discharge for
cause, and all questions of whether a particular leave of absence constitutes a
Termination of Employment; provided, however, that, with respect to Incentive
Stock Options unless otherwise determined by the Committee in its discretion, a
leave of absence, change in status from an employee to an independent contractor
or other change in the employee-employer relationship shall constitute a
Termination of Employment if, and to the extent that, such leave of absence,
change in status or other change interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. Notwithstanding any other provision of the Plan, the
Company, a Company Subsidiary, the Partnership or a Partnership Subsidiary has
an absolute and unrestricted right to terminate an Employee's employment at any
time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
(a) The shares of stock subject to Options shall be shares of
Common Stock. The aggregate number of such shares that may be issued upon
exercise of such Options shall not exceed 1,500,000. The shares of Common Stock
issuable upon exercise of such Options may be either previously authorized but
unissued shares or treasury shares.
(b) Following the IPO Date, the maximum number of shares that may
be subject to Options granted under the Plan to any individual in any calendar
year shall not exceed the Award Limit. To the extent required by Section 162(m)
of the Code, shares subject to Options that are canceled continue to be counted
against the Award Limit and if, after grant of an Option, the price of shares
subject to such Option is reduced, the transaction will be treated as a
cancellation of the Option and a grant of a new Option and both the Option
deemed to be canceled and the Option deemed to be granted will be counted
against the Award Limit.
2.2. Add-back of Options. If any Option expires or is canceled
without having been fully exercised, or is exercised in whole or in part for
cash as permitted by the Plan, the number of shares subject to such Option but
as to which such Option was not exercised prior to its expiration, cancellation
or exercise may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 2.1. Furthermore, any shares subject to Options that are
adjusted pursuant to Section 7.3 and become exercisable with respect to shares
of stock of another corporation shall be considered canceled and may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Shares of Common Stock that are delivered by the Optionee or withheld by
the Company on the exercise of any Option under the Plan, in payment of the
exercise price thereof, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
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ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility. Any Employee or consultant selected by the
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be granted
Options at the times and in the manner set forth in Section 3.4(d).
3.2. Disqualification for Stock Ownership. No person may be granted
an Incentive Stock Option under the Plan if such person, 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
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
3.3. Qualification of Incentive Stock Options. No Incentive Stock
Option shall be granted (a) to any person who is not a Company Employee or (b)
to any Employee of a Company Subsidiary that does not constitute a "subsidiary
corporation" within Section 424(f) of the Code.
3.4. Granting of Options
(a) The Committee shall from time to time, in its sole discretion,
and subject to applicable limitations of the Plan:
(i) Select from among the Employees and consultants
(including Employees and consultants who have previously received
Options under the Plan), such of them as in its opinion should be
granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected
Employees or consultants;
(iii) Subject to Section 3.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of
the Code.
(b) Upon the selection of an Employee or consultant to be granted an
Option, the Secretary of the Company shall be authorized to issue the Option;
provided, that the Committee may impose such conditions on the grant of the
Option as it deems appropriate. Without limiting the generality of the preceding
sentence, the Committee may, in its discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option that the Optionee
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surrender for cancellation some or all of the unexercised Options or other
rights that have been previously granted to him or her under the Plan or
otherwise. An Option, the grant of which is conditioned on such surrender, may
have an exercise price lower (or higher) than the exercise price of such
surrendered Option or other award, may cover the same (or a lesser or greater)
number of shares as such surrendered Option or other award, may contain such
other terms as the Committee deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
(c) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Optionee, to disqualify such
Option from treatment as an "incentive stock option" under Section 422 of the
Code.
(d) During the term of the Plan, each person who is an Independent
Director as of the IPO Date automatically shall be granted (i) an Option to
purchase 10,000 shares of Common Stock (subject to adjustment as provided in
Section 7.3) on the IPO Date and (ii) an Option to purchase 3,000 shares of
Common Stock (subject to adjustment as provided in Section 7.3) on the date of
each annual meeting of stockholders after the IPO Date at which the Independent
Director is reelected to the Board commencing with the first annual meeting
after the IPO Date. During the term of the Plan, a person who is initially
elected to the Board after the IPO Date and who is an Independent Director at
the time of such initial election automatically shall be granted (i) an Option
to purchase 3,000 shares of Common Stock (subject to adjustment as provided in
Section 7.3) on the date of such initial election and (ii) an Option to purchase
3,000 shares of Common Stock (subject to adjustment as provided in Section 7.3)
on the date of each annual meeting of stockholders after such initial election
at which the Independent Director is reelected to the Board. Members of the
Board who are employees of the Company who subsequently retire from the Company
and remain on the Board will not receive an initial Option grant pursuant to
clause (i) of the preceding sentence, but to the extent that they are otherwise
eligible, will receive, after retirement from employment with the Company,
Options as described in clause (ii) of the preceding sentence.
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement. Each Option shall be evidenced by a written
Stock Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Committee (or the Board, in the case of Options granted to
Independent Directors) shall determine, consistent with the Plan. Stock Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock
Options shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2. Option Price. The price per share of the shares subject to each
Option shall be set by the Committee; provided, however, that (a) in the case of
Incentive Stock Options such price shall not be less than 100% of the Fair
Market Value of a share of Common Stock on the date the
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Option is granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code); (b) in the case of Incentive Stock
Options granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Company Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code); (c) in the case of Options granted
to Independent Directors, such price shall equal 100% of the Fair Market Value
of a share of Common Stock on the date the Option is granted; and (d) in the
case of all other Options granted, such price shall be not less than 85% of the
Fair Market Value of a share of Common Stock on the date the Option is granted.
4.3. Option Term. The term of an Option shall be set by the
Committee in its discretion; provided, however, that, (a) in the case of Options
granted to Independent Directors, the term shall be ten years from the date the
Option is granted, without variation or acceleration hereunder and (b) in the
case of Incentive Stock Options, the term shall not be more than ten years from
the date the Incentive Stock Option is granted, or five years from such date if
the Incentive Stock Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or any Company Subsidiary or
parent corporation thereof (within the meaning of Section 422 of the Code).
Except as limited by requirements of Section 422 of the Code and regulations and
rulings thereunder applicable to Incentive Stock Options, the Committee (the
Board with respect to Options granted to Independent Directors) may extend the
term of any outstanding Option in connection with any Termination of Employment,
Termination of Consultancy or Termination of Directorship of the Optionee, or
amend any other term or condition of such Option relating to such a termination.
4.4. Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee (or the
Board with respect to Independent Directors) and the Committee (or the Board)
may determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; provided, however, that, unless the Board
otherwise provides in the terms of the Option or otherwise, Options granted to
Independent Directors shall become exercisable in cumulative annual installments
of 33 1/3% on each of the first, second and third anniversaries of the date of
Option grant, without variation or acceleration hereunder except as provided in
Section 7.3(b). At any time after grant of an Option, the Committee may, in its
sole discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option (except an Option granted to an
Independent Director) vests.
(b) No portion of an Option that is unexercisable at Termination
of Employment, Termination of Directorship or Termination of Consultancy, as
applicable, shall thereafter become exercisable, except as may be otherwise
provided by the Committee (or the Board, in the case of Options granted to
Independent Directors) either in the Stock Option Agreement or by action of the
Committee following the grant of the Option.
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(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company and any
parent or subsidiary corporation (within the meaning of Section 422 of the Code)
of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified
Options to the extent required by Section 422 of the Code. The rule set forth in
the preceding sentence shall be applied by taking Options into account in the
order in which they were granted. For purposes of this Section 4.4(c), the Fair
Market Value of stock shall be determined as of the time the Option with respect
to such stock is granted.
4.5. Not a Contract of Employment. Nothing in the Plan or in any
Stock Option Agreement hereunder shall (a) confer upon any Optionee any right to
(i) continue in the employ of, or as a consultant for, the Company, a Company
Subsidiary, the Partnership or a Partnership Subsidiary, or as a Director or
(ii) receive any severance pay from the Company, a Company Subsidiary, the
Partnership or a Partnership Subsidiary or (b) interfere with or restrict in any
way the rights of the Company, a Company Subsidiary, the Partnership or a
Partnership Subsidiary, which are hereby expressly reserved, to discharge any
Optionee at any time for any reason whatsoever, with or without cause.
ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise. An exercisable Option may be exercised in
whole or in part; provided, however, that an Option shall not be exercisable
with respect to fractional shares.
5.2. Manner of Exercise. All or a portion of an exercisable Option
shall be deemed exercised on delivery of all of the following to the Secretary
of the Company (or such other officer as identified in the applicable Stock
Option Agreement):
(a) A written notice in form satisfactory to the Company
stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Optionee or other person then entitled
to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Committee
(or the Board, in the case of Options granted to Independent
Directors), in its sole discretion, deems necessary or advisable to
effect compliance with all applicable provisions of the Securities
Act of 1933, as amended, and any other federal or state securities
laws or regulations. The Committee or the Board, as applicable, may,
in its sole discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised
pursuant to Section 7.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons
to exercise the Option; and
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(d) Full cash payment to the Secretary of the Company
for the shares with respect to which the Option, or portion thereof,
is exercised. However, the Committee (or the Board, in the case of
Options granted to Independent Directors), may in its discretion (i)
allow a delay in payment up to 30 days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in
part, through the delivery of shares of Common Stock owned by the
Optionee, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof; (iii) allow
payment, in whole or in part, through the surrender of shares of
Common Stock then issuable upon exercise of the Option having a Fair
Market Value on the date of Option exercise equal to the aggregate
exercise price of the Option or exercised portion thereof; (iv)
allow payment, in whole or in part, through the delivery of a full
recourse promissory note bearing interest (at no less than such rate
as shall then preclude the imputation of interest under the Code)
and payable upon such terms as may be prescribed by the Committee or
the Board, as applicable; or (v) allow payment through any
combination of the consideration provided in the foregoing
subparagraphs (ii), (iii) and (iv). In the case of a promissory
note, the Committee (or the Board, in the case of Options granted to
Independent Directors) may also prescribe the form of such note and
the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan
from the Company when or where such loan or other extension of
credit is prohibited by law.
5.3. Transfer of Shares to an Optionee. As soon as practicable after
receipt by the Company, pursuant to Section 5.2(d), of payment for the shares
with respect to which an Option, or portion thereof, is exercised by an
Optionee, with respect to each such exercise, the Company shall transfer to the
Optionee the number of shares equal to
(a) The amount of the payment made by the Optionee to
the Company pursuant to Section 5.2(d), divided by
(b) The price per share of the shares subject to the
Option as determined pursuant to Section 4.2.
5.4. Conditions to Issuance of Stock Certificates. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other
qualification of such shares under any state or federal law, or
under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body that the
Committee or Board shall, in its sole discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance
from any federal or state governmental agency that the Committee (or
the Board, in the case of Options granted to
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Independent Directors) shall, in its sole discretion, determine to
be necessary or advisable;
(d) The lapse of such reasonable period of time
following the exercise of the Option as the Committee (or the Board,
in the case of Options granted to Independent Directors) may
establish from time to time for reasons of administrative
convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.5. Rights as Stockholders. The holders of Options shall not be,
nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable on the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such holders.
5.6. Ownership and Transfer Restrictions. The Committee (or the
Board, in the case of Options granted to Independent Directors), in its sole
discretion, may impose such restrictions on the ownership and transferability of
the shares purchasable on the exercise of an Option as it deems appropriate. Any
such restriction shall be set forth in the respective Stock Option Agreement and
may be referred to on the certificates evidencing such shares. The Committee may
require a Company Employee to give the Company prompt notice of any disposition
of shares of Common Stock acquired by exercise of an Incentive Stock Option
within (a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Employee or (b) one year after the transfer of such shares to
such Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Option refer to such requirement to give prompt
notice of disposition.
5.7. Limitations on Exercise of Options Granted to an Optionee. The
Committee (or the Board, in the case of Options granted to Independent
Directors), in its sole discretion, may impose such limitations and restrictions
on the exercise of Options as it deems appropriate. Any such limitation shall be
set forth in the respective Stock Option Agreement.
ARTICLE VI.
ADMINISTRATION
6.1. Compensation Committee; Subcommittee
(a) The Compensation Committee of the Board shall consist of two
or more Directors, appointed by and holding office at the pleasure of the Board.
Appointment of members of the Compensation Committee of the Board shall be
effective on acceptance of appointment. Members of the Compensation Committee of
the Board may resign at any time by delivering written notice to the Board.
Vacancies in the Compensation Committee of the Board may be filled by the Board.
(b) The Compensation Committee of the Partnership shall consist of
two or more representatives of the general partners of the Partnership,
appointed by and holding such position
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<PAGE> 13
at the pleasure of such general partners. Appointment of members of the
Compensation Committee of the Partnership shall be effective on acceptance of
appointment. Members of the Compensation Committee of the Partnership may resign
at any time by delivering written notice to the Partnership. Vacancies in the
Compensation Committee of the Partnership may be filled by the general partners
of the Partnership.
(c) A Subcommittee consisting of two or more members of the
Compensation Committee of the Board, appointed by and serving office at the
pleasure of the Board, each of whom is both a "non-employee director" as defined
by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the
Code may be appointed at any time during which (i) two or more Board members
qualify as both "non-employee directors" and "outside directors" and (ii) any
other member of the Compensation Committee of the Board does not so qualify. In
the event such Subcommittee is appointed, the Subcommittee shall have all duties
and authority of the Compensation Committee of the Board hereunder, and
references to "Committee" shall be deemed to be references to "Subcommittee" as
defined herein.
6.2. Duties and Powers of the Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
agreements pursuant to which Options are granted, and to adopt such rules for
the administration, interpretation, and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any interpretations and
rules with respect to Incentive Stock Options shall be consistent with the
provisions of Section 422 of the Code. In its sole discretion, the Board may at
any time and from time to time exercise any and all rights and duties of the
Committee under the Plan except with respect to matters that under Rule 16b-3 or
Section 162(m) of the Code, or any regulations or rules issued thereunder, are
required to be determined in the sole discretion of the Committee.
6.3. Majority Rule; Unanimous Written Consent. The Committee shall
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
6.4. Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation, if any, for their
services as members as may be determined by the Board. All expenses and
liabilities that members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely on the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding on all Optionees, the Company, the Partnership
and all other interested persons. No members of the Committee or the Board shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan and Options, and all members of the
Committee and the Board shall be fully protected by the Company in respect of
any such action, determination or interpretation.
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<PAGE> 14
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1. Not Transferable.
(a) Options may not be sold, pledged, assigned, or transferred in
any manner other than by will or the laws of descent and distribution or
pursuant to a QDRO, unless and until such rights have been exercised, or the
shares underlying such rights have been issued, and all restrictions applicable
to such shares have lapsed. No Option or interest or right therein shall be
liable for the debts, contracts or engagements of the Optionee or his or her
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law, by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
(b) During the lifetime of the Optionee, only he or she may
exercise an Option or other right or award (or any portion thereof) granted to
him or her under the Plan, unless it has been disposed of pursuant to a QDRO.
After the death of the Optionee, any exercisable portion of an Option or other
right or award may, prior to the time when such portion becomes unexercisable
under the Plan or the applicable Stock Option Agreement or other agreement, be
exercised by his or her personal representative or by any person empowered to do
so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
7.2. Amendment, Suspension or Termination of the Plan. Except as
otherwise provided in this Section 7.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within 12 months before or after the action by the
Board or the Committee, no action of the Board or the Committee may, except as
provided in Section 7.3, increase the limits imposed in Section 2.1 on the
maximum number of shares that may be issued under the Plan or increase the Award
Limit, and no action of the Board or the Committee may be taken that would
otherwise require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of the Plan shall, without the
consent of the holder of Options, alter or impair any rights or obligations
under any Options theretofore granted or awarded, unless the award itself
otherwise expressly so provides. No Options may be granted or awarded during any
period of suspension or after termination of the Plan, and in no event may any
Incentive Stock Option be granted under the Plan after the first to occur of the
following events:
(a) The expiration of ten years from the date the Plan
is adopted by the Board; or
(b) The expiration of ten years from the date the Plan
is approved by the Company's stockholders under Section 7.4.
