<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1998
REGISTRATION NO. 333-50599
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
ORBCOMM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4812 54-1890273
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION) IDENTIFICATION NO.)
</TABLE>
------------------------
2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(703) 406-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARY ELLEN SERAVALLI, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(703) 406-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
JOHN D. WATSON, JR., ESQ. JEAN E. HANSON, ESQ.
MICHAEL A. BELL, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
LATHAM & WATKINS ONE NEW YORK PLAZA
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300 NEW YORK, NEW YORK 10004
WASHINGTON, DC 20004 (212) 859-8000
(202) 637-2200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
NUMBER OF OFFERING AGGREGATE AMOUNT OF
SHARES TO BE PRICE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE PRICE (2) FEE
<CAPTION>
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share..................... 8,740,000 $18.00 $157,320,000 $46,409.40(3)
</TABLE>
(1) Includes 1,140,000 shares of Common Stock issuable upon the exercise of an
option granted to the Underwriters solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(3) Of this amount, $42,406.25 has been previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY THEM BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
PROSPECTUS
7,600,000 SHARES
ORBCOMM(SM) LOGO W/TEXT LINE UNDER
ORBCOMM CORPORATION
COMMON STOCK
All of the 7,600,000 shares of Common Stock offered hereby (the "Offering")
will be sold by ORBCOMM Corporation (the "Company"). The Company will use the
proceeds of the Offering to purchase 7,600,000 Partnership Units (as defined) in
ORBCOMM Global, L.P., a Delaware limited partnership ("ORBCOMM"). See
"Underwriting." On consummation of the Offering and the application of the net
proceeds therefrom to purchase Partnership Units, the Company will be admitted
as a general partner of ORBCOMM and will own approximately 19.6% of the
outstanding Partnership Units (approximately 21.8% if the Underwriters'
over-allotment option is exercised in full). On consummation of the Offering,
Orbital Communications Corporation ("OCC") and Teleglobe Mobile Partners
("Teleglobe Mobile"), each a 50.0% general partner of ORBCOMM, will each own
approximately 40.2% of the outstanding Partnership Units of ORBCOMM
(approximately 39.1% if the Underwriters' over-allotment option is exercised in
full). The shares of Common Stock are equity securities of the Company and do
not represent Partnership Units in ORBCOMM. Certain terms used in this
Prospectus are defined in the Glossary of Technical Terms beginning on page G-1.
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is currently estimated that the initial public offering price
of the Common Stock will be between $15.00 and $18.00 per share. For a
discussion of factors to be considered in determining the initial public
offering price, see "Underwriting."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ORBC."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<CAPTION>
<S> <C> <C> <C>
Per Share............................. $ $ $
Total (3)............................. $ $ $
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses related to the Offering, estimated to be $2.5
million.
(3) The Company has granted the Underwriters a 30-day option to purchase in the
aggregate up to 1,140,000 additional shares of Common Stock on the same
terms and conditions as set forth above, solely to cover over-allotments, if
any. The Company will use the net proceeds from the sale of any shares of
Common Stock in respect of such over-allotment option to purchase an
equivalent number of Partnership Units. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The Underwriters reserve the right to withdraw, cancel or modify the Offering
and to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock will be made against payment therefor on or about ,
1998 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167.
------------------------------
Joint Lead Managers and Joint Book Runners
BEAR, STEARNS & CO. INC. J.P. MORGAN & CO.
------------------------------
The date of this Prospectus is , 1998
<PAGE> 3
Simply Everywhere(SM)
ORBCOMM provides two-way data and
messaging services through the world's
first commercial low-Earth orbit
satellite communications system.
Through a constellation of low-Earth orbit satellites, a network
of terrestrial Gateways and small, relatively inexpensive subscriber
units, ORBCOMM will enable customers to collect data from
multiple locations, track assets on a global basis and transmit and
receive short text messages outside the coverage area of other
communications systems. ORBCOMM intends to provide reliable,
global communications services that are affordable, convenient and
easily accessible through the Internet, or by subscriber unit, pager, personal
computer or facsimile.
[Picture of a globe, over which is
superimposed a picture of a person typing
on a computer keyboard, with the image of
an ORBCOMM satellite appearing to the
left of the globe.]
logo:
ORBCOMM(R)
GLOBAL DATA & MESSAGING
just what customers need to know for fixed
asset monitoring, mobile asset tracking
and messaging.
Vital messages generated by a variety of applications(1) are collected and
transmitted by an appropriate subscriber unit(2) to a satellite in the ORBCOMM
constellation(3). The satellite relays these messages to an ORBCOMM Gateway
Earth Station(4). The message is sent through a Gateway Control Center(5) to
its destination, through the Internet or other terrestrial networks, to a
personal computer, or to a subscriber unit, pager or facsimile
machine(6).
[The above text is superimposed over a two-page picture of the surface of the
Earth, on which appear the following additional pictures:
(1) Includes pictures (from left to right) depicting actual and proposed
ORBCOMM applications for fixed asset monitoring, including monitoring of power
consumption, tank level and pipeline corrosion; mobile asset tracking,
including tracking government, trailer and heavy equipment vehicle location; and
status and messaging, including personal messaging, traveler's aid and
automotive.
(2) Identifies different models of subscriber units suitable for use with
the ORBCOMM system, including (from left to right) a Scientific-Atlanta meter
reading subscriber unit, a Stellar Satellite Communications, Ltd. data
subscriber unit, a Panasonic data subscriber unit, a Torrey Science data
subscriber unit, a Magellan messaging subscriber unit and a CTI messaging
subscriber unit that is in development.
(3) An image of an ORBCOMM satellite appears in the sky above the surface
of the Earth, with two-way arrows pointing to each of the pictures of the
subscriber units that appear below the satellite.
(4) A picture of a Gateway Earth Station appears to the right of the
picture of the satellite, with a two-way arrow pointing from the satellite to
the Gateway Earth Station.
(5) A picture of the Gateway Control Center appears to the right of the
picture of the Gateway Earth Station, with two-way arrows pointing from the
Gateway Control Center to the Gateway Earth Station and each of the
pictures included in paragraph (6) below.
(6) Pictures (one on top of the other) that represent the different means
of receiving messages through the ORBCOMM system appear to the right of the
Gateway Control Center, including (in order) a personal computer, a subscriber
unit, a pager and a facsimile machine, with two-way arrows pointing from each
picture to the Gateway Control Center.]
<PAGE> 4
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
FORWARD LOOKING INFORMATION
ORBCOMM is a development stage enterprise. Many statements in this
Prospectus are not historical and are forward looking in nature. Examples of
such forward looking statements include statements concerning ORBCOMM's
operations, prospects, markets, technical capabilities, funding needs, financing
sources, pricing, launch and commercial service schedules, cash flows and
profitability, as well as information concerning the estimated size of the
addressable markets for satellite data and messaging communications services,
future regulatory approvals, expected characteristics of competing systems and
expected actions of third parties such as equipment suppliers, International
Licensees (as defined) and VARs (as defined). These forward looking statements
are inherently predictive and speculative and no assurance can be given that any
of such statements will prove to be correct. Actual results and developments may
be materially different from those expressed or implied by such statements. See
"Risk Factors" for a discussion of various factors that, among other things,
could result in any of such forward looking statements proving to be inaccurate.
All trademarks or trade names referred to in this Prospectus are the
property of their respective owners.
i
<PAGE> 5
[This Page Intentionally Left Blank.]
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. For
purposes of this Prospectus, unless otherwise indicated or the context otherwise
requires, references to "ORBCOMM" refer to ORBCOMM Global, L.P., a Delaware
limited partnership, and references to the "Company" refer to ORBCOMM
Corporation, a Delaware corporation and the issuer of the Common Stock. The
Company was incorporated in March 1998 for the sole purpose of investing in and
acting as a general partner of ORBCOMM. Unless otherwise indicated, all
information contained in this Prospectus assumes that: (i) the Underwriters'
over-allotment option is not exercised; and (ii) the Restructuring (as defined)
is complete. Prospective investors should carefully consider the specific
matters set forth under "Risk Factors" beginning on page 11, as well as the
other information and data included in this Prospectus.
THE COMPANY AND ORBCOMM
ORBCOMM Global, L.P. ("ORBCOMM") provides two-way monitoring, tracking and
messaging services through the world's first commercial low-Earth orbit ("LEO")
satellite-based data communications system. ORBCOMM believes that it will
provide a reliable, cost-effective method of providing fixed asset monitoring,
mobile asset tracking and messaging services to a broad range of customers
around the world, enabling such customers to collect data from multiple
locations, track assets on a global basis and transmit and receive short text
messages outside the coverage area of other systems.
The ORBCOMM system architecture employs a network of independently operated
satellites. As additional satellites are added to the ORBCOMM system, ORBCOMM is
able to provide enhanced service, including increased system capacity and
availability, and increased system redundancy. Thus, the ORBCOMM system is
designed to provide commercial service in the event of the loss or inoperability
of one or more satellites. ORBCOMM has launched 12 satellites to date and
expects to launch 16 additional satellites in the third quarter of 1998, which
will complete its planned 28-satellite constellation. An additional eight
satellites that will create a planned 36-satellite enhanced constellation with
increased capacity and improved service in equatorial regions are expected to be
launched in the third quarter of 1999.
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through ORBCOMM's initial two satellites, each of which has a
design life of four years beginning on the date it was placed in commercial
service. ORBCOMM has begun to place in commercial service satellites that were
launched in late 1997 and early 1998 and, as a result, ORBCOMM has begun to
offer commercial service on a broader basis. ORBCOMM expects to have the ability
to significantly expand its commercial services in the fourth quarter of 1998 in
the United States and other temperate zones (as defined), when 16 additional
satellites are expected to be placed in commercial service. Service outside the
United States will be expanded as the necessary ground infrastructure is
completed and the necessary regulatory approvals are received. Based on
ORBCOMM's experience, ground infrastructure is generally completed within 12 to
24 months after execution of a ground procurement contract and regulatory
approvals are generally received within two to 12 months after submission of a
regulatory application. Enhanced service in equatorial regions is expected to be
available in the fall of 1999, when the final eight satellites of the planned
36-satellite enhanced constellation are scheduled to be placed in commercial
service. Certain ORBCOMM system satellites have experienced anomalies or
outages. See "Risk Factors -- Technology Risks -- Design and Operation Risks;
Risk of Satellite Failure or Damage."
ORBCOMM is targeting specific markets for its data communications services,
including those in which potential customers currently have geographically
limited or otherwise inefficient methods of obtaining information. ORBCOMM's
current primary target markets include: (i) fixed asset monitoring services for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects; (ii) mobile asset tracking services for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels,
barges and government assets; and (iii) messaging services for consumers and
commercial and government entities. Future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign
<PAGE> 7
government applications. Based on market analyses conducted by and on behalf of
ORBCOMM, ORBCOMM estimates that the current addressable market worldwide for
data and messaging services of the type that can be provided by Little LEO (as
defined) systems such as ORBCOMM's is in excess of 160 million subscriber units.
ORBCOMM has made substantial progress toward its goal of full commercial
operation of the ORBCOMM system. ORBCOMM has entered into agreements with over
45 value-added resellers ("VARs"), each of which is authorized to market and
distribute ORBCOMM services within specific regions and to targeted industries
or markets. ORBCOMM has also established two internal value-added resellers
("Internal VARs") to market and distribute monitoring and tracking services to
the oil and gas and transportation industries. In addition, ORBCOMM has entered
into agreements with 13 international licensees ("International Licensees") that
are expected to market and distribute ORBCOMM services in over 95 countries
within North and South America, Europe, Asia, the Middle East and Africa
following completion of the necessary ground infrastructure and receipt of the
necessary regulatory and other approvals. ORBCOMM has also entered into
agreements with six subscriber unit manufacturers, Kyushu Matsushita Electric
Company, Ltd. (also known as "Panasonic"), Scientific-Atlanta, Inc., also a VAR
("Scientific-Atlanta"), Magellan Corporation ("Magellan"), Stellar Electronics
Ltd. ("Stellar"), Torrey Science Corporation ("Torrey") and Communications
Technology Inc. ("CTI"), and has type approved ten subscriber unit models for
commercial use with the ORBCOMM system. Four subscriber unit manufacturers have
commenced production of subscriber units that can be used for electric utility
meter, oil and gas storage tank, well and pipeline and environmental monitoring
and commercial truck, trailer, container, rail car, heavy equipment, fishing
vessel and government asset tracking applications. To date, ORBCOMM believes
that approximately 8,000 subscriber units have been produced, of which Panasonic
and Stellar have produced approximately 6,500 and 1,100 subscriber units,
respectively. To date, ORBCOMM believes that approximately 1,100 subscriber
units have been sold directly to entities other than ORBCOMM and its affiliates.
The ORBCOMM system consists of small and relatively inexpensive satellites
and subscriber units and a relatively low-cost ground infrastructure compared to
Big LEO (as defined) systems. Such systems are designed primarily to provide
voice services and require satellite systems that are estimated to cost between
$2 billion and $4.5 billion to construct and deploy. ORBCOMM expects that the
aggregate cost to design, construct, launch and place in commercial service the
planned 36-satellite enhanced constellation and design and construct the
associated ground infrastructure in the United States (the "U.S. Ground
Segment"), which includes an ORBCOMM system gateway (the "U.S. Gateway") and the
master network control center for the entire ORBCOMM network (the "Network
Control Center"), will be approximately $332 million through the third quarter
of 1999, when the final eight satellites of such enhanced constellation are
expected to be launched, of which approximately $256 million had been spent
through March 31, 1998, excluding capitalized interest. On consummation of the
Offering and the application of the net proceeds therefrom to purchase
partnership units in ORBCOMM ("Partnership Units"), and taking into account the
capital contributions of ORBCOMM's current partners and the net proceeds of the
Notes Offering (as defined) and the MetLife Note (as defined), ORBCOMM believes
that it will have sufficient funds to meet its anticipated net cash loss from
operations and capital needs through the third quarter of 1999, when the last
eight satellites of the planned 36-satellite enhanced constellation are expected
to be launched. See "Risk Factors -- Financing Risks -- Additional Funding
Requirements" and "Risk Factors -- Forward Looking Statements and Market
Estimates."
RISK FACTORS
See "Risk Factors" beginning on page 11 for a discussion of certain factors
that should be considered by prospective investors in the Common Stock offered
hereby including, among others, "-- Development Stage Enterprise -- Expectation
of Continued Net Losses," "-- Development Stage Enterprise -- Limited Operating
and Financial Data," "-- Technology Risks -- Design and Operation Risks; Risk of
Satellite Failure or Damage," "-- Technology Risks -- Launch Risks," and
"-- Technology Risks -- Schedule Delays."
2
<PAGE> 8
SERVICE OFFERINGS
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world. ORBCOMM intends to integrate the
ORBCOMM system with related applications software and hardware developed by or
for ORBCOMM, International Licensees or third parties that address the needs of
specific industries and market segments. ORBCOMM's estimates of the current
addressable market for various market segments, as set forth in this Prospectus,
are based on a review and analysis of secondary market data supplemented with
primary market research conducted by or on behalf of ORBCOMM.
Fixed Asset Monitoring. ORBCOMM believes its services will provide a means
of collecting data from assets in multiple locations around the world, thereby
allowing customers to monitor productivity, minimize "downtime" and realize
other operational benefits. Ultimately, ORBCOMM also expects to provide a method
of controlling the functions of such assets, for example, by remotely operating
valves, electrical switches and other devices, providing further operational,
economic and competitive advantages. Primary applications currently include or
are expected to include monitoring and control applications for: (i) electric
utility meters; (ii) oil and gas storage tanks and wells; (iii) oil and gas
pipelines; and (iv) environmental projects. Many of the customers for these
applications manage numerous, widely dispersed assets in locations not currently
or adequately served by other communications systems. ORBCOMM estimates that the
size of the addressable market for these applications worldwide is approximately
61 million subscriber units in 1998. ORBCOMM subscriber units are currently
being used for beta test or operational monitoring applications for electric
utility meters, oil and gas storage tanks, wells and pipelines and environmental
projects. Operational customers that are working with VARs and Internal VARs and
purchasing ORBCOMM services include: (i) Barton Instrument Systems, LLC ("Barton
Instrument"), which is working with one of the Internal VARs to test monitoring
systems for oil and gas storage tanks, wells and pipelines; and (ii) the Salt
River Valley Water Users' Association, which is working with Stevens Water
Monitoring Systems, Inc. ("Stevens Water Monitoring") on water monitoring
systems. Beta test customers include: (i) Florida Power Corporation ("Florida
Power"), which is working with Scientific-Atlanta to develop automatic meter
reading systems for commercial and residential customers; and (ii) Acanthus
Resource Ltd. ("Acanthus"), which is working with Intrex Data Communications
Group ("Intrex") to test monitoring systems for oil and gas pipelines.
Mobile Asset Tracking. ORBCOMM believes its services will provide a means
to regularly and reliably track the location and report the status or condition
of mobile assets around the world, thereby enabling customers to reduce
downtime, repair costs, theft and other losses, improve service and more
effectively utilize transportation, heavy equipment and other assets. Primary
applications currently include or are expected to include tracking and
monitoring applications for: (i) commercial trucks; (ii) trailers, containers
and rail cars; (iii) heavy equipment; (iv) fishing vessels and barges; and (v)
government assets. Certain of the customers in this market segment have no
efficient means of tracking the location and may have no means of monitoring the
status or condition of their assets. ORBCOMM estimates that the size of the
addressable market for certain of these applications worldwide is approximately
13 million subscriber units in 1998. ORBCOMM subscriber units are currently
being used for beta test or operational tracking applications for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels and
military vehicles. Operational customers that are working with VARs and Internal
VARs and purchasing ORBCOMM services include: (i) various fishing fleets that
are working with SASCO, Inc. ("SASCO") to test a fleet tracking and messaging
system; and (ii) Atlas Van Lines, which is working with Arinc, Inc. ("Arinc") to
test a trailer tracking system. Beta test customers include: (i) Caterpillar
Inc. ("Caterpillar"), which is working with Globitrac, Inc. ("Globitrac") to
test a heavy equipment tracking and engine monitoring system; (ii) the U.S.
Army, which is working with Arinc to test a military vehicle tracking system;
(iii) the U.S. Postal Service, which has worked with ARCO Global Tracking
Systems, Inc. ("ARCO") to test a commercial truck tracking system; and (iv)
Burlington Northern Santa Fe Railroad ("Burlington Northern"), which is working
with MobileNet, Inc. ("MobileNet") to deploy a roadway equipment asset tracking
and utilization monitoring system.
Messaging. The ORBCOMM system is designed to provide short, alphanumeric
two-way paging-like communications services on a global basis. ORBCOMM believes
that its customers will use the ORBCOMM
3
<PAGE> 9
system to transmit messages ranging in length from six to 200 characters.
ORBCOMM plans to introduce messaging services in the United States in the fall
of 1998 and thereafter on a global basis as the necessary ground infrastructure
is completed, the necessary regulatory approvals are received and, in equatorial
regions, as additional satellites are launched. ORBCOMM expects that messaging
customers will include a broad range of consumer, commercial and government
customers that require a means of communicating with various locations such as
their offices, dispatch centers, command posts or homes or that require the
ability to send priority messages or position information. Certain customers in
this market segment currently have no cost-effective alternatives or rely on
pagers, cellular phones or fleet dispatch systems, all of which services can be
expensive, unavailable or inconvenient in certain locations. ORBCOMM estimates
that the size of the addressable market for certain of these applications
worldwide is approximately 40 million subscriber units in 1998. ORBCOMM expects
that messaging subscriber units that can be used in the United States and
certain other regions will be commercially available from Magellan in mid-1998
and thereafter from one or more other manufacturers.
Future Applications. In addition to the addressable markets described
above for data and messaging services, future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. ORBCOMM estimates that the size of the
addressable markets for automotive and home security system applications is
approximately 52 million subscriber units in 1998.
DISTRIBUTION CHANNELS
ORBCOMM markets its services to customers within the United States
indirectly through VARs and directly through Internal VARs, and internationally
through International Licensees that may distribute ORBCOMM services directly or
through a distribution network.
VARs. ORBCOMM's VARs target industries or markets within specific regions.
Many VARs have an established market presence through their current customer
bases, industry knowledge, market-specific brand name recognition and
distribution networks. Such market experience and customer bases enable the VARs
to develop software and information systems for specific consumer, commercial
and government applications, thereby enhancing the functionality of the ORBCOMM
system. To date, ORBCOMM has entered into agreements with over 45 VARs,
including Scientific-Atlanta, Arinc, Sky-Eye Railway Services International
("Sky-Eye"), Intrex and Titan Industries, Inc. ("Titan").
Internal VARs. In 1997, ORBCOMM established two Internal VARs to market
and distribute monitoring and tracking services to the oil and gas and
transportation industries. The Internal VARs are working closely with customers
to develop and integrate the ORBCOMM system with related applications hardware
and software. The Internal VAR for fixed asset monitoring applications has begun
beta testing with several companies in the oil and gas industry. In the third
quarter of 1998, the second Internal VAR plans to begin beta testing for mobile
asset tracking applications with customers that include one of the largest
operators of trucking fleets in the United States. ORBCOMM may establish
additional Internal VARs to market and distribute applications to the automotive
and other industries and to provide messaging services.
International Licensees. Outside the United States, ORBCOMM will
distribute its services through International Licensees that are responsible
for, among other things, paying to ORBCOMM a monthly satellite usage fee and in
certain cases a license fee, procuring from ORBCOMM and installing the necessary
ground infrastructure, obtaining the necessary regulatory and other approvals
and marketing and distributing ORBCOMM services in their designated regions. As
of May 31, 1998, ORBCOMM had received approximately $18.4 million in fees and
other payments from the International Licensees. In 1998, ORBCOMM expects to
receive additional cash payments of approximately $40.0 million under agreements
with International Licensees assuming certain milestones are achieved,
including: (i) acceptance of Gateways by the International Licensees; (ii)
launch of additional satellites by ORBCOMM; and (iii) receipt of regulatory
approvals by the International Licensees. ORBCOMM has entered into agreements
with 13 International Licensees, including a European consortium led by Nuova
Telespazio, S.p.A., and a Japanese consortium that includes Okura & Co. Ltd.,
Mitsui & Co. Ltd., Kyushu Matsushita Electric Co. Ltd. and KDD Co. Ltd.
4
<PAGE> 10
These International Licensees are expected to market and distribute ORBCOMM
services in over 95 countries following completion of the necessary ground
infrastructure and receipt of the necessary regulatory and other approvals in
their respective regions. ORBCOMM continues to negotiate with potential
International Licensees and expects to execute agreements with several
additional International Licensees during 1998. ORBCOMM or the International
Licensees or third parties have received full or limited regulatory approvals in
a total of 14 countries. In particular, in addition to the United States, full
regulatory approvals to provide ORBCOMM services have been received in Canada,
Japan and Malaysia. ORBCOMM, through the International Licensees and other third
parties, currently has temporary, experimental, testing and demonstration or
business licenses in Germany, Italy, South Korea, Spain, Sweden, Northern
Ireland, Argentina, Chile, South Africa, Iceland and Namibia, which 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.
BUSINESS STRATEGY
Key components of ORBCOMM's business strategy include:
Reliable, Global Coverage. ORBCOMM believes that the integration of proven
technologies into the ORBCOMM system and the redundancy provided by the ORBCOMM
satellite constellation will enable it to provide reliable, global, two-way data
and messaging communications services. ORBCOMM's distributed constellation
architecture, consisting of numerous LEO satellites, is designed not only to
provide global coverage but also to reduce potential risks associated with the
loss or outage of one or more satellites.
First-to-Market Advantage. ORBCOMM began providing limited commercial
service in the United States in February 1996 and expects to have the ability to
provide expanded service in the United States and other temperate zones in the
fourth quarter of 1998 and enhanced service in equatorial regions in the fall of
1999. Based on published reports, ORBCOMM believes that other Little LEO
constellations are not expected to be fully operational until after the year
2000. ORBCOMM believes being first to market with its Little LEO system provides
it with the opportunity to achieve a significant competitive advantage and
therefore a greater market penetration because of its ability to: (i) establish
certain industry standards for hardware and software applications; (ii)
demonstrate the ORBCOMM system in an actual operating environment; (iii) deploy
an installed base of subscriber units; (iv) solidify customer relationships; and
(v) create relationships with leading VARs, International Licensees, subscriber
unit manufacturers and other hardware and software developers.
Affordable and Convenient Service. ORBCOMM believes that its small and
relatively inexpensive satellites and subscriber units and relatively low-cost
ground infrastructure will enable it to provide customers with affordable and
convenient data and messaging communications services. ORBCOMM monitoring and
tracking subscriber units are small and lightweight, with substantial battery
lives, and are available from suppliers at initial prices generally ranging from
$250 to $750. ORBCOMM believes that as more subscriber units become commercially
available and as the overall production volume for subscriber units increases,
the price for subscriber units will decline.
Global Marketing and Distribution of Services. ORBCOMM believes that it
can rapidly achieve a global presence by capitalizing on the customer
relationships, technical expertise and other resources of the VARs, Internal
VARs and International Licensees. Many of the VARs and International Licensees
have an established market presence as a result of their current customer bases,
industry knowledge, market-specific brand name recognition and distribution
networks. The Internal VARs enable ORBCOMM to broaden its distribution base, to
capture additional revenue resulting from value-added hardware, software and
services provided directly to customers and to facilitate the development of
application hardware and software that can hasten market development by ORBCOMM
and the VARs in the United States and by the International Licensees
internationally.
Commitment and Expertise of Strategic Partners. Orbital Sciences
Corporation ("Orbital"), through Orbital Communications Corporation ("OCC"), and
Teleglobe Inc. ("Teleglobe") and Teleglobe's partner Technology Resources
Industries Bhd. ("TRI"), through Teleglobe Mobile Partners ("Teleglobe Mobile"),
had invested an aggregate of approximately $190 million in ORBCOMM through May
31, 1998. Orbital is a
5
<PAGE> 11
U.S.-based space and information systems company, with 1997 revenues of
approximately $600 million, that designs, manufactures, operates and markets a
broad range of space-related products and services, including the manufacture
and launch of the ORBCOMM satellites. Teleglobe is a North American-based
overseas telecommunications carrier, with 1997 revenues of approximately C$2
billion (approximately US$1.4 billion), whose network and service capabilities
(including voice, data, Internet and value-added services) can be accessed in
virtually all countries. TRI is a Malaysian holding company, with 1997 revenues
of approximately RM2 billion (approximately US$500 million), that controls the
largest cellular operator in Malaysia and has established cellular operations in
Bangladesh, Cambodia and Tanzania. ORBCOMM has used and will continue to use the
expertise and capabilities of its current partners, including their expertise in
the design, construction and launch of satellites and the marketing and
operation of communications networks, to enhance the services offered by the
ORBCOMM system.
STRUCTURE
On consummation of the Offering and the application of the net proceeds
therefrom to purchase Partnership Units, the Company will become a general
partner of ORBCOMM and is expected to own approximately 19.6% of the outstanding
Partnership Units (approximately 21.8% if the Underwriters' over-allotment
option is exercised in full). On consummation of the Offering, each of OCC and
Teleglobe Mobile, the current general partners (together with the Company, the
"General Partners") of ORBCOMM, will own approximately 40.2% of the outstanding
Partnership Units (approximately 39.1% if the Underwriters' over-allotment
option is exercised in full). Unless otherwise indicated, the term "Partners"
includes the Company, OCC and Teleglobe Mobile and any partners subsequently
admitted as partners of ORBCOMM, collectively.
On consummation of the Offering: (i) each of OCC and Teleglobe Mobile will
contribute to ORBCOMM their respective two percent partnership interests in
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International" and, together with ORBCOMM USA, the "Marketing
Partnerships"), two limited partnerships that were previously formed for the
purpose of marketing ORBCOMM services in the United States and internationally,
respectively, dissolve each of the Marketing Partnerships and amend or terminate
certain agreements to which either or both of the Marketing Partnerships is a
party; and (ii) OCC, Teleglobe Mobile and the Company will enter into the
Amended and Restated Agreement of Limited Partnership of ORBCOMM Global, L.P.
(the "Partnership Agreement") and the Company will be admitted as a General
Partner of ORBCOMM (collectively, the "Restructuring"). ORBCOMM and the
Marketing Partnerships are collectively referred to as ORBCOMM. See "The Company
and Relationships Among the ORBCOMM Parties" for a description and diagram of
the organizational structure. See also "Certain Relationships and Related
Transactions" and "Description of the Partnership Agreement."
RECENT DEVELOPMENTS
In connection with the Offering, ORBCOMM solicited (the "Consent
Solicitation"), and has received the consent of, the registered holders (the
"Holders") of its 14% Senior Notes due 2004 with Revenue Participation Interest
(the "Notes") to amend certain provisions of the indenture (the "Indenture")
dated August 7, 1996, among ORBCOMM, ORBCOMM Global Capital Corp., the
guarantors named therein and Marine Midland Bank, as trustee. The amendments
permit the Offering and facilitate other business objectives. The amendments
will become operative on consummation of the Offering. See "Description of the
Senior Notes -- Amendments to the Indenture."
Since late December 1997, ORBCOMM has launched ten satellites, four of
which have been placed in commercial service to date. ORBCOMM expects to place
the remaining six satellites in commercial service by the end of the third
quarter of 1998. Certain satellites have experienced anomalies and outages. See
"Risk Factors -- Technology Risks -- Design and Operation Risks; Risk of
Satellite Failure or Damage."
The principal executive offices of each of ORBCOMM and the Company are
located at 2455 Horse Pen Road, Suite 100, Herndon, Virginia 20171 and their
telephone number is (703) 406-6000. ORBCOMM's Internet address is
http://www.orbcomm.com.
6
<PAGE> 12
SOURCES AND USES OF FUNDS BY ORBCOMM
(IN MILLIONS)
The following table summarizes the estimated sources and uses of funds by
ORBCOMM for the period from June 30, 1993 (date of inception) through the third
quarter of 1999. The projection of total sources and uses of funds is forward
looking and could vary, perhaps substantially, from actual results and events,
some of which may be outside of ORBCOMM's control, including unanticipated
expenses and delays. See "Risk Factors -- Forward Looking Statements and Market
Estimates."
ORBCOMM believes that the net proceeds of the Offering and the application
of the net proceeds therefrom to purchase Partnership Units, the capital
contributions of ORBCOMM's current partners and the net proceeds of the Notes
Offering and the MetLife Note will be sufficient to fund ORBCOMM's anticipated
net cash loss from operations and capital expenditures through the third quarter
of 1999, when the final eight satellites of the planned 36-satellite enhanced
constellation are expected to be launched. ORBCOMM's ability to generate
revenues is subject to numerous uncertainties. Additional funds may be necessary
in the event of launch or other delay, loss or inoperability of satellites, cost
overruns or any shortfall in estimated levels of operating cash flows, or to
meet other unanticipated expenses. There can be no assurance that ORBCOMM will
be able to obtain any such additional financing on favorable terms, on a timely
basis or at all. See "Risk Factors -- Technology Risks -- Schedule Delays,"
"Risk Factors -- Technology Risks -- Cost Increases," "Risk Factors -- Financing
Risks -- Additional Funding Requirements" and "Risk Factors -- Forward Looking
Statements and Market Estimates."
<TABLE>
<CAPTION>
SOURCES OF FUNDS
----------------
<S> <C>
Current Partners' capital(1)......... $190
Net proceeds of the sale of the
Notes(2)........................... 164
Net proceeds of the Offering(3)...... 114
Other indebtedness................... 5
----
Total sources.............. $473
====
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
ORBCOMM system:
Satellite construction and launch
services........................ $244
U.S. Ground Segment(4)............. 39
Insurance.......................... 17
Other system costs(5).............. 32
----
Total system costs(6)...... 332
Debt repayment and interest
expense(7)......................... 78
Cash used in or available for
operations(8)...................... 63
----
Total uses................. $473
====
</TABLE>
- ---------------
(1) All $190 million was invested by OCC and Teleglobe Mobile in ORBCOMM as of
May 31, 1998.
(2) Represents $170 million of gross proceeds of the offering of the Notes (the
"Notes Offering"), including funds used to purchase a portfolio of U.S.
government securities pledged as security for repayment of principal and
interest on the Notes (the "Pledged Securities") in an amount sufficient to
make scheduled interest payments on the Notes through August 15, 1998, less
discounts and commissions and other expenses of the Notes Offering. See
"Description of the Senior Notes."
(3) Reflects the purchase by the Company of 7,600,000 Partnership Units with the
net proceeds of the Offering, assuming an initial public offering price of
$16.50 per share of Common Stock (the mid-point of the estimated initial
public offering price range set forth on the cover page of this Prospectus)
and total net proceeds to the Company from the Offering of $114.4 million
(after expenses of the Offering, estimated to be $2.5 million).
(4) Represents the total costs to design and construct the U.S. Ground Segment.
Assumes that costs to construct Gateways located outside of the United
States are incurred by International Licensees. See "Risk
Factors -- Operating Risks -- Reliance on Third Parties -- Reliance on
International Licensees."
(5) Represents certain project management costs; engineering costs related to
laboratory facilities, test equipment and product development; development
and certain operating costs associated with the ORBCOMM customer care and
billing system; and other costs.
(6) Through March 31, 1998, ORBCOMM spent approximately $255.9 million on
satellite constellation design, construction and launch services, design and
construction of the U.S. Ground Segment and insurance and other system costs
(excluding $40.5 million of capitalized interest).
(7) Represents required fixed interest payments on the Notes and scheduled
payments of principal and interest (at an interest rate of 9.2% per annum)
related to the Loan and Security Agreement dated December 22, 1994 between
MetLife Capital Corporation ("MetLife") and ORBCOMM (the "MetLife Note"), in
each case through the third quarter of 1999. Through March 31, 1998, ORBCOMM
spent $43.5 million in debt repayment and interest expense.
(8) Through March 31, 1998, ORBCOMM spent $60.8 million in operating and other
related costs (including cost of product sales, engineering, marketing and
general administrative and other expenses, and working capital). The balance
of cash used in or available for operations is available to cover operating
expenses through the third quarter of 1999. There can be no assurance that
such funds, together with the sources of funds set forth above, will be
sufficient to cover such expenses. See "Risk Factors -- Financing Risks --
Additional Funding Requirements."
7
<PAGE> 13
SUMMARY FINANCIAL DATA
THE COMPANY
The summary financial data of the Company presented below as of March 31,
1998 are derived from the audited balance sheet of the Company. The summary
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's balance sheet as of March 31, 1998 and the notes thereto and ORBCOMM's
combined financial statements as of December 31, 1996 and 1997 and for each of
the years in the three-year period ended December 31, 1997 and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (1)
------ ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Investments in ORBCOMM...................................... $ -- $114,400
Total assets................................................ -- 114,400
Total stockholders' equity.................................. -- 114,400
</TABLE>
- ------------------------------
(1) As adjusted to reflect the issuance and sale by the Company of the 7,600,000
shares of Common Stock offered hereby, assuming an initial public offering
price of $16.50 per share of Common Stock (the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), total net proceeds to the Company of the Offering of $114.4
million and an aggregate purchase price of approximately $114.4 million for
the 7,600,000 Partnership Units purchased by the Company. See "Use of
Proceeds" and "Capitalization."
ORBCOMM
The summary combined financial data of ORBCOMM presented below under the
captions "Combined Statements of Operations Data" and "Combined Balance Sheets
Data" for, and as of, each of the years in the five-year period ended December
31, 1997, are derived from the audited combined financial statements of ORBCOMM.
The summary combined financial data of ORBCOMM presented below under the
captions "Combined Statements of Operations Data" and "Combined Balance Sheets
Data" for, and as of, each of the three months ended March 31, 1997 and 1998,
are derived from ORBCOMM's unaudited combined financial statements, which, in
management's opinion, reflect all normal recurring adjustments necessary to
fairly present this information when read in conjunction with the combined
financial statements and the notes thereto included elsewhere in this
Prospectus. The summary combined financial data set forth below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and ORBCOMM's combined financial statements as of
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997 and the notes thereto included elsewhere in this
Prospectus.
8
<PAGE> 14
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
---- ------ ------ -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF
OPERATIONS DATA:
Total revenues (1)............. $749 $2,093 $2,260 $ 400 $ 268 $ 127 $ 305
Cost of product sales.......... -- -- -- 268 517 124 286
Depreciation................... -- -- -- 6,198 7,348 1,718 1,903
Engineering expenses (2)....... -- -- -- 5,453 8,160 1,580 2,654
Marketing expenses............. 749 2,093 2,232 6,832 10,673 1,847 4,278
General, administrative and
other
expenses..................... -- 9 50 4,777 9,722 1,305 2,090
Interest income, net........... -- -- 59 3,554 4,545 2,016 218
---- ------ ------ -------- -------- ------- --------
Net income (loss).............. $ -- $ (9) $ 37 $(19,574) $(31,607) $(4,431) $(10,688)
==== ====== ====== ======== ======== ======= ========
OTHER DATA: (3)
Number of VARs................. -- 2 15 29 41 34 45
Number of International
Licensees.................... -- -- 1 5 12 7 13
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(4)
-------- --------------
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
<S> <C> <C>
COMBINED BALANCE SHEETS DATA:
Cash, cash equivalents and investments (5).................. $ 32,035 $146,435
ORBCOMM system, net (6)..................................... 280,916 280,916
Total assets................................................ 345,799 460,199
Total long-term debt........................................ 172,015 172,015
Total Partners' capital..................................... 115,467 229,867
</TABLE>
- ------------------------------
(1) ORBCOMM is a development stage enterprise. Total revenues for the years
ended December 31, 1993, 1994 and 1995 represent a non-refundable fee
received from a potential International Licensee and revenues from OCC with
respect to certain marketing costs.
(2) Prior to 1996, ORBCOMM capitalized substantially all engineering expenses as
part of the total costs of the ORBCOMM system. See footnote 6 below.
(3) Other Data is calculated as of the end of the period presented.
(4) Reflects the purchase by the Company of 7,600,000 Partnership Units with the
net proceeds of the Offering, assuming an initial public offering price of
$16.50 per share of Common Stock (the mid-point of the estimated initial
public offering price range set forth on the cover page of this Prospectus)
and total net proceeds to the Company from the Offering of $114.4 million
(after expenses of the Offering, estimated to be $2.5 million).
(5) Includes the aggregate principal amount of Pledged Securities of
approximately $10.6 million and the amount in a segregated account related
to the MetLife Note of approximately $2.5 million, respectively. See
"Description of the Senior Notes."
(6) Represents the aggregate costs of satellite constellation design,
construction and launch services, design and construction of the U.S. Ground
Segment and insurance and other system costs (including $40.5 million of
capitalized interest), net of accumulated depreciation.
9
<PAGE> 15
THE OFFERING
Offering...................... 7,600,000 shares
Common Stock to be outstanding
after the Offering.......... 7,600,000 shares (1)(2)
Use of Proceeds............... The net proceeds of the Offering are estimated
to be approximately $114.4 million
(approximately $132.0 million if the
Underwriters' over-allotment option is
exercised in full) assuming an initial public
offering price of $16.50 per share (the
mid-point of the estimated initial public
offering price range set forth on the cover
page of this Prospectus). The net proceeds of
the Offering will be used by the Company to
purchase 7,600,000 Partnership Units,
representing approximately 19.6% of the
outstanding Partnership Units of ORBCOMM
(8,740,000 Partnership Units, representing
approximately 21.8% of the outstanding
Partnership Units of ORBCOMM if the
Underwriters' over-allotment option is
exercised in full). ORBCOMM will use the net
proceeds of the sale of Partnership Units to
the Company primarily for: (i) the design,
construction and launch of the planned
36-satellite enhanced constellation, including
amounts payable to Orbital under the
Procurement Agreement (as defined) as of
consummation of the Offering ($34.9 million as
of May 31, 1998); (ii) related development,
operating and marketing expenses, including
expenses incurred in connection with Internal
VARs; (iii) the payment of interest on the
Notes and scheduled payments of principal and
interest on the MetLife Note; (iv) the payment
of fees and expenses of the Consent
Solicitation; and (v) other general corporate
purposes related to commercial deployment of
the ORBCOMM system. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol................. "ORBC"
ORBCOMM Partnership Units
outstanding after the
Offering.................... 38,801,310 Partnership Units(1)(2)
- ------------------------------
(1) If the Underwriters' over-allotment option is exercised in full, there will
be 8,740,000 shares of Common Stock and 39,941,310 Partnership Units
outstanding immediately following the Offering and the Company will own
8,740,000 Partnership Units.
(2) Excludes options issued under the Orbital Communications Corporation 1992
Stock Option Plan (the "OCC Stock Option Plan"), which on consummation of
the Offering are expected to be converted into options to purchase shares of
Common Stock reserved for issuance under the 1998 Equity Plan of ORBCOMM
Corporation and ORBCOMM Global, L.P. (the "Equity Plan"), of which, assuming
such conversion had taken place, options to purchase 3,320,797 shares of
Common Stock have been granted and options to purchase 1,635,892 shares of
Common Stock were exercisable at May 31, 1998 at a weighted average exercise
price of $6.60 per share. See "Management -- Equity Plan."
10
<PAGE> 16
RISK FACTORS
An investment in the Common Stock offered hereby is speculative in nature
and involves a high degree of risk. Because the sole asset of the Company will
be its Partnership Units in ORBCOMM, prospective investors should carefully
consider the following risk factors related to both the Company and ORBCOMM, in
addition to the other information contained elsewhere in this Prospectus, in
evaluating whether to make an investment in the Company prior to purchasing
shares of Common Stock in the Offering.
DEVELOPMENT STAGE ENTERPRISE
EXPECTATION OF CONTINUED NET LOSSES. ORBCOMM is a development stage
enterprise that has generated only nominal revenues from its limited operations
to date. ORBCOMM has incurred cumulative net losses of $61.8 million through
March 31, 1998 and expects losses to continue for at least the next two years.
ORBCOMM commenced limited commercial service in the United States in February
1996 with the first two satellites in the planned 36-satellite enhanced
constellation. ORBCOMM's activities have focused primarily on the acquisition of
U.S. regulatory approvals for the operation of the ORBCOMM system, the design,
construction and launch of satellites, the design and construction of associated
ground network and operating systems (including associated software), the
development of subscriber unit manufacturing sources, the negotiation of
agreements with VARs and International Licensees, the development of Internal
VARs, the development of customer software and hardware applications,
preliminary marketing and sales activities associated with ORBCOMM's limited
commercial operations to date and the hiring of key personnel. The continued
development of ORBCOMM's business will require significant capital expenditures,
a substantial portion of which will need to be incurred prior to the time, if
any, that ORBCOMM realizes significant revenues from the ORBCOMM system.
Together with ORBCOMM's operating expenses, these capital expenditures will
result in negative cash flows until such time, if any, as ORBCOMM establishes an
adequate revenue-generating customer base. No assurances can be given that, or
when, ORBCOMM will have positive cash flows or become profitable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LIMITED OPERATING AND FINANCIAL DATA. Prospective investors have limited
operating and financial data about ORBCOMM on which to base an evaluation of
ORBCOMM's business performance or an investment in the Common Stock. To date,
ORBCOMM has conducted only limited commercial operations. ORBCOMM's ability to
provide commercial service in key markets or on a global basis and to generate
positive operating cash flows will depend on its ability to, among other things:
(i) successfully construct, launch, place in commercial service, operate and
maintain the ORBCOMM satellites in a timely and cost-effective manner; (ii)
develop and integrate the various ORBCOMM system segments (including the
satellites, the ground and control infrastructure and the hardware and software
used in connection with customer applications); (iii) 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; (iv) install the necessary ground infrastructure and
obtain the necessary regulatory and other approvals outside the United States
through its existing or future International Licensees; and (v) provide for the
timely design, manufacture and distribution of subscriber units in sufficient
quantities, with appropriate functional characteristics and at a competitive
price, for various applications. Given ORBCOMM's limited operating history,
there can be no assurance that it will be able to achieve these objectives or
develop a sufficiently large revenue-generating customer base to achieve
profitability. See "-- Technology Risks -- Design and Operation Risks; Risk of
Satellite Failure or Damage."
TECHNOLOGY RISKS
DESIGN AND OPERATION RISKS; RISK OF SATELLITE FAILURE OR
DAMAGE. Individual ORBCOMM satellites have limited internal redundancy against
technical failure. A number of factors will affect the useful lives of the
ORBCOMM satellites, including the quality of design and construction, the
expected gradual environmental degradation of solar panels, batteries and
electronics or other components, the durability of component parts and the
orbits in which the satellites are placed. Random failure of satellite
components could result in damage to or loss of one or more satellites. In some
cases, satellites could be damaged or destroyed by
11
<PAGE> 17
electrostatic storms, high levels of radiation or, in rare cases, collisions
with other objects. There can be no assurance that the longevity of an ORBCOMM
satellite will not be affected by any of these or other factors or events.
Premature failure or interruption of satellites, including temporary
losses, that for whatever reason are not promptly corrected or replaced, could,
among other things, cause gaps in service availability, significantly degrade
service quality and result in loss of revenue for the period that service is
compromised and, as a result, could have a material adverse effect on ORBCOMM's
financial condition and results of operations.
Since late December 1997, ORBCOMM has launched ten satellites. To date,
ORBCOMM has placed four of these satellites in commercial service. Eight of the
satellites launched since December 1997 experienced an anomaly in their solar
power system resulting in reduced power margins. ORBCOMM believes, based on
tests performed to date, that these satellites, all of which were designed to
produce approximately 225 watts of power, are currently capable of producing
between approximately 120 to 220 watts of power, which is greater than the power
required to operate the satellites. Accordingly, ORBCOMM believes that each
satellite will be capable of producing sufficient power to meet its planned
service requirements during its design life.
Of the satellites experiencing power anomalies, two satellites have
experienced an anomaly in their subscriber transmitters that currently results
in the inability of such satellites to transmit data to subscriber units.
Orbital and ORBCOMM are developing software that is intended to bypass the
anomaly so that such satellites can perform substantially all of their
functions, although, even if successful, the coverage footprint of the affected
satellites will be reduced. Orbital and ORBCOMM are also taking similar action,
with a similar effect, to reduce the likelihood that such an anomaly will occur
with respect to the other in-orbit satellites launched since December 1997.
Orbital and ORBCOMM believe they have identified the reason for both of these
anomalies and that they are being addressed on future satellites.
With respect to its initial two satellites launched in April 1995, ORBCOMM
has experienced certain technical difficulties including outages of certain
electronic systems and subsystems, resulting in the inability during such
outages to process customer communications. Since mid-February 1998, one of the
initial two satellites launched in April 1995 has been experiencing such an
outage.
There can be no assurance that Orbital and ORBCOMM will be successful in
resolving these anomalies or outages or that similar anomalies or outages will
not occur on any of the ORBCOMM satellites. The inability to resolve or prevent
such anomalies or outages could have a material adverse effect on ORBCOMM's
ability to provide service, financial condition and results of operations.
LAUNCH RISKS. Under its current timetable, ORBCOMM plans to launch 16
additional satellites on two separate launch vehicles in the third quarter of
1998 and plans to launch eight additional satellites on one launch vehicle in
the third quarter of 1999. For the ORBCOMM system to function at maximum design
efficiency, each individual plane of satellites comprising the ORBCOMM
constellation must be launched into its proper orbit. See " -- Design and
Operation Risks; Risk of Satellite Failure or Damage."
Satellite launches are subject to significant risks, including failure of
the launch vehicle, which may result in disabling damage to or loss of the
satellites, or failure of the satellites to achieve their proper orbits. In
addition, the risk of a material adverse effect associated with a launch failure
is increased because each launch vehicle contains multiple ORBCOMM satellites.
There can be no assurance that any of the remaining ORBCOMM satellite launches
will be successful.
To date, ORBCOMM has successfully launched a total of 12 satellites into
their proper orbits. ORBCOMM has contracted with Orbital to provide three
separate Pegasus launch vehicles to launch the remaining 24 satellites, eight
per Pegasus launch vehicle.
Orbital's Pegasus launch vehicle has experienced launch failures from time
to time. Orbital has conducted 21 Pegasus missions, with approximately a 90%
success rate. There are a number of additional Pegasus launches currently
planned during the scheduled launch period for the remaining ORBCOMM
12
<PAGE> 18
satellites, and the failure of any one of these launch vehicles could result in
a delay in the planned launch of such satellites.
Under the Procurement Agreement, Orbital bears the risk of Pegasus launch
failures occurring prior to the release of the launch vehicle from Orbital's
L-1011 aircraft. Thereafter, title to, and the risk of loss of, the launch
vehicle and the satellites passes to ORBCOMM. ORBCOMM's remedies under the
Procurement Agreement are limited to non-payment of certain milestone and
satellite performance payments and termination of the Procurement Agreement.
ORBCOMM's insurance against the loss of a launch vehicle and its satellite
payload is limited. See "-- Limited Insurance." As a result, in the event of a
launch failure, ORBCOMM may be required to make significant additional capital
expenditures to purchase additional satellites to deploy the ORBCOMM system as
currently planned. In addition, in the event that sufficient satellites were not
then available, alternative launches would be delayed pending assembly of
additional satellites. Similar delays could result in the event that Orbital is
unable to provide launch services for the remaining satellites and ORBCOMM is
required to procure launch services from an alternative source.