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<PAGE> 15
7.3. Changes in Common Stock or Assets of the Company, Acquisition
or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 7.3(d), in the event that the Committee (or
the Board, in the case of Options granted to Independent Directors) determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization, reclassification,
stock split, reverse stock split, reorganization, merger, consolidation,
split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company, or exchange of Common Stock or other securities of the
Company, issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event, in
the Committee's sole discretion (or in the Board's sole discretion, in the case
of Options granted to Independent Directors), affects the Common Stock such that
an adjustment is determined by the Committee to be appropriate to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to an Option, then the Committee
(or the Board, in the case of Options granted to Independent Directors) shall,
in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options may be
granted under the Plan (including, but not limited to, adjustments
of the limitations in Section 2.1 on the maximum number and kind of
shares that may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any
Option.
(b) Subject to Section 7.3(d), in the event of any transaction or
event described in Section 7.3(a) or any unusual or nonrecurring transactions or
events affecting the Company, any affiliate of the Company, or the financial
statements of the Company or any affiliate, or of changes in applicable laws,
regulations, or accounting principles, the Committee (or the Board, in the case
of Options granted to Independent Directors) in its discretion is hereby
authorized to take any one or more of the following actions whenever the
Committee (or the Board, in the case of Options granted to Independent
Directors) determines that such action is appropriate or desirable:
(i) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in
the case of Options granted to Independent Directors) may provide,
either by the terms of the agreement or by action taken prior to the
occurrence of such transaction or event and either automatically or
on the Optionee's request, for either the purchase of any such
Option for an amount of cash equal to the amount that could have
been attained on the exercise of such Option or realization of the
Optionee's rights had such Option been currently exercisable or
payable or fully vested or the replacement of such Option with other
rights or property selected by the Committee (or the Board, in the
case of Options granted to Independent Directors) in its sole
discretion;
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<PAGE> 16
(ii) In its sole discretion, the Committee (or the
Board, in the case of Options granted to Independent Directors) may
provide, either by the terms of such Option or by action taken prior
to the occurrence of such transaction or event that it cannot vest,
be exercised or become payable after such event;
(iii) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in
the case of Options granted to Independent Directors) may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that for a specified period
of time prior to such transaction or event, such Option shall be
exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in (A) Section 4.4 or (B) the provisions of
such Option;
(iv) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in
the case of Options granted to Independent Directors) may provide,
either by the terms of such Option or by action taken prior to the
occurrence of such transaction or event, that on such event, such
Option be assumed by the successor or survivor corporation, or a
parent or subsidiary thereof, or shall be substituted for by similar
options, rights or awards covering the stock of the successor or
survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and
prices; and
(c) In its sole discretion, and on such terms and conditions as it
deems appropriate, the Committee (or the Board, in the case of Options granted
to Independent Directors) may make adjustments in the number and type of shares
of Common Stock (or other securities or property) subject to outstanding Options
and/or in the terms and conditions of (including the grant or exercise price),
and the criteria included in, outstanding Options and options, rights and awards
that may be granted in the future.
(d) Subject to Section 7.3(d) and 7.6, the Committee (or the
Board, in the case of Options granted to Independent Directors) may, in its
discretion, include such further provisions and limitations in any Option
Agreement or certificate, as it may deem equitable and in the best interests of
the Company.
(e) With respect to Options that are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation under
Section 162(m)(4)(C), no adjustment or action described in this Section 7.3 or
in any other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such option to fail to so qualify under Section
162(m)(4)(C), or any successor provisions thereto. Furthermore, no such
adjustment or action shall be authorized to the extent such adjustment or action
would result in short-swing profits liability under Section 16 or violate the
exemptive conditions of Rule 16b-3 unless the Committee (or the Board, in the
case of Options granted to Independent Directors) determines that the option or
other award is not to comply with such exemptive conditions. The number of
shares of Common Stock subject to any option, right or award shall always be
rounded to the next whole number.
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<PAGE> 17
7.4. Approval of Plan by Stockholders. The Plan will be submitted
for the approval of the Company's stockholders within 12 months after the date
of the Board's initial adoption of the Plan. Options may be granted prior to
such stockholder approval, provided that such Options shall not be exercisable
prior to the time when the Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said 12-month
period, all Options previously granted shall thereupon be canceled and become
null and void.
7.5. Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each Optionee of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting, exercise or payment of any Option. The Committee (or
the Board, in the case of Options granted to Independent Directors) may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee
to elect to have the Company withhold shares of Common Stock otherwise issuable
under such Option (or allow the return of shares of Common Stock) having a Fair
Market Value equal to the sums required to be withheld.
7.6. Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of the Plan,
the Plan, and any Option granted to any Optionee who is then a Section 16
Person, shall be subject to any additional limitations set forth in any
applicable exemptive rule under Section 16 of the Exchange Act (including any
amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of the Plan, any Option that is granted to a
Section 162(m) Participant and is intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, and the Plan
shall be deemed amended to the extent necessary to conform to such requirements.
7.7. Effect of Plan Upon Options and Compensation Plans. The
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company, the Partnership or any Subsidiary. Nothing in the
Plan shall be construed to limit the right of the Company, the Partnership or
any Subsidiary (a) to establish any other forms of incentives or compensation
for Employees, Directors or consultants of the Company, the Partnership, or any
Subsidiary or (b) to grant or assume options or other rights or awards otherwise
than under the Plan in connection with any proper purpose including but not by
way of limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, limited liability
company, firm or association.
7.8. Compliance with Laws. The Plan, the granting and vesting of
Options and the issuance and delivery of shares of Common Stock and the payment
of money under the Plan or under Options are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to federal and state securities law and federal margin
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<PAGE> 18
requirements) and to such approvals by any listing, regulatory or governmental
authority as may, in the opinion of counsel for the Company, be necessary or
advisable in connection therewith. Any securities delivered under the Plan shall
be subject to such restrictions, and the person acquiring such securities shall,
if requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan and Options granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
7.9. Titles. Titles are provided herein for convenience only and
are not to serve as a basis for interpretation or construction of the Plan.
7.10. Governing Law. The Plan and any agreements hereunder shall be
administered, interpreted and enforced under the internal laws of the State of
Delaware without regard to conflicts of laws thereof.
7.11. Conflicts with Company's Articles of Incorporation.
Notwithstanding any other provision of the Plan, no Optionee shall acquire or
have any right to acquire any Common Stock, and shall not have other rights
under the Plan, which are prohibited under the Company's Certificate of
Incorporation.
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DOLPHIN INFORMATION SERVICES, INC.
1998 STOCK OPTION PLAN
Dolphin Information Services, Inc., a Delaware corporation (the
"Company"), sets forth herein the terms of its 1998 Stock Option Plan (the
"Plan") as follows:
ARTICLE I
PURPOSE OF PLAN
The Plan is intended to enhance the Company's ability to
attract and retain highly qualified officers, key employees and Outside
Directors (as defined herein), and to motivate such officers, key employees and
Outside Directors to serve the Company, ORBCOMM Global, L.P. and their
respective affiliates (as defined herein) and to expend maximum effort to
improve the business results and earnings of the Company, by providing to such
officers, key employees and Outside Directors an opportunity to acquire or
increase a direct proprietary interest in the operations and future success of
the Company. To this end, the Plan provides for the grant of stock options in
accordance with the terms hereof. Stock options granted under the Plan may be
non-qualified stock options or incentive stock options, as provided herein,
except that stock options granted to Outside Directors shall in all cases be
non-qualified stock options.
ARTICLE II
DEFINITIONS
For purposes of interpreting the Plan and related documents
(including Option Agreements), the following definitions shall apply:
2.01 Affiliate. The term "affiliate" of, or "affiliated" with, a
person shall mean any company or other trade or business that controls, is
controlled by or is under common control with such person within the meaning of
Rule 405 of Regulation C under the Securities Act, including a "Subsidiary" (as
defined herein).
2.02 Benefit Arrangement. The term "Benefit Arrangement" shall have
the meaning set forth in Article 12 hereof.
2.03 Board. The term "Board" shall mean the Board of Directors of
the Company.
2.04 Code. The term "Code" shall mean the Internal Revenue Code of
1986, as now in effect or as hereafter amended.
<PAGE> 2
2.05 Committee. The term "Committee" shall mean a committee of, and
designated from time to time by resolution of, the Board, which shall consist of
no fewer than two members of the Board.
2.06 Company. The term "Company" shall mean Dolphin Information
Services, Inc., a Delaware corporation.