Orbital's Pegasus vehicle is launched from beneath a modified Lockheed
L-1011 aircraft owned by Orbital. In the event the modified L-1011 is
unavailable for any reason, ORBCOMM would experience significant timing delays
as a result of Orbital having to acquire and modify a new aircraft or ORBCOMM
having to arrange for the launch of the satellites using an alternative aircraft
or by means of a ground launch. There can be no assurance that another aircraft
could be obtained and properly modified or that alternate launch services could
be obtained on a timely or cost-effective basis, if at all. See "-- Schedule
Delays" and "-- Cost Increases."
The failure of any of ORBCOMM's remaining satellite launches or the
potential need to procure launch services from an alternative source could
result in significant delays and increased costs in the deployment of the
ORBCOMM system. See "-- Schedule Delays" and "-- Cost Increases."
SCHEDULE DELAYS. The launch of the satellites in the ORBCOMM constellation
has been delayed primarily due to enhancements made to the design of the ORBCOMM
satellites based on, among other things, information obtained from the operation
of the two satellites launched in April 1995 and subcontractor late deliveries.
At the time of the Notes Offering in August 1996, ORBCOMM anticipated that it
would have launched a total of 28 satellites by the end of 1997. Through the end
of the third quarter of 1998, ORBCOMM expects to have launched a total of 28
satellites.
Additional delays in the construction, launch and implementation of the
ORBCOMM system could result from a variety of causes, including, among others:
(i) delays encountered in the construction, integration and testing of the
ORBCOMM system; (ii) launch delays or failures; (iii) delays caused by design
reviews in the event of a launch vehicle failure or a loss of satellites or
other events beyond the control of ORBCOMM; (iv) the failure of ORBCOMM to enter
into, at the times or on the terms expected by ORBCOMM, VAR and International
Licensee agreements for additional markets or territories; (v) the failure to
develop effective applications for use with the ORBCOMM system; and (vi) the
failure of International Licensees to install and accept international Gateways,
to obtain the necessary regulatory approvals or to successfully distribute
ORBCOMM services internationally. There can be no assurance that the ORBCOMM
satellites or the ORBCOMM data and messaging communications services will be
available on a timely basis, or at all, or that other factors, some of which are
beyond the control of ORBCOMM, will not result in a delay in construction,
launch and implementation of the ORBCOMM system. A significant delay in the
completion of the ORBCOMM system could erode the competitive position and
first-to-market advantage of ORBCOMM and could have a material adverse effect on
ORBCOMM's financial condition and results of operations. See "-- Design and
Operation Risks; Risk of Satellite Failure or Damage" and "-- Launch Risks."
COST INCREASES. Due to the increased costs associated with modifications
and enhancements made to the ORBCOMM system, ORBCOMM's current estimate of the
total funds required for satellite constellation design, construction and launch
services, design and construction of the U.S. Ground Segment and insurance and
other system costs (excluding capitalized interest expense) is approximately
$332 million through the third quarter of 1999, when the final eight satellites
of the planned 36-satellite enhanced constellation are expected to be launched,
as compared to approximately $258 million estimated in August 1996. Approxi-
13
<PAGE> 19
mately $27 million of this increase is attributable to the planned launch of a
plane of eight satellites in an equatorial orbit to create the planned
36-satellite enhanced constellation, which plane was not included in the August
1996 estimate.
Additional increases in the costs of the ORBCOMM system could result from a
variety of causes, including, among others: (i) launch failures; and (ii)
further modification of the design of all or a portion of the ORBCOMM system in
the event of, among other things, technical difficulties or changes in
regulatory requirements. Significant cost increases related to the construction,
launch and implementation of the ORBCOMM system could have a material adverse
effect on ORBCOMM's financial condition and results of operations. See
"-- Design and Operation Risks; Risk of Satellite Failure or Damage," "-- Launch
Risks" and "-- Financing Risks -- Additional Funding Requirements."
INTEGRATION RISKS. While the ORBCOMM system has successfully transmitted
in excess of one million messages, the ORBCOMM system is exposed to the risks
inherent in a large-scale complex communications system employing advanced
technologies. The operation of the ORBCOMM system requires the detailed design
and integration of communications technologies and devices ranging from
satellites operating in space to Gateways located around the world. There can be
no assurance that, even if built to specifications, the ORBCOMM system will
function as expected in a timely and cost-effective manner. The failure of any
of the diverse and dispersed elements to function and coordinate as required
could delay the full deployment of the ORBCOMM system or render it unable to
perform at the quality and capacity levels required for successful operation of
ORBCOMM's business.
LIMITED INSURANCE. ORBCOMM has limited insurance against losses arising
out of launch failures. ORBCOMM's next planned Pegasus launch (the "Second
Pegasus Launch") is insured only as to the replacement value of the launch
vehicle in the event of a launch vehicle failure. Unless there is a loss of
three or more satellites in the plane of eight satellites launched in December
1997, the Second Pegasus Launch will not be insured as to the satellite payload
of eight satellites. The Pegasus launch scheduled to follow the Second Pegasus
Launch (the "Third Pegasus Launch") is insured as to the replacement of the
launch vehicle in the event of a launch vehicle failure. The Third Pegasus
Launch is also insured as to the satellite payload of eight satellites, but only
if the Second Pegasus Launch fails, causing the loss of three or more satellites
or if there is a loss of three or more satellites in either of the planes of
eight satellites that were launched prior to the Third Pegasus Launch. With
respect to the Pegasus launch of an equatorial plane of eight satellites planned
to occur in the third quarter of 1999 (the "Fourth Pegasus Launch"), in the
event that either the Second Pegasus Launch or the Third Pegasus Launch fails,
resulting in the loss of three or more satellites, or if there is a loss of
three or more satellites in any of the planes of eight satellites that were
launched prior to the Fourth Pegasus Launch, ORBCOMM has insurance that would
cover the costs of obtaining a replacement launch vehicle and eight replacement
satellites. In the event that neither the Second Pegasus Launch nor the Third
Pegasus Launch fails, resulting in the loss of three or more satellites, ORBCOMM
does not currently have insurance that would cover the costs of obtaining a
replacement launch vehicle or eight replacement satellites; however, ORBCOMM
expects to obtain insurance for such circumstances prior to such launch assuming
such insurance is available on commercially reasonable terms.
ORBCOMM has 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 on a Taurus launch vehicle. ORBCOMM has procured satellite
insurance against the in-orbit failure of satellites in each of the first three
planes of eight satellites it has launched or will launch using the Pegasus
launch vehicle (including the plane of eight satellites launched in December
1997). This in-orbit insurance covers all eight satellites in a single plane for
a period of five years after the successful placement in orbit of such plane,
but only in the event that three or more in-orbit satellites in such plane fail
after their successful placement in orbit, and only if three or more satellites
originally intended as ground spares have been used to replace satellites lost
in an unsuccessful launch or as a result of in-orbit failure.
As is typically the case with satellite insurance policies, in the event
there is a covered loss under ORBCOMM's insurance policy for the ORBCOMM
constellation, prior to the occurrence of the next event
14
<PAGE> 20
that would be subject to such policy, ORBCOMM will be required to satisfy the
insurance underwriters that it has addressed the technological and/or other
issues associated with the covered loss.
The space segment of the ORBCOMM system is subject to significant risks,
including the risk of failure of the launch vehicle, failure of the satellites
to achieve their proper orbits and in-orbit satellite failure. There can be no
assurance that the insurance obtained by ORBCOMM will provide adequate
mitigation of the adverse impact on ORBCOMM of a loss of satellites or launch
vehicles. See "-- Design and Operation Risks; Risk of Satellite Failure or
Damage" and "-- Launch Risks."
LIMITED LIFE OF SATELLITES; COST OF MAINTAINING THE SPACE SEGMENT. The
ORBCOMM satellites, which constitute a substantial portion of ORBCOMM's total
assets, will have a limited useful life. The first generation satellites (with
the exception of the initial two satellites currently in orbit, each of which
has a design life of four years beginning on the date it was placed in
commercial service) are designed to operate for eight years. There can be no
assurance that any satellite will actually achieve such a useful life. See
"-- Design and Operation Risks; Risk of Satellite Failure or Damage."
ORBCOMM anticipates using funds generated from operations to develop a
second generation of satellites. If sufficient funds from operations are not
available and ORBCOMM is unable to obtain financing for the second generation
satellite constellation, ORBCOMM will not be able to launch a second generation
satellite constellation to replace first generation satellites at the end of
their useful lives. There can be no assurance that additional capital will be
available to develop the second generation of satellites on favorable terms or
on a timely basis, if at all. See "-- Financing Risks -- Additional Funding
Requirements."
TECHNOLOGICAL CHANGE. The communications industry is characterized by
continuous technological change. Future technological advances in the
communications industry may result in the availability of new services, products
or information delivery methods that could compete with, or render obsolete, the
monitoring, tracking and messaging services that ORBCOMM provides or intends to
provide. There can be no assurance that ORBCOMM will not be materially adversely
affected in the event of such technological change, or that changes in
technology will not enable additional companies to offer services that replace
some or all of the services that ORBCOMM provides or intends to provide. Such
new technologies, even if not ultimately successful, could have a material
adverse effect on ORBCOMM's financial condition and results of operations. See
"-- Market Demand -- Competition."
LIMITED SYSTEM CAPACITY. ORBCOMM could experience unexpected usage
patterns that could exceed the capacity of the ORBCOMM system, although ORBCOMM
believes that the capacity of the ORBCOMM system will be sufficient to meet
currently forecasted demand. In particular, to provide commercially adequate
service, ensure customer acceptance and operate successfully, the ORBCOMM system
will need to provide acceptable levels of availability, which will depend on
system capacity. Various factors will have a significant impact on the capacity
of the ORBCOMM system, the most important being usage patterns and the
architectural structure of the ORBCOMM system, including spectrum allocation,
Gateway capacity and subscriber unit performance. Failure to achieve a
commercially viable capacity level for any reason could have a material adverse
effect on ORBCOMM's financial condition and results of operations.
INTERNET SECURITY RISKS. Like many other modern communication networks,
ORBCOMM currently delivers a substantial portion of its data to customers via
the Internet and expects to continue to use the Internet as a primary delivery
method for data collected from subscriber units and satellites. ORBCOMM
currently takes certain measures to ensure the security of customer data. There
can be no assurance, however, that persons seeking unauthorized access to
ORBCOMM customer data will not be able to gain such access. ORBCOMM believes
that if such unauthorized access were to occur, or potential ORBCOMM customers
were to perceive that such unauthorized access could occur, the market for
ORBCOMM services would be adversely affected.
FINANCING RISKS
ADDITIONAL FUNDING REQUIREMENTS. The completion and maintenance of the
ORBCOMM system and the commencement of service on a global basis will require
significant additional expenditures of funds. See
15
<PAGE> 21
"Prospectus Summary -- Sources and Uses of Funds by ORBCOMM." ORBCOMM currently
expects to require approximately $332 million for capital expenditures and
development costs of the ORBCOMM system from June 30, 1993 (date of inception)
through the third quarter of 1999 (excluding expected debt repayment and
capitalized interest of approximately $78 million). Through March 31, 1998,
ORBCOMM spent approximately $256 million 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 $40.5
million of capitalized interest). To finance such expenditures, Orbital, through
OCC, and Teleglobe and TRI, through Teleglobe Mobile, had invested an aggregate
of approximately $190 million in ORBCOMM through May 31, 1998 and ORBCOMM had
received net proceeds of approximately $164 million from the Notes Offering and
a loan of approximately $5 million from MetLife. ORBCOMM believes that the net
proceeds of the Offering and the application of the net proceeds therefrom, the
capital contributions of ORBCOMM's current Partners and the net proceeds of the
Notes Offering and the MetLife Note will be sufficient to fund ORBCOMM's
anticipated net cash loss from operations and capital expenditures through the
third quarter of 1999, when the last eight satellites of the planned
36-satellite enhanced constellation are expected to be launched, although no
assurance can be given that such funds will in fact be sufficient to meet such
funding requirements. See "-- Technology Risks -- Schedule Delays,"
"-- Technology Risks -- Cost Increases" and "-- Forward Looking Statements and
Market Estimates."
The development, marketing and distribution of data and messaging
communications services to customers, the construction of certain components of
the ground segment or the procurement and launch of additional satellites may
require ORBCOMM to make significant expenditures that are not provided for under
ORBCOMM's current plans. These expenditures of funds may arise as a result of,
among other things, ORBCOMM's decision to establish additional Internal VARs to
develop, market and distribute data and messaging communications services that
are currently expected to be developed by VARs, the requirement to construct
international Gateways because of the inability or unwillingness of
International Licensees to do so or the requirement to procure and launch
satellites to replace satellites in the event of, for example, an uninsured
loss. See "-- Operating Risks -- Reliance on Third Parties -- Reliance on VARs,"
"-- Operating Risks -- Reliance on Third Parties -- Reliance on International
Licensees" and "-- Technology Risks -- Limited Insurance."
ORBCOMM has experienced delays with respect to the implementation of the
ORBCOMM system, which have resulted in a deferral of revenues and, among other
things, have increased ORBCOMM's funding requirements. In addition, primarily as
a result of its decision to launch the planned 36-satellite enhanced
constellation rather than the originally planned 28-satellite constellation and
to develop Internal VARs, ORBCOMM has experienced significant increases in
costs. See "-- Technology Risks -- Schedule Delays" and "-- Technology
Risks -- Cost Increases." Moreover, commencing February 15, 1999, after the
Pledged Securities are depleted, interest expense on the Notes will represent a
significant cash requirement for ORBCOMM. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." There can be no assurance that ORBCOMM will generate
sufficient cash from operations or that future increases in costs or delays will
not result in a need for additional funding. In the event such additional
funding becomes necessary, there can be no assurance that such additional
funding will be available from the public or private markets or from ORBCOMM's
Partners on favorable terms or on a timely basis, if at all.
SUBSTANTIAL LEVERAGE. ORBCOMM is a development stage enterprise with a
highly leveraged capital structure. As of March 31, 1998, ORBCOMM's total
indebtedness (including trade payables) was approximately $212.7 million.
ORBCOMM's accounts payable as of May 31, 1998 includes approximately $34.9
million owed to Orbital under the Procurement Agreement for work completed but
not yet invoiced, which will be paid with a portion of the net proceeds of the
Offering. ORBCOMM's debt service requirements could negatively affect the value
of the Common Stock as a result of the following: (i) ORBCOMM's ability to
obtain additional financing for future working capital needs or for other
purposes may be limited; (ii) a substantial portion of ORBCOMM's cash flows from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing funds available for operations; and (iii) ORBCOMM
may
16
<PAGE> 22
have greater exposure to adverse economic conditions than competing companies
that are not as highly leveraged. These factors could adversely affect ORBCOMM's
financial condition and results of operations.
RESTRICTIVE COVENANTS. The Indenture contains, and any additional
financing agreements are likely to contain, certain restrictive covenants. The
restrictions contained in the Indenture affect, and in some cases significantly
limit or prohibit, among other things, the ability of ORBCOMM to incur
indebtedness, make prepayments of certain indebtedness, make distributions
(other than to pay tax liabilities of the General Partners), make investments,
engage in transactions with affiliates, issue capital stock, create liens, sell
assets and engage in mergers and consolidations. If ORBCOMM fails to comply with
the restrictive covenants in the Indenture, ORBCOMM's obligation to repay such
obligations may be accelerated. In connection with the Offering, ORBCOMM has
received the consent of the Holders to amend certain provisions of the
Indenture. The amendments permit the Offering and facilitate other business
objectives. See "Description of the Senior Notes -- Amendments to the
Indenture."
MARKET DEMAND
ACCEPTANCE OF ORBCOMM SERVICES. The success of the ORBCOMM system will
depend on customer acceptance of ORBCOMM services. Customer acceptance of
ORBCOMM services will depend on a number of factors, including the technical
capabilities and availability of the ORBCOMM system, which are dependent in part
on the number of satellites launched and operational at any time, as well as
completion of the necessary ground infrastructure and receipt of the necessary
regulatory and other approvals to operate in a particular jurisdiction, the
availability of relatively inexpensive subscriber units that are compatible with
the ORBCOMM system and meet the varying needs of customers, the price of ORBCOMM
services, and the extent, availability and price of alternative data and
messaging communications services. As with any new communications service, there
can be no assurance that ORBCOMM services will attain market acceptance. See
"-- Competition."
In addition, ORBCOMM believes that market acceptance of certain services
provided by the ORBCOMM system depends on the design, development and commercial
availability of integrated hardware and software applications that support the
specific needs of its targeted customers. ORBCOMM has entered into and is
continuing to enter into agreements with VARs and applications developers and is
developing Internal VARs that are responsible for developing a portion of these
applications. In the event there is a delay in the availability or lack of all
of the components necessary to fulfill its customers' business requirements,
market acceptance of services using the ORBCOMM system could be adversely
affected. See "-- Technology Risks -- Schedule Delays," "-- Technology
Risks -- Cost Increases" and "-- Operating Risks -- Reliance on Third Parties."
ORBCOMM's business plan assumes that potential customers of ORBCOMM
services 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 inability to penetrate buildings and
other objects could limit the use of the ORBCOMM system and services. In
addition, prior to the commercial operation of the 28-satellite constellation,
the availability of the ORBCOMM system will be limited in the United States and
other temperate zones and will be further limited in equatorial regions prior to
the commercial operation of the planned 36-satellite enhanced constellation such
that data or messages may be transmitted or received only during particular
hours of a given day. In addition to the limitations imposed by the architecture
of the ORBCOMM system, the absence of necessary regulatory and other approvals
in a given jurisdiction will preclude the availability of ORBCOMM services in
such jurisdiction until such time, if any, that such approvals have been
obtained. See "-- Regulatory Risks -- International Licensing Risks." Certain
potential customers, particularly those requiring messaging services and, prior
to full commercial operation, those requiring service on a global basis, may
find the limitations on the availability of ORBCOMM services unacceptable.
COMPETITION. Competition in the communications industry is intense, fueled
by rapid and continuous technological advances and alliances between industry
participants seeking to use such advances on an international scale to capture
significant market share. Although currently no other company is providing the
17
<PAGE> 23
same global, satellite-based commercial data and messaging communications
services to be provided by ORBCOMM, it is anticipated that the ORBCOMM system
will face competition from numerous existing and potential alternative
communications products and services provided by various large and small
companies. ORBCOMM expects that potential competitors will include operators or
users of other Little LEO satellite systems and operators or users of Big LEO
and medium-Earth orbit ("MEO") satellite systems. ORBCOMM also believes that it
currently competes in certain of its market segments with operators and users of
certain GEO systems and terrestrial-based data communications systems, although
ORBCOMM believes that it will complement terrestrial-based data communications
systems in certain market segments. If any of ORBCOMM's competitors succeed in
marketing and deploying systems with services similar to those expected to be
offered through the ORBCOMM system, ORBCOMM's ability to compete in markets
served by such competitors may be adversely affected.
Some of ORBCOMM's actual or potential competitors have financial, personnel
and other resources substantially greater than those of ORBCOMM. In addition, a
continuing trend toward consolidation and strategic alliances in the
communications industry could give rise to significant new competitors, and any
foreign competitor may benefit from subsidies from, or other protective measures
by, its home country. There can be no assurance that some of these competitors
will not develop more technologically advanced systems than the ORBCOMM system
or more efficient or less expensive services than those expected to be provided
by ORBCOMM.
ORBCOMM may also face competition in the future from companies using new
technologies and new satellite systems. See "-- Technology
Risks -- Technological Change." A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on ORBCOMM. Also,
ORBCOMM's business would be adversely affected if competitors begin operations
or existing or new communications service providers are able to penetrate
ORBCOMM's target markets. See "Business -- Competition."
FORWARD LOOKING STATEMENTS AND MARKET ESTIMATES.
ORBCOMM is a development stage enterprise. Many statements in this
Prospectus are not historical and are forward looking in nature. Examples of
such forward looking statements include statements concerning ORBCOMM's
operations, prospects, markets, technical capabilities, funding needs, financing
sources, pricing, launch and commercial service schedules, cash flows and
profitability, as well as information concerning the estimated size of the
addressable markets for satellite data and messaging communications services,
future regulatory approvals, expected characteristics of competing systems and
expected actions of third parties such as equipment suppliers, International
Licensees and VARs. These forward looking statements are inherently predictive
and speculative and no assurance can be given that any of such statements will
prove to be correct. Actual results and developments may be materially different
from those expressed or implied by such statements. Prospective investors should
carefully review the other risk factors set forth in this Prospectus for a
discussion of various factors that could result in any of such forward looking
statements proving to be inaccurate.
FINANCIAL INFORMATION. In addition, the information in this Prospectus
under "Prospectus Summary -- Sources and Uses of Funds by ORBCOMM" (other than
historical information) and the statements therein and elsewhere that ORBCOMM
believes that the net proceeds of the Offering and the application of the net
proceeds therefrom to purchase Partnership Units, the capital contributions of
ORBCOMM's current Partners and the net proceeds of the Notes Offering and the
MetLife Note will be sufficient to fund ORBCOMM's anticipated net cash loss from
operations and capital expenditures through the third quarter of 1999 are
forward looking statements that may turn out to be inaccurate for the reasons
described in the preceding paragraph as well as in the other risk factors set
forth in this Prospectus and are also based upon a number of assumptions. One or
more of these assumptions is likely to be incorrect. The projected financial
information assumes, among other things, that: (i) expanded commercial service
will be available in the fourth quarter of 1998 when additional satellites are
expected to be placed in commercial service and that the ORBCOMM system will
become fully commercially operational within the current schedule; (ii) the
ORBCOMM system will meet all systems specifications and will have service
characteristics at least as favorable as those expected by ORBCOMM and described
in this Prospectus; (iii) there will be no increased costs, whether resulting
from
18
<PAGE> 24
delays or otherwise; (iv) subscriber unit manufacturers will develop,
manufacture and sell in sufficient quantities subscriber units that perform
according to design specifications on a timely basis and with features and at
prices acceptable to customers without unplanned material purchase requirements
or subsidies by ORBCOMM; (v) a sufficient number of Gateways will be constructed
and delivered on a timely basis and will be fully operational as planned; (vi)
ORBCOMM will contract with a sufficient number of VARs to ensure effective
marketing of the ORBCOMM services; (vii) the capacity of the ORBCOMM system, as
affected by, among other things, ORBCOMM service usage patterns, will be
sufficient to serve the needs of the customers assumed in ORBCOMM's business
plan; (viii) there will be no material change in legislation or regulations or
in the administration thereof that will have an adverse effect on the business
of ORBCOMM; (ix) there will be no material adverse change in any of ORBCOMM's
existing material contracts; and (x) the International Licensees or other
parties will obtain on a timely basis the necessary regulatory and other
approvals to provide services in sufficient countries to enable ORBCOMM to carry
out its business strategy.
In addition, the information in this Prospectus under "Prospectus
Summary -- Sources and Uses of Funds by ORBCOMM" (other than historical
information) and the statements therein, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," and elsewhere with respect to assumed net cash flows and additional
funding requirements, are forward looking statements that are based on a number
of assumptions, one or more of which is likely to be incorrect, and may turn out
to be inaccurate for the reasons described in the preceding paragraphs.
ORBCOMM's current estimate of the total funds required for satellite
constellation design, construction and launch services, design and construction
of the U.S. Ground Segment and insurance and other system costs (excluding
capitalized interest expense), is approximately $332 million through the third
quarter of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are expected to be launched, as compared to approximately
$258 million estimated in August 1996. The increase in this estimate is due to,
among other things, costs associated with modifications and enhancements made to
the ORBCOMM system, including the planned launch of eight satellites in an
equatorial orbit to create the planned 36-satellite enhanced constellation. See
"Prospectus Summary -- Sources and Uses of Funds by ORBCOMM," "-- Technology
Risks -- Schedule Delays" and "-- Technology Risks -- Cost Increases."
MARKET ESTIMATES. With regard to the statements concerning the estimated
size of the addressable markets for ORBCOMM services set forth in "Prospectus
Summary" and under "Business -- Overview" and "Business -- Addressable Markets,"
and in addition to the information set forth above, prospective investors are
cautioned that such statements are based exclusively on market analyses
conducted by or on behalf of ORBCOMM. ORBCOMM's estimates of the current
addressable market for various market segments, as set forth in this Prospectus,
are based on a review and analysis of secondary market data supplemented with
primary market research in the form of interviews with persons knowledgeable
about that market segment. In estimating the size of the current addressable
market for various market segments, the market analyses conducted by or on
behalf of ORBCOMM estimated the total number of subscriber units in each market
segment, and then reduced such total number based on factors such as whether
there was a perceived significant need for the type of services provided by the
ORBCOMM system and an ability to pay for such services. While based on certain
market, industry and demographic data, these estimates represent professional
judgments and are predictive in nature. There can be no assurance that these
addressable markets estimates will prove to be accurate. There are a number of
factors supporting the estimates that are of an inherently uncertain nature,
including, but not limited to, the lack of precise industry and demographic
data, the variance between different statistical sources and the need to
extrapolate certain data for countries and regions that do not provide
sufficient information. Furthermore, the analyses are based on gross domestic
product growth predictions that are historically based and may not be met in the
future. It is likely that some of these assumptions will not prove correct and
events may occur that could affect actual markets realized. Moreover, the risks
associated with market analysis are heightened in cases such as this, where the
analysis addresses products and services some of which do not yet exist and that
are not directly comparable to any product or service with which the respondents
could be familiar. Consequently, actual markets should be expected to vary from
the addressable markets estimated herein and such variations may be material.
ORBCOMM does not intend to publish updates or revisions of the addressable
market estimates included in
19
<PAGE> 25
this Prospectus to reflect events or circumstances after the date hereof or to
reflect subsequent market analyses.
REGULATORY RISKS
DOMESTIC LICENSING RISKS. ORBCOMM's business may be affected by the
regulatory activities of various U.S. government agencies, primarily the Federal
Communications Commission (the "FCC"). On October 20, 1994, the FCC granted to
OCC a license (the "Original FCC License") authorizing OCC to construct, launch
and operate 36 LEO satellites for the purpose of providing two-way data and
messaging communications and position determination services in the United
States. On March 31, 1998, the FCC also granted to OCC a license for, among
other things, 12 additional LEO satellites (the "Supplemental FCC License and,
together with the Original FCC License, the "FCC Licenses"). Although the FCC
Licenses are currently valid, they are subject to revocation if OCC fails to
satisfy certain conditions or to meet certain prescribed milestones, including
the December 2000 milestone by which OCC must launch 36 satellites, the
September 2002 milestone by which OCC must launch two of the 12 satellites
recently licensed under the Supplemental FCC License and the March 2004
milestone by which OCC must launch the remaining ten of these satellites, unless
such dates are extended by application to the FCC. While the FCC Licenses are
valid for a period of ten years from the operational date of the first ORBCOMM
satellite, which was April 1995, OCC is required, three years prior to the
expiration of each of the FCC Licenses, to apply for a license renewal with the
FCC. 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, there can be no assurance that the FCC will in fact
renew either of the FCC Licenses. Should the FCC revoke or fail to renew on
application by OCC the FCC Licenses, or if OCC fails to satisfy any of the
conditions of the FCC Licenses, such action would have a material adverse impact
on ORBCOMM's financial condition and results of operations.
The FCC has licensed OCC to operate as a private carrier. ORBCOMM believes
that OCC currently is not subject to the restrictions that apply to common
carriers or to providers of Commercial Mobile Radio Services ("CMRS") because of
the method of distribution of ORBCOMM services. ORBCOMM plans to provide
services to customers indirectly through VARs and directly through Internal
VARs. The services provided to customers by ORBCOMM will not be interconnected
with the public switched telephone network and, in most cases, will be enhanced
services. Therefore, ORBCOMM does not believe that these services will be
regarded by the FCC as common carrier or CMRS. There can be no assurance,
however, that in the future, ORBCOMM will not provide services that the FCC
deems common carrier or CMRS or that the FCC will not exercise its discretionary
authority to apply the common carrier or CMRS rules to ORBCOMM. The application
of these rules could have a material adverse effect on ORBCOMM's financial
condition and results of operations by, for instance, requiring ORBCOMM to offer
to the public just, reasonable and nondiscriminatory rates, subjecting ORBCOMM
to certain tariff filing requirements, limiting some foreign ownership in
ORBCOMM and subjecting ORBCOMM to state regulation (if ORBCOMM were deemed to be
a common carrier).
OCC recently filed an application with the FCC seeking to modify the FCC
Licenses to permit it to launch eight of its authorized satellites in an
equatorial orbit (rather than a 45 degree orbit) and to increase the spacing
between the other three planes of eight satellites (the "Modification Request").
While ORBCOMM believes that the FCC will grant the Modification Request on a
timely basis because there would be no adverse effect on any other Little LEO
licensee or service, there can be no assurance that the FCC will grant the
Modification Request.
Finally, ORBCOMM's financial condition and results of operations could be
adversely affected by the adoption of new laws, policies or regulations in the
United States, or changes in the interpretation or application of existing laws,
policies and regulations in the United States, that modify the present
regulatory environment. See "Regulation."
INTERNATIONAL LICENSING RISKS. ORBCOMM's business is affected by the
regulatory authorities of the countries in which it or the International
Licensees will operate and in which ORBCOMM services will be
20
<PAGE> 26
offered. ORBCOMM's International Licensees will be required to obtain local
regulatory approvals to offer ORBCOMM services, to operate Gateways and to offer
the use of subscriber units located within their territories. As a result,
numerous approvals must be obtained before ORBCOMM can offer full global
coverage. ORBCOMM's current business plan is based on the receipt of regulatory
approvals in several foreign jurisdictions by the end of the third quarter of
1999, when the final eight satellites of the planned 36-satellite enhanced
constellation are currently expected to have been launched. ORBCOMM or the
International Licensees or third parties have received full or limited
regulatory approvals in a total of 14 countries. In particular, in addition to
the United States, full regulatory approvals to provide ORBCOMM services have
been received in Canada, Japan and Malaysia and temporary, experimental, testing
and demonstration or business licenses have been received in Germany, Italy,
South Korea, Spain, Sweden, Northern Ireland, Argentina, Chile, South Africa,
Iceland and Namibia, which 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 obtaining regulatory approvals is the
responsibility of an International Licensee, there can be no assurance that an
International Licensee will be successful in doing so. If any such International
Licensee is not successful, service will not be available in the affected
territories.
Although many countries have moved to privatize the provision of
communications services and to permit competition in the provision of such
services, some countries continue to require that all communications services be
provided by a government-owned entity. While ORBCOMM anticipates that
substantially all of the International Licensees will be private entities,
ORBCOMM may be required to offer its services through a government-owned or
- -controlled entity in those territories where government monopolies prevail.
ORBCOMM's inability to offer service in a foreign country or countries
could have a material adverse effect on ORBCOMM's financial condition and
results of operations. Regulatory provisions in countries in which ORBCOMM or
the International Licensees seek to operate may impose impediments on ORBCOMM's
or the International Licensees' operations and there can be no assurance that
such restrictions would not be unduly burdensome. ORBCOMM's 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 ORBCOMM plans to operate its
system.
ITU COORDINATION. The United States, on behalf of OCC, is required to
coordinate the frequencies used by the ORBCOMM system under the auspices of the
International Telecommunication Union ("ITU"). Frequency coordination is a
necessary prerequisite to obtaining interference protection from other satellite
systems. There is no penalty for launching a satellite system prior to
completion of the ITU coordination process, although protection from
interference through this process is only afforded as of the date of successful
completion of the process and notification of the system by the ITU. Although
the United States has substantially completed the ITU coordination process with
respect to the planned 36-satellite enhanced constellation, because OCC has been
granted authority for 12 additional satellites in the second processing round,
the FCC must modify ORBCOMM's ITU registration documentation and proceed with a
supplementary coordination process. This process is not expected to affect
coordination of ORBCOMM's 36-satellite system.
The United States has not yet completed coordination of the ORBCOMM system
with Russia and France. There can be no assurance that the United States will be
successful in coordinating the ORBCOMM system with the Russian and French
systems. Any delay in or failure to successfully complete the ITU coordination
process may result in potential interference to the ORBCOMM system by other
mobile satellite systems operating internationally, which could have a material
adverse effect on ORBCOMM's 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. There can be no assurance that these coordinations will
be completed successfully or in a timely manner, which could result in delayed
availability of ORBCOMM services in the affected territories.
LAUNCH LICENSING RISK. Commercial U.S. space launches require licenses
from the U.S. Department of Transportation ("DoT"). In addition, the launch of
the equatorial plane currently expected to occur in the
21
<PAGE> 27
third quarter of 1999 is expected to be made from a launch facility outside the
United States, and will therefore require a license from the applicable U.S.
government authorities to export the satellites from the United States to such
location and a license from the applicable government authorities outside the
United States to launch the satellites. Under the Procurement Agreement, Orbital
is responsible for ensuring that the appropriate DoT commercial launch licenses
and other licenses or approvals are in place for the ORBCOMM satellite launches.
There can be no assurance that Orbital will continue to be successful in its
efforts to obtain the necessary licenses or regulatory approvals. The inability
of Orbital to secure any necessary licenses or regulatory approvals for any
launch of ORBCOMM satellites could delay such launch, which could have a
material adverse effect on ORBCOMM's financial condition and results of
operations.
OPERATING RISKS
RISKS ASSOCIATED WITH COMMENCEMENT OF GLOBAL OPERATIONS. ORBCOMM's ability
to achieve profitability will depend in part on its ability to offer ORBCOMM
services on a global basis. Offering ORBCOMM services on a global basis will
require ORBCOMM to, among other things: (i) enter into agreements with
International Licensees representing additional territories; (ii) install the
necessary ground infrastructure outside the United States through its existing
or future International Licensees or otherwise; (iii) obtain the regulatory and
other approvals necessary to offer ORBCOMM services outside the United States
through its existing or future International Licensees; and (iv) distribute
ORBCOMM services internationally through its International Licensees. In
addition, each agreement between ORBCOMM and an International Licensee provides
that the International Licensee may terminate the agreement upon one year's
written notice. There can be no assurance that ORBCOMM or the International
Licensees will be able to construct the necessary international ground
infrastructure, obtain the necessary regulatory and other approvals or
effectively distribute ORBCOMM services internationally. Moreover, there can be
no assurance that an International Licensee will not terminate its agreement
with ORBCOMM after giving one year's notice. See "-- Reliance on Third
Parties -- Reliance on International Licensees" and "-- Regulatory
Risks -- International Licensing Risks."
RISKS OF MULTINATIONAL OPERATIONS AND DEVELOPING MARKETS. Since ORBCOMM
expects to derive substantial revenues by providing international communications
services, it is subject to certain multinational operational 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 and interest rate and currency fluctuations. The risks enumerated
above are often greater in developing countries or regions. In addition,
although ORBCOMM anticipates that the International Licensees will make all
payments in U.S. dollars, the potential lack of available U.S. currency in
certain countries may prevent International Licensees in such countries from
being able to do so. Because ORBCOMM expects to receive most payments in U.S.
dollars, it does not intend to hedge against exchange rate fluctuations. Under
current U.S. law, ORBCOMM, as a U.S. entity, is prohibited from doing business
in certain countries, which may limit, or eliminate entirely, the provision of
ORBCOMM services in these countries.
RELIANCE ON THIRD PARTIES
RELIANCE ON VARS. In the United States, ORBCOMM intends to rely
generally on VARs to market and distribute its services to customers. The
willingness of companies to become VARs will depend on a variety of factors,
including whether potential VARs perceive ORBCOMM services as compatible with
their own, whether the prices that VARs can charge for their services provide an
adequate return and regulatory restrictions, if any. ORBCOMM believes that
successfully marketing certain ORBCOMM services will depend on the design,
development and commercial availability of data and messaging applications that
support the specific needs of its targeted customers. The design, development
and implementation of data and messaging applications require the commitment of
substantial financial and technological resources on the part of VARs. Certain
of such VARs are or are likely to be newly formed ventures with limited
financial resources, and there can be no assurance that any such entities will
be successful in their efforts to design data and messaging applications or
effectively market ORBCOMM services. The inability of VARs to provide data and
messaging applications to customers could adversely affect market acceptance of
ORBCOMM services.
22
<PAGE> 28
To date, approximately 30 applications have been developed by or behalf of VARs
for use with the ORBCOMM system. In the event that VARs fail to develop data and
messaging applications, ORBCOMM may do so, which will cause increased expenses.
See "-- Market Demand -- Acceptance of ORBCOMM Services." Furthermore, ORBCOMM's
reseller agreements provide that VARs will use all reasonable commercial efforts
to market and distribute ORBCOMM services, but in substantially all cases do not
require VARs to meet established sales objectives. There can be no assurance
that VARs will successfully develop a market for and distribute ORBCOMM
services.
Although ORBCOMM is developing Internal VARs, ORBCOMM currently acts
primarily as a wholesaler to VARs and thus the cost to customers for ORBCOMM
services is largely beyond the control of ORBCOMM. Furthermore, ORBCOMM will
have no rights independently to offer particular data and messaging applications
developed by VARs or to use the associated software, unless it enters into
appropriate licensing agreements. ORBCOMM's development of Internal VARs may
result in actual or apparent conflicts with VARs, which could adversely affect
the willingness of VARs to invest resources in the development and distribution
of data and messaging applications for the ORBCOMM system.
RELIANCE ON INTERNATIONAL LICENSEES. Outside the United States, ORBCOMM
enters into agreements with International Licensees that are responsible in
their territory for, among other things, procuring and installing the necessary
Gateways, obtaining the necessary regulatory and other approvals to provide
services using the ORBCOMM system and marketing and distributing ORBCOMM
services. ORBCOMM selects the International Licensees primarily by evaluating
their ability successfully to market and distribute ORBCOMM services. Key
components of such an evaluation include the prospective International
Licensee's: (i) reputation in the marketplace; (ii) existing distribution
capabilities and infrastructure; (iii) financial condition and other resources;
and (iv) ability to obtain the necessary regulatory approvals. Although the
foregoing factors are considered by ORBCOMM in evaluating potential
International Licensees, there can be no assurance that each International
Licensee will satisfy any one or more of the foregoing factors. In addition,
certain International Licensees are entitled to satellite usage fee credits if
ORBCOMM fails to meet certain milestones with respect to launch of the ORBCOMM
system and certain of the agreements grant International Licensees the right to
terminate their agreements with ORBCOMM in the event that they are unable to
obtain the necessary regulatory and other approvals within certain time
parameters. There can be no assurance that ORBCOMM's International Licensees
will be successful in obtaining the necessary regulatory and other approvals. If
successful, there can be no assurance that the International Licensees will
develop a market and or a distribution network for ORBCOMM services. See
"-- Regulatory Risks -- International Licensing Risks" and "-- Risks Associated
with Commencement of Global Operations."
Certain of the International Licensees are or are likely to be newly formed
ventures with limited financial resources, and there can be no assurance that
any such entities will be successful in their efforts to procure and install the
necessary Gateways, obtain the necessary regulatory approvals or successfully
market and distribute ORBCOMM services. The general form of agreement between
ORBCOMM and the International Licensees does not obligate ORBCOMM or give
ORBCOMM the contractual right to construct the necessary Gateway in the event an
International Licensee is unable or unwilling to do so. In the future and if an
International Licensee is unable or unwilling to do so, ORBCOMM may desire to
construct, or finance the construction of, the necessary Gateway. However, there
can be no assurance that the International Licensee or the relevant governmental
authority will permit the construction of such Gateway or that ORBCOMM will be
able to bear the cost of construction of such Gateway, which costs may in the
aggregate be material. See "-- Financing Risks -- Additional Funding
Requirements."
RELIANCE ON SUBSCRIBER UNIT MANUFACTURERS. The development and
availability on a timely basis of relatively inexpensive subscriber units are
critical to the successful commercial operation of the ORBCOMM system. While
ORBCOMM has executed six subscriber unit manufacturing agreements, including one
with Magellan, a subsidiary of Orbital, and has type approved ten different
subscriber unit models for use with the ORBCOMM system, there can be no
assurance that a sufficient supply of these subscriber units will be available
to customers at price points or with functional characteristics that meet
customers' needs. ORBCOMM on occasion has found it advisable to purchase or
subsidize the purchase of subscriber units and may desire to do so in the
future. ORBCOMM has procured and received approximately 6,700 subscriber
23
<PAGE> 29
units that were and are being used to meet early demand for subscriber units
from the VARs, Internal VARs and International Licensees. Furthermore, ORBCOMM
recently committed to purchase $6.2 million of subscriber units (approximately
17,000 units) from certain manufacturers to accelerate initial customer sales by
VARs, Internal VARs and International Licensees. ORBCOMM expects to sell these
subscriber units to these entities at prices equal to or greater than cost,
although there can be no assurance that ORBCOMM will be able to do so.
Furthermore, ORBCOMM recently agreed to pay Magellan a subsidy for each Magellan
subscriber unit sold through March 1999 up to an aggregate of $2.4 million. See
"Certain Relationships and Related Transactions -- Subscriber Unit Manufacture
Agreement with Magellan." Expenses associated with such purchases or subsidies
could be significant. An inability to successfully develop and manufacture
subscriber units that both meet the needs of customers and are available in
sufficient numbers and at prices that render ORBCOMM services cost-effective to
customers could limit the acceptance of the ORBCOMM system and potentially
affect the quality of ORBCOMM services, which could have a material adverse
effect on ORBCOMM's financial condition and results of operations. See
"-- Market Demand -- Acceptance of ORBCOMM Services."
RELIANCE ON SINGLE SUPPLIER. ORBCOMM does not independently have, and
does not intend to acquire, except by contracting with other parties, the
ability to design, construct or launch the satellites in the ORBCOMM system.
Under the Procurement Agreement, ORBCOMM has contracted with Orbital to provide
these services on a fixed price basis, subject to adjustments for out-of-scope
work. ORBCOMM may terminate the Procurement Agreement on the failure of Orbital
to achieve certain milestones within 56 weeks after the contracted completion
date or on Orbital's material noncompliance with any terms of the Procurement
Agreement. ORBCOMM may not, however, withhold payments under the Procurement
Agreement with respect to the untimely achievement of certain milestones solely
as a result of Orbital's failure to achieve such milestones by the dates
originally planned. In the event that Orbital fails to perform its obligations
under the Procurement Agreement, the launch of the ORBCOMM system will be
delayed until ORBCOMM is able to locate an alternative provider of necessary
services to replace Orbital. In addition, a material adverse effect on Orbital
and its business for whatever reason may adversely affect Orbital's ability to
perform under the Procurement Agreement. ORBCOMM has not identified any
alternate provider of the services currently being provided by Orbital, and
there can be no assurance that such an alternate service provider would be
available or, if available, would be available at a cost or on terms favorable
to ORBCOMM.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS. ORBCOMM's success and ability
to compete are dependent to a certain degree on its proprietary technology.
ORBCOMM is dependent on the intellectual property rights held by Orbital
relating to the ORBCOMM system. Under the terms of the Procurement Agreement,
the intellectual property relating to or resulting from the work performed by
Orbital under the Procurement Agreement, including the ORBCOMM satellites (other
than certain communications software) and the U.S. Ground Segment, is generally
owned by Orbital or its subcontractors. ORBCOMM relies primarily on copyright
and trade secret law to protect its technology. ORBCOMM currently holds no
patents. ORBCOMM's policy is to enter into confidentiality agreements with its
employees, consultants and vendors, which, where appropriate, also contain an
agreement to assign to ORBCOMM proprietary technology developed during
performance thereunder, and generally to control access to and distribution of
its software, documentation and other proprietary information. Notwithstanding
these precautions, it may be possible for a third party to copy or otherwise
obtain and use ORBCOMM's software or other proprietary information without
authorization or to develop similar software independently. In addition, absent
the appropriate licensing agreements, ORBCOMM will have no rights independently
to offer particular applications developed by VARs or to use the software
included in these applications. Enforcement of intellectual property rights with
respect to these products will depend on VARs. Furthermore, the laws of
countries outside the United States may afford ORBCOMM and the VARs little or no
effective protection of their intellectual property. The loss of protection of
such intellectual property rights of Orbital and ORBCOMM could have a material
adverse effect on ORBCOMM's financial condition and results of operations.
There can be no assurance that the steps taken by ORBCOMM will prevent
misappropriation of its technology or that agreements entered into for that
purpose will be enforceable. In addition, litigation may be necessary in the
future to enforce ORBCOMM's intellectual property rights, to protect ORBCOMM's
trade
24
<PAGE> 30
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity. Such litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could have a material adverse effect on
ORBCOMM's financial condition and results of operations.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL. ORBCOMM's success
will depend on the efforts of its management team and its ability to attract and
retain qualified management and personnel in the future. ORBCOMM generally does
not have employment contracts with its employees and, therefore, is subject to
the loss of one or more key employees at any time. In addition, ORBCOMM must
rely on several employees of Orbital who play a key role in the performance of
Orbital's obligations under the Procurement Agreement. ORBCOMM has no control
over the relationship between Orbital and such employees. ORBCOMM could be
materially adversely affected by the loss of one or more of such key employees.
RISKS ASSOCIATED WITH GROWTH. While there can be no assurance that
customer acceptance of and satisfaction with ORBCOMM services will result in
substantial and increasing demand for ORBCOMM services, significant and rapid
growth in demand for ORBCOMM services would require ORBCOMM to make additions to
personnel and management information systems to manage such growth while
continuing to meet customer expectations. In addition, current spectrum
allocations and satellite infrastructure characteristics of the ORBCOMM system
set inherent capacity limitations that would prevent growth above certain levels
without additional spectrum allocation and additional investment in satellites
and/or ground infrastructure. See "-- Technology Risks -- Limited System
Capacity."
STRUCTURAL AND MARKET RISKS
CONTROL BY STRATEGIC PARTNERS. ORBCOMM is a limited partnership whose
current Partners, OCC and Teleglobe Mobile, each holds 50% of the partnership
interests in ORBCOMM. Under the terms of the current Partnership Agreement,
substantially all actions by ORBCOMM require the approval of at least a
majority-in-interest (i.e., Partners holding a majority of the partnership
interests in ORBCOMM). Subsequent to the Offering, ORBCOMM will be managed by
the General Partners through a Committee (the "ORBCOMM Committee"), which will
be controlled by representatives designated directly or indirectly by Orbital
and Teleglobe. On certain matters, the Company's independent representatives on
the ORBCOMM Committee (the "Independent Company Members") will, however, have
the right to pass on and approve such matters prior to the submission of such
matters to a vote of the Partners. In addition, the Company's independent
directors not affiliated with Orbital and Teleglobe will determine the vote of
the Partnership Units held by the Company in votes submitted to the General
Partners as to the approval of the financial terms and conditions of certain
material transactions. See "Description of the Partnership Agreement." Members
of the Company's Board of Directors (the "Company Board"), which initially
consists of directors elected by Orbital and Teleglobe, may only be removed "for
cause" and then only by vote of the holders of at least 80% of the voting power
of the then outstanding voting stock, voting together as a single class.
POTENTIAL CONFLICT OF INTEREST. Orbital and Teleglobe, through OCC and
Teleglobe Mobile, respectively, each have a substantial ownership interest in
ORBCOMM. A conflict of interest may exist between ORBCOMM and Orbital under the
Procurement Agreement and other related agreements between Orbital and OCC.
Pursuant to the Partnership Agreement, transactions between ORBCOMM and Orbital
are subject to the approval of a related party transaction committee of ORBCOMM.
See "Description of the Partnership Agreement." A conflict of interest may exist
between ORBCOMM and Teleglobe by virtue of Teleglobe's majority ownership of
ORBCOMM Canada Inc. ("ORBCOMM Canada"), the International Licensee for Canada.
Similarly, a conflict of interest may exist between ORBCOMM and TRI by virtue of
TRI's ownership of Cellular Communications Network (Malaysia) Sdn. Bhd., the
International Licensee for Malaysia, Singapore and Brunei. In addition, on
consummation of the Offering, when amendments to the Indenture become operative,
Orbital and Teleglobe may, under certain circumstances, invest directly in
Special Purpose Entities (as defined in the Indenture), which will hold assets
currently held by ORBCOMM and used primarily for or by the Internal VARs. There
can be no assurance that any potential conflict of interest between ORBCOMM and
any one of these entities would not have a material adverse effect on ORBCOMM.
25
<PAGE> 31
See "Certain Relationships and Related Transactions" and "Governance of the
Company and Relationship with ORBCOMM."
NO PRIOR PUBLIC MARKET. Prior to the Offering, there has been no public
market for the Common Stock. Accordingly, there can be no assurance that an
active trading market will develop or be sustained on completion of the Offering
or that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price of the Common Stock
will be determined by negotiations between the Company and the representatives
of the Underwriters and may not be indicative of the prices that will prevail in
the public market. See "Underwriting."
The trading prices of the Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in ORBCOMM's operating
results, launch and commercial service delays, launch and satellite failures,
governmental regulatory action, increased price and product competition, changes
in earnings estimates by analysts, changes in market conditions for equity
securities generally or for communications companies in particular or other
events or factors, many of which are beyond ORBCOMM's control.
SHARES ELIGIBLE FOR FUTURE SALE. Following completion of the Offering, the
only shares of Common Stock of the Company that will be outstanding will be the
7,600,000 shares issued in the Offering (8,740,000 shares if the Underwriters'
over-allotment option is exercised in full). However, the Company has agreed in
the Unit Exchange and Registration Rights Agreement (the "Unit Exchange
Agreement") that it will exchange shares of Common Stock for Partnership Units
at the rate of one share of Common Stock for each Partnership Unit and to
register with the Securities and Exchange Commission (the "Commission") those
shares of Common Stock for sale. Pursuant to the Unit Exchange Agreement, any
shares of Common Stock received on exchange may not be sold prior to certain
specified events. See "Governance of the Company and Relationship with
ORBCOMM -- Exchange Rights of ORBCOMM Partners." Based on the number of
Partnership Units expected to be outstanding at the time of consummation of the
Offering, 31,201,310 shares of Common Stock would be issuable on such exchange.
Including all Partnership Units that will be issuable in the future and options
issued under the Equity Plan expected to be outstanding immediately following
completion of the Offering, an aggregate of 34,522,107 shares of Common Stock
would be issuable on such exchange or exercise. See "Dilution,"
"Management -- Executive Compensation" and "Management -- Equity Plan."
Future sales of Common Stock could adversely affect the market price of the
Common Stock. The 7,600,000 shares of Common Stock offered hereby (including any
shares issued on exercise of the Underwriters' over-allotment option) will be
freely tradeable without restriction in the public market as of the date of this
Prospectus, except as described under "Underwriting."
RISK OF LOSS OF MANAGEMENT RIGHTS ON A CHANGE OF CONTROL OR REDUCTION IN
INTEREST. Under the Partnership Agreement, the Company has certain special
rights, including the right to designate the Independent Company Members and the
right to approve certain significant transactions involving ORBCOMM. See
"Governance of the Company and Relationship with ORBCOMM -- Participation in the
Governance of ORBCOMM" and "Description of the Partnership Agreement." These
special rights will automatically terminate following a Company Change of
Control (as defined) or on a reduction in the Company's interest in ORBCOMM as a
result of a sale of Partnership Units by the Company after which the Company
owns less than 5% of the then outstanding Partnership Units. A Company Change of
Control includes circumstances in which an entity other than OCC, Teleglobe
Mobile or their affiliates becomes the beneficial owner of more than 30% of the
Company's outstanding Common Stock or in which there is a change in a majority
of the members of the Company Board over a two-year period that was not approved
by a vote of 66 2/3% of the members of the Company Board then still in office
who were directors at the beginning of such two-year period or whose election or
nomination for election was previously so approved. As a result of these
provisions, as well as the risks described below under "-- Risks Related to the
Investment Company Act of 1940," holders of Common Stock may effectively be
precluded from replacing a majority of the Company Board, which initially
consists of directors selected by Orbital and Teleglobe.
RISKS RELATED TO THE INVESTMENT COMPANY ACT OF 1940. The sole asset of the
Company consists of its Partnership Units. Under the United States Investment
Company Act of 1940 (the "1940 Act"), the
26
<PAGE> 32
Company could be deemed to be an "investment company" if the Partnership Units
constitute "securities," as defined in the 1940 Act. The Company believes that
it is not required to register as an investment company under the 1940 Act. This
determination is based on the Company's belief that the Partnership Units it
will hold will not be "securities" for purposes of the 1940 Act. This belief is
based on the Company's management role in the affairs of ORBCOMM. If the Company
were to cease participation in the management of ORBCOMM, which would result if
the Company were to undergo a Company Change of Control or a reduction in
interest were to occur, its Partnership Units in ORBCOMM could be deemed
"securities" for purposes of the 1940 Act. Such a determination could result in
the Company being deemed an investment company under the 1940 Act and thereby
becoming subject to the registration and other requirements of the 1940 Act. The
Company intends to conduct its operations so as to avoid being deemed an
investment company under the 1940 Act. See "-- Risk of Loss of Management Rights
on a Change of Control or Reduction in Interest."
DIVIDEND POLICY. The Company has never declared or paid any dividends on
its Common Stock and ORBCOMM has never made distributions on its Partnership
Units. The Company and, except for distributions for the payment of taxes by its
Partners, ORBCOMM do not currently anticipate paying any such dividends or
distributions in the foreseeable future. Cash distributions by ORBCOMM are
restricted by the Indenture. See "Description of the Senior Notes -- Covenants."
The Company's sole asset consists of its Partnership Units in ORBCOMM and the
Company has no independent means of generating revenues.
ORBCOMM is intended to be treated as a partnership for U.S. federal income
tax purposes. The Company will be responsible for paying U.S. federal, state and
local income tax on its allocable share of the income of ORBCOMM. The Company
will have no source of funds to pay such U.S. federal, state and local income
taxes other than distributions from ORBCOMM. In connection with the Offering,
ORBCOMM received the consent of the Holders to amend certain provisions of the
Indenture to, among other things, permit distributions to the Company for
purposes of paying taxes on the income of ORBCOMM. Such distributions are
currently limited by the Indenture and may be limited by the provisions of other
future indebtedness of ORBCOMM. See "-- Financing Risks -- Restrictive
Covenants."
DILUTION RISK. On the purchase by the Company of Partnership Units with
the proceeds of the Offering, the Company will realize a substantial dilution in
pro forma net tangible book value per Partnership Unit. See "Dilution."
27
<PAGE> 33
THE COMPANY AND RELATIONSHIPS AMONG THE ORBCOMM PARTIES
The Company was incorporated as a Delaware corporation on March 23, 1998.
The Company was formed for the sole purpose of investing in, and acting as a
General Partner. The Company will use the net proceeds of the Offering to
acquire Partnership Units. On consummation of the Offering and application of
the proceeds therefrom to purchase Partnership Units, the Company is expected to
own approximately 19.6% of the outstanding Partnership Units (approximately
21.8% if the Underwriters' over-allotment option is exercised in full). The
expenses of the Offering, estimated to be $2.5 million, will be borne entirely
by the Company. The Company's sole asset consists of its Partnership Units and
its only activity will be participating in the management of ORBCOMM.
The following is a chart of ORBCOMM's ownership structure after the sale of
Partnership Units to the Company.
[CHART]
- ---------------
(1) Represents current ownership by Orbital in OCC, with the remaining interests
acquired pursuant to the exercise of stock options granted under the OCC
Stock Option Plan. Unexercised options previously granted under the OCC
Stock Option Plan are expected to be converted on consummation of the
Offering into options to acquire shares of Common Stock of the Company
pursuant to the Equity Plan. See "Management -- Equity Plan."
(2) Represents percentage of Partnership Units in ORBCOMM. If the Underwriters'
over-allotment option is exercised in full, the Company, OCC and Teleglobe
Mobile would own approximately 21.8%, 39.1% and 39.1%, respectively, of the
outstanding Partnership Units of ORBCOMM.
(3) OCC holds the FCC Licenses.
For a description of the potential for dilution of the Company's interest
in ORBCOMM, see "Dilution." For additional information on the Company's
governance arrangements and its relationship with ORBCOMM, see "Certain
Relationships and Related Transactions," "Governance of the Company and
Relationship with ORBCOMM" and "Description of the Partnership Agreement."
ORBCOMM is a Delaware limited partnership formed in 1993 to develop,
construct, operate and market the ORBCOMM system. The partnership interests in
ORBCOMM are currently held 50% by OCC, a Delaware corporation and subsidiary of
Orbital, a Delaware corporation, and 50% by Teleglobe Mobile, a Delaware general
partnership, the general partners of which are affiliates of Teleglobe and TRI.
ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe Mobile are sometimes referred to
herein as the "ORBCOMM Parties."
28
<PAGE> 34
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately $114.4
million (approximately $132.0 million if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $16.50 per
share of Common Stock (the mid-point of the estimated initial public offering
price range set forth on the cover page of this Prospectus) and after deducting
underwriting discounts and commissions, and expenses of the Offering, estimated
to be $2.5 million. The net proceeds of the Offering will be used by the Company
to purchase 7,600,000 Partnership Units (8,740,000 Partnership Units if the
Underwriters' over-allotment option is exercised in full). Following application
of the net proceeds of the Offering to purchase the Partnership Units, the
Company is expected to own approximately 19.6% of the outstanding Partnership
Units (approximately 21.8% if the Underwriters' over-allotment option is
exercised in full). See "Dilution" and "Underwriting."
ORBCOMM will use the net proceeds of the sale of Partnership Units to the
Company primarily for: (i) the design, construction and launch of the planned
36-satellite enhanced constellation, including amounts payable to Orbital under
the Procurement Agreement as of consummation of the Offering ($34.9 million as
of May 31, 1998); (ii) related development, operating and marketing expenses,
including expenses incurred in connection with Internal VARs; (iii) the payment
of interest on the Notes and scheduled payments of principal and interest on the
MetLife Note; (iv) the payment of fees and expenses of the Consent Solicitation;
and (v) other general corporate purposes related to commercial deployment of the
ORBCOMM system. For more detailed information related to ORBCOMM's use of the
net proceeds of the sale of Partnership Units, see "Prospectus
Summary -- Sources and Uses of Funds by ORBCOMM" and "Certain Relationships and
Related Transactions -- Procurement Agreement."
The Notes mature on August 15, 2004 and bear interest at a rate of 14% per
annum, with Revenue Participation Interest (as defined in the Indenture). See
"Description of the Senior Notes." The MetLife Note matures in December 1999 and
bears interest at a rate of 9.2% per annum.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and ORBCOMM has never made distributions on its Partnership Units. The Company
and, except as described below, ORBCOMM do not anticipate paying any such
dividends or distributions for the foreseeable future.
The Company's sole asset consists of its Partnership Units in ORBCOMM and
the Company has no independent means of generating revenues. ORBCOMM will
reimburse the Company for its operating expenses, which expenses are not
expected to be material. The Partnership Agreement requires the ORBCOMM
Committee, to the extent of legally available funds, to declare and pay a pro
rata distribution at the end of each fiscal quarter in an amount sufficient to
ensure that each Partner shall have received at least an amount equal to the
product of (i) forty percent multiplied by (ii) the lesser of (a) such Partner's
distributive share of ORBCOMM's estimated taxable income for the preceding
fiscal quarter or (b) the excess of cumulative net income over cumulative net
loss allocated to such Partner. Cash distributions by ORBCOMM (other than
distributions by ORBCOMM to the Company for the reimbursement of certain
administrative expenses and to the General Partners for the payment of their
respective income tax liabilities) are restricted by the Indenture. See "Risk
Factors -- Financing Risks -- Restrictive Covenants" and "Description of the
Senior Notes."
The Company intends to distribute promptly, as dividends to its
stockholders, the distributions, if any, made to it by ORBCOMM, less any amounts
reasonably required to be retained for payment of taxes, to satisfy any
liabilities and to fund any contingencies.
29
<PAGE> 35
DILUTION
Purchasers of Common Stock in the Offering will not experience significant
dilution with respect to the Common Stock of the Company on consummation of the
Offering. Dilution to investors with respect to the Common Stock (although not
with respect to the Company's interest in ORBCOMM) will occur at any time the
holders of Partnership Units exchange Partnership Units for Common Stock
pursuant to the Unit Exchange Agreement. In addition, dilution to new investors
with respect to the Common Stock (and the Company's interest in ORBCOMM) will
occur pro rata with the other Partners on exercise of options issued under the
Equity Plan. See "Management -- Equity Plan," "Governance of the Company and
Relationship with ORBCOMM -- Exchange Rights of ORBCOMM Partners" and "Shares
Eligible for Future Sale."
The price per Partnership Unit to be paid by the Company for the
Partnership Units to be purchased with the proceeds of the Offering will exceed
the price per Partnership Unit paid by ORBCOMM's current Partners. The following
table illustrates the dilution in pro forma net tangible book value on a per
Partnership Unit basis, assuming an initial public offering price of $16.50 per
share of Common Stock (the mid-point of the estimated initial public offering
price range set forth on the cover page of this Prospectus), total net proceeds
to the Company of the Offering of approximately $114.4 million and an aggregate
purchase price of approximately $114.4 million for the 7,600,000 Partnership
Units purchased by the Company. Net tangible book value per Partnership Unit is
equal to ORBCOMM's total tangible assets less total liabilities as of March 31,
1998, divided by the number of Partnership Units outstanding at that date.
<TABLE>
<S> <C> <C>
Estimated purchase price per Partnership Unit purchased by
the Company with the net proceeds of the Offering......... $16.50
Net tangible book value per Partnership Unit at March 31,
1998...................................................... $ 3.53
Pro forma increase in net tangible book value per
Partnership Unit attributable to the sale of Partnership
Units to the Company...................................... 2.26
------
Pro forma net tangible book value per Partnership Unit after
the Offering.............................................. $ 5.79
------
Pro forma dilution per Partnership Unit to the Company after
the Offering.............................................. $10.71
======
</TABLE>
The following table summarizes the relative investment in ORBCOMM of the
current Partners and the Company, as adjusted to give effect to the sale of
Partnership Units to the Company in connection with the Offering, assuming an
initial public offering price of $16.50 per share of Common Stock (the mid-point
of the estimated initial public offering price range set forth on the cover page
of this Prospectus), total net proceeds to the Company of the Offering of
approximately $114.4 million and an aggregate purchase price of approximately
$114.4 million for the 7,600,000 Partnership Units purchased by the Company.
<TABLE>
<CAPTION>
PARTNERSHIP UNITS CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE PER
NUMBER PERCENT PAID PERCENT PARTNERSHIP UNIT
---------- ------- ------------ ------- -----------------
<S> <C> <C> <C> <C> <C>
Current Partners..................... 31,201,310 80.4% $190,000,000 60.2% $ 6.09
The Company.......................... 7,600,000 19.6 125,400,000 39.8 16.50
---------- ----- ------------ -----
Total (1)....................... 38,801,310 100.0% $315,400,000 100.0%
========== ===== ============ =====
</TABLE>
- ------------------------------
(1) Does not give effect to the exercise of outstanding options to purchase
shares of OCC common stock that are expected to be converted into options to
purchase shares of Common Stock reserved for issuance under the Equity Plan.
See "Management -- Equity Plan."
30
<PAGE> 36
CAPITALIZATION
THE COMPANY
The following table sets forth as of March 31, 1998: (i) the capitalization
of the Company; and (ii) the capitalization of the Company as adjusted to
reflect the issuance and sale by the Company of 7,600,000 shares of Common Stock
in the Offering at an assumed initial public offering price of $16.50 per share
(the mid-point of the estimated initial public offering price range set forth on
the cover page of this Prospectus) and the receipt of the estimated net proceeds
thereof (after expenses of the Offering, estimated to be $2.5 million). This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's balance
sheet as of March 31, 1998 and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Investment in ORBCOMM....................................... $ -- $114,400
------- --------
Total asset............................................ $ -- $114,400
======= ========
Stockholders' Equity:
Common Stock, par value $.01 per share, 1,000 shares
authorized; 100 shares issued and outstanding;
150,000,000 shares authorized; 7,600,000 shares issued
and outstanding as adjusted........................... $ -- $ 76
Additional paid-in capital............................. -- 114,324
Retained earnings...................................... -- --
------- --------
Total stockholders' equity............................. -- 114,400
------- --------
Total capitalization.............................. $ -- $114,400
======= ========
</TABLE>
ORBCOMM
The following table sets forth as of March 31, 1998: (i) the capitalization
of ORBCOMM on a combined basis; and (ii) the capitalization of ORBCOMM on a
combined basis as adjusted to reflect the issuance and sale by ORBCOMM of
7,600,000 Partnership Units to the Company in exchange for the net proceeds of
the Offering (estimated to be $114.4 million, assuming an initial public
offering price of $16.50 per share (the mid-point of the estimated initial
public offering price range set forth on the cover page of this Prospectus) and
after expenses of the Offering, estimated to be $2.5 million). This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and ORBCOMM's combined financial statements
as of March 31, 1998 and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and investments (1).................. $ 32,035 $146,435
======== ========
Long-term debt:
Notes (2).............................................. $170,000 $170,000
Other long-term debt (3)............................... 2,015 2,015
-------- --------
Total long-term debt.............................. 172,015 172,015
Total partners' capital..................................... 115,467 229,867
-------- --------
Total capitalization.............................. $287,482 $401,882
======== ========
</TABLE>
- ------------------------------
(1) Includes the aggregate principal amount of Pledged Securities of
approximately $10.6 million and the amount in a segregated account related
to the MetLife Note of approximately $2.5 million.
(2) Approximately $44.8 million of the net proceeds of the Notes Offering was
used to purchase the Pledged Securities.
(3) Represents the outstanding balance of the MetLife Note.
31
<PAGE> 37
SELECTED HISTORICAL FINANCIAL DATA
THE COMPANY
The selected historical financial data of the Company presented below as of
March 31, 1998 are derived from the audited balance sheet of the Company. The
selected historical financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's balance sheet as of March 31, 1998 and the notes
thereto, and ORBCOMM's combined financial statements as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31, 1997,
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (1)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Investment in ORBCOMM....................................... $ -- $114,400
Total assets................................................ -- 114,400
Stockholders' equity........................................ -- 114,400
</TABLE>
- ------------------------------
(1) As adjusted to reflect the issuance and sale by the Company of the 7,600,000
shares of Common Stock offered hereby, assuming an initial public offering
price of $16.50 per share of Common Stock (the mid-point of the estimated
initial public offering price range set forth on the cover page of this
Prospectus), total net proceeds to the Company of the Offering of
approximately $114.4 million (after expenses of the Offering, estimated to
be $2.5 million) and an aggregate purchase price of approximately $114.4
million for the 7,600,000 Partnership Units purchased by the Company. See
"Use of Proceeds" and "Capitalization."
32
<PAGE> 38
ORBCOMM
The selected historical combined financial data of ORBCOMM presented below
under the captions "Combined Statements of Operations Data" and "Combined
Balance Sheets Data" for, and as of, each of the years in the five-year period
ended December 31, 1997, are derived from the audited combined financial
statements of ORBCOMM. The financial statements of ORBCOMM include ORBCOMM USA
and ORBCOMM International for the purpose of depicting the combined financial
position and results of operations of ORBCOMM, ORBCOMM USA and ORBCOMM
International on a historical basis. The summary combined financial data of
ORBCOMM presented below under the captions "Combined Statements of Operations
Data" and "Combined Balance Sheets Data" for, and as of, each of the three
months ended March 31, 1997 and 1998, are derived from ORBCOMM's unaudited
combined financial statements, which, in management's opinion, reflect all
normal recurring adjustments necessary to fairly present this information when
read in conjunction with the combined financial statements and the notes thereto
included elsewhere in this Prospectus. The selected historical combined
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
ORBCOMM's combined financial statements as of December 31, 1996 and 1997 and for
each of the years in the three-year period ended December 31, 1997 and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENTS OF OPERATIONS
DATA:
Total revenues (1)................ $ 749 $ 2,093 $ 2,260 $ 400 $ 268 $ 127 $ 305
Cost of product sales............. -- -- -- 268 517 124 286
Depreciation...................... -- -- -- 6,198 7,348 1,718 1,903
Engineering expenses (2).......... -- -- -- 5,453 8,160 1,580 2,654
Marketing expenses................ 749 2,093 2,232 6,832 10,673 1,847 4,278
General, administrative and other
expenses........................ -- 9 50 4,777 9,722 1,305 2,090
Interest income, net.............. -- -- 59 3,554 4,545 2,016 218
------- ------- -------- -------- -------- ------- --------
Net income (loss)................. $ -- $ (9) $ 37 $(19,574) $(31,607) $(4,431) $(10,688)
======= ======= ======== ======== ======== ======= ========
OTHER DATA:(3)
Number of VARs.................... -- 2 15 29 41 34 45
Number of International
Licensees....................... -- -- 1 5 12 7 13
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEETS DATA:
Cash, cash equivalents and investments
(4).................................... $ 20 $ 5,020 $ 1,805 $153,482 $ 38,862 $ 32,035
ORBCOMM system, net (5).................. 43,924 68,647 106,990 170,034 263,379 280,916
Total assets............................. 47,685 73,667 109,242 336,615 331,961 345,799
Total long-term debt..................... -- 5,000 4,175 173,269 172,277 172,015
Total partners' capital.................. 47,685 58,529 94,603 137,850 106,155 115,467
</TABLE>
- ------------------------------
(1) ORBCOMM is a development stage enterprise. Total revenues presented for the
years ended December 31, 1993, 1994 and 1995 represent a non-refundable fee
received from a potential International Licensee and revenues from OCC with
respect to certain marketing costs.
(2) Prior to 1996, ORBCOMM capitalized substantially all engineering expenses as
part of the total costs of the ORBCOMM system. See footnote 5 below.
(3) Other Data is calculated as of the end of the period presented.
(4) Includes the aggregate principal amount of Pledged Securities of
approximately $10.6 million and the amount in a segregated account related
to the MetLife Note of approximately $2.5 million, respectively. See
"Description of the Senior Notes."
(5) Represents the aggregate costs of satellite constellation design,
construction, launch services, design and construction of the U.S. Ground
Segment and insurance and other system costs (including $40.5 million of
capitalized interest), net of accumulated depreciation.
33
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company, which is the issuer of the Common Stock offered hereby, was
organized in March 1998 to invest in, and act as a General Partner of, ORBCOMM.
The Company's sole asset is its Partnership Units and the Company's results of
operations will reflect its proportionate share of ORBCOMM's net income or loss
using the equity method of accounting. In its annual and quarterly reports, the
Company will present separate financial statements for the Company and ORBCOMM.
The following is a discussion of the combined financial condition and results of
operations of ORBCOMM and should be read in conjunction with the combined
financial statements and related notes thereto and other combined financial
information included elsewhere in this Prospectus.
OVERVIEW
ORBCOMM was organized in 1993 by OCC and Teleglobe Mobile, each of which
currently owns 50% of the partnership interests of ORBCOMM. Through May 31,
1998, Orbital, through OCC, and Teleglobe and TRI, through Teleglobe Mobile, had
invested in the aggregate approximately $190 million in ORBCOMM. In 1995, OCC
and Teleglobe Mobile formed the Marketing Partnerships to market services using
the ORBCOMM system in the United States and internationally. On consummation of
the Offering, OCC and Teleglobe Mobile will contribute to ORBCOMM their
respective two percent partnership interests in ORBCOMM USA and ORBCOMM
International, dissolve each of the Marketing Partnerships and amend or
terminate certain agreements to which either or both of the Marketing
Partnerships is a party.
ORBCOMM provides two-way monitoring, tracking and messaging services
through the world's first commercial LEO satellite-based communications system.
ORBCOMM's current primary target markets include: (i) fixed asset monitoring
services for electric utility meters, oil and gas storage tanks, wells and
pipelines and environmental projects; (ii) mobile asset tracking services for
commercial trucks, trailers, containers, rail cars, heavy equipment, fishing
vessels, barges and government assets; and (iii) messaging services for
consumers and commercial and government entities. Future target markets are
expected to include: (i) tracking, messaging and security services for
automobiles; (ii) monitoring applications for home security systems; and (iii)
additional U.S. and foreign government applications. ORBCOMM has entered into
agreements with over 45 VARs, each of which is authorized to market and
distribute ORBCOMM services within specific regions and to targeted industries
or markets. ORBCOMM has also established two Internal VARs to market and
distribute monitoring and tracking services to the oil and gas and
transportation industries. In addition, ORBCOMM has entered into agreements with
13 International Licensees that are expected to market and distribute ORBCOMM
services in over 95 countries within North and South America, Europe, Asia, the
Middle East and Africa following completion of the necessary ground
infrastructure and receipt of the necessary regulatory and other approvals.
ORBCOMM has also entered into agreements with six subscriber unit manufacturers,
Panasonic, Scientific-Atlanta, Magellan, Stellar, Torrey and CTI, and has type
approved ten subscriber unit models for commercial use with the ORBCOMM system.
Four subscriber unit manufacturers have commenced production of subscriber units
that can be used for electric utility meter, oil and gas storage tank, well and
pipeline and environmental monitoring and commercial truck, trailer, container,
rail car, heavy equipment, fishing vessel and government asset tracking
applications.
SERVICE ROLL-OUT
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world, enabling such customers to
collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. ORBCOMM has launched 12 satellites to date and expects to launch 16
additional satellites in the third quarter of 1998, which will complete its
planned 28-satellite constellation. An additional eight satellites that will
create a 36-satellite enhanced constellation with increased capacity and
improved service in equatorial regions are expected to be launched in the third
quarter of 1999.
34
<PAGE> 40
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through ORBCOMM's initial two satellites, each of which has a
design life of four years beginning on the date it was placed in commercial
service. ORBCOMM has begun to place in commercial service satellites that were
launched in late 1997 and early 1998 and, as a result, ORBCOMM has begun to
offer commercial service on a broader basis. ORBCOMM expects to have the ability
to significantly expand its commercial services in the fourth quarter of 1998 in
the United States and other temperate zones, when 16 additional satellites are
expected to be placed in commercial service. Service outside the United States
will be expanded as the necessary ground infrastructure is completed and the
necessary regulatory approvals are received. Based on ORBCOMM's experience,
ground infrastructure is generally completed within 12 to 24 months after
execution of a ground procurement contract and regulatory approvals are
generally received within two to 12 months after submission of a regulatory
application. Enhanced service in equatorial regions is expected to be available
in the fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service. Certain
ORBCOMM system satellites have experienced anomalies and outages. See "Risk
Factors -- Technology Risks -- Design and Operation Risks; Risk of Satellite
Failure or Damage."
The U.S. Ground Segment, including the Network Control Center and four
Gateway Earth Stations, is operational. In March 1998, a Gateway located in
Italy successfully completed acceptance testing. In each of South Korea and
Japan, a Gateway is under construction and is expected to be completed by
mid-1998. During 1998, ORBCOMM expects that certain of its International
Licensees will be able to offer ORBCOMM services in portions of Europe, Japan,
Brazil, South Korea and Morocco, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory and other approvals.
As a development stage company, ORBCOMM has incurred losses since its
inception and ORBCOMM believes it will continue to do so for at least the next
two years. ORBCOMM's ability to become profitable and generate positive cash
flow is dependent on the continued expansion of commercial services, adequate
customer acceptance of ORBCOMM services and numerous other factors. See "Risk
Factors -- Development Stage Enterprise," "Risk Factors -- Financing Risks" and
"Risk Factors -- Market Demand -- Acceptance of ORBCOMM Services."
REVENUES
Domestically, ORBCOMM generates revenues from the direct sale of satellite
capacity to VARs, which sales to date have been primarily for resale to beta
test customers. The pricing of satellite capacity is based on many variables,
including the availability and cost of substitute services, the cost of
providing service and the nature of the customer application. Pricing generally
is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage.
ORBCOMM began generating revenue in April 1998 from the sale of data and
messaging communications services and 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 will generate additional revenues from
value-added software, hardware and services provided to the customer.
ORBCOMM has on occasion purchased and recently entered into agreements, and
may enter into additional agreements in the future, to purchase subscriber units
for resale. In the past, ORBCOMM has not generated substantial revenues from the
sale of subscriber units. ORBCOMM recently committed to purchase $6.2 million of
subscriber units (approximately 17,000 units) from certain manufacturers to
accelerate initial customer sales by VARs, Internal VARs and International
Licensees. ORBCOMM expects to sell these subscriber units to these entities at
prices equal to or greater than cost, although there can be no assurance that
ORBCOMM will be able to do so.
Internationally, ORBCOMM generates revenues through license fees paid by,
and through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
35
<PAGE> 41
International Licensees' gross operating revenues are generally based on a
wholesale pricing structure similar to the prices charged to VARs, which
includes an activation charge, a recurring monthly access charge and a usage
charge. On execution of a service license or similar agreement, an International
Licensee purchases a Gateway or Gateway components from ORBCOMM pursuant to a
Gateway procurement contract or arranges to share a Gateway with an
International Licensee that is in close proximity. Cash received under the
Gateway procurement contracts is generally accounted for as deferred revenues
and recognized when the Gateway has successfully completed acceptance testing.
License fees from service license or similar agreements are generally accounted
for as deferred revenues and recognized over the term of the agreements or when
ORBCOMM's obligations under the agreements are substantially complete.
OPERATING EXPENSES
ORBCOMM owns and operates the assets that comprise the ORBCOMM system other
than the FCC Licenses (which are held by OCC, with certain contractual rights
relating thereto granted to ORBCOMM). Satellite-based communications systems are
characterized by high initial capital expenditures and relatively low marginal
costs for providing service. ORBCOMM has been depreciating certain of its assets
beginning in 1996, when commercial operation of the ORBCOMM system began. Cost
of products sold consists of the cost of sale of subscriber units sold to
customers. ORBCOMM has agreed to pay to Magellan a subsidy for each Magellan
subscriber unit sold, through March 1999, up to an aggregate of $2.4 million.
Additionally, ORBCOMM incurs engineering expenses related to the development and
operation of the ORBCOMM system and marketing, administrative and other expenses
related to the operation of the ORBCOMM system. ORBCOMM has also incurred
nominal expenses related to the development of Internal VARs which are included
in marketing expenses. ORBCOMM anticipates that its expenses related to the
continued development and operation of the Internal VARs (including the
development of applications for customers) will increase substantially as
ORBCOMM expands the marketing and distribution efforts of the Internal VARs.
RESULTS OF OPERATIONS
ORBCOMM commenced limited commercial service in the United States in
February 1996 and has generated nominal revenues and substantial negative cash
flows to date. ORBCOMM's activities have focused primarily on the acquisition of
U.S. regulatory approvals for the operation of the ORBCOMM system, the design,
construction and launch of satellites, the design and construction of associated
ground network and operating systems (including associated software), the
development of subscriber unit manufacturing sources, the negotiation of
agreements with VARs and International Licensees, the development of Internal
VARs, the development of customer software and hardware applications,
preliminary marketing and sales activities associated with ORBCOMM's limited
commercial operations to date and the hiring of key personnel.
For the three months ended March 31, 1997 and 1998, ORBCOMM generated
revenues of $127,000 and $305,000, respectively. The cost of product sales
associated with revenues for the three months ended March 31, 1997 and 1998 was
$124,000 and $286,000, respectively. For the year ended December 31, 1995,
ORBCOMM generated revenues of $2.3 million, of which $900,000 represented a
contract extension fee received from a potential International Licensee and $1.4
million represented contractual marketing services to OCC. For the years ended
December 31, 1996 and 1997, ORBCOMM generated revenues of $400,000 and $268,000,
respectively. The cost of product sales associated with revenues for the years
ended December 31, 1996 and 1997 was $268,000 and $517,000, respectively.
Revenues generated are primarily related to the sale of subscriber units and the
provision of limited communications services to customers.
For the three months ended March 31, 1997 and 1998, ORBCOMM incurred $1.7
million and $1.9 million, respectively, of ORBCOMM system depreciation expenses.
For the years ended December 31, 1995, 1996 and 1997, ORBCOMM incurred $0, $6.2
million and $7.3 million, respectively, of ORBCOMM system depreciation expenses.
ORBCOMM began depreciating its initial two satellites in 1996, when such
satellites commenced commercial operations.
36
<PAGE> 42
For the three months ended March 31, 1997 and 1998, ORBCOMM incurred $1.6
million and $2.7 million, respectively, of ORBCOMM system engineering expenses.
For the years ended December 31, 1995, 1996 and 1997, ORBCOMM incurred $0, $5.5
million and $8.2 million, respectively, of ORBCOMM system engineering expenses.
ORBCOMM capitalized a portion of engineering direct labor costs that relate to
hardware and system design, development and coding of the software products that
enhance the operation of the ORBCOMM system in amounts totaling $831,000 and
$2.0 million, respectively, for the three months ended March 31, 1997 and 1998
and $0, $1.2 million and $4.6 million, respectively, for the years ended
December 31, 1995, 1996 and 1997. For the three months ended March 31, 1997 and
1998, ORBCOMM incurred $1.8 million and $4.3 million, respectively, of marketing
expenses. For the years ended December 31, 1995, 1996 and 1997, ORBCOMM incurred
$2.2 million, $6.8 million and $10.7 million, respectively, of marketing
expenses related to the marketing of ORBCOMM services. For the three months
ended March 31, 1997 and 1998, ORBCOMM incurred $1.3 million and $2.1 million,
respectively, of general, administrative and other expenses related to the
operation of the ORBCOMM system. For the years ended December 31, 1995, 1996 and
1997, ORBCOMM incurred $50,000, $4.8 million and $9.7 million, respectively, of
general, administrative and other expenses related to the operation of the
ORBCOMM system. The increase in engineering, marketing and administrative
expenses since 1995 is attributable primarily to increased staffing and
expansion of commercial network operations and operational support services for
the commencement of commercial service.
ORBCOMM recognized interest income (excluding interest expense of $206,000
and $210,000) on the invested portion of the MetLife Note and the proceeds of
the Notes Offering of $2.0 million and $218,000 for the three months ended March
31, 1997 and 1998, respectively. ORBCOMM recognized interest income (excluding
interest expense of $0, $307,000 and $833,000) on the invested portion of the
MetLife Note and the proceeds of the Notes Offering of $59,000, $3.9 million and
$5.4 million for the years ended December 31, 1995, 1996 and 1997, respectively.
ORBCOMM capitalized interest as part of the historical cost of the ORBCOMM
system of $6.0 million and $6.0 million for the three months ended March 31,
1997 and 1998, respectively, and $426,000, $10.0 million and $24.1 million for
the years ended December 31, 1995, 1996 and 1997, respectively.
ORBCOMM expects engineering and marketing and administrative expenses to
continue to increase during 1998 due to a continued increase in the number of
employees, expanded commercial network operations, continued development of the
Internal VARs and operational support for the commencement of commercial
service. In addition, with the planned completion of the launch of the
28-satellite constellation in the third quarter of 1998, ORBCOMM expects
depreciation expense associated with the ORBCOMM system to increase
substantially.
As of March 31, 1998 and December 31, 1997, 1,098 and 880 subscriber units,
respectively, were either generating revenues or being used in beta tests. This
figure does not include subscriber units used for demonstration purposes,
delivered to resellers or on back order with subscriber unit manufacturers.
LIQUIDITY AND CAPITAL RESOURCES
ORBCOMM is a development stage enterprise and has incurred cumulative net
losses from inception. ORBCOMM has financed its operations to date primarily
with capital contributions from its current Partners and through financing
activities. For the three months ended March 31, 1998, net cash used in
operating activities was $7.1 million primarily as a result of a net loss,
excluding non-cash charges for depreciation and amortization of $2.1 million and
an increase in inventory for the construction of Gateways of $3.0 million. This
use of cash was partially offset by an increase in deferred revenue of $4.4
million, an increase in accounts payable to Orbital of $8.4 million and a
semi-annual interest payment on the Notes, respectively. For the year ended
December 31, 1997, net cash used in operating activities was $12.3 million,
primarily as a result of a net loss excluding non-cash charges for depreciation
and amortization of $23.4 million and an increase in inventory for the
construction of Gateways of $15.8 million. This use of cash was partially offset
by an increase in accounts payable and accrued liabilities of $20.9 million and
an increase in deferred revenue of $7.1 million. Net cash of $84,000 and $4.6
million was used in operating activities during 1995 and 1996, respectively. As
of December 31, 1996 and 1997, ORBCOMM had $3.9 million and $19.6 million,
respectively, of inventory for
37
<PAGE> 43
construction of Gateways scheduled for delivery to the International Licensees
over the next two years. As of December 31, 1997, ORBCOMM had received $3.7
million under service license or similar agreements and $9.6 million under
ground segment agreements that are recorded as deferred revenue. As of March 31,
1998 cash and investments had been reduced by $6.8 million. Given the additional
$20.0 million of capital contributions by the current Partners in the first
quarter of 1998, the reduction primarily reflects capital expenditures,
operating expenses and a semi-annual interest payment. As of December 31, 1997,
cash and investments had been reduced by $114.6 million, which decrease was
attributable to capital expenditures, operating expenses and interest payments.
This was offset by an increase in accounts payable to Orbital under the
Procurement Agreement as a result of the achievement of milestones under the
Procurement Agreement, including the launch of eight satellites in December
1997.
Cash flows used in investing activities for the three months ended March
31, 1998 were $9.5 million primarily as a result of additional capital
expenditures and purchases and sales of securities. For the three months ended
March 31, 1998, ORBCOMM invested $19.4 million, including $6.0 million of
capitalized interest, for satellite constellation design, construction and
launch services and design and construction of the U.S. Ground Segment. Cash
flows used in investing activities for the year ended December 31, 1997 were
$27.3 million primarily as a result of additional capital expenditures and
purchases and sales of securities. In 1997, ORBCOMM invested $100.7 million,
including $24.1 million of capitalized interest, for satellite constellation
design, construction and launch services and design and construction of the U.S.
Ground Segment. This use of cash was partially offset by $73.8 million of net
proceeds of the sale of securities. For the years ended December 31, 1995 and
1996, $38.3 million and $165.8 million, respectively, were used in investing
activities, primarily for capital expenditures and purchases and sales of
securities. In 1995 and 1996, ORBCOMM invested $38.3 million and $69.2 million,
respectively, on capital expenditures. In 1995 and 1996, investing activities
also included $0 and $96.5 million, respectively, of cash used to purchase
securities.
Cash flows provided by financing activities for the three months ended
March 31, 1998 were $19.7 million. This amount principally reflects additional
capital contributions of ORBCOMM's current Partners of $20.0 million, partially
offset by the repayment of debt. Cash flows used in financing activities for the
fiscal year ended December 31, 1997 were $1.2 million, $1.0 million of which was
used to repay a portion of the principal of the MetLife Note. Cash flows related
to financing activities for the fiscal years ended December 31, 1995 and 1996
resulted in increases of $35.2 million and $225.4 million, respectively. These
increases reflect additional contributions by the current Partners of $38.1
million and $62.7 million in 1995 and 1996, respectively, and net proceeds of
approximately $164.5 million from the Notes Offering in 1996.
Expected future uses of cash include continued hiring of employees, capital
expenditures related to the completion of the ORBCOMM constellation, debt
servicing and working capital requirements. In addition, ORBCOMM intends to
continue to increase marketing and product development expenditures in
anticipation of expanded commercial operations. The total cost of the
36-satellite enhanced constellation is expected to be $332.0 million. Of this
amount, $244.0 million is for the design, development and construction of the
satellite constellation and launch services, $39.0 million is for the design and
construction of the U.S. Ground Segment, $17.0 million is for insurance and
approximately $32.0 million is for other system costs such as engineering and
billing system costs. Through March 31, 1998, $255.9 million had been spent for
the ORBCOMM system, excluding a total of $40.5 million of capitalized interest
costs. The foregoing information reflects ORBCOMM's current estimate of its
funding requirements for the ORBCOMM system. Actual amounts may vary from such
estimates for a variety of reasons, including delays or launch or satellite
failures. See "Risk Factors -- Forward Looking Statements and Market Estimates."
ORBCOMM expects to continue to generate negative cash flows through all of
1998 and at least a portion of 1999. ORBCOMM expects that a portion of its cash
requirements will be met through cash expected to be generated from operations.
ORBCOMM's ability to generate significant revenues is subject to numerous
uncertainties. In 1998, ORBCOMM expects to receive additional cash payments of
approximately $40.0 million under agreements with International Licensees
assuming certain milestones are achieved, including: (i) acceptance of Gateways
by the International Licensees; (ii) launch of additional satellites by ORBCOMM;
and (iii) receipt of regulatory approvals by the International Licensees.
ORBCOMM's service
38
<PAGE> 44
and equipment contracts are U.S. dollar based and do not generate foreign
currency risk. Without giving effect to the Offering, ORBCOMM believes that the
capital contributions of ORBCOMM's current Partners and the net proceeds of the
Notes Offering and the MetLife Note will be sufficient to fund ORBCOMM's
anticipated net cash loss from operations and capital expenditures through
mid-1998. Additionally, Orbital has indicated that it will continue to defer
invoicing of certain amounts otherwise due under the Procurement Agreement until
consummation of the Offering. ORBCOMM expects, however, to pay such amounts
($34.9 million as of May 31, 1998) in full with a portion of the net proceeds of
the Offering. See "Use of Proceeds."
ORBCOMM believes that the net proceeds of the Offering and the application
of the net proceeds therefrom to purchase Partnership Units, the capital
contributions of ORBCOMM's current Partners, and the net proceeds of the Notes
Offering and the MetLife Note will be sufficient to fund ORBCOMM's anticipated
net cash loss from operations and capital expenditures through the third quarter
of 1999. ORBCOMM may require additional capital and may seek to raise such
additional capital through equity or debt financing or by entering into other
strategic arrangements. There can be no assurance, however, that debt or equity
financing will be available and, if so, that it will be available on terms
acceptable to ORBCOMM or that strategic arrangements will be possible and, if
so, that they will be possible on terms acceptable to ORBCOMM. See "Risk
Factors -- Financing Risks -- Additional Funding Requirements" and "Risk
Factors -- Forward Looking Statements and Market Estimates."
ORBCOMM has made a preliminary assessment of potential "Year 2000" issues
with respect to various of its computer-related systems. ORBCOMM has developed
an initial corrective action plan that includes reprogramming impacted software
when appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. ORBCOMM
currently expects that all identified "Year 2000" impacted systems will be
corrected by the end of 1998, although there can be no assurance that ORBCOMM
has identified all "Year 2000" impacted systems or that its corrective action
plan will be timely and successful. ORBCOMM believes that the costs to correct
its impacted systems will not materially affect its results of operations or its
financial condition. In addition, ORBCOMM has not received any indication to
date that the impact of "Year 2000" issues on its customers and suppliers will
have a material adverse effect on ORBCOMM's financial condition and results of
operations.
39
<PAGE> 45
BUSINESS
OVERVIEW
ORBCOMM provides two-way monitoring, tracking and messaging services
through the world's first commercial LEO satellite-based data communications
system. ORBCOMM believes that it will provide a reliable, cost-effective method
of providing fixed asset monitoring, mobile asset tracking and messaging
services to a broad range of customers around the world, enabling such customers
to collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems.
The ORBCOMM system architecture employs a network of independently operated
satellites. As additional satellites are added to the ORBCOMM system, ORBCOMM is
able to provide enhanced service, including increased system capacity and
availability, and increased system redundancy. Thus, the ORBCOMM system is
designed to provide commercial service in the event of the loss or inoperability
of one or more satellites. ORBCOMM has launched 12 satellites to date and
expects to launch 16 additional satellites in the third quarter of 1998, which
will complete its planned 28-satellite constellation. An additional eight
satellites that will create a planned 36-satellite enhanced constellation with
increased capacity and improved service in equatorial regions are expected to be
launched in the third quarter of 1999.
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through ORBCOMM's initial two satellites, each of which has a
design life of four years beginning on the date it was placed in commercial
service. ORBCOMM has begun to place in commercial service satellites that were
launched in late 1997 and early 1998 and, as a result, ORBCOMM has begun to
offer commercial service on a broader basis. ORBCOMM expects to have the ability
to significantly expand its commercial services in the fourth quarter of 1998 in
the United States and other temperate zones, when 16 additional satellites are
expected to be placed in commercial service. Service outside the United States
will be expanded as the necessary ground infrastructure is completed and the
necessary regulatory approvals are received. Based on ORBCOMM's experience,
ground infrastructure is generally completed within 12 to 24 months after
execution of a ground procurement contract and regulatory approvals are
generally received within two to 12 months after submission of a regulatory
application. Enhanced service in equatorial regions is expected to be available
in the fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service. Certain
ORBCOMM system satellites have experienced anomalies or outages. See "Risk
Factors -- Technology Risks -- Design and Operation Risks; Risk of Satellite
Failure or Damage" and "Risk Factors -- Regulatory Risks -- International
Licensing Risks."
ORBCOMM is targeting specific markets for its communications services,
including those in which potential customers currently have geographically
limited or otherwise inefficient methods of obtaining information. ORBCOMM's
current primary target markets include: (i) fixed asset monitoring services for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects; (ii) mobile asset tracking services for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels,
barges and government assets; and (iii) messaging services for consumers and
commercial and government entities. Future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. Based on market analyses conducted by and on
behalf of ORBCOMM, ORBCOMM estimates that the current addressable market
worldwide for data and messaging services of the type that can be provided by
Little LEO systems such as ORBCOMM's is in excess of 160 million subscriber
units.
ORBCOMM has made substantial progress toward its goal of full commercial
operation of the ORBCOMM system. ORBCOMM has entered into agreements with over
45 VARs, each of which is authorized to market and distribute ORBCOMM services
within specific regions and to targeted industries or markets. ORBCOMM has also
established two Internal VARs to market and distribute monitoring and tracking
services to the oil and gas and transportation industries. In addition, ORBCOMM
has entered into agreements with 13 International Licensees that are expected to
market and distribute ORBCOMM services
40
<PAGE> 46
in over 95 countries within North and South America, Europe, Asia, the Middle
East and Africa following completion of the necessary ground infrastructure and
receipt of the necessary regulatory and other approvals. ORBCOMM has also
entered into agreements with six subscriber unit manufacturers, Panasonic,
Scientific-Atlanta, also a VAR, Magellan, Stellar, Torrey and CTI, and has type
approved ten subscriber unit models for commercial use with the ORBCOMM system.
Four subscriber unit manufacturers have commenced production of subscriber units
that can be used for electric utility meter, oil and gas storage tank, well and
pipeline and environmental monitoring and commercial truck, trailer, container,
rail car, heavy equipment, fishing vessel and government asset tracking
applications. To date, ORBCOMM believes that approximately 8,000 subscriber
units have been produced, of which Panasonic and Stellar have produced
approximately 6,500 and 1,100 subscriber units, respectively. To date, ORBCOMM
believes that approximately 1,100 subscriber units have been sold directly to
entities other than ORBCOMM and its affiliates.
The ORBCOMM system consists of small and relatively inexpensive satellites
and subscriber units and a relatively low-cost ground infrastructure compared to
Big LEO systems. Such systems are designed primarily to provide voice services
and require satellite systems that are estimated to cost between $2 billion and
$4.5 billion to construct and deploy. ORBCOMM expects that the aggregate cost to
design, construct, launch and place in commercial service the planned
36-satellite enhanced constellation and design and construct the U.S. Ground
Segment, which includes the U.S. Gateway and the Network Control Center, will be
approximately $332 million through the third quarter of 1999, when the final
eight satellites of such enhanced constellation are expected to be launched, of
which approximately $256 million had been spent through March 31, 1998,
excluding capitalized interest. On consummation of the Offering and the
application of the net proceeds therefrom to purchase Partnership Units, and
taking into account the capital contributions of ORBCOMM's current Partners and
the net proceeds of the Notes Offering and the MetLife Note, ORBCOMM believes
that it will have sufficient funds to meet its anticipated net cash loss from
operations and capital expenditures through the third quarter of 1999, when the
last eight satellites of the planned 36-satellite enhanced constellation are
expected to be launched. See "Risk Factors -- Financing Risks -- Additional
Funding Requirements" and "Risk Factors -- Forward Looking Statements and Market
Estimates."
SERVICE OFFERINGS
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world. ORBCOMM intends to integrate the
ORBCOMM system with related applications software and hardware developed by or
for ORBCOMM, International Licensees or third parties that address the needs of
specific industries and market segments. ORBCOMM's estimates of the current
addressable market for various market segments, as set forth in this Prospectus,
are based on a review and analysis of secondary market data supplemented with
primary market research conducted by or on behalf of ORBCOMM.
Fixed Asset Monitoring. ORBCOMM believes its services will provide a means
of collecting data from assets in multiple locations around the world, thereby
allowing customers to monitor productivity, minimize downtime and realize other
operational benefits. Ultimately, ORBCOMM also expects to provide a method of
controlling the functions of such assets, for example, by remotely operating
valves, electrical switches and other devices, providing further operational,
economic and competitive advantages. Primary applications currently include or
are expected to include monitoring and control applications for: (i) electric
utility meters; (ii) oil and gas storage tanks and wells; (iii) oil and gas
pipelines; and (iv) environmental projects. Many of the customers for these
applications manage numerous, widely dispersed assets in locations not currently
or adequately served by other communications systems. ORBCOMM estimates that the
size of the addressable market for these applications worldwide is approximately
61 million subscriber units in 1998. ORBCOMM subscriber units are currently
being used for beta test or operational monitoring applications for electric
utility meters, oil and gas storage tanks, wells and pipelines and environmental
projects. Operational customers that are working with VARs and Internal VARs and
purchasing ORBCOMM services include: (i) Barton Instrument, which is working
with one of the Internal VARs to test monitoring systems for oil and gas storage
41
<PAGE> 47
tanks, wells and pipelines; and (ii) the Salt River Valley Water Users'
Association, which is working with Stevens Water Monitoring on water monitoring
systems. Beta test customers include: (i) Florida Power, which is working with
Scientific-Atlanta to develop automatic meter reading systems for commercial and
residential customers; and (ii) Acanthus, which is working with Intrex to test
monitoring systems for oil and gas pipelines.