2.07 Effective Date. The term "Effective Date" shall mean the date
on which the Plan is approved by the sole stockholder of the Company.
2.08 Exchange Act. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as now in effect or as hereafter amended.
2.09 Fair Market Value. The term "Fair Market Value" shall mean the
value of a share of Stock, determined as follows: if on the Grant Date or other
determination date the shares of Stock are listed on an established national or
regional stock exchange, are admitted to quotation on the Nasdaq National
Market, or are publicly traded on an established securities market, the Fair
Market Value of a share shall be the closing price of the shares of Stock on
such exchange or in such market (the highest such closing price if there is more
than one such exchange or market) on the trading day prior to the Grant Date or
such other determination date (or if there is no such reported closing price,
the Fair Market Value shall be the mean between the highest bid and lowest asked
prices or between the high and low sale prices on such trading day) or, if no
sale of shares of Stock are reported for such trading day, on the next preceding
day on which any sale shall have been reported. If the shares of Stock are not
listed on such an exchange, quoted on such system or traded on such a market,
Fair Market Value shall be the value of the shares of Stock as determined by the
Board in good faith, which determination shall be final, conclusive and binding;
provided that, any time when at least a majority of the voting power of the
Company's capital stock is beneficially owned by ORBCOMM Global, L.P., any such
determination of Fair Market Value shall only be effective upon the approval of
the designated representatives of the General Partners of ORBCOMM Global, L.P.
2.10 Grant. The term "Grant" shall mean an award of an Option under
the Plan.
2.11 Grant Date. The term "Grant Date" shall mean, as determined by
the Board or authorized Committee (a) the date as of which the Board or such
Committee approves a Grant or (b) the date on which the recipient of a Grant
first becomes eligible to receive a Grant under Article 6 hereof.
2.12 Incentive Stock Option. The term "Incentive Stock Option"
shall mean an "incentive stock option" within the meaning of Section 422 of the
Code, or the corresponding provision of any subsequently enacted tax statute, as
amended from time to time.
2.13 Option. The term "Option" shall mean an option to purchase one
or more shares of Stock pursuant to the Plan.
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<PAGE> 3
2.14 Option Agreement. The term "Option Agreement" shall mean the
written agreement between the Company and an Optionee that evidences and sets
forth the terms and conditions of a Grant.
2.15 Optionee. The term "Optionee" shall mean a person who receives
or holds an Option under the Plan.
2.16 Option Period. The term "Option Period" shall have the meaning
set forth in Section 10.01 hereof.
2.17 Option Price. The term "Option Price" shall mean the purchase
price for each share of Stock subject to an Option.
2.18 Other Agreement. The term "Other Agreement" shall have the
meaning set forth in Section 12 hereof.
2.19 Outside Director. The term "Outside Director" shall mean a
member of the Board who is not an officer or employee of the Company.
2.20 Plan. The term "Plan" shall mean this Dolphin Information
Services, Inc. 1998 Stock Option Plan.
2.21 Reporting Person. The term "Reporting Person" shall mean a
person who is required to file reports under Section 16(a) of the Exchange Act.
2.22 Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as now in effect or as hereafter amended.
2.23 Stock. The term "Stock" shall mean the common stock, par value
$.001 per share, of the Company.
2.24 Subsidiary. The term "Subsidiary" shall mean any "subsidiary
corporation" of the Company within the meaning of Section 424(f) of the Code.
2.25 Termination Date. The term "Termination Date" shall have the
meaning set forth in Section 10.02 hereof.
ARTICLE III
ADMINISTRATION OF PLAN
3.01 Administration by Board. The Board shall have such powers and
authorities related to the administration of the Plan as are consistent with the
Company's Certificate of Incorporation, Bylaws and applicable law. The Board
shall have full power and authority to take all actions and to make all
determinations required or provided for under the Plan, any Grant or
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<PAGE> 4
any Option Agreement, and shall have full power and authority to take all such
other actions and make all such other determinations not inconsistent with the
specific terms and provisions of the Plan that the Board deems to be necessary,
appropriate or desirable to the administration of the Plan, any Grant or any
Option Agreement. All such actions and determinations shall be by the
affirmative vote of a majority of the members of the Board present at a meeting
or by unanimous consent of the Board executed in writing in accordance with the
Company's Certificate of Incorporation, Bylaws and applicable law. The
interpretation and construction by the Board of any provision of the Plan, any
Grant or any Option Agreement shall be final, binding and conclusive. At any
time when at least a majority of the voting power of the Company's capital stock
is beneficially owned by ORBCOMM Global, L.P., prior to the Grant of any Option
and each other action taken with respect to the Plan, the Board shall consult
with the designated representatives of the General Partners of ORBCOMM Global,
L.P. (except to the extent otherwise authorized by such representatives) with
respect to such intended Grant or other action.
3.02 Administration by Committee. The Board from time to time may
delegate to a Committee such powers and authorities related to the
administration and implementation of the Plan, as set forth in Section 3.01
hereof and in other applicable provisions, as the Board shall determine,
consistent with the Company's Certificate of Incorporation, Bylaws and
applicable law. In the event that the Plan, any Grant or any Option Agreement
entered into hereunder provides for any action to be taken by or determination
to be made by the Board, such action may be taken by or such determination may
be made by the Committee if the power and authority to do so has been delegated
to the Committee by the Board as provided for in this Section. Unless otherwise
expressly determined by the Board, any such action or determination by the
Committee shall be final, binding and conclusive.
3.03 Grants. Subject to the other terms and conditions of the Plan,
the Board shall have full and final authority to (a) designate Optionees, (b)
determine the type or types of Grants to be made to an Optionee, (c) determine
the number of shares of Stock to be subject to a Grant, (d) establish the terms
and conditions of each Grant (including, but not limited to, the Option Price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer or
forfeiture of a Grant or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(e) prescribe the form of each Option Agreement evidencing a Grant, (f) make
Grants alone, in addition to, in tandem with, or in substitution or exchange for
any other Grant or any other award granted under another plan of the Company or
an affiliate of the Company, and (g) amend, modify, or supplement the terms of
any outstanding Grant. The Company may retain the right in an Option Agreement
to cause a forfeiture of any rights of an Optionee pursuant to a Grant
(including, but not limited to, the gain realized by an Optionee) on account of
the Optionee taking actions in "competition with the Company," as defined in the
applicable Option Agreement. Furthermore, the Company may annul a Grant if the
Optionee is an employee of the Company or an affiliate and is terminated "for
cause" as defined in the applicable Option Agreement. The Board's authority
hereunder specifically includes the authority, to effectuate the purposes of the
Plan but without amending the Plan, to modify Grants to eligible individuals who
are foreign nationals or are individuals who are employed outside the United
States to recognize differences in local law, tax policy or custom. The terms
and conditions imposed by the Board
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<PAGE> 5
with respect to the vesting, exercise or forfeiture of a Grant may, without
limitation, include performance-based conditions relating to the trading price
of shares of Stock, market share, sales, revenue growth, cost reduction,
earnings per Share and return on equity. As a condition to any subsequent Grant,
the Board shall have the right, at its discretion, to require Optionees to
return to the Company Grants previously awarded under the Plan. Subject to the
terms and conditions of the Plan, any such new Grant shall be upon such terms
and conditions as are specified by the Board at the time the new Grant is made.
3.04 No Liability. No member of the Board or of the Committee shall
be liable for any action or determination made in good faith with respect to the
Plan or any Grant or Option Agreement.
3.05 Applicability of Rule 16b-3. Those provisions of the Plan that
make express reference to Rule 16b-3 under the Exchange Act shall apply only to
Reporting Persons and shall be effective only from and after the date the
Company has a class of equity security registered under Section 12 of the
Exchange Act.
ARTICLE IV
NUMBER OF SHARES AVAILABLE FOR GRANT
4.01 Aggregate Limitation. Subject to adjustment as provided in
Section 15.01 hereof, the aggregate number of shares of Stock available for
issuance under the Plan pursuant to Options (including Incentive Stock Options)
shall be 3,000,000. Shares of Stock issued or to be issued under the Plan shall
be authorized but unissued shares. If any shares covered by a Grant are not
purchased or are forfeited, or if a Grant otherwise terminates without delivery
of any shares of Stock subject thereto, then the number of shares of Stock
counted against the aggregate number of shares available under the Plan with
respect to such Grant shall, to the extent of any such forfeiture or
termination, again be available for making Grants under the Plan.