Mobile Asset Tracking. ORBCOMM believes its services will provide a means
to regularly and reliably track the location and report the status or condition
of mobile assets around the world, thereby enabling customers to reduce
downtime, repair costs, theft and other losses, improve service and more
effectively utilize transportation, heavy equipment and other assets. Primary
applications currently include or are expected to include tracking and
monitoring applications for: (i) commercial trucks; (ii) trailers, containers
and rail cars; (iii) heavy equipment; (iv) fishing vessels and barges; and (v)
government assets. Certain of the customers in this market segment have no
efficient means of tracking the location and may have no means of monitoring the
status or condition of their assets. ORBCOMM estimates that the size of the
addressable market for certain of these applications worldwide is approximately
13 million subscriber units in 1998. ORBCOMM subscriber units are currently
being used for beta test or operational tracking applications for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels and
military vehicles. Operational customers that are working with VARs and Internal
VARs and purchasing ORBCOMM services include: (i) various fishing fleets that
are working with SASCO to test a fleet tracking and messaging system; and (ii)
various U.S. trucking firms that are working with Arinc to test trailer tracking
services. In addition, Atlas Van Lines has committed to work with Arinc to test
a trailer tracking system. Beta test customers include: (i) Caterpillar, which
is working with Globitrac to test a heavy equipment tracking and engine
monitoring system; (ii) the U.S. Army, which is working with Arinc to test a
military vehicle tracking system; (iii) the U.S. Postal Service, which has
worked with ARCO to test a commercial truck tracking system; and (iv) Burlington
Northern, which is working with MobileNet to deploy a roadway equipment asset
tracking and utilization monitoring system.
Messaging. The ORBCOMM system is designed to provide short, alphanumeric
two-way paging-like communications services on a global basis. The ORBCOMM
system is technically capable of transmitting messages of up to 64,000
characters in length, although due to regulatory and certain operational
constraints ORBCOMM believes that the length of messages will be limited to
approximately 2,000 characters. ORBCOMM believes that its customers will use the
ORBCOMM system to transmit messages ranging from six to 200 characters in
length. ORBCOMM plans to introduce messaging services in the United States in
the fall of 1998 and thereafter on a global basis as the necessary ground
infrastructure is completed, the necessary regulatory approvals are received
and, in equatorial regions, as additional satellites are launched. ORBCOMM
expects that messaging customers will include a broad range of consumer,
commercial and government customers that require a means of communicating with
various locations such as their offices, dispatch centers, command posts or
homes or that require the ability to send priority messages or position
information. Certain customers in this market segment currently have no
cost-effective alternatives or rely on pagers, cellular phones or fleet dispatch
systems, all of which services can be expensive, unavailable or inconvenient in
certain locations. ORBCOMM estimates that the size of the addressable market for
certain of these applications worldwide is approximately 40 million subscriber
units in 1998. ORBCOMM expects that messaging subscriber units that can be used
in the United States and certain other regions will be commercially available
from Magellan in mid-1998 and thereafter from one or more other manufacturers.
Future Applications. In addition to the addressable markets described
above for data and messaging services, future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. ORBCOMM estimates that the size of the
addressable markets for automotive and home security system applications is
approximately 52 million subscriber units in 1998.
BUSINESS STRATEGY
ORBCOMM's business strategy is to provide data and messaging communications
services to customers in fixed asset monitoring, mobile asset tracking and
messaging markets worldwide. These services are being
42
<PAGE> 48
provided through the world's first commercial LEO satellite-based communications
system. Key components of this strategy include:
Reliable, Global Coverage. ORBCOMM believes that the integration of proven
technologies into the ORBCOMM system and the redundancy provided by the ORBCOMM
satellite constellation will enable it to provide reliable, global, two-way data
and messaging communications services. ORBCOMM's distributed constellation
architecture, consisting of numerous LEO satellites, is designed not only to
provide global coverage but also to reduce potential risks associated with the
loss or outage of one or more satellites. See "Risk Factors -- Technology
Risks -- Design and Operation Risks; Risk of Satellite Failure or Damage."
First-to-Market Advantage. ORBCOMM began providing limited commercial
service in the United States in February 1996 with two satellites and expects to
have the ability to provide expanded service in the United States and other
temperate zones in the fourth quarter of 1998 and enhanced service in equatorial
regions in the fall of 1999. ORBCOMM's first two satellites, as well an
operational U.S. Gateway and type approved subscriber units, have permitted
ORBCOMM to conduct a significant number of beta tests beginning in the second
half of 1997 for companies in various industries including the heavy equipment,
oil and gas and transportation industries. Based on published reports, ORBCOMM
believes that other Little LEO constellations are not expected to be fully
operational until after the year 2000. ORBCOMM believes that being first to
market with its Little LEO system provides it with the opportunity to achieve a
significant competitive advantage and therefore a greater market penetration
because of its ability to: (i) establish certain industry standards for hardware
and software applications; (ii) demonstrate the ORBCOMM system in an actual
operating environment; (iii) deploy an installed base of subscriber units; (iv)
solidify customer relationships; and (v) create relationships with leading VARs,
International Licensees, subscriber unit manufacturers and other hardware and
software developers.
Affordable and Convenient Service. ORBCOMM believes that its small and
relatively inexpensive satellites and subscriber units and relatively low-cost
ground infrastructure, compared to Big LEO systems, which are designed primarily
to provide voice services and require satellite systems that are estimated to
cost between $2 billion and $4.5 billion to construct and deploy, will enable it
to provide customers with affordable and convenient data and messaging
communications services. Each satellite is designed specifically for the
transmission of short messages. This design eliminates a number of complex and
expensive components such as customized spot beams, on-board switching and
high-powered amplifiers that are required on larger, more complex satellites
designed to carry voice, video and data traffic. The less complex and more
compact design of the ORBCOMM satellites (which weigh approximately 90 pounds
each with the exception of the two satellites launched in April 1995, which
weigh approximately 104 pounds each) reduces the cost and time of production and
enables ORBCOMM to launch multiple satellites using a single, relatively
low-cost launch vehicle. As a result of ORBCOMM's relatively inexpensive
satellites and relatively low-cost ground infrastructure, ORBCOMM believes that
it will be in a position to offer affordable and convenient data and messaging
communications services. Additionally, ORBCOMM monitoring and tracking
subscriber units are small and lightweight, with substantial battery lives, and
are or are expected to be available from suppliers at initial prices ranging
from $250 to $750. ORBCOMM believes that as more subscriber units become
commercially available and as the overall production volume for subscriber units
increases, the price for subscriber units will decline.
Global Marketing and Distribution of Services. ORBCOMM intends to target
specific markets for ORBCOMM services, including those in which customers have
geographically limited or otherwise inefficient methods of obtaining information
using other systems. ORBCOMM believes that it can rapidly achieve a global
presence by capitalizing on the customer relationships, technical expertise and
other resources of the VARs, Internal VARs and International Licensees. Many of
the VARs and International Licensees have an established market presence as a
result of their current customer bases, industry knowledge, market-specific
brand name recognition and distribution networks. ORBCOMM's National Account
Program provides complementary marketing and application engineering services
that support the marketing and distribution efforts of the VARs and Internal
VARs. The Internal VARs enable ORBCOMM to broaden its distribution base, to
capture additional revenue from value-added hardware, software and services
provided directly to customers and to facilitate the development of application
hardware and software that can hasten market
43
<PAGE> 49
development by ORBCOMM and the VARs in the United States and by the
International Licensees internationally.
Commitment and Expertise of Strategic Partners. Orbital, through OCC, and
Teleglobe and TRI, through Teleglobe Mobile, had invested an aggregate of
approximately $190 million in ORBCOMM through May 31, 1998. Orbital is a
U.S.-based space and information systems company, with 1997 revenues of
approximately $600 million, that designs, manufactures, operates and markets a
broad range of space-related products and services, including satellites, launch
vehicles, electronics and sensor systems, ground systems, satellite-based
navigation and communications products and transportation management systems.
Orbital manufactures and launches the ORBCOMM satellites. Teleglobe is a North
American-based overseas telecommunications carrier, with 1997 revenues of
approximately C$2 billion (approximately US$1.4 billion), whose network and
service capabilities (including voice, data, Internet and value-added services)
can be accessed in virtually all countries. TRI is a Malaysian holding company,
with 1997 revenues of approximately RM2 billion (approximately US$500 million),
that controls the largest cellular operator in Malaysia and has established
cellular operations in Bangladesh, Cambodia and Tanzania. Orbital, Teleglobe and
TRI have significant operating, regulatory and marketing experience in the
satellite and communications industries, which has contributed to ORBCOMM
becoming the operator of the first commercial global satellite-based data and
messaging communications system. ORBCOMM has used and will continue to use the
expertise and capabilities of its current Partners, including their expertise in
the design, construction and launch of satellites and the marketing and
operation of communications networks, to enhance the services offered by the
ORBCOMM system.
PROJECT MILESTONES
Milestones Achieved to Date
Through March 31, 1998, ORBCOMM has achieved the following milestones:
- Launch of Satellites and Commencement of Commercial Service. In April
1995, ORBCOMM's first two satellites were launched. In February 1996,
after extensive testing, ORBCOMM commenced limited commercial service in
the United States. Since December 1997, an additional ten satellites have
been successfully launched on two separate launch vehicles. To date,
ORBCOMM has placed four of these satellites in commercial service.
- Gateways. The U.S. Ground Segment, including the Network Control Center
and four Gateway Earth Stations, is operational. The U.S. Gateway will be
used to serve the United States, Canada and Mexico. In March 1998, a
Gateway located in Italy successfully completed acceptance testing. In
each of South Korea and Japan, a Gateway is under construction and is
expected to be completed by mid-1998. ORBCOMM expects that many
International Licensees will enter into agreements to share Gateways.
- VARs. ORBCOMM has entered into agreements with over 45 VARs to provide
services in the United States to various market segments, including the
electric utility meter, oil and gas storage tank, well and pipeline,
environmental monitoring, commercial trucks, trailers, containers, rail
cars, heavy equipment, fishing vessels, barges and government market
segments.
- Internal VARs. ORBCOMM is engaged in direct sales activities to customers
through the Internal VARs, which are currently focused on developing
monitoring and tracking applications for use in the oil and gas and
transportation industries. One of the Internal VARs has application
software and an information system that are capable of monitoring oil and
gas storage tanks and wells commercially available and being used by both
operational and beta test customers.
- International Licensees. ORBCOMM has entered into agreements with 13
International Licensees (one of which agreements is subject to approval
by the board of directors of the International Licensee) that are
expected to market and distribute ORBCOMM services in over 95 countries.
44
<PAGE> 50
- Monitoring and Tracking Subscriber Units. ORBCOMM has type approved ten
subscriber unit models for commercial use with the ORBCOMM system. Four
subscriber unit manufacturers have commenced production of subscriber
units that can be used for electric utility meter, oil and gas storage
tank, well and pipeline and environmental monitoring and commercial
truck, trailer, container, rail car, heavy equipment, fishing vessel and
government asset tracking applications.
- ORBCOMM Customer Care and Billing System. In January 1998, ORBCOMM
accepted a customer care and billing system from CSC Intelicom, Inc. for
use by ORBCOMM and the International Licensees to provision and bill for
subscriber units and provide certain customer care functions.
- Operational and Beta Test Customers. ORBCOMM has completed or is in the
process of conducting beta tests in a variety of market segments
including the electric utility meter, oil and gas storage tank, well and
pipeline and environmental monitoring and commercial truck, trailer,
container, rail car, heavy equipment and government asset tracking market
segments. Operational customers that are working with VARs and Internal
VARs and purchasing ORBCOMM services include: (i) Barton Instrument,
which is working with one of the Internal VARs to test monitoring systems
for oil and gas storage tanks, wells and pipelines; (ii) various U.S.
trucking firms that are working with Arinc to test trailer tracking
systems; and (iii) the Salt River Valley Water Users' Association, which
is working with Stevens Water Monitoring on water monitoring systems.
Beta test customers include: (i) Caterpillar, which is working with
Globitrac to test a heavy equipment tracking and engine monitoring
system; (ii) Florida Power, which is working with Scientific-Atlanta to
develop automatic meter reading systems for commercial and residential
customers; (iii) the U.S. Army, which is working with Arinc to test a
military vehicle tracking system; (iv) Burlington Northern, which is
working with MobileNet to deploy a roadway equipment asset tracking and
utilization monitoring system; and (v) Acanthus, which is working with
Intrex to test monitoring systems for oil and gas pipelines.
- FCC Authorizations. In October 1994, OCC was granted authority pursuant
to the Original FCC License to construct, deploy and operate 36 LEO
satellites in the United States. In May and June 1995, OCC received FCC
authority to operate the U.S. Gateway and to operate subscriber units in
the United States. On March 31, 1998, OCC was granted authority pursuant
to the Supplemental FCC License to, among other things, construct, deploy
and operate 12 additional satellites.
- ITU Allocations. In 1992, certain portions of the radio spectrum were
allocated by the ITU for use by Little LEO systems such as the ORBCOMM
system on an international basis.
- International Regulatory Approvals. In February 1996, ORBCOMM Canada
received full regulatory approval to provide ORBCOMM services in Canada.
In March 1998, Celcom Sdn. Bhd. (Celcom) of Malaysia received full
regulatory approval to provide ORBCOMM services in Malaysia. In May 1998,
ORBCOMM Japan Ltd. received full regulatory approval to provide ORBCOMM
services in Japan. ORBCOMM, through the International Licensees and other
third parties, currently has temporary, experimental, testing and
demonstration or business licenses in Germany, Italy, South Korea, Spain,
Sweden, Ireland, Argentina, Chile, South Africa, Iceland and Namibia,
which 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.
- Equity and Debt Funding. As of May 31, 1998, ORBCOMM's current Partners
had invested an aggregate of $190 million in ORBCOMM. In addition, in
August 1996, ORBCOMM completed the Notes Offering and received net
proceeds of approximately $164 million. Collectively, the International
Licensees also have committed significant additional resources for
license fees, infrastructure, marketing, distribution and other expenses.
45
<PAGE> 51
Future Milestones
ORBCOMM expects to achieve the following future milestones:
- Additional Satellites. By the end of the third quarter of 1998, ORBCOMM
expects to have placed in commercial service the balance of the
satellites launched since December 1997. In addition, in the third
quarter of 1998, ORBCOMM plans to launch 16 additional satellites in two
planes of eight satellites each and, in the third quarter of 1999,
ORBCOMM plans to launch an additional plane of eight satellites in an
equatorial orbit.
- Messaging Subscriber Units. By mid-1998, ORBCOMM expects that hand-held
subscriber units will be commercially available from Magellan for
messaging services and thereafter from one or more other manufacturers.
- Internal VARs. In the third quarter of 1998, one of the Internal VARs
plans to have a commercial product capable of tracking trailers and other
assets available.
- International Licensees. By December 1998, ORBCOMM plans to have executed
agreements with several additional International Licensees. During 1998,
ORBCOMM expects that certain of its International Licensees will be able
to offer ORBCOMM services in portions of Europe, Japan, South Korea,
Brazil and Morocco, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals. In
1998, ORBCOMM expects to install a number of additional Gateways for
International Licensees.
- Commencement of Expanded Global Service. In the fourth quarter of 1998,
following the planned launch and placement in commercial service of 16
additional satellites, ORBCOMM plans to offer expanded services in the
United States and to be able to offer expanded services in other
temperate zones on completion of the necessary ground infrastructure and
receipt of the necessary regulatory approvals. In the fall of 1999,
following the launch and placement in commercial service of the final
eight satellites in the 36-satellite enhanced constellation in an
equatorial orbit, ORBCOMM plans to be able to offer enhanced services in
equatorial regions, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals.
MARKETING AND DISTRIBUTION
ORBCOMM markets its services to customers within the United States
indirectly through VARs and directly through Internal VARs, and internationally
through International Licensees that may distribute ORBCOMM services directly or
through a distribution network.
ORBCOMM's National Account Program, a sales and marketing initiative,
supplements the activities of VARs and Internal VARs by identifying specific
large corporations that are perceived as likely to purchase ORBCOMM services.
The National Account Program and the VAR and Internal VAR activities are
designed as complementary strategies, with the goals of coordinated penetration
of targeted markets and the efficient use of the full range of ORBCOMM services.
VARs. ORBCOMM has entered into agreements with over 45 VARs and is
currently negotiating agreements with prospective VARs. The VARs have primary
responsibility for marketing ORBCOMM services to industries or markets within
specific regions in accordance with a marketing plan and program approved by
ORBCOMM at the time of selection. The VARs are also responsible for developing
applications, retail pricing, customer service, billing, training, customer
support and maintaining an inventory of or having subscriber units available.
ORBCOMM's relationship with a VAR is governed by a reseller agreement that
establishes the VAR's responsibilities with respect to developing and
maintaining customer relationships, as well as the cost of service to the VAR.
In soliciting customers, the VAR "adds value" to the basic data service provided
by ORBCOMM by integrating the ORBCOMM system with related applications software
and hardware in a manner intended to address the needs of a particular industry
or market segment.
The VARs will provide one or more of ORBCOMM's monitoring, tracking and
messaging services in one or more of the market segments identified by ORBCOMM
within its target markets. See "-- Addressable
46
<PAGE> 52
Markets." The following chart identifies the number of reseller agreements that
have been entered into by ORBCOMM as of May 31, 1998 for each of the services it
offers and for each of the market segments it has targeted:
<TABLE>
<CAPTION>
FIXED ASSET MONITORING MOBILE ASSET TRACKING MESSAGING
- ------------------------------------- ------------------------------------- -------------------------------------
NUMBER OF NUMBER OF NUMBER OF
MARKET SEGMENT VARS (1) MARKET SEGMENT VARS (1) MARKET SEGMENT VARS (1)
- ------------------------- --------- ------------------------- --------- ------------------------- ---------
<S> <C> <C> <C> <C> <C>
Electric Utility 1 Commercial Trucks........ 10 Consumer................. 2
Meters................. Trailers, Containers and Commercial............... 19
Oil and Gas Storage Tanks Rail Cars.............. 21 Government............... 12
and Wells.............. 7 Heavy Equipment.......... 7
Oil and Gas Pipelines.... 3 Fishing Vessels and
Environmental Projects... 10 Barges................. 5
Government Assets........ 10
</TABLE>
- ------------------------------
(1) For purposes of this chart, a VAR is included in multiple columns whenever
such VAR is authorized to serve more than one market segment or provides
more than one service.
Internal VARs. ORBCOMM also markets and distributes its services directly
to customers through Internal VARs. In 1997, ORBCOMM established two Internal
VARs to market and distribute monitoring and tracking services to the oil and
gas and transportation industries. In the future, ORBCOMM may establish
additional Internal VARs to market and distribute applications to the automotive
and other industries and to provide messaging services. The Internal VARs are
working closely with customers to develop and integrate the ORBCOMM system with
related applications and development hardware and software to address the
specific needs of customers in particular industries and market segments.
The Internal VAR for fixed asset monitoring applications has focused
initially on developing applications to monitor oil and gas storage tanks and
wells. The applications developed and to be developed by this Internal VAR
involve the integration of sensors, subscriber units and automation equipment
located in the field with the ORBCOMM system and, eventually, with information
systems centrally located in the offices of customers. These integrated
applications are expected to be used by customers to efficiently and accurately
collect and deliver data from remote assets to central locations and, once
collected, to assist in the management of such data. This Internal VAR has
application software and an information system that are capable of monitoring
oil and gas storage tanks and wells commercially available and being used by
both operational and beta test customers. In the future, this Internal VAR
intends to develop monitoring and control applications for chemical tanks, oil
and gas pipelines, agricultural assets, such as grain silos and irrigation
systems, water treatment facilities and environmental projects.
The Internal VAR for mobile asset tracking applications is currently
developing applications to track assets in the transportation industry. These
applications involve the integration of subscriber units mounted on mobile
assets with the ORBCOMM system and with applications software for use by
customers in conjunction with their existing management information systems.
Applications developed by this Internal VAR may also include a sensor,
particularly in the case of applications developed to track mobile assets with
controlled environments, such as refrigerated trailers, containers and rail
cars. This Internal VAR plans to have a commercial product capable of tracking
trailers and other assets available in the third quarter of 1998. In the future,
this Internal VAR may develop applications to track and monitor intermodal power
generation equipment and chassis.
International Licensees. ORBCOMM expects to market and distribute its
services outside the United States through International Licensees. ORBCOMM has
executed agreements with 13 International Licensees (one of which agreements is
subject to approval by the board of directors of the International Licensee)
covering over 95 countries. ORBCOMM continues to negotiate agreements with
potential International Licensees and expects to execute agreements with several
additional International Licensees during 1998.
ORBCOMM's relationship with International Licensees is governed by service
license or similar agreements. Subject to certain limitations, these agreements
grant to the International Licensee, among other things, the exclusive right to
market services using the ORBCOMM satellites in a designated region and a
limited right to use certain ORBCOMM proprietary technologies and intellectual
property. In return, the
47
<PAGE> 53
International Licensees are responsible for, among other things, paying to
ORBCOMM a monthly satellite usage fee and in certain cases a license fee,
procuring and installing the necessary Gateways, obtaining the necessary
regulatory approvals to provide ORBCOMM services in their designated regions and
marketing and distributing ORBCOMM services in such regions. International
Licensees generally are required to make the ORBCOMM system available to VARs in
their designated regions on the same terms as resellers authorized by such
International Licensees. These agreements generally have a ten-year term and
provide that the International Licensee may request an extension of up to ten
years, which ORBCOMM may not unreasonably deny. On the occurrence of certain
events of default, the non-defaulting party may terminate the agreement.
ORBCOMM selects the International Licensees primarily by evaluating their
ability to successfully market and distribute ORBCOMM services. Key components
of such an evaluation include the International Licensee's: (i) reputation in
the marketplace; (ii) existing distribution capabilities and infrastructure;
(iii) financial condition and other resources; and (iv) ability to obtain the
necessary regulatory approvals. International Licensees will pay fees for access
to the ORBCOMM system in their region, including a monthly satellite usage fee.
This fee is calculated as the greater of a percentage of gross operating
revenues and a data throughput fee, which percentage and dollar amount may be
adjusted by ORBCOMM in accordance with the terms of the agreements. Certain
International Licensees are entitled to satellite usage fee credits if ORBCOMM
fails to meet certain milestones with respect to the launch of the ORBCOMM
system. As of May 31, 1998, ORBCOMM has received approximately $18.4 million in
fees and other payments from the International Licensees. In 1998, ORBCOMM
expects to receive additional cash payments of approximately $40.0 million under
agreements with International Licensees assuming certain milestones are
achieved, including: (i) acceptance of Gateways by the International Licensees;
(ii) launch of additional satellites by ORBCOMM; and (iii) receipt of regulatory
approvals by the International Licensees.
ORBCOMM PRICING
Services. In the United States, pricing of satellite capacity is based on
many variables, including the availability and cost of substitute services, the
cost of providing service and the nature of the customer application. Pricing
generally is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage. In charging for activation, access
and usage, ORBCOMM has developed pricing structures in the United States that it
believes suit the initial markets ORBCOMM is targeting. Additional pricing,
including priority and other messaging pricing, is expected to be developed in
the future as additional satellites in the ORBCOMM system are placed in
commercial service. It is likely that multiple pricing alternatives will be
offered in the United States, including peak/off-peak, volume discounts and
annual contract commitment options. Retail pricing for ORBCOMM services will be
largely outside the control of ORBCOMM and will be established by VARs or
International Licensees or their respective distribution networks. See "Risk
Factors -- Operating Risks -- Reliance on Third Parties."
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 will generate additional revenues from value-added software,
hardware and services provided to the customer.
Internationally, ORBCOMM earns revenues through license fees paid by, and
through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
International Licensees' gross operating revenues are generally based on a
wholesale pricing structure similar to the prices charged to VARs, which
includes an activation charge, a recurring monthly access charge and a usage
charge.
Subscriber Units. To access the ORBCOMM system, customers will use
subscriber units. ORBCOMM has type approved ten subscriber unit models for use
with the ORBCOMM system. Four subscriber unit manufacturers have commenced
production of subscriber units. ORBCOMM monitoring and tracking subscriber units
are or are expected to be available from suppliers at initial prices generally
ranging from $250 to $750. ORBCOMM believes that as more subscriber units become
commercially available and as the overall
48
<PAGE> 54
production volume for subscriber units increases, the price for subscriber units
will decline. See "-- System Architecture -- Subscriber Segment," and "Certain
Relationships and Related Transactions -- Subscriber Unit Manufacture Agreement
with Magellan."
ADDRESSABLE MARKETS
Based on marketing analyses conducted by or on behalf of ORBCOMM, ORBCOMM
estimates that the addressable market worldwide in 1998 for data and messaging
services of the type that can be provided by Little LEO systems such as
ORBCOMM's is in excess of 160 million subscriber units, including approximately
48 million subscriber units in the United States. ORBCOMM has defined its
"addressable market" as certain market segments that possess a significant
unsatisfied need for, and can afford, the products and services provided by
Little LEO systems. ORBCOMM's addressable market estimates exclude several large
potential markets due to the lack of available data to estimate the actual size
of such markets and the potential demand in such markets for Little LEO
services.
ORBCOMM's estimates of the current addressable markets for various market
segments, as set forth in this Prospectus, are based on a review and analyses of
secondary market data supplemented with primary market research conducted by or
on behalf of ORBCOMM. In estimating the size of the current addressable market
for various market segments, the market analyses conducted by or on behalf of
ORBCOMM estimated the total number of potential subscriber units in each market
segment, and then reduced such total number based on factors such as whether
there was a significant need for the type of services provided by the ORBCOMM
system and an ability to pay for such services. While based on certain market,
industry and demographic data, these addressable market estimates represent
professional judgments and are predictive in nature. There can be no assurance
that these addressable market estimates will prove to be accurate. There are a
number of factors supporting the estimates that are of an inherently uncertain
nature, including, but not limited to, the lack of precise industry and
demographic data, the variance between different statistical sources and the
need to extrapolate certain data for countries and regions that do not provide
sufficient information. Furthermore, the analyses are based on gross domestic
product growth predictions that are historically based and may not be met in the
future. See "Risk Factors -- Forward Looking Statements and Market Estimates."
ORBCOMM has identified a number of industries and industry segments in
which a demand currently exists for fixed asset monitoring, mobile asset
tracking and messaging services. ORBCOMM views these industries and industry
segments as its primary target markets. ORBCOMM estimates that the addressable
market comprising its primary target markets, including those for which it is
actively developing applications, is approximately 112 million subscriber units.
The following chart lists ORBCOMM's target markets and target market segments
within ORBCOMM's addressable market and provides examples of specific data and
messaging applications that have been, or may be, developed for customers in
each of these markets.
<TABLE>
<CAPTION>
TARGET MARKET SEGMENTS APPLICATION EXAMPLES
- --------------------------------------------- ---------------------------------------------
<S> <C>
FIXED ASSET MONITORING
Electric Utility Meters................. monitoring of meter operation and power
usage; load control
Oil and Gas Storage Tanks and Wells..... monitoring of tank level and leakage;
monitoring and control of valves, pumps and
compressors
Oil and Gas Pipelines................... monitoring of corrosion and flow; monitoring
and control of valves, pumps and compressors
Environmental Projects.................. monitoring of water level and quality
</TABLE>
49
<PAGE> 55
<TABLE>
<CAPTION>
TARGET MARKET SEGMENTS APPLICATION EXAMPLES
- --------------------------------------------- ---------------------------------------------
<S> <C>
MOBILE ASSET TRACKING
Commercial Trucks....................... tracking of location and operational
information
Trailers, Containers and Rail Cars...... tracking of location and status (e.g.,
temperature controls and condition of
contents)
Heavy Equipment......................... tracking of location and operational
information
Fishing Vessels and Barges.............. tracking of location and operational
information
Government Assets....................... tracking of personnel and equipment location
MESSAGING
Consumer................................ high-priority personal communications and/or
location information
Commercial.............................. field communication, dispatch and/or location
information
Government.............................. field communication and/or location
information
</TABLE>
FIXED ASSET MONITORING
ORBCOMM estimates that the addressable market in 1998 for fixed asset
monitoring services is approximately 61 million subscriber units. The fixed
asset monitoring market segment includes a broad group of industries that
require a means of regularly collecting data from, or in some cases controlling
equipment in, multiple locations. Primary applications include or are expected
to include monitoring and control applications for: (i) electric utility meters;
(ii) oil and gas storage tanks and wells; (iii) oil and gas pipelines; and (iv)
environmental projects.
Electric Utility Meters. ORBCOMM estimates that the addressable market in
1998 for electric utility meter monitoring services is approximately 59 million
subscriber units. This market segment includes electric utility meters only and
does not include gas or water meters. Currently, wireline, cellular and paging
systems are being used to collect data from utility meters located in urban and
suburban areas, in addition to traditional manual meter reading. For example,
SkyTel Communications, Inc., formerly Mobile Telecommunications Technologies
Corp. ("SkyTel"), recently announced a service agreement with Enron Energy
Services, Inc., under which SkyTel will use its system to support meter reading
and provide services for residential power customers nationwide primarily in
urban areas. The ORBCOMM system is capable of reading electric utility meters in
urban, suburban and rural areas. The ORBCOMM subscriber unit for electric
utility meter monitoring currently has the capability to read meters and
transmit data relating to usage to a central location. In the future, subscriber
units may be programmed to turn power on and off and identify unauthorized
usage.
Oil and Gas Storage Tanks and Wells. ORBCOMM estimates that the
addressable market in 1998 for oil and gas storage tanks is approximately 1.1
million subscriber units. ORBCOMM believes that this market segment comprises
tanks used, among other things, in petroleum upstream (e.g., crude oil
production) and petroleum downstream (e.g., retail outlets). ORBCOMM believes
that its services could be used, among other things, to monitor tank levels and
provide related tank management services, to assist in inventory management and
to aid reporting and compliance efforts by tank operators. ORBCOMM estimates
that the current addressable market in 1998 for the monitoring of wells is
approximately 150,000 subscriber units. In less remote areas, private radio
systems based on VHF radio frequency, multiple-address radio and microwave are
currently being used to collect data for storage tanks and wells. These systems
have been installed primarily for other communications purposes; therefore, the
incremental cost of monitoring storage tanks and wells is low. However, asset
monitoring based on private radio systems is not cost-effective in locations
where the system cannot be combined with other communications functions. In
addition to recording operations data such as tank level and leakage
information, subscriber units using the ORBCOMM system could be programmed to
operate tank and well valves, oil pumps and gas compressors.
Oil and Gas Pipelines. ORBCOMM estimates that the addressable market in
1998 for oil and gas pipeline monitoring services is approximately 48,000
subscriber units. This market segment consists of gas
50
<PAGE> 56
compressors, oil pumps, pipeline rectifiers (which measure pipeline corrosion),
offshore platforms and pipeline valves. For remote and hard-to-read meters,
manual monitoring systems are typically used, which require personnel to travel
to the site to read the meter. ORBCOMM believes that it will be able to offer a
cost-effective means of gathering data from meters located in remote locations.
In addition to recording operations data, subscriber units could be programmed
to operate pipeline, pumps, compressors and valves on a routine basis, as well
as in the event of a leak or other emergency.
Environmental Projects. ORBCOMM believes that the environment monitoring
market segment comprises numerous sites that monitor meteorological,
hydrological and other environmental data such as rainfall, water levels and
water quality. These sites are located in remote areas not served or
inadequately served by wireline or terrestrial-based wireless communications
systems. Based on discussions with VARs that target the environmental monitoring
market, ORBCOMM believes that there are numerous sites globally that require
water and air quality monitoring devices that measure substances such as
bacteria, dissolved oxygen and concentrations of carbon monoxide and ozone, as
well as provide meteorological data on wind speed and barometric pressure.
MOBILE ASSET TRACKING
ORBCOMM estimates that the addressable market in 1998 for mobile asset
tracking services is approximately 13 million subscriber units. Primary
applications include or are expected to include monitoring and tracking of: (i)
commercial trucks; (ii) trailers, containers and rail cars; (iii) heavy
equipment; (iv) fishing vessels and barges; and (v) government assets. ORBCOMM
expects that it will provide companies in such industries with a cost-effective
means to regularly and reliably track the location and status of assets
globally, thereby enabling customers to reduce asset losses, improve service and
more effectively utilize transportation assets.
Commercial Trucks. ORBCOMM estimates that the addressable market for 1998
for the commercial truck market segment for tracking and messaging applications
is approximately 6.7 million subscriber units. This market segment includes
medium-weight owned trucks in smaller fleets. It also includes medium-weight
leased trucks and heavy-weight trucks, both leased and owned, that need mobile
communications to compete with larger fleets but have been unable to afford the
current service offerings where equipment costs are approximately $3,000 per
unit. Cellular systems (such as the system offered by HighwayMaster
Communications, Inc. ("Highway Master")) can be used to provide tracking of and
communications to trucks; however, geographic coverage is limited. Paging and
narrowband personal communications services ("NPCS") may provide cost-effective
alternatives for these smaller fleets. Paging services currently offer only a
one-way short data link to the vehicle and NPCS is limited in geographic
coverage. ORBCOMM believes that the addressable market also includes
owner-operated vehicles contracted to larger, long-haul carriers. Shippers are
requiring these carriers to be equipped with mobile communications, regardless
of whether the motor carrier is using its own fleet of vehicles or contracting
out to owner-operators. In response to their shipper customers, these larger
carriers are therefore contributing to the cost of installing $3,000 mobile
communications units on vehicles they do not own. They are also sharing the
service expense with owner-operators.
Trailers, Containers and Rail Cars. ORBCOMM estimates that the addressable
market in 1998 for trailer, container and rail car tracking services is
approximately 5.0 million subscriber units, which includes: (i) certain segments
of the trailer market; (ii) intermodal marine and land containers containing
temperature-controlled or high-value cargo; and (iii) rail cars used to
transport temperature-controlled or high-value cargo.
ORBCOMM estimates that the addressable market in 1998 for trailer tracking
services is approximately 2.5 million subscriber units, including 780,000
subscriber units in the United States. The addressable market for trailer
tracking services includes: (i) non-refrigerated trailers belonging to large
trucking fleets that need to improve trailer utilization and operational
efficiency; (ii) trailers that carry high-value goods in the medium and small
truck fleet segment; and (iii) refrigerated trailers. Many trailers (both
refrigerated and non-refrigerated) are currently being tracked by a GEO
satellite-based system offered by Qualcomm, Inc. ("Qualcomm"). This system
provides seamless coverage, but depends on larger power sources that require the
trailer to be attached to the tractor. As a result, when the trailer is detached
from the tractor, it can no
51
<PAGE> 57
longer be tracked. The GEO satellite-based services proposed by GE LogistiCom, a
GE Capital Services Company ("GE LogistiCom") could be used to track untethered
trailers, although ORBCOMM believes that the line-of-sight and certain other
limitations imposed by this system could cause it to be a less effective
tracking method. HighwayMaster has announced its intention to offer a
cellular-based system to track untethered trailers, although this system's
coverage will be limited to the range of cellular communications. Private
trucking fleets may use systems internal to their companies where each trailer's
number is manually recorded as trailers enter and leave a point of distribution.
ORBCOMM believes it will be able to provide a cost-effective means of tracking
untethered trailers based on their current location and will not be constrained
by cellular coverage limitations, significant power source requirements or, in
general, certain line-of-sight limitations of currently available solutions.
ORBCOMM estimates that the addressable market in 1998 for intermodal marine
and land container services is approximately 2.0 million subscriber units. The
addressable market for marine land containers includes refrigerated containers,
containers carrying valuable items subject to theft (e.g., electronics and
cigarettes) and general freight containers that need to be tracked for security
and liability purposes. Currently, intermodal container transportation systems
use manual and radio tag systems to record containers as they enter and leave
distribution facilities. These systems therefore record only where the container
has been. The ORBCOMM system will be capable of tracking the current location of
the asset, as well as monitoring its status and the condition of its contents.
ORBCOMM estimates that the addressable market in 1998 for tracking rail
cars is approximately 550,000 subscriber units. The addressable market for rail
cars includes rail cars used to transport high-value cargo (e.g., automobiles,
cigarettes, refrigerated goods and paper rolls) or hazardous cargo comprising
bulk materials. The American Association of Railroads has mandated the use of
automatic equipment identifiers ("AEI") on rail cars. AEI systems consist of a
radio tag mounted on the rail car and a reader that records the identity of the
car as it passes by. AEIs therefore share the same limitations as bar code
systems because they record only where the rail car has been, not its current
location, status or the condition of its contents. The ORBCOMM system will be
capable of tracking the current location of the railcar, as well as monitoring
its status or the condition of its contents.
Heavy Equipment. ORBCOMM estimates that the addressable market in 1998 for
heavy equipment is approximately 249,000 subscriber units. The addressable
market for heavy equipment includes equipment used in various large-scale
construction, infrastructure and mining operations. Currently, heavy equipment
and machine diagnostic information is collected manually and provided to
equipment manufacturers and operators for warranty programs and maintenance
operations. ORBCOMM believes that the ORBCOMM system will enable equipment
manufacturers and operators to automatically collect diagnostic information from
remote locations on a more timely and efficient basis.
Fishing Vessels and Barges. ORBCOMM estimates that the addressable market
in 1998 for commercial fishing vessels is approximately 635,000 subscriber
units. Fishing vessels usually remain at sea for extended periods and operate on
extremely tight margins and therefore must carefully control their operating
costs. As a result, they need cost-effective communications systems to meet
safety and regulatory requirements and to exchange commercial and operational
information with their offices, fuel providers, provisioners and packing houses.
Commercial deep sea fishing vessels currently use either high-frequency radio or
one of the Inmarsat services. High-frequency radio is not considered
cost-effective and is difficult to use, while use of the Inmarsat system
requires a considerable up-front investment of capital. Commercial fishing
vessels operating in coastal waters may also acquire service from American
Mobile Satellite Corporation ("AMSC") or use cellular telephone service,
particularly in the Gulf of Mexico. The ORBCOMM system is capable of providing
remote tracking and operational data to a central location from a fishing vessel
anywhere in the world. Given the limitation of AMSC's geographic coverage and
the high cost of cellular roaming, the ORBCOMM system may provide a more
efficient, cost-effective communications service for both deep sea and coastal
fishing vessels. ORBCOMM believes that its service will provide barge operators
with cost-effective tracking applications.
52
<PAGE> 58
Government Assets. ORBCOMM estimates that the addressable market in 1998
for its current target market application of tracking military combat equipment
is approximately 126,000 subscriber units. ORBCOMM believes that use of Little
LEO systems such as the ORBCOMM system will provide government users with
cost-effective solutions, low probability of interception and detection and
worldwide availability. ORBCOMM expects to compete to provide Little LEO service
to the U.S. government, including in connection with certain programs that have
already been announced by the U.S. government. The U.S. Department of Defense
("DoD") is developing the Global Transportation Network ("GTN") to track
personnel, aircraft and weapon systems anywhere in the world. Effective military
logistics requires location identification and the ability to communicate
tasking instructions. Asset tracking is required at all locations from rear
depots to front-line combat elements, with integrated communications providing
the essential link. The GTN is a $418 million program that is being developed
because no global system currently exists to satisfy the requirements for
tracking the status of assets. The U.S. military has been relying on manual
record keeping to track assets and this process has recently been supplemented
by distributed database systems communicating over DoD-owned and/or -leased
lines. Asset tracking is currently performed at the endpoints of the
distribution chain. For this reason, a misdirected shipment can only be
relocated by tracing forward from its most recent known location, and this can
take weeks to accomplish. ORBCOMM believes its services will provide tracking
data on demand or on a scheduled basis for use by the government for the
location of personnel and military equipment. Arinc, one of ORBCOMM's VARs, was
awarded a Task Order by the U.S. Army to develop, test and field a demonstration
of a prototype Movement Tracking System. This system, which uses the ORBCOMM
system with Panasonic and Stellar subscriber units, was demonstrated on several
of the U.S. Army's palletized load system vehicles over a 30-day period during
the spring of 1998 at the U.S. Army's test center in Aberdeen, Maryland.
MESSAGING
ORBCOMM estimates that the addressable market in 1998 for messaging
services is approximately 40 million subscriber units (excluding many government
customers). The messaging market segment includes a broad range of consumer,
commercial and government customers. ORBCOMM expects that the ORBCOMM system
will complement existing and planned wireline and terrestrial-based wireless
communications systems by providing coverage in geographic areas where such
services are not offered or by enhancing data applications currently being
offered by such systems. Internationally, ORBCOMM believes that it will be able
to offer services in developing countries or remote regions where basic
telephone service or data and messaging communications services are not
available. With coverage of virtually all of the Earth's surface when fully
operational, ORBCOMM believes that it will be able to efficiently and
cost-effectively offer messaging services in these geographic areas through the
ORBCOMM system.
Consumer. ORBCOMM estimates that the addressable market in 1998 for
messaging applications for consumers is approximately 35 million subscriber
units worldwide. This segment includes: (i) consumers who frequently engage in
"back-country" activities (e.g., hunting, hiking, camping, and backpacking); and
(ii) boating enthusiasts who travel a considerable distance outside the range of
wireline and terrestrial-based wireless communications systems and whose boats
are generally over 26 feet in length and have overnight accommodations suitable
for extended travel. Recreational boaters typically use VHF radio and/or
cellular telephone where terrestrial-based wireless communications systems are
available. Some individuals rely on high-frequency radio and a very small number
employ Inmarsat services. However, due to the significant limitations of these
alternatives in terms of geographic coverage or expense, there are few viable
communications alternatives currently available to back-country or boating
enthusiasts. The primary market requirements of these customers are based on a
concern for safety and the desire for a reliable, cost-effective, lightweight,
personally portable unit. ORBCOMM believes that its proposed messaging services
and hand-held subscriber units will enable it to meet these market requirements.
Commercial. ORBCOMM estimates that the addressable market in 1998 for
messaging applications for remote workers is approximately 3.7 million
subscriber units worldwide. This segment includes mobile and remote workers who
frequently use terrestrial-based wireless communications in their jobs but
require the extension of coverage that ORBCOMM believes it will be able to
provide. These workers spend a significant
53
<PAGE> 59
portion of their time away from an office and require ubiquitous messaging while
in remote areas as well as reliable, cost-effective, lightweight and personally
portable units. The industries typically populated by these workers include
mining, construction, energy, forestry and utilities. ORBCOMM believes that it
can provide these workers with messaging services through hand-held subscriber
units and laptop-compatible modems.
Government. ORBCOMM estimates that the addressable market in 1998 for
military personnel engaged in direct combat roles is approximately 460,000
subscriber units worldwide. ORBCOMM believes that subscriber units will be able
to be used to send command and control messages between military personnel. The
Defense Messaging System ("DMS") is a $1.5 billion project with an annual
operating budget of $45 million designed to provide messaging for the DoD, NATO
and certain civilian agencies. ORBCOMM believes that Little LEO systems would
complement existing and other planned communications services. Today, numerous
independent email systems, including the Autodin system, provide messaging
services throughout the military. Autodin messages are sent between fixed
terminals located throughout the world. ORBCOMM believes that in the DMS
implementation, when the ORBCOMM system is fully operational, it could offer
users the ability to send and receive messages regardless of location.
FUTURE APPLICATIONS
In addition to the current primary target market segments described above
for data and messaging communications services, ORBCOMM believes that with the
commercial operation of its satellite constellation, the ORBCOMM system's
combination of capabilities may stimulate demand in other potential markets.
Automotive. ORBCOMM believes that the global remote coverage expected to
be provided by the ORBCOMM system will address private car owners' safety and
security concerns and could complement services such as General Motors'
OnStar(R) and Ford's RESCU(R), each of which relies on the limited coverage of
terrestrial-based wireless communications systems. ORBCOMM also believes that
certain vehicles operating in fleets in and out of remote areas in dispatch mode
have similar safety and security concerns and would also value the ORBCOMM
system's ubiquitous coverage. This segment also includes taxis and special
vehicles such as emergency-response vehicles, regional police, buses, tow
trucks, snowplows and road maintenance vehicles. ORBCOMM estimates that the
addressable market in 1998 for the automotive market segment is approximately
6.6 million subscriber units, comprising 3.7 million luxury cars, 2.2 million
taxis and 630,000 special vehicles.
Home Security Systems. ORBCOMM estimates that the addressable market in
1998 for home security systems is approximately 46 million subscriber units. In
addition to security system monitoring, home security units could be used to
remotely turn on or off alarms, lights or home appliances. Home security systems
have historically relied on telephone lines for communication with central
offices but such lines can be intentionally disabled. Wireless systems are now
being adopted to eliminate this problem and ensure service quality. The ORBCOMM
system is designed to support messaging to and from central security offices, as
well as emergency communications with ambulances, police and other public safety
personnel. ORBCOMM could supplement terrestrial-based wireless systems by
providing communications with home security systems in remote areas. While
ORBCOMM's current business plan does not include sales to the home security
system market, ORBCOMM continues to assess this market and anticipates that it
may in the future commence marketing and sales efforts in this area.
U.S. Government. ORBCOMM believes that there are additional DoD programs
that may use the services of Little LEO systems. These programs include: the
Commercial Satellite Communications Initiative, budgeted for $1.6 billion; the
Global Command and Control System, budgeted for $500 million; the Combat Search
and Rescue program to locate downed pilots, budgeted for $220 million; the Air
Mobility Command and Control Information Processing System, budgeted for $210
million; the Mobile Satellite Service program, budgeted for $87 million; and the
Joint Surveillance System, budgeted for $85 million. There are also a number of
civil government applications suitable for Little LEO systems. The Post-FTS 2000
is a program to provide long distance domestic and international wireless
Internet access, data and email to U.S. government civilian agencies. It is a
ten-year contract providing an estimated $300 to $400 million in revenues to
service providers. The existing Post-FTS 2000 provides domestic long distance
calling service to
54
<PAGE> 60
the federal government only. The new contract for service includes wireless,
mobile and international services. The U.S. Departments of State, Justice and
Transportation are also developing wireless email and messaging programs.
Foreign Governments. Use of Little LEO systems such as the ORBCOMM system
is expected to provide foreign governments with cost-effective applications, low
probability of interception and detection and worldwide availability. Potential
defense applications include: (i) transmission of Global Positioning System
("GPS")-determined position data for maneuvering units and recovering downed
pilots; (ii) transmission of data for air defense, fire support and asset
tracking; and (iii) tactical messaging. Potential civil government applications
include wide-area secure communications, monitoring and control of natural
resources and search and rescue functions.
RISK MITIGATION STRATEGY
System Design. ORBCOMM believes that the design of the ORBCOMM system
reduces ORBCOMM's exposure to cost overruns associated with the production and
launch of the ORBCOMM satellites due to launch or in-orbit failure. The
principal elements that contribute to this reduced exposure profile include the:
(i) integration of proven technologies into the ORBCOMM system; (ii) procurement
on a firm fixed-price basis of nearly all of the components of the ORBCOMM
system (other than certain communications software) from a single contractor
(Orbital) that is generally responsible for end-to-end satellite performance and
integration; (iii) use of launch vehicles that provide ORBCOMM with flexible
launch schedules; and (iv) conduct of early development and prototyping.
ORBCOMM's distributed constellation architecture, consisting of numerous LEO
satellites, is designed not only to provide global coverage but also to reduce
potential risks associated with the loss or outage of one or more satellites.
Under the Procurement Agreement, in the event the satellites constructed and
launched by Orbital do not perform after launch in accordance with agreed on
performance criteria, ORBCOMM is entitled to withhold payment to Orbital of up
to $2 million per plane of eight satellites. See "Risk Factors -- Technology
Risks -- Schedule Delays," "Risk Factors -- Technology Risks -- Cost Increases"
and "Risk Factors -- Technology Risks -- Limited Insurance."
Operations. The two ORBCOMM satellites launched in April 1995 have
provided ORBCOMM with significant information regarding actual satellite
performance in a space environment. As a result of the analysis of this
information, as well as information obtained prior to their launch, ORBCOMM, in
conjunction with Orbital, undertook a redesign of certain system elements of the
satellites. These design changes were incorporated in the ten satellites
launched since December 1997, as well as the remaining satellites being
constructed under the Procurement Agreement. The ORBCOMM satellites will
continue to provide ORBCOMM with valuable information regarding satellite
performance. Such information can be used by ORBCOMM and Orbital in the design
of future satellites to be procured under the Procurement Agreement or any
similar agreements that could be negotiated between Orbital and ORBCOMM in the
future. In addition, the ORBCOMM system is designed to operate satisfactorily in
the event ORBCOMM experiences a launch or in-orbit failure of several of its
satellites.
The ORBCOMM system has been granted FCC approval to use radio frequencies
in the United States in the 148.0-149.9 MHz band and the 137.0-138.0 MHz and
400.075-400.125 MHz bands for its uplink and downlink feeds, respectively. The
VHF frequencies are located just above those used for FM radio broadcasts and
just below those used for VHF marine push-to-talk radios. ORBCOMM believes that
the substantial technology and manufacturing base that already exists for a wide
variety of communications devices that operate near the frequency ranges used by
the ORBCOMM system facilitates the development of relatively inexpensive
subscriber units for the ORBCOMM system. See "Regulation."
System Maintenance. ORBCOMM has adopted a risk management policy
associated with the maintenance of the ORBCOMM system that provides for the
planned negotiation of a fixed price amendment to the Procurement Agreement for
the procurement of up to eight replacement satellites in 2000-2001. Obtaining
replacement satellites is expected to enable ORBCOMM to launch satellites more
quickly following an in-orbit or launch failure as soon as a launch vehicle is
available and to replenish in-orbit satellites as necessary,
55
<PAGE> 61
thereby prolonging the life of the first generation ORBCOMM constellation. See
"Risk Factors -- Technology Risks -- Schedule Delays," "Risk
Factors -- Technology Risks -- Cost Increases" and "Risk Factors -- Technology
Risks -- Limited Insurance."
Insurance. ORBCOMM's insurance strategy implements a risk management plan
for the protection of the ORBCOMM system. To protect against launch costs that
may be incurred as a result of a launch vehicle failure, ORBCOMM has obtained
launch insurance for each of the next two planned Pegasus satellite launches.
The Second Pegasus Launch is insured only as to the replacement value of the
launch vehicle in the event of a launch vehicle failure. Unless there is a loss
of three or more satellites in the plane of eight satellites launched in
December 1997, the Second Pegasus Launch will not be insured as to the satellite
payload of eight satellites. The Third Pegasus Launch is insured as to the
replacement of the launch vehicle in the event of a launch vehicle failure. The
Third Pegasus Launch is also insured as to the satellite payload of eight
satellites, but only if the Second Pegasus Launch fails, causing the loss of
three or more satellites or if there is a loss of three or more satellites in
either of the planes of eight satellites that were launched prior to the Third
Pegasus Launch. With respect to the Fourth Pegasus Launch, in the event that
either the Second Pegasus Launch or the Third Pegasus Launch fails, resulting in
the loss of three or more satellites, or if there is a loss of three or more
satellites in any of the planes of eight satellites that were launched prior to
the Fourth Pegasus Launch, ORBCOMM has insurance that would cover the cost of
obtaining a replacement launch vehicle and eight replacement satellites. In the
event that neither the Second Pegasus Launch nor the Third Pegasus Launch fails,
resulting in the loss of three or more satellites, ORBCOMM does not currently
have insurance that would cover the costs of obtaining a replacement launch
vehicle or eight replacement satellites; however, ORBCOMM expects to obtain
insurance for such circumstance prior to such launch assuming such insurance is
available on commercially reasonable terms.
ORBCOMM has 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 on a Taurus launch vehicle. ORBCOMM has procured satellite
insurance against the in-orbit failure of satellites in each of the first three
planes of eight satellites it has launched or will launch using the Pegasus
launch vehicle (including the plane of eight satellites launched in December
1997). This in-orbit insurance covers all eight satellites in a single plane for
a period of five years after the successful placement in orbit of such plane,
but only in the event that three or more in-orbit satellites in such plane fail
after their successful placement in orbit, and only if three or more satellites
originally intended as ground spares have been used to replace satellites lost
in an unsuccessful launch or as a result of in-orbit failure. Furthermore,
ORBCOMM plans to procure in-orbit insurance for each plane of eight satellites
for the three years following the initial five years of service of each such
plane if such insurance is available on commercially reasonable terms. See "Risk
Factors -- Technology Risks -- Limited Insurance."
As is typically the case with satellite insurance policies, in the event
there is a covered loss under ORBCOMM's insurance policy for the ORBCOMM
constellation, prior to the occurrence of the next event that would be subject
to such policy, ORBCOMM will be required to satisfy the insurance underwriters
that it has addressed the technological and/or other issues associated with the
covered loss.
SYSTEM ARCHITECTURE
The ORBCOMM system comprises three operational segments: (i) a space
segment consisting of a constellation of 36 LEO satellites; (ii) a ground and
control segment consisting of the Network Control Center that serves as the
global control for the satellites and Gateways, the major elements of which
include Gateway Earth Stations that send signals to and receive signals from the
satellites, and a message switching system that processes the message traffic;
and (iii) a subscriber segment consisting of subscriber units used by customers
to transmit and receive messages to and from satellites.
Overview. To use the ORBCOMM system, an initial message or other data is
generated by a subscriber unit. From that source, the data is transmitted to the
nearest ORBCOMM satellite, which confirms receipt to the unit. The satellite
downlinks the data to the Gateway Earth Station portion of a Gateway, which then
transmits the data to the associated Gateway Control Center. Within the Gateway
Control Center, the data is
56
<PAGE> 62
processed using a combination of ORBCOMM-developed and commercial email
software, and transmitted to its ultimate destination which may be to another
subscriber unit or pager or to a personal or business address using
public/private X.25 data networks, the Internet, text-to-fax conversion or
modems connected to a telephone network. If desired, an acknowledgment message
is returned to the sender. To mitigate design and implementation risks and to
control costs, the ORBCOMM system architecture, where possible, makes use of
existing, mature technologies and conforms to internationally accepted
standards. The ORBCOMM system network architecture comprises a multi-nodal
packet network using X.400 messaging and Time Division Multiple Access ("TDMA")
as the enabling technologies.
The three operational segments of the ORBCOMM system are shown below:
[GRAPHIC ILLUSTRATING CERTAIN COMPONENTS OF THE ORBCOMM SYSTEM, INCLUDING TWO
SATELLITES, TWO GATEWAY EARTH STATIONS, THE NETWORK/SATELLITE CONTROL CENTER,
SEVERAL CUSTOMERS AND SEVERAL PIECES OF EQUIPMENT, EACH OF WHICH IS SUPERIMPOSED
ON A CROSS-SECTION OF THE EARTH, WITH ARROWS CONNECTING THE VARIOUS COMPONENTS
OF THE ORBCOMM SYSTEM, INDICATING THE PATH OF A MESSAGE THROUGH THE ORBCOMM
SYSTEM.]
Space Segment. The enhanced space segment will consist of a constellation
of 36 LEO satellites comprising: (i) four planes of eight satellites; and (ii)
two planes of two satellites each in highly inclined orbits between
approximately 740 and 825 kilometers above the Earth. Currently, two planes of
two satellites and one plane of eight satellites have been launched. The
satellites are produced by Orbital and generally have been or will be launched
in groups of eight using Orbital's Pegasus launch vehicle. One plane of two
satellites was placed in a high-inclination orbit using a Pegasus launch vehicle
and the other plane of two high-inclination satellites was launched using a
Taurus launch vehicle, in both cases sharing the launch vehicles with other
non-ORBCOMM satellites.
57
<PAGE> 63
The most significant characteristics of the satellites that comprise the
space segment of the ORBCOMM system, including their design specifications,
coverage and design life, as well as licensing and launch information for the
satellites, are summarized in the following table.
<TABLE>
<CAPTION>
NUMBER OF LAUNCH DESIGN
SATELLITES(1) PLANE LAUNCH DATE VEHICLE LIFE(2)
------------- ----- --------------------- ------- -----------
<S> <C> <C> <C> <C> <C>
FM 1-2-launched(3) 2 70 degrees April 1995 Pegasus 4 Years
FM 3-4-launched 2 108 degrees February 1998 Taurus 8 Years
FM 5-12-launched 8 45 degrees December 1997 Pegasus 8 Years
FM 13-20-licensed 8 45 degrees Third Quarter 1998(4) Pegasus 8 Years
FM 21-28-licensed 8 45 degrees Third Quarter 1998(4) Pegasus 8 Years
FM 29-36-licensed(5) 8 0 degrees Third Quarter 1999(4) Pegasus 8 Years
</TABLE>
- ------------------------------
(1) Each of the satellites that comprise the ORBCOMM system is an Orbital
MicroStar(TM) satellite, weighing approximately 90 pounds (approximately 104
pounds in the case of the two satellites launched in April 1995) and
measuring approximately 41 inches in diameter, 6.5 inches in height, 170
inches in deployed length and 88 inches in deployed width at solar arrays.
(2) The "design life" period of each satellite begins on the date the satellite
is placed in commercial service.
(3) Since mid-February 1998, one of these satellites has been experiencing an
outage. See "Risk Factors -- Technology Risks -- Design and Operation Risks;
Risk of Satellite Failure or Damage."
(4) Each of the future launch dates identified represents the currently targeted
launch date.
(5) Pending FCC approval of its request to change the orbital plane of these
satellites.
Orbital and ORBCOMM intend to incorporate information gathered from
operational satellites to improve, where possible, the performance of the
remaining satellites.
The satellites are equipped with a VHF communications infrastructure
capable of operation in the 137.0-150.05 MHz and the 400.075-400.125 MHz bands.
The use of the spectrum is managed by an on-board computer that employs an
ORBCOMM-developed Dynamic Channel Activity Assignment System (the "DCAAS"). The
DCAAS continuously scans the authorized spectrum, identifies frequencies in use
and assigns channels to minimize the possibility of interference. The DCAAS is
expected to change the frequency of the uplink random access channels every five
seconds. The ORBCOMM satellites can also transmit a UHF beacon that provides
subscriber unit manufacturers with the ability to supply enhanced,
cost-effective, Doppler positioning.
Since late December 1997, ORBCOMM has launched ten satellites. To date,
ORBCOMM has placed four of these satellites in commercial service. ORBCOMM
expects to place the remaining six satellites in commercial service by the end
of the third quarter of 1998. Eight of the satellites launched since December
1997 experienced an anomaly in their solar power system resulting in reduced
power margins. ORBCOMM believes, based on tests performed to date, that these
satellites, all of which were designed to produce approximately 225 watts of
power, are currently capable of producing between approximately 120 to 220 watts
of power, which is greater than the power required to operate the satellites.
Accordingly, ORBCOMM believes that each satellite will be capable of producing
sufficient power to meet its planned service requirements during its design
life.
Of the satellites experiencing power anomalies, two satellites have
experienced an anomaly in their subscriber transmitters that currently results
in the inability of such satellites to transmit data to subscriber units.
Orbital and ORBCOMM are developing software that is intended to bypass the
anomaly so that such satellites can perform substantially all of their
functions, although, even if successful, the coverage footprint of the affected
satellites will be reduced. Orbital and ORBCOMM are also taking similar action,
with a similar effect, to reduce the likelihood that such an anomaly will occur
with respect to the other in-orbit satellites launched since December 1997.
Orbital and ORBCOMM believe they have identified the reason for both of these
anomalies and that they are being addressed on future satellites.
With respect to its initial two satellites launched in April 1995, ORBCOMM
has experienced certain technical difficulties including outages of certain
electronic systems and subsystems, resulting in the inability during such
outages to process customer communications. Since mid-February 1998, one of the
initial two satellites launched in April 1995 has been experiencing such an
outage.
There can be no assurance that Orbital and ORBCOMM will be successful in
resolving these anomalies or outages or that similar anomalies or outages will
not occur on any of the ORBCOMM satellites. The
58
<PAGE> 64
inability to resolve or prevent such anomalies or outages could have a material
adverse effect on ORBCOMM's ability to provide service, financial condition and
results of operations.
ORBCOMM has an option to procure a second generation of substantially
similar satellites from Orbital that would replace the system it is now
deploying at the end of the current system's expected life. The option, priced
at $166.1 million (subject to adjustment for inflation and excluding taxes, if
any, and the cost of launch and satellite insurance) can be exercised by ORBCOMM
at any time prior to December 31, 1999. However, such option would only be
exercised by ORBCOMM at the specified price if the satellites for the second
generation will be substantially similar to those of the current system.
The Procurement Agreement requires Orbital to demonstrate compliance with
the detailed technical satellite performance requirements defined in the ORBCOMM
system specifications, which specifications describe the end-to-end satellite
performance. Except for the communications software, which is the responsibility
of ORBCOMM, Orbital is responsible for the performance of the satellites and the
U.S. Ground Segment, including the satellite management functionality of the
Network Control Center. Orbital must comply with a verification and test plan,
which defines the detailed verification tests and acceptance criteria for each
of the ORBCOMM system elements.
The Procurement Agreement with Orbital currently provides for the launch of
34 satellites, of which ten satellites have been launched since December 1997.
Orbital's Pegasus vehicle is launched from beneath a modified Lockheed L-1011
owned by Orbital and is capable of deploying satellites weighing up to 1,000
pounds into LEO. To date, Orbital has conducted 21 Pegasus missions, with
approximately a 90% success rate.
Gateway Earth Stations and the subscriber units comprising the ORBCOMM
system communicate with the satellites in the same band, thus eliminating the
design complexity, as well as the associated mass, power and cost of supporting
multiple radio payloads on a single satellite. The satellite also contains an
intelligent packet-routing capability, including a limited store-and-forward
capability.
Ground and Control Segment. The ground and control segment consists of
Gateways strategically located throughout the world and the facilities to
monitor and manage all network elements to ensure continuous, consistent
operations in the provision of quality service. The role of the Gateway is to
provide access to the space segment and interface to public and private data
networks. The major elements of a Gateway include:
- Gateway Earth Stations, each of which is composed of two radomes, with
enclosed VHF tracking antennae, one of which is redundant, and associated
pedestal, controller and radio equipment;
- a Gateway message switching system located within each Gateway Control
Center, which processes the message traffic and provides the
interconnection to the terrestrial networks; and
- a Gateway management system located within each Gateway Control Center,
which manages the Gateway elements.
To provide services using the ORBCOMM system in a particular region, an
appropriately located Gateway is required. Gateways cover a circular area with a
radius of approximately 3,300 miles. All elements of the U.S. Gateway are
operational, including four Gateway Earth Stations located in New York, Arizona,
Georgia and Washington and a Gateway Control Center located in Virginia. The
U.S. Gateway will be used to serve the United States, Canada and Mexico. In
March 1998, a Gateway, including one Gateway Earth Station, located in Italy
successfully completed acceptance testing. A Gateway Earth Station has been
constructed in each of South Korea and Japan, with each of the associated
Gateway Control Centers expected to be installed by mid-1998. ORBCOMM expects
that many International Licensees will enter into agreements to share Gateways.
The procurement of each of the existing Gateways located outside the United
States was funded by the relevant International Licensee. ORBCOMM has entered
into and will continue to enter into agreements with International Licensees for
the construction of additional Gateways outside the United States. The cost and
implementation of future Gateways is expected to be borne by existing and future
59
<PAGE> 65
International Licensees, although generally all of the hardware and software
comprising the Gateways is procured by the International Licensees from ORBCOMM.
Each Gateway Earth Station comprises two radomes and enclosed antennae,
each of which weighs approximately 3,300 pounds and is approximately 28 feet in
diameter. The total height of the structure, measured from the top of the radome
to the foot of the base, is approximately 33 feet. Each Gateway Earth Station is
unmanned, and contains a freestanding shelter and an optional fuel tank and
power generator. The Gateway satellite links have been designed to make use of
single uplink and downlink channels for all ORBCOMM satellites by using a TDMA
protocol. This protocol will permit several Gateways to communicate
simultaneously with a single satellite. The TDMA protocol has several
advantages, including the ability to provide a virtually seamless handover of a
satellite from Gateway Earth Station to Gateway Earth Station under the
centralized control of the Gateway Control Center.
The control segment of the ORBCOMM system is housed at the Network Control
Center. The control segment includes a network management system, which monitors
the status of all network elements and a space vehicle management system.
Currently, there is no back-up Network Control Center, although the existing
Network Control Center is equipped with back-up hardware, and associated
software is backed up and stored off-site. In addition, the Network Control
Center is equipped with an automatic emergency generator to provide a backup for
normal building power. Requirements have been developed for a back-up Network
Control Center to be constructed in 1999. Through the U.S. Gateway, managed from
the Network Control Center, ORBCOMM has access to the space segment for command
and control purposes, although, consistent with the rules and regulations of the
FCC, OCC maintains ultimate control over the ORBCOMM system.
Subscriber Segment. The subscriber segment consists of various models of
subscriber units, some of which are intended for general use, and some of which
are designed to support specific applications, although even in the case of the
general use subscriber units, the configuration of these units may make them
more or less suitable for certain applications. The subscriber unit models will
include: (i) externally powered subscriber units for fixed applications such as
pipeline monitoring, remote device control or environmental monitoring; (ii)
self-contained, battery- and/or solar-powered subscriber units that would
support applications where commercial or other external power is not available,
including messaging applications; and (iii) vehicular-powered subscriber units
that could be used in asset tracking, cargo monitoring or vehicular operation
monitoring.
To ensure the availability of subscriber units having different functional
capabilities in sufficient quantities to meet demand, ORBCOMM has provided
extensive design specifications and technical and engineering support to various
subscriber unit manufacturers. ORBCOMM has also entered into agreements with six
subscriber unit manufacturers. ORBCOMM has type approved ten subscriber unit
models for commercial use with the ORBCOMM system. Four subscriber unit
manufacturers have commenced production of subscriber units that can be used for
electric utility meter, oil and gas storage tank, well and pipeline and
environmental monitoring and commercial truck, trailer, container, rail car,
heavy equipment, fishing vessel and government asset tracking applications.
Hand-held messaging subscriber units are expected to be commercially available
from Magellan in mid-1998 and thereafter from one or more other manufacturers.
ORBCOMM recently committed to buy $6.2 million of subscriber units
(approximately 17,000 units) from certain manufacturers to accelerate initial
customer sales by VARs, Internal VARs and International Licensees. ORBCOMM
expects to sell these subscriber units to these entities at prices equal to or
greater than cost, although there can be no assurance that ORBCOMM will be able
to do so. In addition, ORBCOMM recently agreed to pay Magellan a subsidy for
each Magellan subscriber unit sold through March 1999, up to an aggregate of
$2.4 million.
The subscriber units targeted for industrial or telemetric applications are
designed to interface with sensors or control devices through an
industry-standard serial interface using a proprietary communications protocol,
developed to take advantage of the packet nature of the ORBCOMM system. The
subscriber units targeted for the messaging market will incorporate interfaces
such as integrated keyboards or touch-sensitive screens. Additionally, while the
ORBCOMM satellites are designed to support Doppler position determina-
60
<PAGE> 66
tion in the subscriber units, certain subscriber unit models are also equipped
with GPS receivers, permitting more rapid and more accurate location
determination.
COMPETITION
Competition in the communications industry is intense, fueled by rapid and
continuous technological advances and alliances between industry participants
seeking to use such advances on an international scale to capture significant
market share. At this time, the ORBCOMM system is the only commercially
operational Little LEO system.
ORBCOMM commenced limited commercial service in the United States on
February 1, 1996. ORBCOMM believes that commencement of commercial service
provides it with a substantial head-start in developing markets, distribution
systems, subscriber products and applications and a customer base globally.
ORBCOMM expects that potential competitors will include other Little LEO systems
that have been licensed by the FCC, certain GEO-based systems, certain
terrestrial-based data communications systems and various Big LEO and MEO
systems.
Other Little LEO Systems. In addition to OCC, four other entities have
been licensed by the FCC to provide Little LEO satellite services in the United
States. Leo One USA Corporation ("Leo One") has been licensed for a 48-satellite
system, which is expected to provide a variety of commercial Little LEO
services. Final Analysis Communications Services, Inc. ("Final Analysis") has
been licensed for a 26-satellite system, which is expected to provide a variety
of Little LEO services. E-SAT, Inc. ("E-SAT") has been licensed for a
six-satellite system, which is expected to provide remote meter reading
services. Volunteers in Technical Assistance ("VITA") has been licensed for two
satellites to transmit health, research and scientific data on a delayed basis
between developing countries and the United States. See "Regulation -- U.S. FCC
Regulation."
Based on published reports, ORBCOMM does not believe that any of the other
Little LEO constellations that were recently licensed in the second licensing
round by the FCC will have systems fully operational until after the year 2000.
ORBCOMM believes that it holds a substantial advantage over these potential
competitors by having already designed, constructed and launched a fully
functional system, by executing service license or similar agreements with
International Licensees covering over 95 countries outside the United States and
by achieving, in large part, international coordination of its designated
frequencies through the ITU. Over the course of the next several years, ORBCOMM
is expected to obtain further advantages over these potential competitors by
establishing certain standards in the industry, developing operational
expertise, launching the remaining satellites in the ORBCOMM system, signing
agreements with additional subscriber unit manufacturers, signing reseller
agreements, service license and similar agreements with additional marketing
entities and expanding its marketing activities generally as the ORBCOMM system
matures.
Plans for other Little LEO systems have been announced in Australia,
Belgium, Brazil, Canada, France, Mexico, Russia, South Korea, Tonga and Uganda,
although ORBCOMM believes that, without additional allocations of spectrum in
the United States, these systems will be unable to offer services in the United
States. The ORBCOMM system is protected from harmful interference from other
systems on a global basis, with the sole exception of the French candidate
system, which, as a result of its prior notification to the ITU may not be
interfered with by the ORBCOMM system anywhere in the world.
GEO Systems. In addition, ORBCOMM believes that it competes or will
compete in certain of its market segments with existing operators and users of
certain GEO-based systems such as AMSC, Qualcomm, GE LogistiCom and companies
providing services using the Inmarsat system. AMSC offers SKYCELL mobile data
services, both satellite only and "dual-mode," i.e., satellite and terrestrial,
through the public data network that can reach both densely populated urban
areas and sparsely populated rural areas. AMSC has recently acquired Motorola's
ARDIS two-way terrestrial-based wireless messaging network, which will
complement AMSC's existing satellite-based voice and data communications
services by allowing AMSC to offer a hybrid solution that will have the ability,
among other things, to serve urban areas and to penetrate buildings, which
AMSC's satellite-based system is currently unable to do effectively or at all.
Qualcomm designs, manufactures, distributes and operates the OmniTRACS
Communications System, a satellite-based,
61
<PAGE> 67
two-way mobile communications and tracking system that provides messaging,
position reporting and other services for transportation companies and other
mobile and fixed site customers using certain GEO satellites. GE LogistiCom has
announced plans to offer a trailer tracking application in North America using
capacity on the AMSC satellite system. In addition, various companies using the
Inmarsat system are providing fishing vessel and other marine tracking
applications. ORBCOMM believes that the ORBCOMM system has certain advantages
over these other systems including worldwide coverage, lower equipment costs in
most cases and substantially reduced line-of-sight limitations.
Terrestrial-Based Data Communications Systems. While the ORBCOMM system is
not intended to compete in general with existing and planned terrestrial-based
data communications systems, in certain of its market segments ORBCOMM believes
it competes or may compete with certain of these systems including the systems
operated by HighwayMaster, ARDIS, BellSouth Mobile Data Systems (formerly RAM
Mobile Data) and SkyTel. The architecture of these systems may provide certain
advantages relative to the ORBCOMM system, including in-building penetration.
HighwayMaster operates a wireless enhanced services network providing integrated
mobile voice, data, tracking and fleet management information services to
trucking fleets and other operators in the long-haul segment of the
transportation industry. The terrestrial-based wireless systems operated by
ARDIS and BellSouth Mobile Data Systems are capable of providing geographically
limited data communications services to a variety of end users. SkyTel provides
messaging services in cities in the United States. SkyTel is using its messaging
network to provide fixed location services, specifically utility meter reading
in urban areas. Because of the inherent coverage limitations of a terrestrial-
based data communications systems, ORBCOMM believes that the ORBCOMM system will
also complement these systems, which provide cost-effective services primarily
in metropolitan areas where subscriber densities justify construction of radio
towers. Such systems generally do not have sufficient coverage outside
metropolitan areas, making them less attractive to certain market segments.
ORBCOMM believes that the ORBCOMM system presents an attractive complement to
terrestrial-based data communications systems because it can provide geographic
gap-filler service at affordable costs without the need for additional
infrastructure investment. The ORBCOMM system's ability to serve as a geographic
gap-filler may be reduced, however, as terrestrial-based communications systems
expand their coverage.
Big LEO and MEO Systems. The Big LEO and MEO systems are designed primarily
to provide two-way voice services that require larger, more complex satellites
than the ORBCOMM satellites and larger constellations to provide global
coverage. As a result, the cost of the Big LEO and MEO systems is significantly
greater than those of the ORBCOMM system. However, the marginal cost on a
per-message basis of providing services similar to those expected to be offered
by ORBCOMM could be relatively low for a Big LEO or MEO system that is unable to
sell most of its capacity for voice or high-volume data services. Based on
publicly available information, Iridium LLC ("Iridium") anticipates an initial
service date in September 1998 for a proposed 66-satellite constellation to
provide voice and other communications services with usage charges of
approximately $3.00 per minute plus "tail charges" (land-line extension
charges). The total system cost is expected to be approximately $3.7 billion.
The Globalstar, L.P. ("Globalstar") system is expected to cost approximately
$2.2 billion and consists of a constellation of 48 satellites, with wholesale
usage charges of approximately $0.35 to $0.55 per minute. The initial service
date for the Globalstar system is anticipated to be in early 1999. Another
satellite system designed primarily to provide voice communications is the ICO
Global Communications ("ICO") system. The ICO system is expected to cost $4.5
billion and consists of a constellation of MEO satellites. The ICO system is
scheduled to commence full commercial service in the year 2000.
ORBCOMM may also face competition in the future from companies using new
technologies and new satellite systems. ORBCOMM's business could be adversely
affected if competitors begin operations or existing or new communications
service providers penetrate ORBCOMM's target markets. A number of these new
technologies, even if they are not ultimately successful, could have an adverse
effect on ORBCOMM's financial condition and results of operations.
62
<PAGE> 68
EMPLOYEES
As of May 31, 1998, ORBCOMM had 327 full-time employees, none of whom is
subject to any collective bargaining agreement. The Company has no full-time
employees. ORBCOMM's management considers its relations with employees to be
good.
PROPERTIES
ORBCOMM currently leases approximately 37,000 square feet of office space
in Herndon, Virginia, as well as approximately 25,000 square feet of office
space in Dulles, Virginia from Orbital. ORBCOMM also leases approximately 28,000
square feet of additional space at various sites in Virginia and Maryland for,
among other purposes, self-storage, space to assemble certain portions of the
Gateway and for use by employees and a contractor. ORBCOMM currently operates
four Gateway Earth Stations. ORBCOMM owns the properties on which the St. Johns,
Arizona and Arcade, New York Gateway Earth Stations are located and leases,
subject to long-term lease agreements, the properties on which the Ocilla,
Georgia and East Wenatchee, Washington Gateway Earth Stations are located.
LEGAL PROCEEDINGS
Neither ORBCOMM nor the Company is a party to any pending legal proceedings
material to their financial condition or results of operations. For a discussion
of regulatory issues affecting ORBCOMM, see "Regulation."
REGULATION
U.S. FCC REGULATION
Regulation of NVNG Systems. All commercial non-voice, non-geosynchronous
("NVNG") satellite systems, or Little LEO systems such as the ORBCOMM system, in
the United States are subject to the regulatory authority of the FCC, which is
the U.S. government agency with jurisdiction over commercial uses of the radio
spectrum. Little LEO operators must obtain authorization from the FCC to launch
and operate their satellites to provide services in assigned spectrum segments.
In January 1993, the FCC allocated spectrum segments for NVNG MSS and
issued a Notice of Proposed Rulemaking to govern the NVNG application process.
In October 1993, the FCC formally adopted its licensing and service rules for
NVNG systems (the "NVNG Order"). The NVNG Order imposes duty limits on
subscriber units operating in the band 148.0-149.9 MHz. Subscriber units are
limited to transmitting no more than one percent of the time during any
15-minute period and no transmission may exceed 450 milliseconds. ORBCOMM
believes that its services can be provided within these limitations.
First Processing Round. On February 28, 1990, OCC filed an application
with the FCC for a Little LEO system. See "-- International Regulation -- ITU
Spectrum Allocations." Starsys Global Positioning, Inc. ("Starsys") filed a
Little LEO system application with the FCC several months later, whereupon the
FCC established a cut-off date for the filing of applications to be considered
concurrently with these proposals. A third applicant, VITA, also filed a Little
LEO system application in this initial processing round.
Original FCC License. On October 20, 1994, the FCC granted OCC the
Original FCC License to construct, launch and operate 36 satellites, in four
inclined and two near-polar orbital planes, for the purpose of providing two-way
data and messaging communications and position determination services. In 1995,
the FCC granted OCC licenses to operate four Gateway Earth Stations and to
deploy up to 200,000 subscriber units in the continental United States.
The frequency bands in which the ORBCOMM system is authorized to operate
are as follows:
<TABLE>
<S> <C>
Uplink: 148.0-149.9 MHz
Downlink: 137.0-138.0 MHz and 400.075- 400.125 MHz
</TABLE>
63
<PAGE> 69
The Original FCC License authorizes OCC to offer service as a private
carrier and extends ten years from the operational date of the first ORBCOMM
satellite, FM1, which was April 3, 1995. The milestone requirements of the
Original FCC License mandate that OCC launch its first two satellites by
December 1998 and its remaining 34 authorized satellites by December 2000. OCC
has already met the first milestone with the launch of its first two satellites,
FM1 and FM2, in April 1995, and the launch of ten additional satellites in 1997.
OCC has set an aggressive launch schedule for the remaining 24 authorized
satellites that, if successful, will result in OCC reaching the second milestone
by the third quarter of 1999. In addition, OCC is required to apply for a
license renewal three years prior to the expiration of the Original FCC License.
While, based on past experience, OCC believes that the FCC generally grants
license renewals to existing licensees where the licensee has satisfied the
requirements of the license, there can be no assurance that the Original FCC
License would be renewed should OCC apply. See "Risk Factors -- Regulatory
Risks -- Domestic Licensing Risks."
Under the terms of a coordination agreement between Starsys and OCC, which
was incorporated into the terms of the Original FCC License, OCC is required to
shut down its left-hand circular polarization ("LHCP") satellite-tosubscriber
downlink channels under certain circumstances when operation of such channels
would interfere with the Starsys system. To further lessen the possibility of
co-polarization interference, OCC also agreed to modify its frequency plan to
locate its LHCP channels in the lower portion of the 137.0-138.0 MHz band. The
FCC imposed these restrictions on OCC's domestic operations and reserved the
right to consider extending these restrictions to OCC's international operations
if notified of actual sharing difficulties between the ORBCOMM system and
Starsys. The Original FCC License also provides that the ORBCOMM system is
permitted to operate throughout the 148.0-149.9 MHz band only until such time as
Starsys is prepared to launch its first satellite. Once Starsys so notifies the
FCC, or earlier if required by the FCC, OCC agreed to limit its operations to
the upper half of this band, permitting Starsys to operate its spread spectrum
system in the lower half of the band. This latter requirement has since been
superseded by the FCC's October 1997 final order. See "-- Second Processing
Round."
Although Starsys has returned its license to the FCC, under the new rules
that took effect on January 2, 1998, the FCC authorized E-SAT to operate in the
spectrum previously licensed to Starsys consistent with the provisions of
Starsys' first processing round authorization.
Second Processing Round. On November 16, 1994, the FCC closed the
application filing period for a second processing round for NVNG applications.
As a result of consolidation in the satellite services industry, the total
number of applicants that participated in the second-round (including OCC) was
reduced from eight to five. The FCC's International Bureau, acting on delegated
authority, granted Leo One application for a 48-satellite Little LEO system on
February 13, 1998 and granted OCC's second-round application as well as the
applications of the other second-round applicants, Final Analysis, E-SAT and
VITA, on March 31, 1998. See "Business -- Competition -- Other Little LEO
Systems." OCC has filed applications for review of the International Bureau
orders granting licenses to Leo One and Final Analysis because OCC believes that
the general obligation imposed in those orders to complete coordination before
commencing operations may not provide adequate protection to OCC's subscriber
uplink operations in the 148-149.9 MHz band.
In connection with the second processing round for Little LEO applications,
the FCC issued an order in October 1997 (the "Final Order") allowing each of the
three commercial narrowband second-round applicants to have permanent access to
approximately 355 kHz of spectrum in the lower portion of the 148.0-149.9 MHz
band. The Final Order made additional spectrum available for second-round
applicants while at the same time superseding the requirement in the Original
FCC License that ORBCOMM discontinue its use of the lower half of this band once
Starsys launches its system.
Supplemental FCC License. The Supplemental FCC License, among other
things, increases the total number of authorized satellites from 36 to 48. The
term of the authorization for the additional 12 satellites is ten years from the
operational date of the first ORBCOMM satellite, which was April 1995. The
Supplemental FCC License also requires that OCC begin construction of the first
two of the additional 12 satellites by March 1999 and of the remaining ten
satellites no later than March 2001. The Supplemental FCC License also requires
that the first two satellites be launched by September 2002 and the remaining
ten satellites be launched by March 2004, respectively. Failure to meet these
milestones will render the
64
<PAGE> 70
Supplemental FCC License null and void, unless the FCC grants an extension of
these milestones. In addition, OCC is required to apply for a license renewal
three years prior to the expiration of the Supplemental FCC License. While,
based on past experience, OCC believes that the FCC generally grants license
renewals to existing licensees where the licensee has satisfied the requirements
of the license, there can be no assurance that the Supplemental FCC License
would be renewed should OCC apply. See "Risk Factors -- Regulatory
Risks -- Domestic Licensing Risks."
The Supplemental FCC License also: (i) permits the ORBCOMM system to use
fewer, potentially higher, data rate customer downlink channels; (ii) allows for
a change in the orbital altitude of the ORBCOMM satellites in the non
high-inclination planes from 775 kilometers to approximately 825 kilometers
above Earth; and (iii) permits the launch of eight of the high-inclination
satellites to 108 degrees instead of 70 degrees. The additional 12 satellites
authorized by the Supplemental FCC License will also improve the ORBCOMM
system's high-latitude coverage over Alaska, Canada and Europe as well as
provide additional capacity and greater in-orbit redundancy. In addition,
ORBCOMM believes that the grant of the Supplemental FCC License will facilitate
coordination of the ORBCOMM system with Russia and France. See "-- International
Regulation -- ITU Coordination."
Finally, the Supplemental FCC License provided OCC a secondary right to use
a portion of the 149.9-150.05 MHz for its feeder links, which right is
contingent on Final Analysis moving its feeder link to another location, which
it has indicated it desires to do. However, before Final Analysis can move its
feeder link, additional spectrum needs to be made available by the ITU for MSS,
which is not likely to happen until at least 1999, if at all. See
"-- International Regulation -- ITU Spectrum Allocation."
Additional Domestic Regulatory Activities. On April 15, 1998, OCC filed
the Modification Request with the FCC to permit it to launch eight of its
authorized satellites in an equatorial orbit (rather than a 45 degree orbit) and
to increase the spacing between the other three planes of satellites. OCC
believes that the FCC will grant the Modification Request on a timely basis
because there would be no adverse effect on any other Little LEO licensee or
other service.
INTERNATIONAL REGULATION
Summary. The ORBCOMM system operates in frequencies that were allocated on
an international basis for use by Little LEO systems at the World Administrative
Radio Conference held in 1992 ("WARC-92"). The United States, on behalf of
various Little LEO service providers, including OCC, pursued international
allocations of additional frequencies for use by the Little LEOs at WRC-95 with
limited success, as noted above. The United States also requested additional
frequencies for use by the Little LEOs at WRC-97, which resulted in the
allocation, on a footnote basis, of additional spectrum in the 454-455 MHz band,
which is adjacent to certain additional spectrum that was allocated for use
during WRC-95. In addition to cooperating with these efforts by the United
States to secure additional spectrum for Little LEO systems, OCC was required to
and has in fact, through the FCC, engaged in international coordination
procedures with other countries with respect to other satellite systems under
the aegis of the ITU. OCC has completed these international coordination
procedures, with the exception of those efforts involving France and Russia. OCC
was also required, by the FCC and the U.S. Department of State, to engage in
economic and/or technical coordination with two international satellite systems,
Intelsat and Inmarsat. These coordinations were completed successfully with
respect to the planned 36-satellite enhanced constellation as of 1995. Finally,
the ORBCOMM system must receive operational authority from each of the foreign
countries in which it proposes to provide service. It will be the responsibility
of the International Licensee in each country to obtain such authority.
ITU Spectrum Allocations. The ORBCOMM system operates both in the United
States and internationally using frequencies allocated for Little LEO systems in
the International Table of Frequency Allocations (the "International Table").
The International Table identifies radio frequency segments that have been
designated for specific radio services by the member nations of the ITU. The
International Table is revised periodically at WRCs. Between WRCs, the member
nations of the ITU, in connection with private industry, prepare and propose
recommendations for international allocations to be considered at the next
65
<PAGE> 71
WRC. Preparatory analyses and recommendations are considered in appropriate
technical study groups for specific topics.
Little LEO systems require use of radio spectrum on a global basis to reach
their full commercial potential. At WARC-92, with the sponsorship of the U.S.
government and a number of other key administrations, major portions of the 137
to 150 MHz band and a narrow portion of the spectrum band at 400 MHz were
allocated on a global basis to Little LEO systems. The specific frequency
allocations for uplink and downlink operations included the following:
<TABLE>
<S> <C>
Uplink: 148.0 -- 149.9 MHz (1.9 MHz on a primary basis)
Downlink: 137.0 -- 138.0 (675 kHz on a primary basis; 325 kHz on a
secondary basis)
400.15 -- 401.00 MHz (850 kHz on a primary basis)
</TABLE>
In addition, 3 MHz of uplink and 3 MHz of downlink frequencies were
allocated on a secondary basis. The band 400.075-400.125 MHz licensed for use by
the ORBCOMM system already was allocated previously on a global basis to Time
and Frequency Standard service and, therefore, was not subject to consideration
at WARC-92. ORBCOMM's planned use of this bandwidth complies with the
regulations governing its use. At WARC-92, a footnote to the Table of
Allocations was adopted providing that MSS uplinks in the band 148-149.9 MHz
would be secondary in more than 100 countries. Earth stations in these countries
would neither be protected from interference, nor permitted to cause
interference to terrestrial services.
A designation of "primary" places the Little LEO systems on an equal
footing with existing users of these frequencies, subject to the provision that
the Little LEO systems not interfere with existing users or constrain their
growth and, with respect to certain countries and certain frequency bands, that
the Little LEO systems not claim protection from existing users. A "secondary"
designation means that the other users of the same frequencies have priority
over the Little LEO systems and are not required to accommodate or avoid
interference with them. The procedures for "coordinating" Little LEO services
with other registered users of the band were established at WARC-92.
At WRC-95, the U.S. government and other administrations sought an
additional allocation of 6.65 MHz of spectrum for Little LEO systems. This
proposal was largely unsuccessful due to the late identification of candidate
bands. At WRC-97, the U.S. government and other administrations again sought an
additional allocation of spectrum for Little LEO systems, which requests were
again met with only limited success. Consideration of additional bandwidth
allocations is currently scheduled to be on the agenda for the next WRC
scheduled for 1999. There can be no assurance that such additional allocations
will be approved.
Finally, a portion of the Transit band between 149.9-150.05 MHz and
399.9-400.05 MHz was allocated to Little LEOs effective on January 1, 1997. OCC
has determined, however, that the upper portion of the transit band is not
particularly useful to the ORBCOMM system.
ITU Coordination. The United States, on behalf of OCC, is required to
coordinate the frequencies used by the ORBCOMM system through the ITU. ITU
frequency coordination is a necessary prerequisite to obtaining interference
protection from other NVNG satellite systems. There is no penalty for launching
a satellite system prior to completion of the ITU coordination process, although
protection from interference through this process is afforded only as of the
date of successful completion of the process and notification of the satellite
by the ITU.
The FCC, on behalf of OCC, has notified the ITU that the ORBCOMM system was
placed in service on April 3, 1995 and that it has operated without complaint of
interference since that time. The FCC also informed the ITU that OCC has
successfully completed its coordination with all other administrations except
Russia and France. ORBCOMM believes that grant of the Supplemental FCC License
will facilitate its coordination efforts with Russia and could facilitate its
coordination efforts with France. OCC expects that it will successfully complete
the ITU coordination process with Russia and France by December 1998, at which
time ORBCOMM's 36-satellite enhanced constellation will be fully registered with
the ITU. The FCC must modify ORBCOMM's ITU registration documentation and
proceed with a supplementary coordination process with respect to the 12
satellites authorized under the Supplemental FCC License. This process is not
66
<PAGE> 72
expected to affect coordination of ORBCOMM's 36-satellite system. Satellite
systems subsequent to the ORBCOMM system must coordinate with OCC to protect the
ORBCOMM system from interference.
ITU coordination is also required for the uplink ground segment of the
ORBCOMM system, but is the responsibility of individual administrations.
Depending on the location of particular ground stations, the applicable
coordination distance specified in the ITU procedures may extend across
international boundaries and require coordination by more than one governmental
authority. For example, two of the four U.S. Earth Stations have a coordination
distance that extends into Canada, and thus require coordination with Canada
prior to ITU notification or registration.
At WRC-95, France proposed a reduction in the threshold for coordination
with terrestrial services, which would require additional coordination of MSS
systems. France raised this proposal again at WRC-97. This proposed change was
not adopted at either WRC-95 or WRC-97, but there can be no assurance that it
will not be proposed and adopted at the next WRC scheduled for 1999, or that, if
adopted, additional coordination requirements would not be imposed on the
ORBCOMM system, to the extent that OCC may not have completed the ITU
coordination process.
Coordination with Intelsat and Inmarsat. Pursuant to the Intelsat treaty,
international satellite operators are required to demonstrate that they will not
cause economic or technical harm to Intelsat. OCC was notified in March 1995
that this coordination with Intelsat had been completed successfully with
respect to the planned 36-satellite enhanced constellation. Further coordination
will be required as to the 12 satellites licensed under the Supplemental FCC
License. ORBCOMM anticipates that it will successfully complete such
coordination with Intelsat.
The Inmarsat treaty similarly requires both technical and economic harm
coordination. OCC was notified in October 1995 that it had successfully
completed both technical and economic coordination with Inmarsat with respect to
the planned 36-satellite enhanced constellation. Further coordination will be
required as to the 12 satellites licensed under the Supplemental FCC License. As
with the Intelsat coordination, ORBCOMM anticipates that it will successfully
complete such coordination with Inmarsat.
Regulation of Service Providers. Primary responsibility for obtaining
local regulatory approval to offer ORBCOMM system services in countries outside
the United States will reside with the various International Licensees. In all
cases, the proposed International Licensees are private companies, reflecting
the expectation that the ORBCOMM system will be licensed as a value-added
service rather than as a regulated basic service. International Licensees and
proposed International Licensees have had discussions with regulators in certain
major target countries and have advised ORBCOMM that such discussions indicate
that favorable regulatory treatment can be anticipated.
The process for obtaining regulatory approval in foreign countries
generally conforms to the following process. The International Licensee requests
regulatory approval from the appropriate national regulatory body, which has the
sole authority to grant an operating license. Obtaining such local regulatory
approvals normally requires, among other things, that the International Licensee
demonstrate the absence of interference to other authorized uses of the spectrum
in each country. In some countries, this process may take longer due to heavier
shared use of the applicable frequencies and, in certain other countries, may
require reassignment of some existing users. The national regulatory authority
will be required to associate with the ORBCOMM ITU submission. The national
regulatory authority also will be required to submit so-called Appendix 3
information to the ITU to coordinate and protect ORBCOMM Gateway Earth Stations
in the territory or region from interference by other ground systems in
neighboring countries.
To date, ORBCOMM has executed 13 agreements with International Licensees
covering over 95 countries within North and South America, Europe, Asia, the
Middle East and Africa. ORBCOMM or the International Licensees or third parties
have received full or limited regulatory approvals in a total of 14 countries.
In particular, in addition to the United States, full regulatory approvals to
provide ORBCOMM services have been received in Canada, Japan and Malaysia.
ORBCOMM, through the International Licensees and other third parties, currently
has temporary, experimental, testing and demonstration or business licenses in
Germany, Italy, South Korea, Spain, Sweden, Northern Ireland, Argentina, Chile,
South Africa, Iceland and Namibia, which 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.
67
<PAGE> 73
ORBCOMM provides technical and regulatory assistance to its International
Licensees in pursuing operating authority. The assistance provided by ORBCOMM
includes actual in-country demonstrations that the ORBCOMM system can share use
of the allocated spectrum with existing users while neither causing harmful
interference nor constraining operations and growth of those systems. While
International Licensees have been selected, in part, based upon their perceived
qualifications to obtain the requisite foreign regulatory approvals, there can
be no assurance that they will be successful in doing so, and if they are not
successful, ORBCOMM services will not be available in such countries. In
addition, the continued operations of the International Licensees may be subject
to other regulatory requirements or regulatory or other changes in each foreign
jurisdiction.
68
<PAGE> 74
MANAGEMENT
BOARD OF DIRECTORS, MEMBERS AND EXECUTIVE OFFICERS
The Company
The following table sets forth information concerning the executive
officers and directors of the Company as of the date of this Prospectus. The
current members of the Company's Board of Directors (the "Company Board") have
been selected by ORBCOMM and will hereafter be elected at the annual meeting of
stockholders. Prior to the consummation of the Offering, the Company plans to
elect two additional directors who will be independent directors ("Company
Independent Directors"). Unless otherwise indicated, each executive officer
holds office until a successor is duly elected and qualified. There are no
family relationships among the executive officers or directors of the Company.
See "Risk Factors -- Structural and Market Risks -- Risk of Loss of Management
Rights on a Change of Control or Reduction in Interest."
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- --------------------------------------
<S> <C> <C>
Scott L. Webster........ 46 President, Chief Executive Officer and
Director
W. Bartlett Snell....... 46 Chief Financial Officer and Treasurer
Mary Ellen Seravalli.... 39 Secretary
Marc Leroux............. 47 Director
William J. Meder........ 55 Director
Jeffrey V. Pirone....... 37 Director
Claude Seguin........... 48 Director
David W. Thompson....... 44 Director
</TABLE>
ORBCOMM
The following table sets forth information concerning the executive
officers of ORBCOMM and Members of the ORBCOMM Committee as of the date of this
Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------
<S> <C> <C>
Scott L. Webster..... 46 Chairman, Chief Executive Officer and
Member (designated by OCC)
Alan L. Parker....... 59 President, Global Development
Robert F. Latham..... 56 President and Chief Operating Officer
W. Bartlett Snell.... 46 Senior Vice President Finance and
Administration, Chief Financial
Officer and Treasurer
Andre Halley......... 51 Senior Vice President, International
Market Development and General Manager
Abdul H. Rana........ 47 Senior Vice President Engineering and
Product Management
Brian L. Williams.... 48 Senior Vice President Marketing,
Strategy and Communications
Mary Ellen Senior Vice President, General Counsel
Seravalli.......... 39 and Secretary
Marc Leroux.......... 47 Member (designated by Teleglobe
Mobile)
William J. Meder..... 55 Vice Chairman and Member (designated
by Teleglobe Mobile)
Jeffrey V. Pirone.... 37 Member (designated by OCC)
Claude Seguin........ 48 Member (designated by Teleglobe
Mobile)
David W. Thompson.... 44 Member (designated by OCC)
</TABLE>
69
<PAGE> 75
Scott L. Webster has been Chairman and Chief Executive Officer of ORBCOMM
since February 1998. Mr. Webster also has been the President of OCC since 1997
and was Senior Vice President of Orbital during 1997. He is a co-founder of
Orbital, and served in various consulting capacities with Orbital from 1993 to
1996. He served as President of Orbital's Space Data Division from 1990 to 1993
and was Executive Vice President of that organization from 1989 to 1990. Mr.
Webster served as Orbital's Vice President and Senior Vice President of
Marketing and Business Development from Orbital's inception in 1982 until 1989.
Previously, he held technical and management positions at Advanced Technology
Laboratories and Litton Industries. Mr. Webster is currently a director of
Orbital.
Alan L. Parker has been President, Global Development of ORBCOMM since
February 1998 and was the President from June 1993 to February 1998 and Chief
Executive Officer from February 1996 to February 1998. Mr. Parker is also
Executive Vice President of OCC and was the President of OCC from its inception
in 1990 until 1997. As a consultant to Orbital during 1989, Mr. Parker developed
the ORBCOMM strategy and business plan. Mr. Parker was a member of the United
States delegation to WARC-92, the WRC held in 1993 and WRC-95. Mr. Parker's
experience includes 25 years with Ford Aerospace Corporation (now part of
Lockheed Martin Aerospace) and Ford Motor Company. Mr. Parker served as Chairman
and Chief Executive Officer of Ford Aerospace Satellite Services Corporation
from 1982 to 1986 and was Vice President of Marketing and Business Planning of
Ford Aerospace from 1976 to 1986. Prior to 1976, Mr. Parker held several
marketing and product planning positions at Ford, including Car Product
Development, Ford of Europe and Corporate Product Planning and Research.
Robert F. Latham has been President and Chief Operating Officer of ORBCOMM
since February 1998 and was Executive Vice President and Chief Operating Officer
from May 1997 to February 1998. From April 1997 to May 1997, Mr. Latham was an
independent consultant to ORBCOMM. From February 1996 to February 1997, Mr.
Latham was Managing Director, Telecom for Bell Canada International Management
Ltd., UK ("BCIM"). From April 1996 until November 1996, Mr. Latham was secunded
to Mercury Communications, Limited in London, England as the Managing Director,
Commercial Services. Prior to joining BCIM, Mr. Latham spent 28 years with Bell
Canada, most recently as Group Vice President ("GVP"), Gateways and Public
Telephony. From July 1992 to February 1995, Mr. Latham held the positions of
GVP, Business Sales and Services and GVP, Signature Service, with responsibility
for Bell Canada's business accounts. From 1986 to 1991, Mr. Latham led the
development of Bell Cellular as President and Chief Executive Officer. Prior to
1986, Mr. Latham held a variety of positions with Bell Canada, including in the
areas of Business Development, Customer Services, Regulatory Matters, Cost and
Performance and Forecasting and Planning.
W. Bartlett Snell has been Senior Vice President Finance and
Administration, Chief Financial Officer and Treasurer of ORBCOMM since February
1996. From 1993 to 1996, Mr. Snell was President and Chief Executive Officer of
PowerSource Solutions, Inc., a company specializing in assisting organizations
undertaking strategic corporate change. From 1992 to 1993, Mr. Snell was Senior
Vice President and General Manager of People Karch International, an
international provider of work-site health promotion services, health and
fitness software and corporate child care programs. Prior to 1992, Mr. Snell
worked for IBM Corporation for approximately 16 years. Mr. Snell is a member of
both the Northern Virginia Business RoundTable and the Northern Virginia
Technology Council.