4.02 Per-Optionee Limitation. The initial Grant of Options to any
person eligible for a Grant under Section 6.01 hereof may not be exercisable for
greater than 360,000 shares of Stock (subject to adjustment as provided in
Section 15.03 hereof). Except for the initial Grant, no person eligible for a
Grant under Section 6.02 hereof may be awarded Options in any calendar year
exercisable for greater than 100,000 shares of Stock (subject to adjustment as
provided in Section 15.03 hereof). If the initial Grant is of Options
exercisable for 100,000 shares of Stock or more, no additional Grants may be
made in the same calendar year to the same Optionee. If the initial Grant is of
Options exercisable for fewer than 100,000 shares of Stock, additional Grants
may be made in the same calendar year to the same Optionee so long as Options to
acquire no more than an aggregate of 100,000 shares of Stock are granted to such
Optionee in such year.
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<PAGE> 6
ARTICLE V
TERM OF PLAN
The Plan shall be effective as of the Effective Date. The Plan
has no termination date; however, no Incentive Stock Option may be granted under
the Plan on or after October 9, 2008.
ARTICLE VI
PERMISSIBLE GRANTEES
6.01 Company and Affiliate Employees. Subject to the provisions of
Article 7, Grants may be made under the Plan to any employee of the Company,
ORBCOMM Global, L.P. or any of their respective affiliates, including any such
employee who is an officer or director of the Company, ORBCOMM Global, L.P. or
any of their respective affiliates, and any Outside Director of the Company,
ORBCOMM Global, L.P. or any of their respective affiliates.
6.02 Successive Grants. An eligible person may receive more than one
Grant, subject to such restrictions as are provided herein.
ARTICLE VII
LIMITATIONS ON GRANTS OF INCENTIVE STOCK OPTIONS
An Option shall constitute an Incentive Stock Option only (a)
if the Optionee of such Option is an employee of the Company or any Subsidiary
of the Company; (b) to the extent specifically provided in the related Option
Agreement; and (c) to the extent that the aggregate Fair Market Value
(determined at the time the Option is granted) of the shares of Stock with
respect to which all Incentive Stock Options held by such Optionee become
exercisable for the first time during any calendar year (under the Plan and all
other plans of the Optionee's employer and its affiliates) does not exceed
$100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.
ARTICLE VIII
OPTION AGREEMENT
Each Grant pursuant to the Plan shall be evidenced by an Option
Agreement, in such form or forms as the Board shall from time to time determine.
Option Agreements evidencing Grants made from time to time or at the same time
need not contain similar provisions but shall be consistent with the terms of
the Plan. Each Option Agreement evidencing a Grant shall specify whether such
Options are intended to be non-qualified stock options or Incentive Stock
Options, and in the absence of such specification such options shall be deemed
non-qualified stock options.
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ARTICLE IX
OPTION PRICE
The Option Price of each Option shall be fixed by the Board and
stated in the Option Agreement evidencing such Option. The Option Price of an
Incentive Stock Option shall be the Fair Market Value of a share of Stock on the
Grant Date; provided, however, that in the event that an Optionee would
otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent (10%) of the Company's outstanding shares of Stock),
the Option Price of an Option granted to such Optionee that is intended to be an
Incentive Stock Option shall be not less than one hundred and ten percent (110%)
of the Fair Market Value of a share of Stock on the Grant Date. In no case shall
the Option Price of any Option be less than eighty-five percent (85%) of the
Fair Market Value of a share of Stock on the Grant Date.
ARTICLE X
VESTING, TERM AND EXERCISE OF OPTIONS
10.01 Vesting and Option Period. Subject to Section 10.02 and
Section 15.01 hereof, each Option granted under the Plan shall become
exercisable at such times and under such conditions as shall be determined by
the Board and stated in the applicable Option Agreement. For purposes of this
Section 10.01, fractional numbers of shares of Stock subject to an Option shall
be rounded down to the next nearest whole number. The period during which any
Option shall be exercisable shall constitute the "Option Period" with respect to
such Option.
10.02 Term. Each Option granted under the Plan shall terminate, and
all rights to exercise options and purchase shares of Stock thereunder shall
cease, upon the expiration of ten years from the Grant Date, or under such
circumstances and on such date prior thereto as is set forth in the Plan or as
may be fixed by the Board and stated in the Option Agreement relating to such
Option (the "Termination Date"); provided, however, that in the event that the
Optionee would otherwise be ineligible to receive an Incentive Stock Option by
reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating
to ownership of more than ten percent (10%) of the outstanding shares of Stock),
an Option granted to such Optionee that is intended to be an Incentive Stock
Option shall not be exercisable after the expiration of five years from its
Grant Date.
10.03 Acceleration. Any limitation on the exercise of an Option
contained in any Option Agreement may be rescinded, modified or waived by the
Board, in its sole discretion, at any time and from time to time after the Grant
Date of such Option, so as to accelerate the vesting for such Option.
10.04 Termination of Employment or Other Relationship for a Reason
Other than Death or Disability. Upon the termination of an Optionee's employment
or other relationship with the Company, ORBCOMM Global, L.P. or any of their
respective affiliates, other than by reason of
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death or "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code), any Option or portion thereof held by such
Optionee that has not vested as of such date in accordance with the provisions
of Section 10.01 hereof shall terminate immediately. With respect to any Option
or portion thereof that has vested as of such date in accordance with the
provisions of Section 10.01 hereof but has not been exercised, such Optionee
shall have the right to exercise any such vested Option at any time within the
earlier of (a) the close of business on the day that is three months following
the Optionee's termination of employment or other relationship (or, if such day
is a Saturday, Sunday or holiday, at the close of business on the next preceding
day that is not a Saturday, Sunday or holiday) (or, in the case of an Option
that is not an Incentive Stock Option, such longer period as the Board, in its
discretion, may determine prior to the expiration of such three month period)
and (b) the termination of the Option pursuant to Section 10.02 above. Upon
termination of an Option or portion thereof, the Optionee shall have no further
right to purchase shares of Stock pursuant to such Option or portion thereof.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final,
binding and conclusive. For purposes of the Plan, a termination of employment,
service or other relationship shall not be deemed to occur if the Optionee is
immediately thereafter employed with or an officer of the Company, ORBCOMM
Global, L.P. or any of their respective affiliates, or is engaged as an Outside
Director of the Company, ORBCOMM Global, L.P. or any of their respective
affiliates. Whether a termination of an Optionee's employment or other
relationship with the Company, ORBCOMM Global, L.P. or any of their respective
affiliates shall have occurred shall be determined by the Board, which
determination shall be final, binding and conclusive.
10.05 Rights in the Event of Death. If an Optionee dies while
employed by or providing services to the Company, ORBCOMM Global, L.P. or any of
their respective affiliates, any Option or portion thereof held by such Optionee
that has not vested as of the date of such Optionee's death in accordance with
the provisions of Section 10.01 hereof shall terminate immediately. With respect
to any Option or portion thereof that has vested as of such date in accordance
with the provisions of Section 10.01 hereof but has not been exercised, the
executors or administrators or legatees or distributees of such Optionee's
estate shall have the right to exercise any such Option at any time within the
earlier of (a) one year after the date of such Optionee's death (or such longer
period as the Board, in its discretion, may determine prior to the expiration of
such one-year period) and (b) the termination of the Option pursuant to Section
10.02 above. Upon termination of an Option or portion thereof, the executors or
administrators or legatees or distributees of such Optionee's estate shall have
no further right to purchase shares of Stock pursuant to such Option or portion
thereof.
10.06 Rights in the Event of Disability. If an Optionee's employment
or other relationship with the Company, ORBCOMM Global, L.P. or any of their
respective affiliates is terminated by reason of the "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code) of such
Optionee, any Option or portion thereof held by such Optionee that has not
vested as of the date of such "permanent and total disability" in accordance
with the provisions of Section 10.01 hereof shall terminate immediately. With
respect to any Option or portion thereof that has vested as of such date in
accordance with the provisions of Section 10.01 hereof shall terminate
immediately. With respect to any Option or portion thereof that has vested as
of such date in accordance with the provisions of Section 10.01
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hereof but has not been exercised, such Optionee shall have the right to
exercise any such Option at any time within the earlier of (a) one year after
such termination of employment or service (or, in the case of an Option that is
not an Incentive Stock Option, such longer period as the Board, in its
discretion, may determine prior to the expiration of such one-year period) and
(b) termination of the Option pursuant to Section 10.02 above. Whether a
termination of employment or service by reason of "permanent and total
disability" shall have occurred shall be determined by the Board, which
determination shall be final, binding and conclusive. Upon termination of an
Option or portion thereof, Optionee shall have no further right to purchase
shares of Stock pursuant to such Option or portion thereof.