Andre Halley has been Senior Vice President, International Market
Development and General Manager of ORBCOMM since April 1998. From April 1996 to
April 1998, Mr. Halley was employed by both Teleglobe Canada Inc. ("Teleglobe
Canada") and Teleglobe GmbH and was secunded to ORBCOMM International to provide
it with management consulting services for international market development
projects as Managing Director. From 1994 to 1996, Mr. Halley was Vice President,
Europe, Middle East and Africa for Teleglobe Canada. From 1992 to 1994, Mr.
Halley was President of Optinet Communications, a value-added carrier involved
in the design, engineering and operation of multimedia networks and from 1990 to
1992, he was President of Cellular Canada, a national supplier of cellular
equipment and related services. From 1986 to 1989, Mr. Halley was Vice
President, Operations, Eastern Region for Bell Cellular, where he was
responsible for, among other things, the expansion of Bell Cellular's client
base and deployment of its system infrastructure. From 1988 to 1989, he was also
President of Cellnet Canada, a Canadian association of
70
<PAGE> 76
cellular operators. Prior to 1987, Mr. Halley held various positions with Bell
Canada, including Division Sales Manager, National Accounts, Sales and Marketing
and Account Representative.
Abdul H. Rana has been Senior Vice President Engineering and Product
Management of ORBCOMM since April 1998 and was Senior Vice President Product
Management and Development of ORBCOMM from December 1997 to April 1998. From
January 1997 to December 1997, Dr. Rana was Vice President of Engineering and
Technology Services for GE LogistiCom, where he provided technical leadership
for development and launch of a satellite communications product for asset
management. From 1984 to 1996, Dr. Rana held several positions at GTE in the
areas of product development and program management, where, among other
achievements, he managed the launch of several successful commercial data and
video products, was three times the recipient of the GTE Leslie Warner Award,
GTE's highest technical honor, and twice the recipient of President's Awards for
personal technical and professional achievements. Prior to 1984, Dr. Rana held
technical and management positions at COMSAT Labs and ENSCO Incorporated in the
areas of satellite communications and signal processing. Dr. Rana received his
Ph.D. in engineering in 1977 and has 20 years of engineering and product
development experience in telecommunications, satellite and cellular
communications and wireless data networks. Dr. Rana has published over 30
articles in professional journals and currently is a member of the Institute of
Electrical and Electronics Engineers Inc.
Brian L. Williams has been Senior Vice President Marketing, Strategy and
Communications of ORBCOMM since December 1997. Between May 1997 and December
1997, Mr. Williams was Senior Vice President, Marketing and Product Development
at ORBCOMM, and from January 1997 to May 1997, Mr. Williams was Vice President,
Marketing, Strategy and Communications at ORBCOMM. From March 1995 to January
1997, Mr. Williams was Senior Vice President of Marketing and Business
Development for Optex Communications Corporation, a development stage company
creating high-speed, high-capacity data storage and imaging technologies. From
December 1992 to March 1995, he was a director with Bell Atlantic Video Services
Company, where he was instrumental in the formation of Bell Atlantic's
multimedia strategy and many of Bell Atlantic's strategic partner alliances.
From 1986 to 1992, Mr. Williams held several marketing and product development
positions at NEC Technologies, Inc., including the position of Assistant Vice
President of Marketing. Mr. Williams has served on the Board of Directors for
the Electronic Industries Association-Consumer Electronics Group.
Mary Ellen Seravalli has been Senior Vice President, General Counsel and
Secretary of ORBCOMM since January 1997 and was Vice President and General
Counsel from January 1996 to December 1996. From 1991 to 1995, Ms. Seravalli was
Assistant General Counsel of Orbital and from January 1995 to December 1995 she
was also a Vice President of Orbital. Prior to 1991, Ms. Seravalli was an
associate in the law firm of Jones, Day, Reavis & Pogue, where she worked on
mergers and acquisitions, with an emphasis on the telecommunications industry,
and where she gained significant experience representing both lenders and
borrowers in connection with the establishment of various types of credit
facilities.
Marc Leroux has been President and Chief Operating Officer of Teleglobe
World Mobility, a division of Teleglobe, since 1994. Since 1992, Mr. Leroux has
also served as Vice President, Technology of Teleglobe. Prior to 1992, Mr.
Leroux was Senior Manager, Services Development with Bell-Northern Research
Ltd., a telecommunications research and development company.
William J. Meder has been President of ORBCOMM Canada, a majority-owned
subsidiary of Teleglobe, since August 1994 and is also a part-owner of ORBCOMM
Canada. Mr. Meder has also been Vice President, Special Projects of ORBCOMM
since July 1997 and Vice Chairman of the ORBCOMM general partners committee
since February 1998. From 1993 to 1994, Mr. Meder was a business consultant and,
from 1990 to 1993, Chief Operating Officer of Henry Birks and Sons Ltd. From
1982 to 1989, Mr. Meder was the Chief Executive Officer of Comp-u-Card Canada,
Inc. and, from 1978 to 1982, he was Chief Executive Officer of Imperial
Manufacturing Inc. Prior to that, Mr. Meder spent 13 years with IBM in various
senior management positions. Mr. Meder was formerly a chairman of Syscor, an
information services company serving hospitals in the Montreal area, and
President of the Young Presidents Association.
Jeffrey V. Pirone has been Executive Vice President and Chief Financial
Officer of Orbital since January 1998. Prior to January 1998, Mr. Pirone held a
number of positions at Orbital, including Senior Vice
71
<PAGE> 77
President and Chief Financial Officer and Vice President and Controller. Prior
to joining Orbital in 1991, Mr. Pirone was a Senior Manager at KPMG Peat Marwick
LLP.
Claude Seguin has been the Chairman of the Board and Chief Executive
Officer of Teleglobe Mobile Investment Inc. and the managing partner of
Teleglobe Mobile since June 1993. He has also been the Executive Vice-President,
Finance and Chief Financial Officer of Teleglobe since August 1997. From August
1996 to August 1997, Mr. Seguin was Executive Vice-President, Finance and
Corporate Development and Chief Financial Officer of Teleglobe. From 1992 to
August 1996, Mr. Seguin was Executive Vice-President, Finance and Chief
Financial Officer of Teleglobe. Mr. Seguin served the Quebec Finance Ministry as
Deputy Minister from 1987 to 1992. Mr. Seguin sits on the boards of Telesystem
International Wireless Corporation, Levesque Beaubien Geoffrion Inc. and La
Societe generale de financement du Quebec. He is also a former governor of the
Montreal Exchange and director of Caisse de depot et placement du Quebec.
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of Orbital since 1982. Prior to
founding Orbital, Mr. Thompson was employed by Hughes Electronics Corporation as
special assistant to the President of its Missile Systems Group and by NASA at
the Marshall Space Flight Center as a project manager and engineer, and also
worked at the Charles Stark Draper Laboratory on the Space Shuttle's autopilot
design. Mr. Thompson also serves as Chairman of the Board and Chief Executive
Officer of Orbital Imaging Corporation and as Chairman of Magellan Corporation,
affiliates of Orbital.
COMPENSATION OF THE COMPANY'S DIRECTORS
Directors of the Company who are officers of the Company, ORBCOMM, OCC,
Teleglobe or an affiliate thereof are not paid any fees or additional
compensation for services as members of the Company Board or any committee
thereof. Directors who are not officers of the Company, ORBCOMM, OCC, Teleglobe
Mobile or an affiliate thereof will receive an annual retainer and a fee for
each meeting of the Company Board or any committee thereof attended. In
addition, all directors will be reimbursed any expenses incurred, where
appropriate.
COMMITTEES OF THE COMPANY'S BOARD OF DIRECTORS
Following consummation of the Offering, the Company Board will establish an
Audit Committee and a Compensation Committee. The Company intends to appoint to
such committees only persons who qualify as "independent" directors for purposes
of the rules and regulations of the Nasdaq National Market, or as "non-employee
directors" for purposes of Rule 16b-3 under the Exchange Act. The Audit
Committee will select and engage, on behalf of the Company, the independent
public accountants to audit the Company's annual financial statements, and will
review and approve the planned scope of the annual audit. The Compensation
Committee will perform such functions as provided under the Company's employee
benefit plans.
72
<PAGE> 78
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Currently, all executive officers of the Company are compensated by ORBCOMM
and receive no compensation by the Company. The following table sets forth a
summary of all compensation earned, awarded or paid in the fiscal years ended
December 31, 1997, 1996 and 1995, as applicable, to those persons who were at
December 31, 1997, the Chief Executive Officer and the four other most highly
compensated executive officers of ORBCOMM (collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ----------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS (1) COMPENSATION (2)
--------------------------- ---- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Alan L. Parker........................... 1997 $210,000 $ 73,500 -- $14,404
President and Chief Executive 1996 200,000 60,000 -- 16,655
Officer(3) 1995 167,846 33,512 -- 7,905
Robert F. Latham......................... 1997(5) 108,692 157,800 70,000 32,250
Executive Vice President and Chief 1996(6) -- -- -- --
Operating Officer(4) 1995(6) -- -- -- --
W. Bartlett Snell........................ 1997 160,000 53,965 -- 10,189
Senior Vice President Finance and 1996 127,769 44,000 25,000 10,480
Administrations Chief Financial 1995(6) -- -- -- --
Officer and Treasurer
Brian L. Williams........................ 1997(7) 147,692 68,867 30,000 6,518
Senior Vice President Marketing, 1996(6) -- -- -- --
Strategy and Communications 1995(6) -- -- -- --
Mary Ellen Seravalli..................... 1997 150,000 52,531 -- 7,645
Senior Vice President, General 1996 130,000 33,000 20,000 9,324
Counsel and Secretary 1995(6) -- -- -- --
</TABLE>
- ------------------------------
(1) Shares of common stock of OCC subject to options granted under the OCC Stock
Option Plan. On consummation of the Offering, all of such options are
expected to be exchanged for options to purchase Common Stock of the Company
pursuant to the Equity Plan. See "-- Equity Plan."
(2) The 1997 amounts include ORBCOMM matching and profit-sharing contributions
made under ORBCOMM's 401(k) plan and Group Term Life Insurance premiums paid
by ORBCOMM, respectively, in the following amounts: Alan L. Parker, $11,178
and $3,226; Robert F. Latham, $4,638 and $1,218; W. Bartlett Snell, $9,301
and $888; Brian L. Williams, $5,908 and $610; and Mary Ellen Seravalli,
$7,328 and $317. The 1997 amount for Robert F. Latham also reflects payments
by ORBCOMM of $10,385 in consulting fees prior to his employment by ORBCOMM,
$14,008 in moving expenses and $2,000 in legal fees paid by ORBCOMM. The
1996 and 1995 amounts equal, in each case, ORBCOMM matching and
profit-sharing contributions made under ORBCOMM's 401(k) plan.
(3) In February 1998, Mr. Parker ceased being President and Chief Executive
Officer of ORBCOMM and became President, Global Development of ORBCOMM.
(4) In February 1998, Mr. Latham became President and Chief Operating Officer of
ORBCOMM.
(5) Represents compensation beginning in May 1997 when Mr. Latham started his
employment at ORBCOMM.
(6) No compensation is reported where the individual person did not serve as an
executive officer of ORBCOMM during a given fiscal year.
(7) Represents compensation from the end of January 1997 when Mr. Williams
started his employment at ORBCOMM.
73
<PAGE> 79
OCC OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options to the Named Officers
pursuant to the OCC Stock Option Plan during the fiscal year ended December 31,
1997, which options are reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ----------- ------------ --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert F. Latham................. 55,000(2) 19.33 $26.50 5/15/07 $916,614 $2,322,800
15,000(3) 5.27 26.50 7/18/07 249,986 633,513
Brian L. Williams................ 30,000(2) 10.54 26.50 2/05/07 499,971 1,267,025
</TABLE>
- ------------------------------
(1) On consummation of the Offering holders of options to purchase OCC common
stock will be able to exchange such options for options to purchase Common
Stock of the Company pursuant to the Equity Plan and the number of
securities underlying the options and the exercise price will be adjusted on
such exchange. See "-- Equity Plan."
(2) These options vest as follows: one-fourth of such options vested on the date
of grant and one-fourth of such options vest on each of the first, second
and third anniversaries of the date of grant.
(3) These options vest as follows: one-fourth of such options vest on each of
the first four anniversaries of the date of grant.
AGGREGATED FISCAL YEAR-END OPTION VALUES
Shown below is information regarding outstanding stock options to purchase
shares of OCC held at the end of fiscal 1997 by the Named Officers. No stock
options were exercised during fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE(1)
---- ------------------ -------------------
<S> <C> <C>
Alan L. Parker.......................................... 76,875/625 $1,837,813/$8,438
Robert F. Latham........................................ 13,750/56,250 --/--
W. Bartlett Snell....................................... 6,250/18,750 59,375/178,125
Brian L. Williams....................................... 7,500/22,500 --/--
Mary Ellen Seravalli.................................... 10,250/15,250 166,375/145,875
</TABLE>
- ---------------
(1) The values of unexercised in-the-money options held by the Named Officers at
fiscal year-end (exercisable/unexercisable), assuming the exchange of such
options for options to purchase Common Stock of the Company pursuant to the
Equity Plan, based on an assumed initial public offering price of $16.50 per
share of Common Stock (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus) are as
follows: Alan L. Parker, $3,765,069/$24,106; Robert F. Latham,
$344,713/$1,410,188; W. Bartlett Snell, $216,063/$648,188; Brian L.
Williams, $188,025/$564,075; and Mary Ellen Seravalli, $423,343/$528,193. On
exchange, each option to purchase one share of OCC common stock will convert
into an option to purchase 3.125 shares of Common Stock pursuant to the
Equity Plan.
EMPLOYMENT AND OTHER COMPENSATION ARRANGEMENTS
Scott L. Webster was appointed Chairman and Chief Executive Officer of
ORBCOMM in February 1998. In January 1998, Mr. Webster was granted options to
purchase 100,000 shares of Common Stock of OCC at an exercise price of $26.50
per share, with one-third of such options vested on the date of grant, and
one-third of such options to vest on each of the first and second anniversaries
of the date of grant. In July 1997, Mr. Webster was granted options to purchase
30,000 shares of Common Stock of OCC at an exercise price of $26.50 per share,
with one quarter of such options to vest on each of the first four anniversaries
of the date of grant. In addition, in 1992 Mr. Webster was granted options to
purchase 7,500 shares of Common Stock of OCC at exercise prices ranging from
$1.50 to $4.00.
On May 15, 1997, ORBCOMM and Robert F. Latham entered into an employment
agreement that sets forth the terms and conditions of Mr. Latham's employment
with ORBCOMM. The employment agreement
74
<PAGE> 80
is for a term of three years commencing on May 15, 1997, and is automatically
extended from year to year thereafter unless terminated either by ORBCOMM or Mr.
Latham. Pursuant to the terms of the employment agreement, Mr. Latham received a
$75,000 signing bonus and is entitled to a base salary of $180,000 per year. In
addition to the signing bonus and base salary, under the employment agreement
Mr. Latham is eligible to receive from ORBCOMM, among other things, an annual
bonus of up to 50% of his base salary, relocation expenses of up to $50,000 and
a loan of up to $50,000. Mr. Latham was also awarded options to purchase 55,000
shares of OCC common stock at a price of $26.50 per share. The options vest, pro
rata, over a period of four years with one-fourth vested on the date of the
grant, and are generally governed by the terms of the OCC Stock Option Plan. In
the event of a termination of Mr. Latham's employment, either: (i) by the
Company without cause (as defined in the agreement); or (ii) by Mr. Latham
within three months following a change of control (as defined in the agreement),
Mr. Latham will be entitled to receive from ORBCOMM: (x) a lump sum severance
payment of twelve months annual base salary (in the case of a termination
without cause) or a lump sum severance payment of the remaining balance of Mr.
Latham's base salary through the end of the term of the agreement plus 50% of
Mr. Latham's then current annual base salary (in the case of a change in
control); (y) accelerated vesting of OCC stock options; and (z) relocation
expenses of up to $50,000. Pursuant to the terms of the employment agreement,
Mr. Latham has an obligation not to solicit any employees of ORBCOMM for a
period of one year following termination of his employment with ORBCOMM.
EQUITY PLAN
Prior to consummation of the Offering, the Company intends to adopt the
1998 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P. (the "Equity
Plan"). The Equity Plan is intended to assist the Company and ORBCOMM and each
of their affiliates in attracting and retaining key employees (including the
Named Officers), directors and independent consultants of outstanding ability
and to promote the identification of their interests with those of the
stockholders of the Company. The Equity Plan permits the grant of non-qualified
stock options and incentive stock options ("ISOs") (to Company employees only)
to purchase shares of Common Stock of the Company covering 7,600,000 authorized
but unissued or reacquired shares of Common Stock of the Company, subject to
adjustment to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by the Company. In addition,
as of the effective date of the Offering, current and former employees of
ORBCOMM, Orbital and other affiliates of the Company will be granted
non-qualified stock options (the "Exchange Options") in exchange for the
cancellation of outstanding options to purchase shares of OCC common stock,
which were granted pursuant to the OCC Stock Option Plan.
The Equity Plan will be administered by the Compensation Committee of the
Company Board (the "Compensation Committee") and options granted under the
Equity Plan will be eligible to satisfy the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section
162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to the terms and conditions of the Equity Plan, the
Compensation Committee has the authority to select the persons to whom grants
are to be made, to designate the number of shares of Common Stock of the Company
to be covered by such grants, to determine the exercise price of options, to
establish the period of exercisability of options, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the Equity Plan. The Compensation Committee may, in its
discretion, provide by the terms of an option that such option will expire at
specified times following, or become exercisable in full upon, the occurrence of
certain specified events including a merger, consolidation or dissolution of the
Company or a sale of substantially all of the Company's assets.
The Compensation Committee also retains the discretion to determine that
outstanding options under the Equity Plan will expire on certain specified
"extraordinary corporate events," but in such event the Compensation Committee
may also give optionees the right to exercise their outstanding options in full
during some period prior to such event, even though the rights have not yet
otherwise become fully exercisable.
75
<PAGE> 81
The Equity Plan may be amended by the Compensation Committee, subject to
stockholder approval if such approval is then required by applicable law or for
options granted under the Equity Plan to continue to satisfy the requirements of
Rule 16b-3 under the Exchange Act or Section 162(m) of the Code.
The Equity Plan permits the payment of the option exercise price to be made
in cash (which, with the consent of the Compensation Committee, may include
(except with respect to incentive stock options) an assignment of the right to
receive the cash proceeds from the sale of Common Stock of the Company subject
to the option pursuant to a "cashless exercise" procedure) or, with the consent
of the Compensation Committee, by delivery of shares of Common Stock of the
Company valued at their fair market value on the date of exercise or by delivery
of other property, or by a recourse promissory note payable to the Company, or
by a combination of the foregoing.
Options granted under the Equity Plan are not transferable otherwise than
by will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order (as defined in the Code), and may be exercised during
the optionee's lifetime only by the optionee or, in the event of the optionee's
legal disability, by the optionee's legal representative.
General Federal Income Tax Consequences. The federal income tax
consequences, in general, of the grant and exercise of Options under the Equity
Plan are as follows:
--Incentive Stock Option. In general, a recipient will not recognize
taxable income upon the grant or exercise of an ISO, and the Company will not be
entitled to any business expense deduction with respect to the grant or exercise
of an ISO. (However, upon the exercise of an ISO, the excess of the fair market
value on the date of exercise of the shares received over the exercise price of
the option will be treated as an adjustment to alternative minimum taxable
income.) In order for the exercise of an ISO to qualify as an ISO, a recipient
generally must be an employee of the Company or a subsidiary (within the meaning
of Section 422 of the Code) from the date the ISO is granted through the date
three months before the date of exercise (one year preceding the date of
exercise in the case of a recipient whose employment is terminated due to
disability). The employment requirement does not apply where a recipient's
employment is terminated due to his or her death.
If a recipient has held the shares acquired upon exercise of an ISO for at
least two years after the date of grant and for at least one year after the date
of exercise, when the recipient disposes of the shares, the difference, if any,
between the sales price of the shares and the exercise price of the option will
be treated as long-term capital gain or loss subject to reduced rates of tax,
provided that any gain will be subject to further reduced rates of tax if shares
are held for more than eighteen months after the date of exercise. If a
recipient disposes of the shares prior to satisfying these holding period
requirements (a "Disqualifying Disposition"), the recipient will recognize
ordinary income (treated as compensation) at the time of the Disqualifying
Disposition, generally in an amount equal to the excess of the fair market value
of the shares at the time the option was exercised over the exercise price of
the option. The balance of the gain realized, if any, will be short-term or
long-term capital gain, depending upon whether the shares have been held for at
least twelve months after the date of exercise, with the lowest capital gain
rates available if shares are held for more than eighteen months after the date
of exercise. If the optionee sells the shares in a Disqualifying Disposition at
a price below the fair market value of the shares at the time the option was
exercised, the amount of ordinary income (treated as compensation) will be
limited to the amount realized on the sale over the exercise price of the
option. In general, if the Company and its subsidiaries comply with applicable
income reporting requirements, the Company and its subsidiaries will be allowed
a business expense deduction to the extent a recipient recognizes ordinary
income.
--Nonqualified Stock Option. In general, a recipient who receives a
nonqualified stock option will recognize no income at the time of the grant of
the option. Upon exercise of a nonqualified stock option, a recipient will
recognize ordinary income (treated as compensation) in an amount equal to the
excess of the fair market value of the shares on the date of exercise over the
exercise price of the option. The basis in shares acquired upon exercise of a
nonqualified stock option will equal the fair market value of such shares at the
time of exercise, and the holding period of the shares (for capital gain
purposes) will begin on the date of exercise. In general, if the Company,
ORBCOMM and/or their subsidiaries comply with applicable income
76
<PAGE> 82
reporting requirements, they will be entitled to a business expense deduction in
the same amount and at the same time as the recipient recognizes ordinary
income. In the event of a sale of the shares received upon the exercise of a
nonqualified stock option, any appreciation or depreciation after the exercise
date generally will be taxed as capital gain or loss, provided that any gain
will be subject to reduced rates of tax if the shares were held for more than
twelve months and will be subject to further reduced rates if the shares were
held for more than eighteen months.
The foregoing discussion assumes that at the time of exercise, the sale of
the shares of a profit would not subject a recipient to liability under Section
16(b) of the Exchange Act. Special rules may apply with respect to persons who
may be subject to Section 16(b) of the Exchange Act.
Generally, if a recipient delivers previously owned shares to pay the
exercise price, no gain or loss will be recognized in respect of the shares
delivered, and there will be a carryover basis and holding period for a like
number of shares acquired. If the option being exercised is an ISO and the
shares delivered were acquired upon exercise of an ISO and are delivered prior
to satisfaction of the ISO holding period requirements described above, the
delivery of shares will constitute a Disqualifying Disposition as to which the
rules described above will apply. If the option being exercised is a
nonqualified stock option, ordinary income (treated as compensation) will be
recognized only on the additional shares acquired and will be equal to the fair
market value of the shares on the date of exercise less any addition cash paid.
Special rules apply in computing the amount and character of an optionee's
income (or loss) upon the subsequent sale of shares acquired upon the exercise
of an ISO where the exercise price is paid by the delivery of previously owned
shares.
-- Excise Taxes. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a change in control might be deemed an
"excess parachute payment" for purposes of the golden parachute tax provisions
of Section 280G of the Code. To the extent it is so considered, a recipient may
be subject to a 20% excise tax and the Company may be denied a tax deduction.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction limit
does not apply to certain "performance-based compensation" established by an
independent compensation committee that is adequately disclosed to, and approved
by, stockholders. Under a Section 162(m) transition rule for compensation plans
of corporations that are privately held and that become publicly held in an
initial public offering, the Equity Plan will not be subject to Section 162(m)
until the "Transition Date" which is defined as the earliest of: (i) the
material modification of the plan; (ii) the issuance of all Common Stock and
other compensation that has been allocated under the plan; or (iii) the first
meeting of stockholders at which directors are to be elected that occurs after
December 31, 2001. The Company has attempted to structure the Equity Plan in
such a manner that, after the Transition Date, subject to obtaining stockholder
approval for the Equity Plan, the remuneration attributable to stock options
that meet the other requirements of Section 162(m) will not be subject to the $1
million limitation. The Company has not, however, requested a ruling from the
Internal Revenue Service or an opinion of counsel regarding this issue.
77
<PAGE> 83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
THE COMPANY
As of the date of this Prospectus, 100 shares of Common Stock of the
Company were outstanding, all of which are owned beneficially and of record by
ORBCOMM. These shares will be redeemed at their original cost by the Company on
consummation of the Offering. The following table sets forth certain information
regarding the beneficial ownership of the Common Stock after the Offering: (i)
by each person known by ORBCOMM to beneficially own more than five percent of
the Common Stock; (ii) by each Named Officer and each Member of the ORBCOMM
Committee; and (iii) by all of ORBCOMM's executive officers and Members as a
group.
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY
OWNED AFTER THE OFFERING (2)(3)
-------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT
---------------------------------------- ------- -------
<S> <C> <C>
NAMED OFFICERS
Alan L. Parker.............................................. 242,223 *
Robert F. Latham............................................ 97,670 *
W. Bartlett Snell........................................... 39,068 *
Brian L. Williams........................................... 46,882 *
Mary Ellen Seravalli........................................ 48,445 *
MEMBERS
Scott L. Webster............................................ 151,066 *
Claude Seguin (4)........................................... -- *
William J. Meder (4)........................................ 23,441 *
Marc Leroux (4)............................................. -- *
David W. Thompson (5)....................................... 56,258 *
Jeffrey V. Pirone (5)....................................... 17,190 *
All Members and Executive Officers as a Group............... 722,243 1.8%
</TABLE>
ORBCOMM
The following table sets forth certain information regarding the beneficial
ownership of partnership interests of ORBCOMM as of March 31, 1998 prior to the
Offering and beneficial ownership of Partnership Units after the Offering.
<TABLE>
<CAPTION>
PARTNERSHIP INTEREST
PRIOR TO THE PARTNERSHIP UNITS AFTER
OFFERING THE OFFERING
-------------------- ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) PERCENT NUMBER PERCENT
---------------------------------------- ------- ------ -------
<S> <C> <C> <C>
Orbital Communications Corporation (5)(6)................ 50% 15,600,655 40.2%
Telegloble Mobile Partners (4)(7)........................ 50% 15,600,655 40.2%
ORBCOMM Corporation...................................... -- 7,600,000 19.6%
</TABLE>
- ------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o ORBCOMM, 2455 Horse Pen Road, Suite 100, Herndon, Virginia
20171.
(2) Based on 38,801,310 shares of Common Stock outstanding immediately after the
Offering, including the Common Stock issuable on conversion of the
Partnership Units pursuant to the Unit Exchange Agreement. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to the Common Stock.
Common Stock subject to options currently exercisable or exercisable within
60 days of the date of this Prospectus are deemed outstanding for computing
the percentage ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person.
(3) Common Stock ownership represents options to purchase common stock of OCC
granted pursuant to the OCC Stock Option Plan, that will be converted on
consummation of the Offering into options to purchase Common Stock.
(4) The address of such beneficial owner is c/o Teleglobe Inc., 1000, rue de la
Gauchetiere ouest, Montreal, Quebec H3B 4X5.
(5) The address of such beneficial owner is c/o Orbital Sciences Corporation,
21700 Atlantic Boulevard, Dulles, VA 20166.
(6) OCC is a majority owned subsidiary of Orbital. As a result, the partnership
interest and Partnership Units beneficially owned by OCC are deemed to be
beneficially owned by Orbital.
(7) Teleglobe Mobile is owned indirectly 70% by Teleglobe and 30% by TRI, each
of which is a general partner of Teleglobe Mobile. As a result of
Teleglobe's indirect 70% general partnership interest in Teleglobe Mobile,
the partnership interest and Partnership Units beneficially owned by
Teleglobe Mobile are deemed to be beneficially owned by Teleglobe.
78
<PAGE> 84
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of ORBCOMM, the Company, OCC, Teleglobe Mobile and Orbital have
entered into a series of agreements or arrangements for the development,
construction, operation and marketing of the ORBCOMM system. The following
paragraphs are a summary of the material provisions of certain of these
agreements and are qualified in their entirety by reference to the actual
agreements, which are filed as exhibits to or incorporated by reference in the
registration statement (the "Registration Statement") filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"), of which
this Prospectus is a part.
MASTER AGREEMENT
As of June 30, 1993, Orbital, OCC, Teleglobe and Teleglobe Mobile entered
into the Master Agreement that sets forth the principles upon which the parties
have agreed to develop, construct and operate the ORBCOMM system. The Master
Agreement subsequently has been amended and restated and on consummation of the
Offering will provide the following:
Covenants Relating to OCC. Orbital and OCC have agreed: (i) to preserve
OCC's corporate existence; (ii) to use all commercially reasonable efforts to
obtain and maintain all material U.S. operating licenses and permits necessary
for the construction, operation and marketing of the ORBCOMM system; (iii) to
ensure that so long as OCC holds any FCC licenses, OCC will (a) remain a
subsidiary of Orbital, other than as a result of options exercised under the OCC
Stock Option Plan; (b) carry on no business other than the construction,
operation and marketing of the ORBCOMM system or businesses that are in
furtherance of, or in connection with, the expansion of the ORBCOMM system; (c)
remain the sole holder of all FCC licenses required for the construction, launch
and operation of the ORBCOMM system (other than FCC licenses for individual user
transceivers and FCC licenses held by ORBCOMM); (iv) subject to certain
exceptions, that OCC will not grant, create, assume, incur or suffer to exist
any lien affecting OCC or any of its property, rights, revenues or assets and
that in no circumstances will OCC grant, create, assume, incur or suffer to
exist any lien on any FCC licenses held by OCC; (v) subject to certain
exceptions, that Orbital will not dispose of any debt interest in OCC and that
OCC will not sell, transfer, convey, lease or otherwise dispose of any assets;
(vi) that OCC will not consolidate, merge or amalgamate with any other person;
(vii) subject to certain exceptions in accordance with the Definitive Agreements
(as defined in the Master Agreement), that Orbital and OCC will not create,
amend or repeal any by-laws or modify the OCC certificate of incorporation;
(viii) subject to certain exceptions in accordance with the Definitive
Agreements, that OCC will not make any loans or give any financial guarantees
for the obligations of any other party; and (ix) that Orbital and OCC will not
make any assignment for the benefit of creditors or subject OCC to any
proceedings under any bankruptcy or insolvency law or take steps to wind up or
terminate OCC's corporate existence or engage in any financial restructuring.
Covenant Relating to Teleglobe Mobile. Teleglobe and Teleglobe Mobile have
agreed to preserve Teleglobe Mobile's corporate existence.
Guarantees. Teleglobe has unconditionally and absolutely guaranteed the
full and punctual payment of all of Teleglobe Mobile's payment obligations under
the Definitive Agreements to which Teleglobe Mobile is a party. Orbital has
unconditionally and absolutely guaranteed the full and punctual payment of all
of OCC's payment obligations under the Definitive Agreements to which OCC is a
party.
Change of Control. In the event of a Change of Control (as defined in the
Master Agreement) of Orbital or Teleglobe (the "Change of Control Party"),
Teleglobe Mobile or OCC, as the case may be (the "Non-Change of Control Party"),
has the option for a period of 180 days from such Change of Control (the "Option
Period") to require the Change of Control Party to purchase the Non-Change of
Control Party's interest in ORBCOMM at an aggregate price equal to the greater
of (i) the Non-Change of Control Party's aggregate Unrecouped Capital
Preferences (as defined in the Master Agreement) in such partnerships and (ii)
the Non-Change of Control Party's direct and indirect Participation Percentage
(as defined in the Master Agreement) in each such partnership multiplied by the
fair market value (as defined in the Master Agreement) of each such partnership
Subject to the receipt of all necessary government approvals, upon a
79
<PAGE> 85
Change of Control of Orbital, Orbital agrees to cause OCC to transfer to ORBCOMM
all FCC licenses then held by OCC relating to the construction, launch or
operation of the ORBCOMM system.
ORBCOMM SYSTEM CONSTRUCTION AND OPERATIONS AGREEMENT
On consummation of the Offering, OCC and ORBCOMM will enter into the
ORBCOMM System Construction and Operations Agreement (the "System Construction
Agreement"), which will provide for the following:
OCC has agreed to grant to ORBCOMM the right: (i) to market, sell, lease
and franchise all ORBCOMM system output capacity worldwide and to use the System
Assets (as defined in the Master Agreement) located in the United States; and
(ii) to use, and to authorize third parties to use, in the course of ORBCOMM's
business, all service marks, trademarks and trade names of OCC relating to the
ORBCOMM system for advertising, promotional or sales literature. Pursuant to the
System Construction Agreement, ORBCOMM is granted the right to manage and
operate the ORBCOMM system on behalf of OCC and will provide to OCC management
and operational services including tracking, telemetry and control services.
Notwithstanding any provision in the System Construction Agreement to the
contrary, OCC, as holder of the FCC licenses relating to the ORBCOMM system,
retains full authority to control the ORBCOMM system.
In consideration of the grant to ORBCOMM of the right to market, sell,
lease and franchise the ORBCOMM system output capacity worldwide and to use the
System Assets located in the United States, ORBCOMM has agreed to: (i) develop,
construct, launch and operate the satellites comprising the ORBCOMM system; (ii)
develop, construct and operate the other assets located in the United States
that constitute the ORBCOMM system; and (iii) pay to OCC $100,000 in calendar
year 1998, and, for the periods following December 31, 1998, to pay such fee as
is mutually agreeable to OCC and ORBCOMM.
ORBCOMM has agreed to indemnify and hold harmless OCC from and against any
claim with respect to an infringement or other violation of any copyright,
trademark or patent or other validly registered enforceable intellectual
property right of any third party for any items constructed by ORBCOMM pursuant
to the authority granted in the System Construction Agreement, but only to the
same extent as the indemnification received by ORBCOMM from Orbital, if any,
pursuant to the Procurement Agreement.
OCC CONSULTING AGREEMENT
On consummation of the Offering, OCC and ORBCOMM will enter into the OCC
Consulting Agreement, which will provide for the following:
ORBCOMM will agree to furnish to OCC regulatory, technical, legal and
administrative support before the FCC and other appropriate regulatory bodies.
Such support includes but is not limited to: (i) assisting in the coordination
of any and all interference matters in connection with the grant of OCC's second
round Little LEO licensing application with other Little LEO system licensees;
(ii) assisting in the prosecution of a proposed modification request by OCC for
(a) the launch of three planes of eight satellites each to 45 degrees, with a
120 degree relative right ascension; and (b) the launch of one plane of eight
satellites in an equatorial orbit; and (iii) assisting generally in the defense
of claims against any regulatory authority granted to OCC and in the opposition
of any application by a competing system using frequencies below 1 GHz, which
may include participation in discussions and negotiations with other existing or
proposed Little LEO licensees, reviewing filings with the FCC and providing
technical analysis of other Little LEO or other systems. In consideration for
these services, OCC has agreed to pay ORBCOMM $80,000 in calendar year 1998,
and, for the periods following December 31, 1998, such fee as is mutually
agreeable to OCC and ORBCOMM.
PROCUREMENT AGREEMENT
As of September 12, 1995, ORBCOMM and Orbital entered into the Procurement
Agreement pursuant to which Orbital has undertaken the overall design,
development, construction, integration, test and operation of the ORBCOMM
system. The Procurement Agreement was the result of arm's-length negotiations
between Orbital and Teleglobe Mobile that took place prior to Teleglobe Mobile's
decision to exercise an option to
80
<PAGE> 86
invest an approximately $75 million in additional equity in ORBCOMM. The
Procurement Agreement has subsequently been amended and currently provides for
the following:
Under the Procurement Agreement, Orbital will develop, construct and
deliver and launch 34 ORBCOMM satellites (ten of which have been launched) and
complete the construction and design of the U.S. Ground Segment. Under the
Procurement Agreement Orbital will launch the satellites using four Pegasus
launch vehicles and the Taurus launch vehicle. To date, Orbital has successfully
launched eight satellites on a Pegasus launch vehicle and two satellites on a
Taurus launch vehicle. Orbital will also provide in-orbit check-out support for
up to 120 days after each of the satellite launches.
ORBCOMM has agreed to pay Orbital approximately $196.4 million for
satellite construction, launch services and other work specified in the
Procurement Agreement, not including certain incentive fees. This amount
includes $3.5 million that ORBCOMM recently agreed to pay for out-of-scope work
performed by Orbital under the Procurement Agreement. On execution of the
Procurement Agreement, ORBCOMM paid to Orbital approximately $17 million
representing reimbursement for certain costs incurred through the date thereof.
Under the Procurement Agreement, Orbital is entitled to invoice ORBCOMM monthly
for a maximum of 90% of certain costs incurred during each month. The remaining
ten percent of such costs incurred in any month may be invoiced only on
completion of certain specified project milestones referred to in the
Procurement Agreement as Category B Milestones.
The remaining balance of the fixed price contract amount is generally
allocated to Category A Milestones as defined in the Procurement Agreement. In
the event that Orbital fails to achieve any Category A Milestone on or before
the scheduled completion date, ORBCOMM is relieved of its obligation to pay the
applicable amounts specified for such Category A Milestone until such time as
Orbital achieves such Category A Milestone or obtains a waiver in writing from
ORBCOMM for such achievement; provided, however, that Orbital's failure to
timely complete any milestone shall not relieve ORBCOMM of its obligation to pay
for other achieved milestones.
Incentive Payments. In addition to the above prices for work and service,
Orbital is entitled to receive certain in-orbit performance incentive payments.
Payments are to be made on a per-plane basis with the incentive to be earned
monthly for each complete month that there are a specified minimum number of
working satellites in the plane. The minimum number of working satellites in a
plane is seven during the first 30 months of the in-orbit performance incentive
period and six during the second 30 months of the in-orbit performance period.
Optional Work. The Procurement Agreement provides for additional work and
services to be performed on an optional basis, including: (i) an option to
purchase on or prior to December 31, 1999 a replacement constellation of 32
satellites substantially similar to those of the current system (including
launch services using four Pegasus launch vehicles) in accordance with the
specifications contained in the Procurement Agreement at a cost of $166.1
million (subject to adjustment for inflation and excluding taxes, if any, and
the cost of launch and satellite insurance); and (ii) a one-time option to
request Orbital to provide a standard Taurus launch vehicle rather than a
Pegasus launch vehicle for any launch procured pursuant to the Procurement
Agreement, which option may be exercised by ORBCOMM on or prior to September 12,
1998 at a price to be negotiated, provided that the price will not exceed $21
million.
Regulatory Matters. On consummation of Offering, the terms of the
Procurement Agreement will be amended to provide that Orbital is required to use
all commercially reasonable efforts directly or through OCC: (i) to obtain and
maintain the required U.S. regulatory authority needed to construct, launch and
operate the satellites and operate the ORBCOMM system; (ii) to obtain and
maintain FCC regulatory authority for the operation of subscriber units for use
in connection with the ORBCOMM system; and (iii) to take reasonable actions in
any regulatory proceedings to defend any claims against any regulatory authority
granted to Orbital or OCC in connection with the ORBCOMM system or to oppose any
application by competing systems that use frequencies below 1 GHz; provided that
Orbital, directly or indirectly through OCC, may in its reasonable discretion
contract with third parties, including ORBCOMM, for the provision of such
consulting or other services as Orbital may deem necessary or desirable to
enable it to fulfill such
81
<PAGE> 87
obligations. ORBCOMM has agreed to pay or reimburse Orbital or OCC for all
out-of-pocket expenses and internal costs incurred in connection with Orbital's
or OCC's efforts.
Delivery; Title and Risk of Loss. Under the Procurement Agreement, with
respect to a satellite launch using the Pegasus launch vehicle, delivery of the
launch vehicle and satellites occurs on separation of the launch vehicle from
Orbital's L-1011 aircraft. With respect to a satellite launch using a Taurus
launch vehicle, delivery of the satellites occurs on intentional ignition of the
Taurus launch vehicle. At such time, title to and risk of loss or damage passes
to ORBCOMM and ORBCOMM's sole remedy for launch failure, defects, failures to
conform to applicable specifications or any other requirements is limited to:
(i) non-payment to Orbital of the specified milestone payment and any satellite
performance incentive payment; and (ii) termination of the Procurement
Agreement.
Limitation of Liability. Under no circumstances, regardless of fault,
shall Orbital be liable for any damage greater than $10 million excluding: (i)
any unpaid portion of Category A Milestone payments; and (ii) any unpaid portion
of the in-orbit performance incentive payment.
Stop Work. ORBCOMM may at any time by written order to Orbital require
Orbital to stop all or any part of the work called for by the Procurement
Agreement for a period of 60 days or for any further period to which the parties
may agree. Within a period of 60 days after a stop-work is delivered to Orbital,
or within any extension of that period to which the parties agree, ORBCOMM will
either cancel the stop-work order and make an equitable adjustment to the
Procurement Agreement for the delay or terminate the work as provided in the
Procurement Agreement or if Orbital otherwise agrees to terminate.
Intellectual Property. In general, all designs, inventions, processes,
technical data, drawings and/or confidential information related to the
satellites, launch vehicle launch services, the Network Control Center and U.S.
Gateway Earth Stations are the exclusive property of Orbital and its
subcontractors. All rights, title and interest in and to all underlying
intellectual property relating to the work to be performed pursuant to the
Procurement Agreement will remain exclusively in Orbital and its subcontractors,
notwithstanding Orbital's disclosure of any information or delivery of any data
items to ORBCOMM or ORBCOMM's payment to Orbital for engineering or
non-recurring charges. ORBCOMM will not use or disclose such information or
property to any third party without the prior written consent of Orbital.
Termination. ORBCOMM may, by written notice of termination to Orbital,
terminate the Procurement Agreement upon the failure of Orbital: (i) to achieve
any of the Category A Milestones within 56 weeks after the scheduled completion
date set forth in the Milestone Payment Schedule (as defined in the Procurement
Agreement) provided that scheduled completion dates can be extended by any
excusable delays as a result of a force majeure event; or (ii) to comply in any
material respect with any of the provisions of the Procurement Agreement and to
correct such failure, within 60 days from the date of Orbital's receipt of
written notice thereof from ORBCOMM, setting forth in detail ORBCOMM's basis for
termination of the Procurement Agreement.
PROPRIETARY INFORMATION AGREEMENT
As of June 30, 1993 ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe Mobile
entered into the Proprietary Information and Non-Competition Agreement to
protect any confidential and proprietary information that may be disclosed to
one another in connection with the development, construction, operation and
marketing of the ORBCOMM system and to set forth certain non-competition
provisions. This agreement will be amended on consummation of the Offering to
provide that the parties to the agreement that are in receipt of proprietary
information agree that they will not, during and for a period of five years
after the term of the agreement, use, disclose or otherwise disseminate such
proprietary information to any person or make any use of the proprietary
information for their own benefit or for the benefit of any other person. In
addition, on consummation of the Offering, the agreement will be amended to
delete the non-competition provisions which, as between the parties to the
Partnership Agreement, will be set forth in the Partnership Agreement.
Indemnification. Orbital and Teleglobe agree to indemnify and save
harmless one another and their respective affiliates and representatives (an
"indemnified party") from and against any claims, demands,
82
<PAGE> 88
actions, causes of action, judgments, damages, losses, liabilities, costs or
expenses that may be made against any of them as a result of, arising out of or
relating to any violation, contravention or breach of the Proprietary
Information and Non-Competition Agreement by a party who is not an indemnified
party.
Termination. The Proprietary Information Agreement will terminate on the
earlier of OCC or Teleglobe Mobile ceasing to be both a General Partner and a
limited partner of ORBCOMM.
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
As of January 1, 1997, ORBCOMM and Orbital entered into the Amended and
Restated Administrative Services Agreement (the "Administrative Services
Agreement") that sets forth the terms on which Orbital has agreed to provide
office space and certain administrative and other services to ORBCOMM. The
Administrative Services Agreement currently provides for the following:
Under the terms of the Administrative Services Agreement, Orbital has
agreed to provide to ORBCOMM defined office space for a total price per month
that is based on ORBCOMM's occupied useable square footage as a percentage of
total useable square footage in any Orbital facility occupied by ORBCOMM, and is
equal to ORBCOMM's pro rata portion of all Orbital's monthly costs and expenses
relating to the applicable facility, including but not limited to rent, mortgage
(including interest), operating expenses, taxes, building maintenance,
utilities, janitorial services, landscaping, management fees and leasehold
improvement amortization for interior buildout. Orbital also has agreed to
provide ORBCOMM with certain use and occupancy services on a cost reimbursable
basis (as specified therein). The use and occupancy services to be provided by
Orbital include management information systems services, security and facilities
support, telephone switchboard and communication services, employee training
services and other support services. Finally, Orbital has agreed to provide
various administrative and executive management services to ORBCOMM on a cost
reimbursable basis (as specified therein). The administrative and executive
management services to be provided by Orbital include accounting support,
payroll processing, miscellaneous purchasing services, personnel services and
other administrative services.
Orbital also has agreed to provide to ORBCOMM certain insurance on a cost
reimbursable basis, including health insurance, property and casualty insurance,
workers compensation insurance, auto liability insurance, general liability
insurance, fiduciary liability insurance, employee dishonesty insurance, transit
insurance and aviation products insurance. Orbital shall be required to provide
such insurance to ORBCOMM until such time as ORBCOMM can commercially procure
its own insurance at a rate comparable to Orbital's, or until such time as the
partners of ORBCOMM determine that ORBCOMM should procure its own insurance.
ORBCOMM has agreed to indemnify Orbital, its directors, officers or
employees against any liability in connection with any actions arising out of
the performance of the services except to the extent that such liability arises
from Orbital's gross negligence or willful misconduct.
The Administrative Services Agreement continues in effect so long as any of
the categories of office space or administrative services are being provided by
Orbital, provided that ORBCOMM has the right to terminate any or all of the
administrative services being provided by Orbital on 90 days prior written
notice to Orbital, and provided further that ORBCOMM shall have the right to
terminate the provision by Orbital of any office space occupied by ORBCOMM only
upon the expiration of the lease relating to such office space.
COMPANY ADMINISTRATIVE SERVICES AGREEMENT
On consummation of the Offering, the Company and ORBCOMM will enter into an
administrative services agreement (the "Services Agreement") pursuant to which
ORBCOMM will furnish to the Company certain administrative services on a cost
reimbursable basis. The services to be provided by ORBCOMM shall include but not
be limited to tax, audit, legal, employee benefits, investor relations and
public affairs.
83
<PAGE> 89
ORBCOMM CANADA CONSULTING AGREEMENT
As of March 18, 1998, ORBCOMM and ORBCOMM Canada, a majority-owned
subsidiary of Teleglobe, entered into a Consulting Agreement, which currently
provides for the following:
ORBCOMM Canada has agreed to furnish to ORBCOMM certain business and
industry consultancy services including: (i) arranging meetings with senior
executives of Fortune 100 companies with the objective of developing business
relationships for ORBCOMM services; (ii) providing advice and counsel to ORBCOMM
marketing executives to build and extend ORBCOMM business partner relationships;
(iii) acting as the executive contact for certain application developers,
manufacturers and related vendors; (iv) providing advice and counsel to ORBCOMM
management as it develops and improves business processes, with a particular
focus on sales and pricing policies and practices; and (v) establishing
strategic relationships with key partners on a global basis.
In consideration for these consultancy services, ORBCOMM has agreed to pay
ORBCOMM Canada $1,000 per day, not to exceed $4,000 in any calendar week. Either
party may terminate the Consulting Agreement by giving ten days written notice
to the other party.
U.S. GATEWAY EARTH STATION MAINTENANCE SERVICE AGREEMENT
As of October 1, 1997, Orbital and ORBCOMM entered into the U.S. Gateway
Earth Station Maintenance Service Agreement, pursuant to which Orbital provides
to ORBCOMM pursuant to a detailed Statement of Work, among other things, routine
quarterly maintenance services, spare equipment, site representatives, repair
services, ORBCOMM satellite launch support services and other services for each
U.S. Gateway Earth Station. Specifically, Orbital has agreed to: (i) provide
routine quarterly maintenance services, including quarterly visits to each
Gateway Earth Station site by a qualified engineer or senior technician, as well
as certain testing and inspection services; (ii) manufacture, procure and
maintain spare equipment, including receiving, inspecting, testing and storing
such spare equipment; (iii) provide a local site representative and provide
maintenance of the grounds for each U.S. Gateway Earth Station site; (iv)
provide repair services; (v) develop drawings for certain shelters installed at
the U.S. Gateway Earth Station sites and conduct related surveys; and (vi)
provide satellite launch support consisting of the provision of one
knowledgeable person at each U.S. Gateway Earth Station site for the six day
period following each of the next two satellite launches scheduled after the
date of execution of the agreement. ORBCOMM has agreed to pay to Orbital
approximately $1.0 million on a firm fixed price basis (exclusive of certain
incidental expenses) for the services specified in the agreement, not including
repair service, which will be provided by Orbital on a time and materials basis.
The term of the agreement is one year, although ORBCOMM may terminate the
agreement in whole or in part at any time by providing written notice to
Orbital. ORBCOMM sites can be enhanced. ORBCOMM may terminate the agreement in
whole or in part, at any time by providing written notice to Orbital.
SERVICE LICENSE AGREEMENTS WITH ORBCOMM CANADA AND CELLULAR COMMUNICATIONS
NETWORK
On December 19, 1995 and October 10, 1996, ORBCOMM entered into Service
License Agreements with two International Licensees, ORBCOMM Canada, a
majority-owned subsidiary of Teleglobe, and Cellular Communications Network
(Malaysia) Sdn. Bhd., a wholly owned subsidiary of TRI, respectively. Each
agreement is for an initial ten year term and is renewable for up to an
additional ten years. Pursuant to each agreement, ORBCOMM has granted to each
International Licensee an exclusive license to market ORBCOMM services
throughout its territory and a nonexclusive license to market ORBCOMM services
in international waters.
Each agreement provides that each International Licensee will obtain the
necessary regulatory approvals, procure the necessary ground infrastructure and
use commercially reasonable efforts to advertise, promote and market the ORBCOMM
system throughout its territory. In addition, each International Licensee has
agreed to pay certain license fees according to the provisions of each
agreement. Finally, each International Licensee pays to ORBCOMM a monthly
satellite usage fee based on the greater of a percentage of gross operating
revenues and a data throughput fee.
84
<PAGE> 90
SUBSCRIBER UNIT MANUFACTURE AGREEMENT WITH MAGELLAN
As of July 31, 1996, and for a ten-year term, ORBCOMM entered into a
Subscriber Unit Manufacture Agreement with Magellan, a majority-owned subsidiary
of Orbital. Under the terms of the agreement, Magellan agrees to manufacture,
distribute and service subscriber units to be used with the ORBCOMM system
according to specifications and technical requirements established by ORBCOMM.
Under the terms of the agreement, ORBCOMM authorizes Magellan to use the
ORBCOMM-developed subscriber unit software in subscriber units Magellan offers
for sale to ORBCOMM or to any other buyer. ORBCOMM also authorizes Magellan to
manufacture and sell each subscriber unit that has been type approved by
ORBCOMM. Under the terms of the agreement, ORBCOMM does not remit any payments
to Magellan for the development, manufacture or delivery of any subscriber units
not specifically purchased by ORBCOMM. Moreover, the agreement provides that
Magellan will pay to ORBCOMM its standard per subscriber unit royalty for each
unit that Magellan sells. Under a letter agreement dated March 12, 1998 between
ORBCOMM and Magellan, ORBCOMM has agreed to pay Magellan a subsidy for each
Magellan subscriber unit sold through March 1999 up to an aggregate of $2.4
million.
ORBCOMM RESELLER AGREEMENT WITH ORBITAL
On March 3, 1997, ORBCOMM entered into a Reseller Agreement with Orbital.
The agreement has subsequently been amended and currently provides that, subject
to certain exclusions, ORBCOMM grants to Orbital the non-exclusive right to
market and resell ORBCOMM products and services for Intelligent Transportation
System monitoring, tracking and messaging applications to Federal, state and
local government and commercial accounts. The agreement provides that Orbital
will pay to ORBCOMM activation, access and usage fees that are generally
consistent with ORBCOMM's standard pricing.
The term of the agreement is for one year renewable automatically for
additional terms of one year each unless either party gives 60 days' written
notice to the other party.
85
<PAGE> 91
GOVERNANCE OF THE COMPANY AND RELATIONSHIP WITH ORBCOMM
The power and authority to conduct and manage the business of the Company
is vested in the Company Board. On consummation of the Offering, the Company
Board will be composed of eight members. The initial Company Board will be
appointed by ORBCOMM and thereafter will be elected at the annual meeting of
stockholders. At least two members of the Company Board, the Company Independent
Directors, will at all times be persons not employed by or affiliated with
ORBCOMM, OCC or Teleglobe Mobile. See "Management" and "Description of the
Capital Stock."
PARTICIPATION IN THE GOVERNANCE OF ORBCOMM
On consummation of the Offering, ORBCOMM will be managed by the General
Partners through the ORBCOMM Committee, which initially will consist of eight
Members. The ORBCOMM Committee will be responsible for managing the affairs of
ORBCOMM. The ORBCOMM Committee will have complete and exclusive discretion in
the management and control of the affairs and business of ORBCOMM and will
possess all powers necessary, convenient or appropriate to carrying out the
purposes and business of ORBCOMM. The day-to-day activities of ORBCOMM will be
managed by its officers, subject to the supervision of the ORBCOMM Committee.
See "Description of the Partnership Agreement."
EXCHANGE RIGHTS OF ORBCOMM PARTNERS
Pursuant to a Unit Exchange Agreement, the Company has agreed with
ORBCOMM's current Partners to permit holders of the Partnership Units of ORBCOMM
to exchange those interests for shares of Common Stock at a ratio of one share
of Common Stock for each Partnership Unit (subject to anti-dilution adjustments
in the event of certain capital changes and issuances of Partnership Units under
certain circumstances) subject to certain limitations based on the attainment of
certain milestones. If a holder of Partnership Units (a "Unit Holder") desires
to effect an exchange of all or a portion of its Partnership Units it must
provide written notice to the Company and ORBCOMM. To exercise its rights under
the Unit Exchange Agreement, a Unit Holder and its affiliates must be in full
compliance with the Partnership Agreement. ORBCOMM and the Company have the
right to defer exchanges under the Unit Exchange Agreement if doing so is in the
best interests of ORBCOMM or the Company in light of possible or pending
financing or other transactions.
Generally, the Company will be required to effect, or take any action to
effect, any exchange of Partnership Units for Common Stock only to the extent
that the sum of the number of Partnership Units requested to be exchanged
pursuant to the Unit Exchange Agreement (the "Exchange Units") does not exceed:
(i) following the first fiscal quarter in which ORBCOMM has achieved positive
earnings before interest, taxes, depreciation and amortization ("EBITDA"), 25%
of the outstanding Partnership Units; (ii) following the date on which ORBCOMM
has launched a total of 28 satellites, 25% of the outstanding Partnership Units;
and (iii) following the earlier of (A) the date on which ORBCOMM has launched a
total of 36 satellites provided that ORBCOMM has achieved at least one full
quarter of positive EBITDA and (B) December 31, 2000, 100% of the outstanding
Partnership Units. In addition, a holder of Partnership Units may at any time
request the exchange of all or a portion of its Partnership Units prior to the
attainment of the foregoing milestones, provided that transfers of the shares of
Common Stock received in such exchange will be limited in accordance with the
foregoing milestones.
Under the Unit Exchange Agreement, the Company and ORBCOMM have agreed that
at any time after the attainment of certain milestones, the Company and ORBCOMM
will, at the request of Unit Holders and holders of Common Stock acquired under
the Unit Exchange Agreement, representing not less than five percent of the
Deemed Outstanding Shares (defined below), file with the Commission a
registration statement and use their best efforts to have that registration
statement remain effective for a period of up to six months, permitting such
holders to sell shares of Common Stock in the manner specified by those holders.
The Company and ORBCOMM have certain rights to defer the filing of a
registration statement or to cause holders to cease distributing securities
under an effective registration statement. Registering holders are required to
pay their pro rata portion of the costs of registration. "Deemed Outstanding
Shares" means all shares of Common Stock actually outstanding and the aggregate
number of shares of Common Stock issuable
86
<PAGE> 92
under the Unit Exchange Agreement in exchange for Partnership Units at the then
applicable exchange rate, whether or not the Partnership Units are then
exchangeable.
SHARE ISSUANCE AGREEMENT
The Company and ORBCOMM will enter into a Share Issuance Agreement (the
"Share Issuance Agreement") governing primary offerings of securities by the
Company in the future. The Share Issuance Agreement will provide that all net
proceeds from the sale of securities by the Company will be invested by the
Company in Partnership Units in ORBCOMM. Following consummation the Offering,
the Company will not issue any securities except pursuant to the Share Issuance
Agreement and the Unit Exchange Agreement. The Company has agreed that if
requested by ORBCOMM it will use its best efforts to sell securities of the
Company in compliance with all applicable laws and will cease to do so if
requested by ORBCOMM.
If the Company sells Common Stock pursuant to the Share Issuance Agreement,
ORBCOMM will issue to the Company, in exchange for the net proceeds of such
offering, one Partnership Unit for each share of Common Stock sold by the
Company (subject to anti-dilution adjustments in the event of certain capital
changes and issuances of Partnership Units under certain circumstances). If
ORBCOMM directs the Company to issue securities other than Common Stock, ORBCOMM
will issue to the Company interests in or securities of ORBCOMM, in exchange for
the net proceeds of such offering that replicate as nearly as possible the
economic attributes of the securities sold by the Company. ORBCOMM has agreed to
pay all expenses incurred by the Company in connection with any issuance of
securities under the Share Issuance Agreement and to indemnify the Company and
its officers, directors and employees against certain losses, claims, damages or
liabilities, including liabilities under the Securities Act. The Company also
has agreed to issue Common Stock pursuant to the Share Issuance Agreement in
connection with the Equity Plan. ORBCOMM will issue to the Company one
Partnership Unit for each share of Common Stock issued by the Company in
connection with the Equity Plan (subject to anti-dilution adjustments in the
event of certain capital changes and issuances of Partnership Units under
certain circumstances).
SUBSCRIPTION AGREEMENT
The Company and ORBCOMM will enter into a Subscription Agreement (the
"Subscription Agreement") pursuant to which the Company will use the net
proceeds of the Offering to purchase Partnership Units. The Subscription
Agreement will provide that the Company will use the net proceeds of the
Offering to acquire 7,600,000 Partnership Units (8,740,000 Partnership Units if
the Underwriters' over-allotment option is exercised in full) from ORBCOMM at an
aggregate purchase price equal to the proceeds (net of underwriting discounts,
commissions and other Offering expenses) of the Offering. Expenses of the
Offering are payable by the Company. ORBCOMM has also agreed to indemnify the
Company and each of its officers, directors and employees against any losses,
claims, damages or liabilities to which the Company or such officer, director or
employee may become subject except to the extent that any such loss, damage or
liability arises out of or is based on an intentional act or omission of an
indemnified party that was contrary to any written instruction or request of
ORBCOMM or that amounted to willful misconduct on the part of the indemnified
party.
87
<PAGE> 93
DESCRIPTION OF THE PARTNERSHIP AGREEMENT
The following summary of certain provisions of the Partnership Agreement is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the registration statement of which this Prospectus is a
part.
GOVERNING COMMITTEE
ORBCOMM will be managed by the General Partners through the ORBCOMM
Committee, which initially will consist of eight Members. From the date of
consummation of the Offering until the earlier of: (i) the date on which ORBCOMM
has launched a total of 36 satellites, provided that ORBCOMM has achieved
positive EBITDA for a full fiscal quarter; and (ii) December 31, 2000 (the
"Release Date"), the Company shall have the right to appoint two Members to the
ORBCOMM Committee, and each of OCC and Teleglobe Mobile shall have the right to
appoint three Members to the ORBCOMM Committee. The Members will serve on the
ORBCOMM Committee at the discretion of the General Partner appointing them to
the ORBCOMM Committee and may be removed and replaced at any time by such
General Partner, provided that in the case of the Company's Members to the
ORBCOMM Committee, the Company must at all times appoint as Members to the
ORBCOMM Committee, the Independent Company Members. After the Release Date, each
General Partner of ORBCOMM shall have the right to appoint (i) three Members to
the ORBCOMM Committee if such Partners' Percentage Interest (as defined in the
Partnership Agreement) is equal to or greater than 30% but less than 50% or (ii)
two Members to the ORBCOMM Committee if such Partners' Percentage Interest is
equal to or greater than 10% but less than 30%. Notwithstanding the foregoing,
the Company shall have the right to appoint two Members to the Committee. In the
event a General Partner's Percentage Interest exceeds 50%, such Partner shall
have the right to appoint a majority of the Members of the Committee.
The ORBCOMM Committee will be responsible for managing the affairs of
ORBCOMM. The ORBCOMM Committee shall have complete and exclusive discretion in
the management and control of the affairs and business of ORBCOMM and shall
possess all powers necessary, convenient or appropriate to carrying out the
purposes and business of ORBCOMM. The day-to-day activities of ORBCOMM will be
managed by its officers, subject to the oversight of the ORBCOMM Committee.
Regular meetings of the ORBCOMM Committee will be held quarterly. Generally,
action by the ORBCOMM Committee may be taken only with the affirmative vote of a
majority of the Members present (the "Consent of the Committee"). Written notice
of any proposed action by the ORBCOMM Committee shall be given to all Members
prior to the taking of any such action, unless waived by any such Member.
CERTAIN ACTIONS
The ORBCOMM Committee will not take any action that would result in ORBCOMM
being engaged in a business other than the development and operation of the
ORBCOMM system without the prior written consent of all the General Partners of
ORBCOMM. The ORBCOMM Committee shall not undertake any of the following actions
unless it shall have first received the consent of Members comprising two-thirds
of the ORBCOMM Committee (the "Special Consent of the Committee"), and in the
case of clause (i) below, the consent of at least one Independent Company
Member: (i) appoint (including interim appointments as a result of vacancies)
and remove the senior executive officers, including the President, Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief
Technical Officer; (ii) approve compensation, bonuses and benefit health and
welfare plans of senior executive officers; (iii) make and enter into contracts
or agreements involving consideration payable by ORBCOMM in excess of $5
million; (iv) enter into any material business asset or equity acquisition,
equity investment, joint venture or other strategic alliances that involve any
investment by ORBCOMM (including entering into any loan or financing
arrangement); (v) enter into any debt financing arrangement (including
capitalized leases) or borrow money on behalf of ORBCOMM, make, accept, endorse
and execute promissory notes, drafts, bills of exchange and other instruments
and evidences of indebtedness in connection therewith in excess of $5 million
outstanding at any one time and secure the payment of any such ORBCOMM
indebtedness by mortgage, pledge or assignment of or security interest in all or
any part of the property then owned or thereafter acquired by ORBCOMM;
88
<PAGE> 94
(vi) approve the annual financial plan, including among others, the capital and
operating budgets for ORBCOMM, as well any material variances from a previously
approved budget; (vii) dispose of, transfer or lease material assets having a
fair market value in excess of $5 million; (viii) initiate any litigation that
is in excess of $1 million or arrange for the settlement through compromise,
arbitration or otherwise of any pending or threatened litigation by or against
ORBCOMM that is in excess of $1 million; (ix) select or remove the independent
certified public accountant of ORBCOMM or adopt, or modify in any material
respect, any significant accounting policy or tax policy; or (x) admit any
person to ORBCOMM as a Limited Partner.
The following actions may not be taken by the ORBCOMM Committee unless it
shall have first received the consent of General Partners holding two-thirds of
the Partnership Units outstanding (the "Special Consent of the Partners") and,
in the case of the items described in clauses (i)-(viii), will not be put to a
vote of the General Partners without the consent of at least one of the
Independent Company Members: (i) make any material amendments or modifications
to the Partnership Agreement; (ii) approve any plan that would result in any
material change in the purpose of ORBCOMM as set forth in the Partnership
Agreement or otherwise change ORBCOMM's business so that it varies materially
from the business set forth in the Partnership Agreement; (iii) take any action
for the (a) commencement of a voluntary case under applicable bankruptcy,
insolvency or similar law now or hereinafter in effect, (b) consent to the entry
of any order for relief in an involuntary case under any such law to the extent
that the giving or withholding of such consent is within ORBCOMM's discretion,
(c) consent to the appointment or taking possession on a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of ORBCOMM or
of any substantial part of ORBCOMM's property or (d) making by ORBCOMM of a
general assignment for the benefit of creditors; (iv) cause the dissolution
and/or liquidation of ORBCOMM; (v) sell, lease, transfer, or otherwise dispose
of all or substantially all the assets of ORBCOMM or contract to do so (other
than to a person controlled by ORBCOMM); (vi) acquire (a) a controlling interest
in, or a majority of the voting stock or equity of, any corporation or other
entity or (b) in certain instances, any other assets not in the ordinary course
of business of ORBCOMM; (vii) merge or consolidate ORBCOMM with any other
entity; (viii) increase or decrease the authorized Partnership Units or to
reclassify the same, by changing the number, preferences, qualifications or
limitations; (ix) permit the entry by ORBCOMM into any additional lines of
business other than those set forth in the Partnership Agreement; (x) cancel or
otherwise affect the right of the holders of Partnership Units to receive any
distributions that have accrued but have not been paid; or (xi) create a new
class of Partnership Units having rights and preferences either prior and
superior or subordinate and inferior to the Partnership Units then authorized.
ORBCOMM will have related party contract subcommittee of the ORBCOMM
Committee (the "Contract Subcommittee") which will consist, as applicable, of
all Members other than any officer, employee of, or person designated as a
Member by the General Partner where such party or any affiliate thereof is a
party to the contract in question. The Contract Subcommittee shall have the
authority on behalf of ORBCOMM to review and monitor any contract between
ORBCOMM and any General Partner or its affiliates and, as it deems appropriate,
cause ORBCOMM to enforce its rights thereunder and propose amendments, waivers
and/or modifications thereto (it being understood that any such contract can be
amended only in accordance with the terms thereof or by mutual consent of the
parties thereto). A resolution adopted by a majority of the Members of the
Contract Subcommittee including the affirmative vote of at least one Independent
Company Member except where a party to the contract in question is the Company,
in which case the majority of the Members of the Contract Subcommittee shall be
sufficient ("Consent of the Contract Subcommittee"), if within the
above-described authority of the Contract Subcommittee, shall be deemed to be a
resolution approved by the Consent of the Contract Subcommittee.
The quorum for a meeting of the Partners shall be as follows: (i) with
respect to a matter requiring the Special Consent of the Partners,
representatives of the Partners (the "Representatives") present in person, by
proxy or written consent, representing a majority of the Partnership Units
outstanding; and (ii) with respect to a matter requiring Consent of the Contract
Subcommittee, Representatives present in person, or by proxy or written consent,
representing a majority of the Partnership Units outstanding held by the
Contract Subcommittee. Each General Partner (in the case of a matter requiring
the Special Consent of the Partners) or each disinterested General Partner (in
the case of a matter requiring the Consent of the Contract Subcommittee),
89
<PAGE> 95
shall have the right to designate one Representative to attend such meeting, who
will have the right to cast at any such meeting a number of votes equal to the
number of Partnership Units held by such General Partner. Each General Partner
has the right to cast one vote for each Partnership Unit held by such
Representatives with respect to the matters set forth above and for which it is
qualified to vote.
COMPANY CHANGE OF CONTROL AND REDUCTION IN INTEREST
A Company Change of Control is defined in the Partnership Agreement as an
event or series of events by which: (i) any "person" or "group" (as such terms
are defined in Section 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act)
directly or indirectly, of more than 30% of the Common Stock of the Company then
outstanding; (ii) the Company consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
assets, including all or substantially all of its Partnership Units in ORBCOMM,
to any person, or any corporation consolidates with or merges into the Company,
in either event pursuant to a transaction in which the Company's outstanding
Common Stock is changed into or exchanged for cash, securities or other
property, other than any transaction after which the stockholders who
beneficially owned Common Stock immediately before such transaction beneficially
own at least 50% of the outstanding voting stock of the surviving entity and no
other person beneficially owns more than 30% of the outstanding voting stock of
the surviving entity; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Company Board
(together with any new directors whose election by the Company Board or whose
nomination for election was approved by a vote of two-thirds of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office; or (iv)
the Company makes on any day any distribution or distributions of cash, property
or securities (other than regular dividends, Common Stock or rights to acquire
Common Stock) to its stockholders, or purchases or otherwise acquires its Common
Stock, and the sum of the fair market value of such distribution or purchase,
plus the fair market value of all other such distributions and purchases that
have occurred during the preceding 12 months, exceeds 30% of the fair market
value of the Company's outstanding Common Stock.
The Company will lose its rights as a General Partner of ORBCOMM and will
automatically revert to the status of a limited partner (i) on a Company Change
of Control that has not been approved by OCC and Teleglobe Mobile if at such
time the Company owns less than 50% of the outstanding Partnership Units or (ii)
in the event of a reduction in the Company's interest in ORBCOMM as a result of
a sale of Partnership Units by the Company following which the Company owns less
than 5% of the then outstanding Partnership Units. In either of such events, the
special governance rights granted to the Company and described in this
Prospectus will automatically terminate and the Company may be deemed to be an
investment company, subject to regulation under the 1940 Act. See "Risk
Factors -- Structural and Market Risks -- Risk of Loss of Management Rights on a
Change of Control or Reduction in Interest" and "Risk Factors -- Structural and
Market Risks -- Risks Related to the Investment Company Act of 1940."
INDEMNIFICATION AND FIDUCIARY STANDARDS
ORBCOMM has agreed to indemnify its Partners, their respective affiliates
and all of their respective officers, directors, partners, controlling
stockholders, employees and agents (each an "Indemnitee") from and against any
and all losses and liabilities arising out of or incidental to the business of
ORBCOMM so long as such Indemnitee's conduct did not constitute actual fraud,
gross negligence, knowing breach of specific provisions of the Partnership
Agreement or willful or wanton misconduct. The Partnership Agreement further
provides that OCC, Teleglobe Mobile and the Company and their respective
affiliates, officers, directors, partners, controlling stockholders, employees
and agents (each a "General Partner Person") will not be liable to ORBCOMM or
the limited partners for any losses sustained or liabilities incurred as a
result of any act or omission of a General Partner Person, if such person or
entity acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interest of ORBCOMM and the conduct did not
constitute gross negligence or non-performance (as defined in the Partnership
Agreement). OCC, Teleglobe Mobile and the Company, as applicable, will indemnify
the limited partners for losses and liabilities resulting
90
<PAGE> 96
from conduct of their respective General Partner Person that is found to have
constituted bad faith, gross negligence or non-performance.
The Partnership Agreement also provides that, except as otherwise
specifically provided in the Partnership Agreement, the duties and obligations
owed to ORBCOMM and to the partners by the Members and officers of ORBCOMM, and
any such duties that may be owed by any Member or by any affiliates of any
Member, shall be the same as the respective duties and obligations owed to a
corporation organized under the Delaware General Corporation Law by its
directors and officers and any such duties that may be owed to such corporation
by any similarly situated stockholder or affiliate thereof, respectively.
Notwithstanding the foregoing, a Member shall not be liable as a Member if such
Member would not have had liability if ORBCOMM were a corporation subject to the
Delaware General Corporation Law as the same exists or may hereafter be amended
and had in its certificate of incorporation the same provision as Article Ninth
of the Certificate of Incorporation of the Company (which limits the liability
of directors and officers). A Member shall not be liable to ORBCOMM or its
Partners for monetary damages for a breach of fiduciary duty as a Member and any
repeal or modification of this provision of the Partnership Agreement shall not
adversely affect any right or protection of a Member existing at the time of
such repeal or modification.
ALLOCATIONS AND DISTRIBUTIONS
Allocations. Net Income and Net Loss (as defined in the Partnership
Agreement) will generally be allocated to the Partners in proportion to their
Partnership Units.
Distributions. The Partnership Agreement requires the ORBCOMM Committee,
to the extent of legally available funds, to declare and pay a pro rata
distribution at the end of each fiscal quarter in an amount sufficient to ensure
that each Partner shall have received at least an amount equal to the product of
(i) forty percent multiplied by (ii) the lesser of (a) such Partner's
distributive share of ORBCOMM's estimated taxable income for the preceding
fiscal quarter or (b) the excess of cumulative net income over cumulative net
loss allocated to such Partner. All distributions shall be made to the Partners
in proportion to their Partnership Units.
DISSOLUTION
ORBCOMM will continue until 2048, unless sooner dissolved on the occurrence
of any of the following: (i) the withdrawal of a General Partner, or any other
event that results in its ceasing to be a General Partner (i.e., removal,
bankruptcy or dissolution) unless at the time OCC or Teleglobe Mobile or a
successor to OCC or Teleglobe Mobile remains a General Partner; (ii) a sale of
all or substantially all of the assets of ORBCOMM; (iii) the bankruptcy or the
dissolution of OCC or Teleglobe Mobile; (iv) on the Special Consent of the
Partners with the affirmative vote of at least one Company Independent Director;
or (v) any other event under the Delaware General Corporation Law that would
cause its dissolution. ORBCOMM will be reconstituted if the Partners vote to
form a new partnership and, in the case of a dissolution resulting from the
withdrawal, bankruptcy or dissolution of a General Partner, to appoint a
successor General Partner.
91
<PAGE> 97
DESCRIPTION OF THE SENIOR NOTES
General. On August 7, 1996, ORBCOMM and ORBCOMM Global Capital Corp. (the
"Issuers") issued $170 million of 14% Senior Notes Due 2004 pursuant to
exemptions from registration under the Securities Act (the "Old Notes"). In
January 1997, all of the Old Notes were exchanged for the Notes. The Notes are
subject to the terms and conditions of the Indenture, a copy of which is
incorporated by reference into the Registration Statement of which this
Prospectus is a part. On May 19, 1998, the Issuers executed the First
Supplemental Indenture (the "Supplemental Indenture"), the effectiveness of
which is conditioned on consummation of the Offering. The purpose of the
Supplemental Indenture is to give effect to certain amendments to the Indenture,
which amendments are summarized below. The following summaries of the material
provisions of the Indenture and the Supplemental Indenture do not purport to be
complete, and are subject to, and qualified in their entirety by reference to,
all of the provisions of the Indenture and the Supplemental Indenture and those
terms made a part of the Indenture and the Supplemental Indenture by the Trust
Indenture Act of 1939, as amended. All terms defined in the Indenture and not
otherwise defined herein are used in this section with the meanings set forth in
the Indenture.
Principal, Maturity and Interest. The Notes are limited in an aggregate
principal amount equal to $170 million. The Notes will mature on August 15, 2004
and bear interest at 14% per annum, payable semi-annually in arrears on February
15 and August 15 of each year. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months. The Notes bear Revenue Participation
Interest from the Issue Date to the date of payment of the Notes. With respect
to any month and any Note, the monthly Revenue Participation Interest is
calculated using the following formula: 5% of System Revenue for such month
multiplied by a fraction, the numerator of which is the principal amount
outstanding on such Note and the denominator of which is $170 million. The
Issuers, at their option, may defer payment of all or a portion of Revenue
Participation Interest then otherwise due if, and only to the extent that, the
payment of such portion of Revenue Participation Interest will cause the Credit
Parties' Fixed Charge Coverage Ratio for the four consecutive fiscal quarters
last completed prior to such interest payment date to be less than 2:1 on a pro
forma basis after giving effect to the assumed payment of such Revenue
Participation Interest. Installments of accrued or deferred Revenue
Participation Interest accrued through the Accrual Period last ended become due
and payable semi-annually on each February 15 and August 15. All installments of
accrued or deferred Revenue Participation Interest become due and payable (and
may not be further deferred) with respect to any principal amount of the Notes
that matures upon such maturity of such principal amount of the Notes.
Seniority. The Notes are senior obligations of the Issuers, rank senior in
right and priority of payment to all subordinated indebtedness of the Issuers
and rank pari passu in right and priority of payment with all other indebtedness
of the Issuers that is not expressly so subordinated, including indebtedness
under the MetLife Note (approximately $2.0 million as of March 31, 1998), except
to the extent of the collateral securing such MetLife Note.
Optional Redemption. The Issuers may not redeem the Notes prior to August
15, 2001. Thereafter, the Notes are subject to redemption at the option of the
Issuers, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest (including Revenue
Participation Interest, if any) and Liquidated Damages (if any) thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001........................................................ 115.00%
2002........................................................ 107.50%
2003 and thereafter......................................... 100.00%
</TABLE>
Notwithstanding the foregoing, prior to August 15, 1999, the Issuers may
redeem outstanding Notes with the net proceeds of one or more sales of Capital
Stock (other than Disqualified Stock) of OCC, Teleglobe Mobile or ORBCOMM to one
or more Persons at a redemption price equal to 115% of the principal amount
92
<PAGE> 98
thereof, plus accrued and unpaid interest (including Revenue Participation
Interest, if any) and Liquidated Damages (if any) thereon to the redemption
date; provided, however, that: (i) not less than $127.5 million aggregate
principal amount of Notes remains outstanding immediately after any such
redemption; and (ii) such redemption occurs within 30 days after the date of
closing of such sale of Capital Stock. ORBCOMM is not required to make mandatory
redemption or sinking fund payments with respect to the Notes.
Change of Control. On the occurrence of a Change of Control, each holder
of the Notes may require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes at an offer price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest (including Revenue Participation Interest, if any) and
Liquidated Damages (if any) thereon to the date of purchase.
Covenants. The Indenture restricts, among other things, the Credit
Parties' ability to incur additional indebtedness, pay dividends or make certain
other restricted payments, incur liens, sell assets, merge or consolidate with
any other person (other than another Credit Party or Guarantor), sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of such Credit Party (other than to any other Credit Party of Guarantor, enter
into certain transactions with affiliates, or incur additional indebtedness. The
Indenture permits, under certain circumstances, the Credit Parties' subsidiaries
to be deemed unrestricted subsidiaries and thus not subject to the restrictions
of the Indenture.
Events of Default. Events of Default under the Indenture include the
following: (i) a default for 30 days in the payment when due of interest
(including Revenue Participation Interest, if any) on, or Liquidated Damages (if
any) with respect to, the Notes; (ii) default in payment when due (whether at
maturity, upon redemption or repurchase, or otherwise) of the principal of or
premium (if any) on the Notes; (iii) default in the payment of principal and
interest (including Revenue Participation Interest, if any) on Notes required to
be purchased pursuant to certain provisions of the Indenture; (iv) failure by
the Credit Parties or any of their Restricted Subsidiaries for 30 days after
notice to comply with any of their other covenants in the Indenture or the
Notes; (v) default under certain items of Indebtedness for money borrowed by the
Credit Parties or any of their Restricted Subsidiaries (as defined in the
Indenture); (vi) failure by the Credit Parties any of their Restricted
Subsidiaries to pay final judgments aggregating in excess of $5 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (vii)
breach by the Issuers of any representation or warranty set forth in the Pledge
Agreement, or default by the Issuers in the performance of any covenant set
forth in the Pledge Agreement, or repudiation by the Issuers of any of their
obligations under the Pledge Agreement or the unenforceability of the Pledge
Agreement against the Issuers for any reason which in any one case or in the
aggregate results in a material impairment of the rights intended to be afforded
thereby; (viii) termination or loss, for any reason, of the Original FCC
License; (ix) certain events of bankruptcy or insolvency with respect to the
Credit Parties or any of their Restricted Subsidiaries; and (x) any Guarantee of
the Notes shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Guarantee of the Notes.
On the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Amendments to the Indenture. The Supplemental Indenture, the effectiveness
of which is conditioned on consummation of the Offering, gives effect to certain
amendments to the Indenture. The amendments revise the definition of Change of
Control to allow the Company to use the net proceeds of the Offering to purchase
Partnership Units and be admitted as a General Partner of ORBCOMM without
causing a Change of Control to occur.
The amendments also permit ORBCOMM to transfer to Special Purpose Entities
all of the assets used by the Internal VARs (the "Internal VAR Assets") at the
time of the consummation of the Offering. In addition, ORBCOMM may in the
future, subject to certain limitations, form additional Special Purpose
Entities. Pursuant to the amendments, Special Purpose Entities will not be
treated as Restricted Subsidiaries
93
<PAGE> 99
of ORBCOMM and accordingly will not be subject to many of the restrictive
covenants contained in the Indenture and will not be required to guarantee the
obligations of the Credit Parties under the Indenture.
In addition, the amendments make certain other modifications to the
Indenture, principally to the definitions therein, that address certain
ambiguities and inconsistencies that have arisen since the Notes were originally
issued.
94
<PAGE> 100
DESCRIPTION OF THE CAPITAL STOCK
On consummation of the Offering, the authorized capital stock of the
Company will consist of 150,000,000 shares of Common Stock, par value $.01 per
share, of which 7,600,000 shares will be outstanding (8,470,000 shares if the
Underwriters' over-allotment option is exercised in full).
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the stockholders of the Company and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Company Board out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares offered of Common Stock by the Company in the
Offering will be, when issued and paid for, fully paid and non-assessable.
At present, there is no established trading market for the Common Stock.
Application will be made for the listing of the Common Stock on the Nasdaq
National Market.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
(the "Bylaws") limit the liability of directors and officers to the maximum
extent permitted by the Delaware General Corporation Law. The Delaware General
Corporation Law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for: (i) breach of the directors'
and officers' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director or officer derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's or an officer's duty of care, and this provision of the Certificate
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care. The Company does
not believe that these provisions will limit liability under state or federal
securities laws. However, the Company believes that these provisions will assist
the Company in attracting and retaining qualified individuals to serve as
directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless: (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the Company Board before the other party to the
business combination became an interested stockholder; (iii) upon consummation
of the transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan); or (iv) the business combination was approved by the Company Board
and ratified by two-thirds of the voting stock that the interested stockholder
did not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain
95
<PAGE> 101
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
that increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change of control of the Company
and therefore could discourage attempts to acquire the Company.
REMOVAL OF DIRECTORS
Under the Certificate of Incorporation of the Company, a director may be
removed only for cause at a special meeting of the shareholders specifically
called for that purpose by the Chairman, the Chief Executive Officer, the
President or upon the request of a majority of the Company Board, only by vote
of the holders of at least 80% of the voting power of the then outstanding
voting stock, voting together as a class. Any vacancy created by the removal of
a director at a special meeting may be filled by the Board of Directors until
such director's successor has been elected and has qualified.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Following consummation of the Offering, the only shares of Common Stock of
the Company that will be outstanding will be the 7,600,000 shares issued in the
Offering (8,740,000 shares if the Underwriters' over-allotment option is
exercised in full). These shares may be freely transferred if held by persons
who are not affiliates of the Company.
Subject to certain limitations, the Company has agreed in the Unit Exchange
Agreement that it will exchange shares of Common Stock for Partnership Units at
the rate of one share of Common Stock for each Partnership Unit (the "Exchange
Right"), subject to anti-dilution adjustments. Based on the number of
Partnership Units expected to be outstanding at the time of consummation of the
Offering, 31,201,310 shares of Common Stock would be issuable on such exchange.
Pursuant to the Unit Exchange Agreement, the holders of Partnership Units may
not sell the shares of Common Stock received on the exchange of their
Partnership Units for shares of Common Stock prior to the occurrence of certain
events. See "Governance of the Company and Relationship with ORBCOMM -- Exchange
Rights of ORBCOMM Partners."
Under the Unit Exchange Agreement, the Company and ORBCOMM agreed that
following the occurrence of certain events, the Company and ORBCOMM will, at the
request of Unit Holders and holders of Common Stock acquired under the Unit
Exchange Agreement representing not less than five percent of the Fully Diluted
Shares (as defined in the Unit Exchange Agreement), file with the Commission a
registration statement and use their reasonable best efforts to have that
registration statement remain effective for a period of up to six months,
permitting such holders to sell shares of Common Stock in the manner specified
by those holders. If the shares of Common Stock issuable upon exchange are so
registered, the shares will be freely transferable. See "Governance of the
Company and Relationship with ORBCOMM -- Exchange Rights of ORBCOMM Partners."
The Common Stock acquired upon exchange of Partnership Units will
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act ("Rule 144A") and, unless registered under the Securities Act,
may only be sold if an exemption from registration is available. Pursuant to
Rule 144 under the Securities Act, a person, including an "affiliate" (as that
term is defined in Rule 144) of the issuer, may sell restricted securities if a
minimum of one year has elapsed between the later of the date of acquisition of
the
96
<PAGE> 102
restricted securities from the issuer or from an affiliate of the issuer. Such a
person will be entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of: (i) the average weekly trading
volume of the class of stock being sold during the four calendar weeks preceding
the filing of a notice of sale with the Commission or, if no such notice is
required, the sale date; or (ii) one percent of the then outstanding shares of
the class of stock being sold. Sales pursuant to Rule 144 are also subject to
certain requirements as to notice filing and availability of current public
information about the Company. A person who is deemed not to have been an
affiliate of the Company at any time during the 90 days preceding a sale by such
person and who has beneficially owned the restricted securities for at least two
years is entitled to sell those shares under Rule 144 without regard to the
volume limitation, manner of sale restrictions or notice filing requirements of
Rule 144. In certain circumstances, a holder may "tack" the holding period for
the restricted securities converted into or exchanged for the restricted
securities for purposes of computing the one year and two year holding periods.
Shares of Common Stock may also be sold pursuant to any exemption from
registration that might be available without compliance with the requirements of
Rule 144.
On consummation of the Offering, options to purchase a total of 3,320,797
shares of Common Stock will be outstanding under the Equity Plan. Of these
shares, 1,909,563 shares are subject to agreements pursuant to which the
optionees agree not to sell or otherwise transfer their shares of Common Stock
for a period of 180 days following the consummation of the Offering. See
"Underwriting." An additional 4,069,929 shares are available for future grants
under the Equity Plan. Additionally, the Company intends to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to then outstanding options under and Common
Stock issuable pursuant to the Equity Plan. The Company expects to file these
registration statements promptly following the consummation of the Offering, and
such registration statements are expected to become effective upon filing.
Shares covered by these registration statements will thereupon be eligible for
sale in the public markets, subject to the agreements with Underwriters
regarding restrictions on sale, to the extent applicable.
Eligible employees of ORBCOMM and certain of its affiliates who are
purchasing directed shares of Common Stock in the Offering have agreed not to
sell, offer to sell or otherwise dispose of any shares of Common Stock without
the prior written consent of ORBCOMM for a period of 180 days after the date of
this Prospectus.
Issuances of substantial amounts of Common Stock, or the expectation of
such issuances, could adversely affect the market price of the Common Stock. See
"Risk Factors -- Structural and Market Risks -- Shares Eligible for Future
Sale."
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
97
<PAGE> 103
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Bear, Stearns & Co.
Inc. and J.P. Morgan Securities Inc., have severally agreed to purchase from the
Company the following respective number of shares of Common Stock.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
J.P. Morgan Securities Inc. ................................
---------
Total.................................................. 7,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus, and at such price less a
concession not in excess of $ per share of Common Stock to certain
other dealers who are members of the National Association of Securities Dealers,
Inc. The Underwriters may allow, and such dealers may reallow, concessions not
in excess of $ per share to certain other dealers. After the Offering,
the offering price, concessions and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance by
the Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted a 30-day over-allotment option to the Underwriters
to purchase up to an aggregate of 1,140,000 additional shares of Common Stock of
the Company exercisable at the public offering price less the underwriting
discount. If the Underwriters exercise such over-allotment option, then each of
the Underwriters will be committed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in the
above table. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby.
The Underwriting Agreement provides that the Company and ORBCOMM will
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act or will contribute to payments that the Underwriters
may be required to make in respect thereof.
The Underwriters have reserved for sale at the initial public offering
price up to 760,000 shares of Common Stock for sale to eligible employees of
ORBCOMM and certain of its affiliates. The number of shares available for sale
to the general public will be reduced to the extent any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the
Underwriters to the public on the same basis as the other shares offered hereby.
Any employee of ORBCOMM or its affiliates who purchases reserved shares will be
required to agree not to dispose of such shares for a period of 180 days
following the date of this Prospectus without the prior written consent of
ORBCOMM.
The executive officers and directors of the Company, the executive officers
of ORBCOMM, the Members of the ORBCOMM Committee, the executive officers of
Orbital and Teleglobe, the executive officers and directors of OCC and the
executive officers and directors of the managing partner of Teleglobe Mobile
have agreed pursuant to lock-up agreements not to, directly or indirectly, offer
or agree to sell, grant any option for the sale of or otherwise dispose of any
shares of Common Stock held by them (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock), for a period of 180
days after the date of this Prospectus without the prior written consent of
Bear, Stearns & Co. Inc. and J.P. Morgan Securities Inc.
98
<PAGE> 104
In addition, each of the Company, ORBCOMM, OCC and Teleglobe Mobile has
agreed that for a period of 180 days after the date of this Prospectus it will
not, without the prior written consent of Bear, Stearns & Co. Inc. and J.P.
Morgan Securities Inc., directly or indirectly, issue, sell, offer or agree to
sell, grant any option for the sale of or otherwise dispose of any shares of
Common Stock, Partnership Units, shares of capital stock of OCC or partnership
interests of Teleglobe Mobile, respectively (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, Partnership Units,
shares of capital stock of OCC or partnership interests of Teleglobe Mobile,
respectively), except for the shares of Common Stock offered hereby and the
Underwriters' over-allotment option and shares of Common Stock issuable upon the
exercise of stock options that will be outstanding under the Equity Plan on
consummation of the Offering.
In addition, each of Orbital, Teleglobe and TRI has agreed that for a
period of 180 days after the date of this Prospectus it will not, without the
prior written consent of Bear, Stearns & Co. Inc. and J.P. Morgan Securities
Inc., directly or indirectly, issue, sell, offer or agree to sell, grant any
option for the sale of or otherwise dispose of any shares of capital stock of
OCC or any partnership interests of Teleglobe Mobile.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial offering price for the Common Stock
will be determined by negotiations between the Company and the representatives
of the Underwriters. Among the factors to be considered in such negotiations are
the results of operations of ORBCOMM in recent periods, estimates of the
prospects of the Company and ORBCOMM and the industry in which ORBCOMM competes,
an assessment of the Company's and ORBCOMM's management, the present state of
ORBCOMM's development, the general state of the securities markets at the time
of the offering and the prices of similar securities of generally comparable
companies. The Company has submitted an application for approval of its Common
Stock for quotation on the Nasdaq National Market under the symbol "ORBC." There
can be no assurance, however, that an active or orderly trading market will
develop for the Common Stock or that the Common Stock will trade in the public
markets subsequent to the Offering at or above the initial offering price.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the over-
allotment option granted to the Underwriters. In addition, the Underwriters may
stabilize or maintain the price of the Common Stock by bidding for or purchasing
shares of Common Stock in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in the Offering are reclaimed if shares of Common Stock previously
distributed in the Offering are repurchased in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price at a level above that which might otherwise prevail
in the open market. The imposition of a penalty bid may also affect the price of
the Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
Certain of the Underwriters and their affiliates have from time to time
provided, and may continue to provide, investment banking services to the
Company, ORBCOMM and their affiliates for which such Underwriters or affiliates
have received and will receive fees and commissions. In addition, Bear, Stearns
& Co. Inc. and J.P. Morgan Securities Inc. acted as initial purchasers in the
placement of the Notes in August 1996.
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other matters
will be passed on for the Company by Latham & Watkins, Washington, D.C. Certain
legal matters will be passed upon for the
99
<PAGE> 105
Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), New York, New York.
EXPERTS
The balance sheet of the Company as of March 31, 1998 and the combined
financial statements of ORBCOMM as of December 31, 1996 and 1997, and for each
of the years in the three-year period ended December 31, 1997, and for the
period from June 30, 1993 (date of inception) to December 31, 1997, have been
included herein and in the Registration Statement, of which this Prospectus
forms a part, in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company, ORBCOMM and the Common Stock offered hereby, reference is hereby made
to such Registration Statement and the exhibits thereto. Statements contained in
this Prospectus regarding the contents of any contract or other documents are
not necessarily complete; with respect to each such contract or document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits thereto, may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and at its New York Regional Office, 7
World Trade Center, New York, New York, 10048. Copies of such material may be
obtained from the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission. Additionally, the Company will be subject to the public reporting
requirements of the Exchange Act, and thus will file with the Commission
periodic reports pursuant to Section 13(d) and proxy statements pursuant to
Section 14 of the Exchange Act. These filings may also be inspected at or
obtained from the Commission. In addition, the Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission through the Electronic Data Gathering,
Analysis and Retrieval System. The Registration Statement, including the
exhibits thereto and periodic reports and proxy statements filed by the Company
with the Commission pursuant to the Exchange Act may also be accessed
electronically by means of the above referenced World Wide Web site.
ORBCOMM is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission, which may be inspected at or obtained from the
Commission.
The Company intends to furnish its stockholders annual reports containing
audited financial statements of the Company and ORBCOMM and quarterly reports
containing unaudited interim financial information for the Company and ORBCOMM
for the first three fiscal quarters of each fiscal year.
100
<PAGE> 106
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ORBCOMM CORPORATION
Independent Auditors' Report.............................. F-2
Balance Sheet as of March 31, 1998........................ F-3
Note to Financial Statement............................... F-4
ORBCOMM GLOBAL, L.P.
Independent Auditors' Report.............................. F-5
Combined Balance Sheets as of December 31, 1996, 1997 and
as of March 31, 1998 (unaudited)....................... F-6
Combined Statements of Operations for the Years Ended
December 31, 1995, 1996, and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited) and
Total Accumulated During Development Stage to March 31,
1998 (unaudited)....................................... F-7
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1996, and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited) and
Total Cash Flows During Development Stage to March 31,
1998 (unaudited)....................................... F-8
Combined Statements of Partners' Capital for the period
June 30, 1993 (date of inception) to March 31, 1998
(unaudited)............................................ F-9
Notes to Combined Financial Statements.................... F-10
ORBCOMM CORPORATION -- UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
Basis of Presentation..................................... F-17
Unaudited Pro Forma Condensed Balance Sheet as of March
31, 1998............................................... F-18
Unaudited Pro Forma Condensed Statement of Operations for
the three months ended March 31, 1998.................. F-19
Unaudited Pro Forma Condensed Statement of Operations for
the year ended December 31, 1997....................... F-20
Notes to Unaudited Pro Forma Condensed Financial
Statements............................................. F-21
</TABLE>
F-1
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ORBCOMM Corporation:
We have audited the accompanying balance sheet of ORBCOMM Corporation (the
Company, a development stage enterprise) as of March 31, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company (a development stage
enterprise) as of March 31, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, DC
April 2, 1998
F-2
<PAGE> 108
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<S> <C>
ASSET
Cash........................................................ $100.00
-------
TOTAL ASSET............................................ $100.00
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities................................................. $ --
Stockholder's equity
Common Stock, par value $0.01; 1,000 shares authorized;
100 shares issued and outstanding...................... 1.00
Additional paid-in capital.................................. 99.00
Retained earnings........................................... --
Total stockholder's equity................................ 100.00
-------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $100.00
=======
</TABLE>
See accompanying note to the financial statement
F-3
<PAGE> 109
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTE TO FINANCIAL STATEMENT
ORGANIZATION AND BUSINESS
ORBCOMM Corporation (the "Company") was incorporated under the laws of the
State of Delaware on March 23, 1998. The Company was formed for the sole purpose
of investing in, and acting as a general partner of ORBCOMM Global, L.P.
("ORBCOMM"), a limited partnership. The Company is authorized to issue 1,000
shares of common stock of $.01 par value, of which 100 shares are issued and
outstanding. The Company's sole asset will be its investment in Partnership
Units in ORBCOMM, and the Company's results of operations will reflect its
proportionate share of ORBCOMM's net income or loss using the equity method of
accounting. The Company will apply the equity method of accounting for its
ownership interest in ORBCOMM based on the Company's ability to exercise
significant influence through board of directors representation.
The Company plans to file a registration statement with the Securities and
Exchange Commission in order to register its Common Stock for sale in an initial
public offering (the "Offering"). The net proceeds of the Offering will be used
by the Company to purchase Partnership Units from ORBCOMM. ORBCOMM will use the
net proceeds of the sale of Partnership Units to the Company primarily for: (i)
the design, construction and launch of the planned 36-satellite enhanced
constellation, including amounts payable to Orbital under the Procurement
Agreement as of consummation of the Offering; (ii) related development,
operating and marketing expenses, including expenses incurred in connection with
Internal VARs; (iii) the payment of interest on the Notes and scheduled payments
of principal and interest on the MetLife Note; and (iv) other general corporate
purposes related to commercial deployment of the ORBCOMM system.
All OCC Stock options are expected to be converted into options to purchase
common stock of the Company.
ORBCOMM is in its development stage, devoting substantially all of its
efforts to establishing a new data and messaging communications business using
the ORBCOMM low-Earth orbit satellite communications system (the "ORBCOMM
System").
F-4
<PAGE> 110
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying combined balance sheets of ORBCOMM Global,
L.P. ("ORBCOMM") (a development stage enterprise) as of December 31, 1997 and
1996, and the related combined statements of operations, partners' capital, and
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 30, 1993 (date of inception) to December 31, 1997.