10.07 Limitations on Exercise of Option. Notwithstanding any other
provision of the Plan, in no event may any Option be exercised, in whole or in
part, prior to the Effective Date, after ten years following the Grant Date for
such Option, or after the occurrence of an event referred to in Section 15.02
hereof that results in termination of the Option.
10.08 Method of Exercise. An Option that is exercisable may be
exercised by the Optionee's delivery to the Company of written notice of
exercise on any business day, at the Company's principal office, addressed to
the attention of the Secretary of the Company. Such notice shall specify the
number of shares of Stock with respect to which the Option is being exercised
and shall be accompanied by payment in full of the Option Price of the shares of
Stock for which the Option is being exercised. Payment of the Option Price for
the shares purchased pursuant to the exercise of an Option shall be made (a) in
cash or in cash equivalents; (b) to the extent permitted by law and at the
discretion of the Company, through the tender to the Company of shares of Stock,
which shares, if acquired from the Company, shall have been held for at least
six months and which shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their Fair Market Value on the
date of exercise of the Option; or (c) by combination of the methods described
in (a) and (b). The Board may provide, by inclusion of appropriate language in
an Option Agreement, that payment in full of the Option Price need not accompany
the written notice of exercise provided that the notice is accompanied by
delivery of an unconditional and irrevocable undertaking by a licensed broker
acceptable to the Company as the agent for the individual exercising the Option
to deliver promptly to the Company sufficient funds to pay the Option Price and
directs that the certificate or certificates for the shares of Stock for which
the Option is exercised be delivered to a licensed broker acceptable to the
Company as the agent for the individual exercising the Option and, at the time
such certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the Option
Price for the shares of Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and/or other taxes that the Company may in
its judgment, be required to withhold with respect to the exercise of the
Option. An attempt to exercise any Option granted hereunder other than as set
forth above shall be invalid and of no force and effect.
10.09 Rights as a Stockholder. Unless otherwise stated in the
applicable Option Agreement, an individual holding or exercising an Option shall
have none of the rights of a stockholder (for example, the right to receive cash
or dividend payments or distributions attributable to the subject shares of
Stock or to direct the voting of the subject shares of Stock)
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until the shares of Stock covered thereby are fully paid and issued to such
individual. Except as provided in Article 15 hereof, no adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date of such issuance.
10.10 Delivery of Stock Certificates. Promptly after the exercise of
an Option by an Optionee and the payment in full of the Option Price, such
Optionee shall be entitled to the issuance of a Stock certificate or
certificates evidencing his or her ownership of the shares of Stock subject to
the Option.
ARTICLE XI
TRANSFERABILITY OF OPTIONS
11.01 Nontransferability of Options. During the lifetime of an
Optionee, only the Optionee (or, in the event of legal incapacity or
incompetence, the Optionee's guardian or legal representative) may exercise an
Option. No Option shall be assignable or transferable by the Optionee to whom it
is granted, other than by will or the laws of descent and distribution.
11.02 Nontransferability of Shares. An Optionee (or such other
individual who is entitled to exercise an Option) shall not sell, pledge,
assign, gift, transfer, or otherwise dispose of any shares of Stock acquired
pursuant to an Option to any person or entity without first offering such shares
to the Company for purchase on the same terms and conditions as those offered
the proposed transferee. The Company may assign its right of first refusal under
this Section 11.02 in whole or in part, to (a) any holder of stock or other
securities of the Company (a "Securityholder"), (b) any of its or ORBCOMM
Global, L.P.'s affiliates or (c) any other person or entity that the Board
determines in its sole discretion has a sufficient relationship with or interest
in the Company. The Company shall give reasonable written notice to the Optionee
of any such assignment of its rights. The restrictions of this Section 11.02
re-apply to any person to whom Stock that was originally acquired pursuant to an
Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise
disposed of, without regard to the number of such subsequent transferees or the
manner in which they acquire the Stock, but the restrictions of this Section
11.02 do not apply to a transfer of Stock that occurs as a result of the death
of the Optionee or of any subsequent transferee (but shall apply to the
executor, the administrator or personal representative, the estate, and the
legatees, beneficiaries and assigns thereof).
11.03 Company Repurchase Rights.
(a) Upon the termination of an Optionee's employment or other
relationship with the Company, ORBCOMM Global, L.P. or any of their respective
affiliates (whether as an employee or a director of the Company, ORBCOMM Global,
L.P. or any of their respective affiliates, or otherwise), the Company shall
have the right, for a period of up to 180 days following such termination, to
repurchase any or all of the shares of Stock acquired by the Optionee pursuant
to the Plan under an Option (including shares that were previously transferred
pursuant to Section 11.01 or Section 11.02 above, unless otherwise specified in
the Option
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Agreement), at a price equal to the Fair Market Value of such shares of Stock on
the date of termination.
(b) Upon the exercise of an Option following termination of an
Optionee's employment or other relationship with the Company, ORBCOMM Global,
L.P. or any of their respective affiliates (whether as an employee or a director
of the Company, ORBCOMM Global, L.P. or any of their respective affiliates, or
otherwise), the Company shall have the right, for a period of up to 180 days
following such exercise, to repurchase any or all of the shares of Stock
acquired by the Optionee pursuant to such Option exercise, at a price that is
equal to the Fair Market Value of such shares (including shares that were
previously transferred pursuant to Section 11.01 or Section 11.02 above, unless
otherwise specified in the Option Agreement), on the date of exercise (or at the
Fair Market Value on such other date as shall have been specified by the Board
on the Grant Date and set out in the applicable Option Agreement with respect to
the Grant).
(c) On the closing of any repurchase authorized under this
Section 11.03, 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 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
principal amount in full on the first anniversary of the date of issuance, and
containing provisions as approved by the Board in its sole 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
(iii) 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.
(d) In the event that the Company determines that it cannot or
will not exercise its rights to purchase Stock under this Section 11.03 and the
applicable Option Agreement, in whole or in part, the Company may assign its
rights, in whole or in part, to (i) any Securityholder, (ii) of its or ORBCOMM
Global L.P.'s affiliates or (iii) any other person or entity that the Board
determines in its sole discretion has a sufficient relationship with or interest
in the Company. The Company shall give reasonable written notice to the Optionee
of any assignment of its rights.
11.04 Purchase by Company of Stock Acquired Pursuant to Option
Exercises. (a) Subject to the conditions set forth in this Section, an Optionee
or his or her executor, administrator, legatee or distributee that has acquired
shares of Stock pursuant to exercise of an Option shall have the right, so long
as such Optionee is still an employee or Outside Director of the Company,
ORBCOMM Global, L.P. or any of their respective affiliates or such Optionee has
suffered a "permanent and total disability" or has died, to require the Company
to repurchase any or all of such shares of Stock that have been held by the
Optionee for at least six months from the date of exercise of such Option
("Payable Stock"). The Company shall purchase Payable Stock
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at a price that is equal to the Fair Market Value of such shares on March 1 and
September 1 of each year (each such date is referred to as a "Valuation Date").
Within 30 days after each such Valuation Date after any Options have become are
exercisable, the Company shall cause the Fair Market Value of the Stock to be
determined and shall notify each holder of Payable Stock of such Fair Market
Value (the "Company Notice"). Within 30 days after the date of the Company
Notice, each such holder of Payable Stock 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 "Optionee Notice").
(b) The purchase and sale of such shares shall be completed
within 60 days after the Company Notice, at the principal offices of the Company
or at such other place and time as the Company and the Optionee may agree. At
the closing, the Optionee shall deliver to the Company a certificate or
certificates representing the Payable Stock specified in the Optionee Notice 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 a subordinated promissory note of the Company in the
principal amount of the purchase price of the Payable Stock, 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 principal amount in full on the first anniversary of the date
of issuance, and containing provisions as approved by the Board in its sole
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 (iii) any combination of the foregoing; provided,
however, that no more than fifty percent (50%) of the purchase price for Payable
Stock may be paid by subordinated promissory note.
(c) Notwithstanding the foregoing, each repurchase by the
Company pursuant to this Section must be specifically authorized by the Board,
which may only authorize such repurchase if (i) such repurchase is permitted
under applicable laws or under the terms of any of (A) the Company's, ORBCOMM
Global's or any of their respective affiliates' then-existing debt instruments
or agreements governing such debt instruments, (B) the then-existing terms of
any class of preferred stock of the Company, ORBCOMM Global or any of their
respective affiliates, or (C) any then-existing stockholders agreement to which
the Company, ORBCOMM Global, L.P. or any of their respective affiliates is a
party; (ii) there has not yet been a public offering (within the meaning of the
Securities Act and the rules and regulations thereunder) of the Stock; (iii) no
amounts are owed by the Company to any Securityholder at the time of such
repurchase; (iv) the Board determines, in its sole discretion, that such
repurchase would not impair the working capital of the Company; and (v) the
Company would be authorized under law to declare and pay cash dividends on the
shares of its capital stock at the time of such repurchase; provided that, any
time when at least a majority of the voting power of the Company's capital stock
is beneficially owned by ORBCOMM Global, L.P., any such repurchase shall require
the prior approval of the designated representatives of the General Partners of
ORBCOMM Global, L.P.
11.05 Publicly Traded Stock. If the Stock is listed on an
established national or regional stock exchange or the Nasdaq National Market,
or is publicly traded in an established securities
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market, the transfer restrictions of Section 11.02 and Section 11.03 shall
terminate as of the first date that the Stock is so listed or publicly traded.
11.06 Legend. To enforce the restrictions imposed upon shares of
Stock under the Plan or as provided in an Option Agreement, the Board may cause
a legend or legends to be placed on any certificate representing shares of Stock
issued pursuant to the Plan that complies with the applicable securities laws
and regulations and makes appropriate reference to the restrictions imposed
under the Plan.
ARTICLE XII
PARACHUTE LIMITATIONS
Notwithstanding any other provision of the Plan or of any other
agreement, contract, or understanding heretofore or hereafter entered into by an
Optionee with the Company or any affiliate of the Company, except an agreement,
contract, or understanding hereafter entered into that expressly modifies or
excludes application of this paragraph (an "Other Agreement"), and
notwithstanding any formal or informal plan or other arrangement for the direct
or indirect provision of compensation to the Optionee (including groups or
classes of participants or beneficiaries of which the Optionee is a member),
whether or not such compensation is deferred, is in cash or is in the form of a
benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a
"disqualified individual," as defined in Section 280G(c) of the Code, any Option
held by that Optionee and any right to receive any payment or other benefit
under the Plan shall not become exercisable or vested (a) to the extent that
such right to exercise, vesting, payment or benefit, taking into account all
other rights, payments or benefits to or for the Optionee under the Plan, all
Other Agreements and all Benefit Arrangements, would cause any payment or
benefit to the Optionee under the Plan to be considered a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code as then in effect (a
"Parachute Payment") and (b) if, as a result of receiving a Parachute Payment,
the aggregate after-tax amounts received by the Optionee from the Company under
the Plan, all Other Agreements and all Benefit Arrangements would be less than
the maximum after-tax amount that could be received by the Optionee without
causing any such payment or benefit to be considered a Parachute Payment. In the
event that the receipt of any such right to exercise, vesting, payment, or
benefit under the Plan, in conjunction with all other rights, payments, or
benefits to or for the Optionee under any Other Agreement or any Benefit
Arrangement would cause the Optionee to be considered to have received a
Parachute Payment under the Plan that would have the effect of decreasing the
after-tax amount received by the Optionee as described in clause (b) of the
preceding sentence, then the Optionee shall have the right, in the Optionee's
sole discretion, to designate those rights, payments or benefits under the Plan,
any Other Agreements and any Benefit Arrangements that should be reduced or
eliminated so as to avoid having the payment or benefit to the Optionee under
the Plan be deemed to be a Parachute Payment.
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ARTICLE XIII
REQUIREMENTS OF LAW
13.01 General. The Company shall not be required to sell or issue
any shares of Stock in connection with the exercise of any Option if the sale or
issuance of such shares of Stock would constitute a violation by the Optionee,
any other person exercising a right emanating from such Option, or the Company
of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its sole discretion,
that the listing, registration or qualification of any shares of Stock subject
to a Option upon any securities exchange or under any governmental regulatory
body is necessary, appropriate or desirable as a condition of, or in connection
with, the issuance or purchase of shares of Stock hereunder, no shares of Stock
may be issued or sold to the Optionee or any other person exercising a right
emanating from such Option unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company, and any delay caused thereby shall in no way
affect the date of termination of the Option. Specifically, in connection with
the Securities Act, upon the exercise of any Option that may be settled in
shares of Stock, unless a registration statement under the Securities Act is in
effect with respect to the shares of Stock covered by such Option, the Company
shall not be required to sell or issue such shares of Stock unless the Board has
received evidence satisfactory to it that the Optionee or any other person
exercising a right emanating from such Option may acquire such shares of Stock
pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Board shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action to cause the exercise of an Option
or the issuance of shares of Stock pursuant to the Plan to comply with any law
or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
13.02 Rule 16b-3. During any time when the Company has a class of
equity security registered under Section 12 of the Exchange Act, it is the
intent of the Company that Grants pursuant to the Plan and the exercise of
Options granted hereunder will qualify for the exemption provided by Rule 16b-3
under the Exchange Act. To the extent that any provision of the Plan or action
by the Board does not comply with the requirements of Rule 16b-3, it shall be
deemed inoperative to the extent permitted by law and deemed advisable by the
Board, and shall not affect the validity of the Plan. In the event that Rule
16b-3 is revised or replaced, the Board may exercise its discretion to modify
the Plan in any respect necessary to satisfy the requirements of, or to take
advantage of any features of, the revised exemption or its replacement.
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ARTICLE XIV
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend,
suspend or terminate the Plan as to any shares of Stock as to which Grants have
not been made; provided, however, that the Board shall not, without approval of
the Company's stockholders, amend the Plan such that it does not comply with the
Code or, to the extent applicable, Section 16b-3. Except as permitted under this
Article 14 or Article 15 hereof, no amendment, suspension, or termination of the
Plan shall, without the consent of the Optionee, alter or impair rights or
obligations under any Grant theretofore awarded under the Plan.
ARTICLE XV
EFFECT OF CHANGES IN CAPITALIZATION
15.01 Changes in Shares of Stock. Subject to Section 15.02, in the
event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, spin-off, split-up, share combination
or other change in the corporate structure of the Company affecting the shares
of Stock, (a) such adjustment may be made in the number and class of shares of
Stock that may be delivered under Section 4.01 hereof and the Grant limits under
Section 4.02 hereof, and in the number and class of and/or price of shares of
Stock subject to outstanding Grants as may be determined to be appropriate and
equitable by the Board, in its sole discretion, to prevent dilution or
enlargement of existing rights; and (b) the Board, or, if another legal entity
assumes the obligations of the Company hereunder, the board of directors,
compensation committee or similar body of such other legal entity, shall either
(i) make appropriate provision for the protection of outstanding Grants by the
substitution on an equitable basis of appropriate equity interests or awards
similar to the Grants, provided that the substitution neither enlarges nor
diminishes the value and rights under the Grants or (ii) upon written notice to
the Optionees, provide that Grants will be exercised, distributed, canceled or
exchanged for value pursuant to such terms and conditions (including the waiver
of any existing terms or conditions) as shall be specified in the notice. Any
adjustment of an Incentive Stock Option under this Section 15.01 shall be made
in such a manner so as not to constitute a "modification" within the meaning of
Section 424(h)(3) of the Code. The conversion of any convertible securities of
the Company shall not be treated as a change in the corporate structure of the
Company affecting the shares of Stock.
15.02 Reorganization, Sales of Assets or Sale of Shares of Stock.
The Board may, in its discretion, determine that, upon the dissolution or
liquidation of the Company or upon a merger, consolidation, or reorganization of
the Company with one or more other entities in which the Company is not the
surviving entity, or upon a sale of substantially all of the assets of the
Company to another entity, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving
entity) that results in any person or entity (or person or entities acting as a
group or otherwise in concert, owning eighty percent (80%) or more of the
combined voting power of all classes of securities of the Company, all Options
outstanding hereunder shall become immediately exercisable for a specified
period not to exceed 15 days
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immediately prior to the scheduled consummation of the event, except to the
extent provision is made in writing in connection with such transaction for the
continuation of the Plan or the assumption of such Options, theretofore granted,
or for the substitution for such Options of new options covering the stock of a
successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares or units and exercise prices,
in which event the Plan and Option theretofore granted shall continue in the
manner and under the terms so provided. Notwithstanding the foregoing, if any
such transaction is to be accounted for as a pooling, all Options outstanding
hereunder shall become immediately exercisable for a period of 15 days
immediately prior to the scheduled consummation of the event, except to the
extent provision is made in writing in connection with such transaction for the
continuation of the Plan or the assumption of such Options, theretofore granted,
or for the substitution for such Options of new options covering the stock of a
successor entity, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kinds of shares or units and exercise prices,
in which event the Plan and Option theretofore granted shall continue in the
manner and under the terms so provided. Any exercise of an Option during such
specified (or in the case of a "pooling" transaction, 15-day) period shall be
conditioned upon the consummation of the event and shall be effective only
immediately before the consummation of the event. Upon consummation of any such
event, the Plan and all outstanding but unexercised Options shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan or the assumption of such Options
theretofore granted, or for the substitution for such Options of new options
covering the shares of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares or units and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. The Board shall send
written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Company gives
notice thereof to its stockholders.
15.03 Adjustments. Adjustments under this Article 15 related to
shares of Stock or securities of the Company shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. No
fractional shares of Stock or other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share of
Stock.
15.04 No Limitations on Company. The making of Grants pursuant to
the Plan shall not affect or limit in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, dissolve or liquidate,
or to sell or transfer all or any part of its business or assets.
ARTICLE XVI
DISCLAIMER OF RIGHTS
No provision in the Plan, any Grant or any Option Agreement
shall be construed to confer upon any individual the right to remain in the
employ or service of the Company, ORBCOMM Global, L.P. or any of their
respective affiliates, or to interfere in any way with any
16
<PAGE> 17
contractual or other right or authority of the Company, ORBCOMM Global, L.P. or
any of their respective affiliates either to increase or decrease the
compensation or other payments to any individual at any time, or to terminate
any employment or other relationship between any individual and the Company,
ORBCOMM Global, L.P. or any of their respective affiliates. In addition,
notwithstanding anything contained in the Plan to the contrary, unless otherwise
stated in the applicable Option Agreement, no Grant awarded under the Plan shall
be affected by any change of duties or position of the Optionee, so long as such
Optionee continues to be a director, officer or employee of the Company, ORBCOMM
Global, L.P. or any of their respective affiliates. The obligation of the
Company to pay any benefits pursuant to the Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the manner
and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
participant or beneficiary under the terms of the Plan.
ARTICLE XVII
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the
submission of the Plan to or approval by the stockholders of the Company shall
be construed as creating any limitations upon the right and authority of the
Board to adopt such other incentive compensation arrangements (which
arrangements may be applicable either generally to a class or classes of
individuals or specifically to a particular individual or particular
individuals) as the Board in its sole discretion determines desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan.
ARTICLE XVIII
WITHHOLDING TAXES
The Company, ORBCOMM Global, L.P. or any of their respective
affiliates, as the case may be, shall have the right to deduct from payments of
any kind otherwise due to an Optionee any Federal, state, or local taxes of any
kind required by law to be withheld upon the exercise of an Option. At the time
of such vesting, lapse, or exercise, the Optionee shall pay to the Company
ORBCOMM Global, L.P. or any of their respective affiliates, as the case may be,
any amount that the Company, ORBCOMM Global, L.P. or any of their respective
affiliates may reasonably determine to be necessary to satisfy such withholding
obligation. To the extent permitted by law and at the discretion of the Company,
ORBCOMM Global, L.P. or any of their respective affiliates, the Optionee may
elect to satisfy such obligations, in whole or in part, (a) by causing the
Company, ORBCOMM Global, L.P. or any of their respective affiliates to withhold
shares of Stock otherwise issuable to the Optionee or (b) by delivering to the
Company, ORBCOMM Global, L.P. or any of their respective affiliates shares of
Stock already owned by the Optionee, which shares, if acquired from the Company,
shall have been held for at least six months by such Optionee and which shall be
valued at their Fair Market Value on the date of exercise of the Option and be
equal to such withholding obligations. An Optionee who has made
17
<PAGE> 18
an election pursuant to this Article 18 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.
ARTICLE XIX
GENERAL PROVISIONS
19.01 Captions. The use of captions in the Plan or any Option
Agreement is for the convenience of reference only and shall not affect the
meaning of any provision of the Plan or such Option Agreement.
19.02 Other Provisions. Each Grant awarded under the Plan may
contain such other terms and conditions not inconsistent with the Plan as may be
determined by the Board, in its sole discretion.
19.03 Number and Gender. With respect to words used in the Plan, the
singular form shall include the plural form, the masculine gender shall include
the feminine gender, etc., as the context requires.
19.04 Severability. If any provision of the Plan or any Option
Agreement shall be determined to be illegal or unenforceable by any court of law
in any jurisdiction, the remaining provisions hereof and thereof shall be
severable and enforceable in accordance with their terms, and all provisions
shall remain enforceable in any other jurisdiction.
19.05 Pooling. Notwithstanding anything in the Plan to the contrary,
if any right under or feature of the Plan would cause to be ineligible for
pooling of interest accounting a transaction that would, but for the right or
feature hereunder, be eligible for such accounting treatment, the Board may
modify or adjust the right or feature so that the transaction will be eligible
for pooling of interest accounting. Such modification or adjustment may include
payment of cash or issuance to an Optionee of shares of Stock having a Fair
Market Value equal to the cash value of such right or feature.
19.06 Governing Law. The validity and construction of the Plan and
the instruments evidencing the Grants awarded hereunder shall be governed by the
laws of the State of Delaware (without giving effect to the conflict or choice
of law provisions thereof).
* * *
18
<PAGE> 19
The Plan was duly adopted and approved by the Board of Directors and
the sole stockholder of the Company as of the 9th day of October 1998.
/S/ MARY ELLEN SERAVALLI
--------------------------------
Mary Ellen Seravalli
Vice President and Secretary
19
<PAGE> 1
Exhibit 21 Subsidiaries of ORBCOMM Global, L.P.
<TABLE>
<CAPTION>
State or Other Jurisdiction
Name of Subsidiary of Organization or Incorporation
------------------ --------------------------------
<S> <C>
ORBCOMM USA, L.P. Delaware
ORBCOMM International Partners, L.P. Delaware
ORBCOMM Global Capital Corp. Delaware
ORBCOMM Corporation Delaware
ORBCOMM Investment Corporation Delaware
ORBCOMM Enterprises Corporation Delaware
ORBCOMM Enterprises, L.P. Delaware
Dolphin Information Services, Inc. Delaware
Dolphin Software Services ULC Nova Scotia, Canada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) ORBCOMM
GLOBAL, L.P. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) 10 Q
FILING
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,586
<SECURITIES> 0
<RECEIVABLES> 968
<ALLOWANCES> 0
<INVENTORY> 9,975
<CURRENT-ASSETS> 22,830
<PP&E> 363,682
<DEPRECIATION> 35,627
<TOTAL-ASSETS> 363,245
<CURRENT-LIABILITIES> 88,123
<BONDS> 170,000
0
0
<COMMON> 0
<OTHER-SE> 103,844
<TOTAL-LIABILITY-AND-EQUITY> 363,245
<SALES> 1,064
<TOTAL-REVENUES> 1,064
<CGS> 1,147
<TOTAL-COSTS> 1,147
<OTHER-EXPENSES> 54,980<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,983<F2>
<INCOME-PRETAX> (68,046)
<INCOME-TAX> 0
<INCOME-CONTINUING> (68,046)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,046)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes 23,757 as depreciation expenses, 19 as goodwill amortization and 509
as equity in net losses of affiliates.
<F2>Net of interest income of 185.
</FN>
</TABLE>