These combined financial statements are the responsibility of ORBCOMM's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of ORBCOMM (a
development stage enterprise) as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, and for the period June 30, 1993 (date of
inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, DC
February 11, 1998
F-5
<PAGE> 111
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 56,870 $ 16,106 $ 19,255
Investments............................................... 54,769 22,756 12,780
Other receivables......................................... 822 1,996 1,981
Inventory:
Subscriber units....................................... 1,751 1,827 2,394
Gateways............................................... 3,871 19,580 22,609
Prepaid contract costs.................................... 0 457 214
-------- -------- --------
Total Current Assets................................... 118,083 62,722 59,233
Investments................................................. 41,843 0 0
Other receivables........................................... 517 0 0
ORBCOMM System, net......................................... 170,034 263,379 280,916
Other assets, net........................................... 6,138 5,527 5,317
Investment in ORBCOMM Japan................................. 0 333 333
-------- -------- --------
TOTAL ASSETS........................................... $336,615 $331,961 $345,799
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt......................... $ 991 $ 1,087 $ 1,095
Accounts payable -- Orbital Sciences Corporation.......... 5,459 21,100 29,477
Other accounts payable and accrued liabilities............ 13,890 19,159 11,194
Deferred revenue.......................................... 6,147 13,270 17,646
-------- -------- --------
Total Current Liabilities.............................. 26,487 54,616 59,412
Long-term debt.............................................. 172,278 171,190 170,920
-------- -------- --------
Total Liabilities...................................... 198,765 225,806 230,332
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. 73,544 57,696 62,352
Orbital Communications Corporation........................ 64,306 48,459 53,115
-------- -------- --------
Total Partners' capital................................ 137,850 106,155 115,467
-------- -------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $336,615 $331,961 $345,799
======== ======== ========
</TABLE>
See accompanying notes to the combined financial statements
F-6
<PAGE> 112
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
YEARS ENDED THREE MONTHS ENDED DEVELOPMENT STAGE
DECEMBER 31, MARCH 31, THROUGH
---------------------------- ------------------ MARCH 31,
1995 1996 1997 1997 1998 1998
------ -------- -------- ------- -------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Product sales............................... $ 0 $ 237 $ 213 $ 117 $ 278 $ 728
Distribution fees........................... 900 100 0 0 0 1,000
Other....................................... 1,360 63 55 10 27 4,347
------ -------- -------- ------- -------- ---------
Total revenues............................ 2,260 400 268 127 305 6,075
EXPENSES:
Costs of product sales...................... 0 268 517 124 286 1,071
Depreciation................................ 0 6,198 7,348 1,718 1,903 15,449
Engineering expenses........................ 0 5,453 8,160 1,580 2,654 16,267
Marketing expenses.......................... 2,232 6,832 10,673 1,847 4,278 26,857
General, administrative and other
expenses.................................. 50 4,777 9,722 1,305 2,090 16,648
------ -------- -------- ------- -------- ---------
Total expenses............................ 2,282 23,528 36,420 6,574 11,211 76,292
------ -------- -------- ------- -------- ---------
Loss from operations...................... (22) (23,128) (36,152) (6,447) (10,906) (70,217)
OTHER INCOME AND EXPENSES:
Interest income, net of interest expense of
$0, $307, $833, $206 and $210,
respectively.............................. 59 3,554 4,545 2,016 218 8,376
------ -------- -------- ------- -------- ---------
NET INCOME (LOSS)............................. $ 37 $(19,574) $(31,607) $(4,431) $(10,688) $ (61,841)
====== ======== ======== ======= ======== =========
</TABLE>
See accompanying notes to the combined financial statements
F-7
<PAGE> 113
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
CASH FLOWS
DURING
YEARS ENDED THREE MONTHS DEVELOPMENT STAGE
DECEMBER 31, MARCH 31, THROUGH
-------------------------------- ------------------- MARCH 31,
1995 1996 1997 1997 1998 1998
-------- --------- --------- -------- -------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 37 $ (19,574) $ (31,607) $ (4,431) $(10,688) $ (61,841)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation................................. 0 6,198 7,348 1,718 1,903 15,449
Amortization of financing fees............... 0 307 833 206 210 1,350
(Increase) decrease in other receivables..... 0 (1,339) (657) (2,204) 15 (1,981)
Increase in inventory........................ (447) (5,175) (15,785) (2,976) (3,596) (25,003)
(Increase) decrease in deferred charges and
other prepaid contract costs............... 0 0 (457) 0 243 (214)
Increase (decrease) in accounts payable and
accrued liabilities........................ 226 8,985 20,910 (2,708) 412 40,671
Increase in deferred revenue................. 100 6,047 7,123 0 4,376 17,646
-------- --------- --------- -------- -------- ---------
NET CASH USED IN OPERATING
ACTIVITIES........................... (84) (4,551) (12,292) (10,395) (7,125) (13,923)
-------- --------- --------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (38,343) (69,242) (100,693) (20,593) (19,440) (296,365)
Investment in ORBCOMM Japan.................. 0 0 (333) 0 0 (333)
Purchase of investments...................... 0 (136,532) (47,125) (23,533) (4,313) (187,970)
Proceeds from sale of investments............ 0 40,007 120,893 44,051 14,289 175,189
-------- --------- --------- -------- -------- ---------
NET CASH USED IN INVESTING
ACTIVITIES........................... (38,343) (165,767) (27,258) (75) (9,464) (309,479)
-------- --------- --------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
debt....................................... 0 164,475 0 0 0 169,475
Repayment of long-term debt.................. (825) (906) (992) (240) (262) (2,985)
Partners' contributions...................... 38,065 62,733 0 0 20,000 179,820
Financing fees paid.......................... (2,028) (919) (222) (215) 0 (3,653)
-------- --------- --------- -------- -------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................. 35,212 225,383 (1,214) (455) 19,738 342,657
-------- --------- --------- -------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (3,215) 55,065 (40,764) (10,925) 3,149 19,255
CASH AND CASH EQUIVALENTS:
Beginning of period.......................... 5,020 1,805 56,870 56,870 16,106 --
-------- --------- --------- -------- -------- ---------
CASH AND CASH EQUIVALENTS:
End of period................................ $ 1,805 $ 56,870 $ 16,106 $ 45,945 $ 19,255 $ 19,255
======== ========= ========= ======== ======== =========
</TABLE>
See accompanying notes to the combined financial statements
F-8
<PAGE> 114
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS
PARTNERS CORPORATION TOTAL
--------- -------------- --------
<S> <C> <C> <C>
Capital contributions................................. $ 10,004 $ 38,165 $ 48,169
Net income (loss)..................................... 0 0 0
Financing fees........................................ (242) (242) (484)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993.................... 9,762 37,923 47,685
Capital contributions................................. 0 10,853 10,853
Net loss.............................................. (4) (5) (9)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994.................... 9,758 48,771 58,529
Capital contributions................................. 24,750 13,315 38,065
Net income............................................ 18 19 37
Financing fees........................................ (1,014) (1,014) (2,028)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995.................... 33,512 61,091 94,603
Capital contributions................................. 49,775 12,958 62,733
Net loss.............................................. (9,787) (9,787) (19,574)
Unrealized gains on investments, net.................. 44 44 88
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996.................... 73,544 64,306 137,850
Net loss.............................................. (15,804) (15,803) (31,607)
Unrealized losses on investments, net................. (44) (44) (88)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997.................... 57,696 48,459 106,155
Capital contributions................................. 10,000 10,000 20,000
Net loss.............................................. (5,344) (5,344) (10,688)
-------- -------- --------
PARTNERS' CAPITAL, MARCH 31, 1998 (UNAUDITED)........... $ 62,352 $ 53,115 $115,467
======== ======== ========
</TABLE>
See accompanying notes to the combined financial statements
F-9
<PAGE> 115
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization and Basis of Presentation
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM"), a
Delaware limited partnership. OCC and Teleglobe Mobile each holds a 50%
partnership interest in ORBCOMM, with the result that the approval of both OCC
and Teleglobe Mobile is generally necessary for ORBCOMM to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, ORBCOMM 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, ORBCOMM
became a 98% general partner in ORBCOMM International, reducing Teleglobe
Mobile's direct partnership interest to 2% and eliminating OCC's direct
partnership interest entirely. The combination of ORBCOMM USA and ORBCOMM
International with ORBCOMM will occur upon consummation of the Offering.
ORBCOMM is in its development stage, devoting substantially all of its
efforts to establishing a new data and messaging communications business. The
accompanying combined financial statements have been prepared for purposes of
depicting the combined financial position and results of operations of ORBCOMM,
ORBCOMM USA, and ORBCOMM International on a historical basis. All significant
inter-company transactions, balances and profits have been eliminated in
combination. The accompanying combined financial statements have been prepared
on the accrual basis of accounting in conformity with generally accepted
accounting principles in the United States. ORBCOMM, ORBCOMM USA and ORBCOMM
International are collectively hereafter referred to as ORBCOMM ("ORBCOMM").
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some of which are designed to support specific
applications.
F-10
<PAGE> 116
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Depreciation and Recoverability of Long-Lived Assets
ORBCOMM depreciates its operational assets over the estimated economic
useful life using the straight-line method as follows:
<TABLE>
<S> <C>
Space Segment Assets: 8 years (4 for initial two satellites)
Ground Segment Assets: 10 years
Furniture and Equipment: 3 to 10 years
</TABLE>
The ORBCOMM System, which includes the worldwide network control center
(including the satellite management system), the U.S. Gateway and two
satellites, was placed into service at the beginning of 1996, at which time
ORBCOMM began depreciating those assets.
ORBCOMM's policy is to review its long-lived assets, including its
satellite systems, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. ORBCOMM
recognizes impairment losses when the sum of the expected future cash flows is
less than the carrying amount of the assets. Given the inherent technical and
commercial risks within the space communications industry, it is possible that
ORBCOMM's current estimate for recovery of the carrying amount of its assets may
change.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying combined financial statements.
Cash and Cash Equivalents
ORBCOMM considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Investments
ORBCOMM maintains two investment portfolios characterized by management's
intentions as to future investment activity. Investments classified as
"held-to-maturity" are not intended to be sold prior to maturity and are carried
at cost. Investments not intended to be held until maturity or traded to
capitalized on market gains are classified as "available-for-sale" and are
carried at fair value with temporary unrealized gains (losses) charged directly
to partners' capital. Investments maturing after one year are classified as
long-term investments. ORBCOMM uses the average cost method in determining the
basis of investments sold when computing realized gains (losses).
F-11
<PAGE> 117
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and represents subscriber communicators
available for sale to customers. Also included in inventory is work-in-process
for the construction of gateway Earth stations for sale to international
licensees.
Fair Value of Financial Instruments
The carrying value of ORBCOMM's cash and cash equivalents, receivables, and
accounts payables approximates fair value since all such instruments are
short-term in nature. The fair value of ORBCOMM's long-term debt is determined
based on quoted market rates. At December 31, 1996 and 1997, the fair value of
the long-term debt approximated market value.
ORBCOMM System Under Construction
During the construction of the ORBCOMM System, ORBCOMM is capitalizing
substantially all construction costs. ORBCOMM also is capitalizing a portion of
the engineering direct labor costs that relate to hardware and system design
development and coding of the software products that enhance the operation of
the ORBCOMM System. As of December 31, 1996 and 1997, $1,244,000 and $4,641,000,
respectively, of such costs have been capitalized, (none as of December 31,
1995). Interest expenses of $426,000, $10,030,000 and $24,060,000 have been
capitalized as a part of the historical cost of the ORBCOMM System for the years
ended December 31, 1995, 1996 and 1997, respectively.
Partners' Capital
In accordance with the Partnership Agreement, Teleglobe Mobile and OCC are
both general and limited partners in ORBCOMM. Therefore, limited and general
partner accounts are combined into one single capital account and presented as
such in the combined balance sheets and combined statements of partners'
capital.
Revenue Recognition
Revenues are generally recognized when products are shipped or when
customers have accepted the products, depending on contractual terms. Service
revenues are generally recognized as such services are rendered. Distribution
fees and license fees from service license or similar agreements are recognized
ratably over the term of the agreements, or when ORBCOMM's obligations under the
agreements are substantially completed.
Unaudited Interim Information
The unaudited interim information for the three months ended March 31, 1997
and 1998, has been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Article 10
of Regulation S-X. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation of such periods. The operating results for the
three months ended March 31, 1998, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
Reclassification of Prior Years Balances
Certain amounts in the prior years combined financial statements have been
reclassified to conform with the current year presentation.
F-12
<PAGE> 118
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS
Included in cash and cash equivalents is $54,527,000 and $5,420,000 of
commercial paper as of December 31, 1996 and 1997, respectively. The fair value
of the commercial paper approximates carrying value.
The following table sets forth the aggregate costs and fair values and
gross unrealized gains (losses) of available-for-sale investments as of December
31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
--------------------------------- --------------------------------
UNREALIZED UNREALIZED
GAINS GAINS
COST (LOSSES) FAIR VALUE COST (LOSSES) FAIR VALUE
------- ---------- ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
- ----------
U.S. Treasury Notes.......................... $21,152 $54 $21,206 $ 0 $0 $ 0
Commercial Paper............................. 10,229 (2) 10,227 1,278 0 1,278
------- --- ------- ------ -- ------
Total short-term investments............... 31,381 52 31,433 1,278 0 1,278
------- --- ------- ------ -- ------
LONG-TERM
- ---------
U.S. Treasury Notes, maturing 2-5 years...... 20,329 36 20,365 0 0 0
------- --- ------- ------ -- ------
Total available-for-sale investments....... $51,710 $88 $51,798 $1,278 $0 $1,278
======= === ======= ====== == ======
</TABLE>
The following table sets forth aggregate cost and fair values of
held-to-maturity investments as of December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
--------------------------------- ---------------------------------
UNREALIZED UNREALIZED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
------- ---------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM
- ----------
U.S. Treasury Notes......................... $23,336 $ 525 $23,861 $21,478 $1,841 $23,319
LONG-TERM
- ---------
U.S. Treasury Notes, maturing 2-5 years..... 21,478 542 22,020 0 0 0
------- ------ ------- ------- ------ -------
Total held-to-maturity investments........ $44,814 $1,067 $45,881 $21,478 $1,841 $23,319
======= ====== ======= ======= ====== =======
</TABLE>
Unrealized gains on held-to-maturity investments represent accrued interest
income as of December 31, 1996 and 1997, respectively.
(4) RELATED PARTY TRANSACTIONS
ORBCOMM paid Orbital approximately $38,000,000, $56,177,000 and $41,843,000
for the periods ended December 31, 1995, 1996 and 1997, respectively. Payments
were made for work performed pursuant to the ORBCOMM System Design, Development,
and Operations Agreement, the ORBCOMM System Procurement Agreement and the
Administrative Services Agreement (for provision of ongoing support to ORBCOMM).
In 1995, pursuant to the terms of the ORBCOMM System Design, Development
and Operations Agreement, ORBCOMM reimbursed OCC $1,375,000 for costs previously
incurred in obtaining the FCC License and other related costs. ORBCOMM
capitalized such costs as part of the ORBCOMM System.
Certain provisions of the Partnership Agreement require ORBCOMM to
reimburse OCC for OCC's repurchase of shares of OCC common stock acquired
pursuant to the OCC 1992 Stock Option Plan ("Stock Option Plan"). During 1996
and 1997, ORBCOMM reimbursed OCC approximately $1,100,000 and
F-13
<PAGE> 119
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
$598,000, respectively, under the Stock Option Plan (none in 1995). In 1996,
Orbital contributed approximately $100,000 to OCC to repurchase such shares
(none in 1995 and 1997).
(5) ORBCOMM SYSTEM
ORBCOMM System is composed of the following assets:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------------
1996 1997
-------- --------
<S> <C> <C>
Space segment.......................................... $142,678 $234,110
Ground segment......................................... 33,554 42,815
-------- --------
Total.................................................. 176,232 276,925
Less accumulated depreciation.......................... (6,198) (13,546)
-------- --------
Total, net of depreciation............................. $170,034 $263,379
======== ========
</TABLE>
(6) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, ORBCOMM used $44,800,000
of the net proceeds from the sale of the Old Notes to purchase a portfolio of
U.S. Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. Of this investment portfolio,
$23,300,000 was used to pay interest that was due on the Notes on February 15,
and August 15, 1997.
ORBCOMM also has a $5,000,000 secured note with a financial institution of
which $2,277,000 is outstanding. The note bears interest at 9.2% per annum and
is due in monthly principal and interest installments of $104,000 through
December 1999. The note is secured by equipment located at certain of the U.S.
gateway Earth stations and the network control center, and is guaranteed by
Orbital. A portion of the net proceeds from the offering of the Old Notes,
sufficient to pay when due all remaining interest and principal payments on this
note, was deposited into a segregated account.
System Procurement Agreement
Pursuant to the System Procurement Agreement with Orbital, ORBCOMM's
remaining obligations to purchase satellites, launch services and ground system,
is approximately $49,600,000 over the next two years.
Construction of Gateways
In October 1996, ORBCOMM entered into agreements with certain manufacturers
for the construction of twenty gateways scheduled for delivery over the next two
years, with the first installations occurring during the first quarter 1998. As
of December 31, 1996 and 1997, ORBCOMM had $3,871,000 and
F-14
<PAGE> 120
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
$19,580,000, respectively, of prepaid contract costs of which $3,547,000 and
$11,016,000, respectively, represent advance payments to those manufacturers.
Total commitments under these manufacturing agreements approximate $18,000,000.
Included in inventory-gateways is a portion of the engineering direct labor
costs that are specifically related to the construction of gateways. At December
31, 1997, $1,609,000 of such costs had been included in inventory-gateways (none
at December 31, 1996).
Lease Commitments
In November 1997, ORBCOMM entered into a five-year operating lease
agreement for approximately 46,000 square feet of additional office space.
ORBCOMM has an option to renew the lease for another five-year period
immediately upon the expiration of the original operating lease. Rental expense
for 1995, 1996 and 1997 amounted to $48,000, $393,000 and $825,000,
respectively, which was paid to Orbital as part of the Administrative Services
Agreement. Rental expense to third parties amounted to $126,000 in 1997. The
future minimum rental payments under non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
PERIODS IN THOUSANDS
------- ------------
<S> <C>
1998........................................................ $ 978
1999........................................................ 1,007
2000........................................................ 1,038
2001........................................................ 1,062
2002........................................................ 1,094
Thereafter.................................................. 0
------
Total minimum lease commitments........................... $5,179
======
</TABLE>
(7) SERVICE LICENSE OR SIMILAR AGREEMENTS
ORBCOMM has signed twelve service license or similar agreements with
international licensees, ten of which have associated gateway procurement
contracts and software license agreements. The service license or similar
agreements authorize the international licensees to use the ORBCOMM System to
provide two-way data and message communications services. As of December 31,
1996 and 1997, $6,147,000 and $13,270,000, respectively, had been received under
these agreements and recorded as deferred revenue. ORBCOMM is obligated to ship
ten gateways under certain of these agreements (see note 6).
(8) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF THE INDEPENDENT
AUDITOR
ORBCOMM USA and ORBCOMM International are to be dissolved on consummation
of the Offering as a result of the contribution by OCC of its 2% direct
partnership interest in ORBCOMM USA, and the contribution by Teleglobe Mobile of
its 2% direct partnership interest in ORBCOMM International to ORBCOMM. Such
contributions will result in ORBCOMM becoming the sole general and limited
partner of each ORBCOMM USA and ORBCOMM International, causing the dissolution
of such partnerships.
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
As of March 31, 1998, OCC and Teleglobe Mobile each paid to the Company an
additional $10,000,000 in capital contributions in accordance with the terms of
the Indenture governing the Notes.
F-15
<PAGE> 121
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(8) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF THE INDEPENDENT
AUDITOR -- (CONTINUED)
In March 1998, ORBCOMM agreed to pay Magellan, a subsidiary of Orbital, a
subsidy for each subscriber communicator sold by Magellan, through March 1999,
which potentially could amount to $2,400,000. In addition, ORBCOMM recently
committed to purchase $6,200,000 of subscriber units from certain manufacturers
to accelerate initial customer sales by VARs and International Licensees.
F-16
<PAGE> 122
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed financial statements give
effect to: (i) the issuance and sale by the Company of 7,600,000 shares of
Common Stock in the Offering, and the receipt of the estimated net proceeds
thereof; (ii) the issuance and sale by ORBCOMM of 7,600,000 Partnership Units
representing approximately 19.6% of the outstanding Partnership Units of ORBCOMM
to the Company in exchange for the net proceeds of the Offering; and (iii) the
Company's recognition of its proportionate share of ORBCOMM's combined net
income or loss using the equity method of accounting.
The pro forma adjustments are reflective as of March 31, 1998, in the case
of the unaudited pro forma condensed balance sheet and as of January 1, 1997, in
the case of the unaudited pro forma condensed statement of operations for the
year ended December 31, 1997 and in the case of the unaudited pro forma
condensed statement of operations for the three months ended March 31, 1998.
The unaudited pro forma condensed financial statements have been prepared
by the Company's management and should be read in conjunction with the
historical combined financial statements of the Company and the related notes
thereto. The unaudited pro forma condensed statements of operations are not
necessarily indicative of the results of operations that may have actually
occurred had the transactions taken place on January 1, 1997 or of the future
results of the Company.
F-17
<PAGE> 123
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSET
Investment in ORBCOMM Global, L.P........................... $ -- $106,110 $106,110
-------- -------- --------
TOTAL ASSET............................................ $ -- $106,110 $106,110
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities................................................. $ -- $ -- $ --
Stockholders' equity........................................ -- 106,110 106,110
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $ -- $106,110 $106,110
======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements
F-18
<PAGE> 124
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Equity in losses of ORBCOMM Global, L.P..................... $ -- $(2,095) $(2,095)
------ ------- -------
TOTAL LOSS............................................. $ -- $(2,095) $(2,095)
====== ======= =======
Loss per common share....................................... $ -- $ (.28)
====== =======
Weighted average shares of common stock..................... -- 7,600
====== =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements
F-19
<PAGE> 125
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Equity in losses of ORBCOMM Global, L.P..................... $ -- (6,195) (6,195)
------- ------- -------
TOTAL LOSS............................................. $ -- $(6,195) $(6,195)
======= ======= =======
Loss per common share....................................... $ -- $ (.82)
======= ======= =======
Weighted average shares of common stock..................... -- 7,600
======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements
F-20
<PAGE> 126
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. COMPANY HISTORICAL
The historical balances of the Company represent the financial position and
results of operations as of December 31, 1997 and for the three months ended
March 31, 1998 as if the Company was in existence during these periods. The
Company was formed on March 23, 1998.
2. PRO FORMA ADJUSTMENTS
The following pro forma adjustments are reflective as of March 31, 1998, in
the case of the unaudited pro forma condensed balance sheet and as of January 1,
1997, in the case of the unaudited pro forma condensed statement of operations
for the year ended December 31, 1997 and in the case of the unaudited pro forma
condensed statement of operations for the three months ended March 31, 1998.
(A) The issuance and sale by the Company of 7,600,000 shares of Common
Stock in the Offering.
(B) The issuance and sale by ORBCOMM of 7,600,000 Partnership Units,
representing approximately 19.6% of the outstanding Partnership Units of
ORBCOMM, to the Company in exchange for the net proceeds of the Offering.
(C) The Company's recognition of its proportionate share of ORBCOMM's net
loss using the equity method of accounting.
F-21
<PAGE> 127
GLOSSARY OF TECHNICAL TERMS
BAND -- a range of frequencies in the radio spectrum.
BANDWIDTH -- the range of frequencies, expressed in Hertz (Hz), that can pass
over a given transmission channel. The bandwidth determines the rate at which
information can be transmitted through the circuit. The greater the bandwidth,
the more information can be sent through the circuit in a given amount of time
at a given accuracy level.
BIG LEO -- a network of LEO satellites operating above 1 GHz, such as the
Iridium or Globalstar systems, which are designed to provide voice and data
services to portable or fixed receivers globally.
DCAAS (DYNAMIC CHANNEL ACTIVITY ASSIGNMENT SYSTEM) -- an interference avoidance
technique system developed by OCC and enhanced by ORBCOMM to avoid interfering
with other users in the band in which the ORBCOMM system is designed to operate.
EARTH STATION -- the antennae, receivers, transmitters and other equipment
needed on the ground to transmit and receive and process satellite
communications signals.
FCC LICENSES -- the Original FCC License and the Supplemental FCC License
together.
GATEWAY -- the facilities consisting of Gateway Earth Stations and a Gateway
Control Center, which includes computers, displays, control consoles,
communications equipment and other hardware that transport and control the flow
of data and messaging communications and other information for the ORBCOMM
system.
GATEWAY CONTROL CENTER -- the facilities consisting of a Gateway message
switching system, which processes the message traffic and provides the
interconnection to the terrestrial networks and a Gateway management system
which manages the Gateway elements.
GATEWAY EARTH STATION -- the facilities composed of two radomes, with enclosed
VHF tracking antennae, one of which is redundant, and associated pedestal,
controller and radio equipment.
GEO (GEOSYNCHRONOUS OR GEOSTATIONARY ORBIT) -- an orbit directly over the
equator, approximately 22,300 nautical miles above the Earth.
GEO SATELLITE (GEOSYNCHRONOUS OR GEOSTATIONARY SATELLITE) -- a satellite in an
orbit located directly over the equator, approximately 22,300 nautical miles
above the Earth. When positioned in this orbit above the equator, a satellite
appears to hover over the same spot on the Earth because it is moving at a rate
that matches the speed of the Earth's rotation on its axis.
GEO SYSTEM -- a constellation of multiple GEO satellites.
GHZ (GIGAHERTZ) -- a measure of radio frequency equal to one billion cycles per
second.
GPS (GLOBAL POSITIONING SYSTEM) -- a network of satellites that provides precise
location determination to receivers. Portable or vehicle-mounted GPS devices
receive signals from the satellites and calculate the user's position to within
100 yards for civilian purposes and more precisely for the military.
INTERNATIONAL TABLE OF FREQUENCY ALLOCATIONS (INTERNATIONAL TABLE)
-- identifies radio frequency segments that have been designated for specific
radio services by the member nations of the ITU.
ITU (INTERNATIONAL TELECOMMUNICATION UNION) -- the telecommunications agency of
the United Nations, established to provide standardized communications
procedures and practices including frequency allocation and radio regulations on
a worldwide basis.
KBPS -- thousands of bits per second. The rate at which digital data are
transmitted over a communications path.
KHZ (KILOHERTZ) -- a measure of radio frequency equal to one thousand cycles per
second.
LEO (LOW-EARTH ORBIT) -- an orbit located approximately 800 kilometers above the
Earth.
G-1
<PAGE> 128
LEO SATELLITE -- a satellite in an orbit located approximately 800 kilometers
above the Earth.
LEO SYSTEM -- a constellation of multiple LEO satellites. LEO systems may be of
two types, Little LEOs and Big LEOs.
LHCP (LEFT-HAND CIRCULAR POLARIZATION) -- an elliptically or circularly
polarized wave in which the electric field vector, observed in the fixed plane,
normal to the direction of propagation, while looking in the direction of
propagation, rotates with time in a left-hand or counter clockwise direction.
LITTLE LEO -- a network of LEO satellites operating below 1 GHz, such as the
ORBCOMM system, which are designed to provide non-voice, data and messaging
services globally.
MEO (MEDIUM-EARTH ORBIT) -- an orbit located between 2,000 and 18,000 miles
above the Earth.
MHZ (MEGAHERTZ) -- a measure of radio frequency equal to one million cycles per
second.
MICROSTAR(TM) -- a satellite designed and manufactured by Orbital for use in
the ORBCOMM system and for a variety of small space science and satellite
imagery projects.
MSS (MOBILE SATELLITE SERVICES) -- a generic term meaning an ITU-defined service
that uses satellites to deliver communications services (voice or data, one- or
two-way) to mobile users such as cars, trucks, ships and planes.
NETWORK CONTROL CENTER -- the facility that houses the control segments of the
ORBCOMM system. ORBCOMM's Network Control Center is located at Orbital's Dulles,
Virginia headquarters.
NVNG (NON-VOICE, NON-GEOSTATIONARY) -- LEO satellites operating below 1 GHz,
such as the ORBCOMM system, providing non-voice services and designed to provide
global data and messaging communications services.
ORIGINAL FCC LICENSE -- the FCC authorization granted to OCC on October 20, 1994
to construct, launch and operate 36 LEO satellites for the purpose of providing
two-way data and messaging communications and position determination services in
the United States.
SATELLITE CONTROL CENTER -- the facilities that process and display the
telemetry data for the ORBCOMM satellites, monitor the operational status of
such satellites and control the operation of the satellites power subsystems,
altitude control subsystems and all other subsystems.
SPECTRUM -- consists of all the radio frequencies that are used for radio
communications.
SUPPLEMENTAL FCC LICENSE -- the FCC authorization granted to OCC on March 31,
1998 to, among other things, construct, launch and operate an additional 12 LEO
satellites for the purpose of providing two-way data and messaging
communications and position determination services in the United States.
TDMA (TIME DIVISION MULTIPLE ACCESS) -- a digital method of multiplexing that
combines a number of signals through a common point by organizing them
sequentially and transmitting each in bursts at different instants of time.
Communicating devices at different geographical locations share a multipoint or
broadcast channel by means of a technique that allocates different time slots to
different users.
TEMPERATE ZONES -- the two zones of the earth (the Northern Temperate Zone and
the Southern Temperate Zone) between 25 degrees and 55 degrees latitudes.
TRANSIT BAND -- that portion of the radio spectrum between 149.9-150.05 MHz and
399.9-400.050 MHz allocated for radio-navigation satellite service downlink
transmissions. The Transit Band currently is occupied by the U.S. Navy Transit
System and a similar Russian system.
UHF -- ultra high frequency. The portion of the electromagnetic spectrum with
frequencies between 300 MHz and 3 GHz.
U.S. GATEWAY EARTH STATION -- any or one of the four Earth stations constructed
pursuant to the System Agreement or the Procurement Agreement located in St.
Johns, Arizona; Ocilla, Georgia; Arcade, New York and East Wenatchee,
Washington.
G-2
<PAGE> 129
VHF -- very high frequency. The portion of the electromagnetic spectrum with
frequencies between 30 and 300 MHz.
WARC-92 (WORLD ADMINISTRATIVE RADIO CONFERENCE) -- an ITU conference held in
1992 for adopting international allocations for radio frequencies and satellite
orbit locations, which has been succeeded by the World Radiocommunication
Conference.
WRC (WORLD RADIOCOMMUNICATION CONFERENCE) -- the successor to the WARC-92.
WRC-95 -- the WRC held in 1995.
WRC-97 -- the WRC held in 1997.
G-3
<PAGE> 130
"ORBCOMM is the first Little LEO system to market."
[The above text is superimposed over a picture that appears in the upper half of
the page of an individual, with an image of an ORBCOMM satellite appearing in
the sky over his head. The individual is shown speaking the line appearing in
quotation marks above.]
- --------------------------------------------------------------------------------
Caterpillar is testing a heavy equipment tracking
and engine monitoring system.* [Text is followed by
a picture of a tractor.]
- --------------------------------------------------------------------------------
The US Army in testing a military vehicle tracking
system.* [Text is followed by a picture of military
vehicles.]
- --------------------------------------------------------------------------------
Scientific-Atlanta is working with Florida Power to
develop an automatic meter reading system for
commercial and residential customers. [Text is
followed by a picture of electric utility lines.]
- --------------------------------------------------------------------------------
The US Postal Service has worked with ARCO to test a
truck tracking system. [Text is followed by a picture
of a U.S. Postal Truck.]
- --------------------------------------------------------------------------------
Burlington Northern Santa Fe Railroad is working with
MobileNet to deploy roadway equipment asset tracking
and utilization monitoring system. [Text is followed
by a picture of a train engine.]
- --------------------------------------------------------------------------------
Arinc uses ORBCOMM to provide a reliable and
affordable system to track trailers. [Text is
followed by a picture of a tractor trailer.]
- --------------------------------------------------------------------------------
Intrex selected ORBCOMM to help ensure efficient
production flow for remote oil and gas operations.*
[Text is followed by a picture of an oil drilling
device.]
- --------------------------------------------------------------------------------
Magellan plans to introduce the first ORBCOMM
messaging subscriber unit in 1998 to help users stay
in contact. [Text is followed by a picture of a
backpacker standing on a mountain.]
- --------------------------------------------------------------------------------
* Currently in beta testing.
<PAGE> 131
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ORBCOMM OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY OR ORBCOMM SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 1
Risk Factors............................ 11
The Company and Relationships Among the
ORBCOMM Parties....................... 28
Use of Proceeds......................... 29
Dividend Policy......................... 29
Dilution................................ 30
Capitalization.......................... 31
Selected Historical Financial Data...... 32
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 34
Business................................ 40
Regulation.............................. 63
Management.............................. 69
Security Ownership of Certain Beneficial
Owners................................ 78
Certain Relationships and Related
Transactions.......................... 79
Governance of the Company and
Relationship with ORBCOMM............. 86
Description of the Partnership
Agreement............................. 88
Description of the Senior Notes......... 92
Description of the Capital Stock........ 95
Shares Eligible for Future Sale......... 96
Underwriting............................ 98
Legal Matters........................... 99
Experts................................. 100
Available Information................... 100
Index to Financial Statements........... F-1
Glossary of Technical Terms............. G-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
7,600,000 SHARES
[ORBCOMM(SM) LOGO W/TEXT LINE BELOW]
ORBCOMM CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
Joint Lead Managers
and Joint Book Runners
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
, 1998
======================================================
<PAGE> 132
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, which will be paid
solely by the Company. All amounts shown are estimates, except the Commission
registration fee and the NASD filing fee:
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 42,406
Nasdaq National Market Entry Fee............................ 25,000
Transfer agent and registrar fees and expenses.............. 50,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... 1,000,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 15,000
Miscellaneous expenses...................................... 667,594
----------
Total............................................. $2,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of such person
being or having been a director, officer, employee or agent of the Company. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for the breach of fiduciary duty as a director, except for liability: (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law; (iii) under Section 174 of the
Delaware General Corporation Law, which makes directors personally liable for
unlawful dividends or unlawful stock repurchases or redemptions in certain
circumstances and expressly sets forth a negligence standard with respect to
such liability; or (iv) for any transactions from which the director derived an
improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify every person
who is or was a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she is or was a director or officer of the
Company or, while a director or officer or employee of the Company, is or was
serving at the request of the Company as a director, officer, employee, agent or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding, to the full
extent permitted by applicable law.
If the Delaware General Corporation Law is amended after the date hereof to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
II-1
<PAGE> 133
The Company intends to procure insurance providing for indemnification of
its officers, directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions. In addition, the Company intends to enter into
indemnification agreements with each of its officers and directors, each of
which provides that if during and after the term of such officers' employment
the executive is made a party or compelled to participate in any action by
reason of the fact that he is or was a director or officer of the Company, the
executive will be indemnified by the Company to the fullest extent permitted by
Delaware General Corporation Law or authorized by the Company's Certificate of
Incorporation or Bylaws or resolutions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<S> <C>
1.1** Form of Underwriting Agreement.
2.1** Form of Contribution Agreement by and among ORBCOMM, OCC and
Teleglobe Mobile.
2.2* Form of Certificate of Cancellation of Certificate of
Limited Partnership of ORBCOMM USA.
2.3* Form of Certificate of Cancellation of Certificate of
Limited Partnership of ORBCOMM International.
3.1+ Certificate of Incorporation of the Company.
3.2** Bylaws of the Company.
4 Indenture, dated as of August 7, 1996, by and among ORBCOMM,
ORBCOMM Global Capital Corp., ORBCOMM USA, ORBCOMM
International, OCC, Teleglobe Mobile and Marine Midland Bank
as trustee, relating to $170,000,000 principal amount of 14%
Senior B Notes due 2004 (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)).
4.1** Specimen of the Company's Common Stock Certificate.
4.2** Subscription Agreement, dated as of , 1998, by and between
the Company and ORBCOMM.
4.3** Unit Exchange and Registration Rights Agreement, dated as of
, 1998, by and between the Company and ORBCOMM.
4.4** Share Issuance Agreement, dated as of , 1998, by and between
the Company and ORBCOMM.
5** Form of Opinion of Latham & Watkins re: validity of Common
Stock.
10.1 Amended and Restated Administrative Services Agreement,
dated as of January 1, 1997, by and between ORBCOMM and
Orbital (incorporated by reference to Exhibit 10.17 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998).
10.2** Form of ORBCOMM System Construction and Operations Agreement
by and between ORBCOMM and OCC.
10.3** Form of The 1998 Equity Plan of the Company and ORBCOMM,
dated as of , 1998.
10.4 Master Agreement, restated as of September 12, 1995, by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile
(incorporated by reference to the identically numbered
exhibit to the Registration Statement on Form S-4 of ORBCOMM
dated as of December 10, 1996 (Reg. No. 333-11149)).
10.4.1 Amendment No. 1 to Master Agreement, dated as of February 5,
1997, by and among OCC, Orbital, Teleglobe and Teleglobe
Mobile (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997).
10.4.2** Form of Amendment No. 2 to Restated Master Agreement by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile.
</TABLE>
II-2
<PAGE> 134
<TABLE>
<S> <C>
10.5 ORBCOMM System Procurement Agreement, dated as of September 12, 1995, by and between ORBCOMM and
Orbital (incorporated by reference to the identically numbered exhibit to Amendment No. 1, dated as
of October 21, 1996, to the Registration Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149), provided that Appendix I is incorporated by reference to Exhibit 10.24.6
to the Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1993 filed by Orbital on August
13, 1993).
10.5.1 Amendment No. 1 to ORBCOMM System Procurement Agreement, dated as of December 9, 1996, by and
between ORBCOMM and Orbital (incorporated by reference to the identically numbered exhibit to the
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 filed by ORBCOMM on March 28,
1997).
10.5.2 Amendment No. 2 to ORBCOMM System Procurement Agreement, dated as of March 24, 1997, by and between
ORBCOMM and Orbital (incorporated by reference to the identically numbered exhibit to the Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14, 1997).
10.5.3* Amendment No. 3 to ORBCOMM System Procurement Agreement, dated as of March 31, 1998, by and between
ORBCOMM and Orbital.
10.5.4* Amendment No. 4 to ORBCOMM System Procurement Agreement, dated as of March 31, 1998, by and between
ORBCOMM and Orbital.
10.5.5** Form of Amendment No. 5 to ORBCOMM System Procurement Agreement by and between ORBCOMM and Orbital.
10.6 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
(incorporated by reference to the identically numbered exhibit to the Registration Statement on Form
S-4 of ORBCOMM dated as of December 10, 1996 (Reg. No. 333-11149)).
10.6.1** Form of Amendment No. 1 to Proprietary Information Agreement by and among ORBCOMM, Orbital, OCC,
Teleglobe and Teleglobe Mobile.
10.7 U.S. Gateway Earth Station Maintenance Service Agreement, dated as of October 1, 1997, by and
between Orbital and ORBCOMM (incorporated by reference to Exhibit 10.18 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.8 Subscriber Communicator Manufacture Agreement, dated as of July 31, 1996, by and between ORBCOMM and
Magellan Corporation (incorporated by reference to Exhibit 10.19 of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.9 Reseller Agreement, dated as of March 3, 1997, by and between ORBCOMM USA and Orbital Sciences
Corporation (the "Reseller Agreement") (incorporated by reference to Exhibit 10.20 of the Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on
March 31, 1998).
10.9.1 Amendment No. 1 to the Reseller Agreement, dated as of September 2, 1997 (incorporated by reference
to Exhibit 10.20.1 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1997 of
ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.10 Service License Agreement, dated as of December 19, 1995, by and between ORBCOMM International and
ORBCOMM Canada Inc. (incorporated by reference to the identically numbered exhibit to Amendment No.
1, dated as of October 21, 1996, to the Registration Statement on Form S-4 of ORBCOMM, dated as of
December 10, 1996 (Reg. No. 333-11149)).
10.11 Service License Agreement, dated as of October 10, 1996, by and between ORBCOMM International and
Cellular Communications Network (Malaysia) Sdn. Bhd. (incorporated by reference to the identically
numbered exhibit to Amendment No. 1, dated as of October 21, 1996, to the Registration Statement on
Form S-4 of ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
</TABLE>
II-3
<PAGE> 135
<TABLE>
<S> <C>
10.12 Service License Agreement, dated as of October 15, 1996, by and between ORBCOMM International and
European Company for Mobile Communicator Services, B.V., ORBCOMM Europe (incorporated by reference
to the identically numbered exhibit to Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
10.13 Ground Segment Procurement Contract, dated as of October 10, 1996, by and between ORBCOMM
International and Cellular Communications Network (Malaysia) Sdn. Bhd. (incorporated by reference to
the identically numbered exhibit to Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
10.14 Ground Segment Facilities Use Agreement, dated as of December 19, 1995, by and between ORBCOMM
International and ORBCOMM Canada Inc. (incorporated by reference to the identically numbered exhibit
to Amendment No. 1, dated as of October 21, 1996, to the Registration Statement on Form S-4 of
ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
10.15 Ground Segment Procurement Contract, dated as of October 15, 1996, by and between ORBCOMM
International and European Company for Mobile Communicator Services, B.V., ORBCOMM Europe
(incorporated by reference to the identically numbered exhibit to Amendment No. 1, dated as of
October 21, 1996, to the Registration Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)).
10.16** Form of OCC Consulting Agreement by and between OCC and ORBCOMM.
10.17 Employment Agreement, dated as of May 15, 1997, by and between ORBCOMM and Robert F. Latham (the
"Employment Agreement") (incorporated by reference to Exhibit 10.21 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.18 Consulting Agreement, dated as of March 18, 1998, by and between ORBCOMM and ORBCOMM Canada
(incorporated by reference to Exhibit 10.22 of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.19** Form of Company Administrative Services Agreement by and between the Company and ORBCOMM.
23 Consents of Experts
23.1* Consent of KPMG Peat Marwick LLP, independent auditors.
23.2** Consent of Latham & Watkins (included in their opinion filed as Exhibit 5).
24.1 Power of Attorney of the Company (included on the signature page to the Registration Statement).
27.1* Company Financial Data Schedule.
27.2* ORBCOMM Financial Data Schedule.
</TABLE>
- ------------------------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions, described under Item 14 above, or
II-4
<PAGE> 136
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 137
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HERNDON,
COMMONWEALTH OF VIRGINIA, ON JUNE 1, 1998.
ORBCOMM CORPORATION
By: *
------------------------------------
Scott L. Webster
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive June 1, 1998
- ----------------------------------------------------- Officer and Director
(Scott L. Webster) (Principal Executive Officer)
* Chief Financial Officer June 1, 1998
- ----------------------------------------------------- and Treasurer
(W. Bartlett Snell) (Principal Financial Officer and
Principal Accounting Officer)
* Director June 1, 1998
- -----------------------------------------------------
(Marc Leroux)
* Director June 1, 1998
- -----------------------------------------------------
(William J. Meder)
* Director June 1, 1998
- -----------------------------------------------------
(Jeffrey V. Pirone)
* Director June 1, 1998
- -----------------------------------------------------
(Claude Seguin)
* Director June 1, 1998
- -----------------------------------------------------
(David W. Thompson)
*By: /s/ MARY ELLEN SERAVALLI June 1, 1998
------------------------------------------------
(Mary Ellen Seravalli)
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 138
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1.1** Form of Underwriting Agreement..............................
2.1** Form of Contribution Agreement by and among ORBCOMM, OCC and
Teleglobe Mobile. ..........................................
2.2* Form of Certificate of Cancellation of Certificate of
Limited Partnership of ORBCOMM USA. ........................
2.3* Form of Certificate of Cancellation of Certificate of
Limited Partnership of ORBCOMM International. ..............
3.1+ Certificate of Incorporation of the Company. ...............
3.2** Bylaws of the Company. .....................................
4 Indenture, dated as of August 7, 1996, by and among ORBCOMM,
ORBCOMM Global Capital Corp., ORBCOMM USA, ORBCOMM
International, OCC, Teleglobe Mobile and Marine Midland Bank
as trustee, relating to $170,000,000 principal amount of 14%
Senior B Notes due 2004 (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)). ...........................................
4.1** Specimen of the Company's Common Stock Certificate. ........
4.2** Subscription Agreement, dated as of , 1998, by and between
the Company and ORBCOMM. ...................................
4.3** Unit Exchange and Registration Rights Agreement, dated as of
, 1998, by and between the Company and ORBCOMM....
4.4** Share Issuance Agreement, dated as of , 1998, by
and between the Company and ORBCOMM. .......................
5** Form of Opinion of Latham & Watkins re: validity of Common
Stock.......................................................
10.1 Amended and Restated Administrative Services Agreement,
dated as of January 1, 1997 by and between ORBCOMM and
Orbital (incorporated by reference to Exhibit 10.17 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.2** Form of ORBCOMM System Construction and Operations Agreement
by and between ORBCOMM and OCC. ............................
10.3** Form of The 1998 Equity Plan of the Company and ORBCOMM,
dated as of , 1998. ..............................
10.4 Master Agreement, restated as of September 12, 1995, by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile
(incorporated by reference to the identically numbered
exhibit to the Registration Statement on Form S-4 of ORBCOMM
dated as of December 10, 1996 (Reg. No. 333-11149)). .......
10.4.1 Amendment No. 1 to Master Agreement, dated as of February 5,
1997, by and among OCC, Orbital, Teleglobe and Teleglobe
Mobile (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997). .....................................................
10.4.2** Form of Amendment No. 2 to Restated Master Agreement by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile. ........
10.5 ORBCOMM System Procurement Agreement, dated as of September
12, 1995, by and between ORBCOMM and Orbital (incorporated
by reference to the identically numbered exhibit to
Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of
December 10, 1996 (Reg. No. 333-11149), provided that
Appendix I is incorporated by reference to Exhibit 10.24.6
to the Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1993 filed by Orbital on August 13, 1993). ........
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.5.1 Amendment No. 1 to ORBCOMM System Procurement Agreement,
dated as of December 9, 1996, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996 filed by ORBCOMM on
March 28, 1997). ...........................................
10.5.2 Amendment No. 2 to ORBCOMM System Procurement Agreement,
dated as of March 24, 1997, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997). .....................................................
10.5.3* Amendment No. 3 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital. ...................................................
10.5.4* Amendment No. 4 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital. ...................................................
10.5.5** Form of Amendment No. 5 to ORBCOMM System Procurement
Agreement by and between ORBCOMM and Orbital. ..............
10.6 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 (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)). ...........................................
10.6.1** Form of Amendment No. 1 to Proprietary Information Agreement
by and among ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe
Mobile.
10.7 U.S. Gateway Earth Station Maintenance Service Agreement,
dated as of October 1, 1997, by and between Orbital and
ORBCOMM (incorporated by reference to Exhibit 10.18 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.8 Subscriber Communicator Manufacture Agreement, dated as of
July 31, 1996, by and between ORBCOMM and Magellan
Corporation (incorporated by reference to Exhibit 10.19 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.9 Reseller Agreement, dated as of March 3, 1997, by and
between ORBCOMM USA and Orbital Sciences Corporation (the
"Reseller Agreement") (incorporated by reference to Exhibit
10.20 of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on
March 31, 1998). ...........................................
10.9.1 Amendment No. 1 to the Reseller Agreement, dated as of
September 2, 1997, (incorporated by reference to Exhibit
10.20.1 of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on
March 31, 1998). ...........................................
10.10 Service License Agreement, dated as of December 19, 1995, by
and between ORBCOMM International and ORBCOMM Canada Inc.
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)). ................
10.11 Service License Agreement, dated as of October 10, 1996, by
and between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd. (incorporated by
reference to the identically numbered exhibit to Amendment
No. 1, dated as of October 21, 1996, to the Registration
Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)). ................................
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.12 Service License Agreement, dated as of October 15, 1996, by
and between ORBCOMM International and European Company for
Mobile Communicator Services, B.V., ORBCOMM Europe
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)). ................
10.13 Ground Segment Procurement Contract, dated as of October 10,
1996, by and between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd. (incorporated by
reference to the identically numbered exhibit to Amendment
No. 1, dated as of October 21, 1996, to the Registration
Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)). ................................
10.14 Ground Segment Facilities Use Agreement, dated as of
December 19, 1995, by and between ORBCOMM International and
ORBCOMM Canada Inc. (incorporated by reference to the
identically numbered exhibit to Amendment No. 1, dated as of
October 21, 1996, to the Registration Statement on Form S-4
of ORBCOMM, dated as of December 10, 1996 (Reg. No.
333-11149)). ...............................................
10.15 Ground Segment Procurement Contract, dated as of October 15,
1996, by and between ORBCOMM International and European
Company for Mobile Communicator Services, B.V., ORBCOMM
Europe (incorporated by reference to the identically
numbered exhibit to Amendment No. 1, dated as of October 21,
1996, to the Registration Statement on Form S-4 of ORBCOMM,
dated as of December 10, 1996 (Reg. No. 333-11149)). .......
10.16** Form of OCC Consulting Agreement by and between OCC and
ORBCOMM. ...................................................
10.17 Employment Agreement, dated as of May 15, 1997, by and
between ORBCOMM and Robert F. Latham (the "Employment
Agreement") (incorporated by reference to Exhibit 10.21 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.18 Consulting Agreement, dated as of March 18, 1998, by and
between ORBCOMM and ORBCOMM Canada Inc. (incorporated by
reference to Exhibit 10.22 of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 of ORBCOMM,
filed by ORBCOMM on March 31, 1998). .......................
10.19** Form of Company Administrative Services Agreement by and
between the Company and ORBCOMM. ...........................
23 Consents of Experts
23.1* Consent of KPMG Peat Marwick LLP, independent auditors.
23.2** Consent of Latham & Watkins (included in their opinion filed
as Exhibit 5). .............................................
24.1 Power of Attorney of the Company (included on the signature
page to the Registration Statement). .......................
27.1* Company Financial Data Schedule. ...........................
27.2* ORBCOMM Financial Data Schedule. ...........................
</TABLE>
- ------------------------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 2.2
CERTIFICATE OF CANCELLATION
OF
CERTIFICATE OF LIMITED PARTNERSHIP
OF
ORBCOMM USA, L.P.
ORBCOMM USA, L.P. (the "Partnership"), a limited partnership
organized under the Delaware Revised Uniform Limited Partnership Act (the
"Act"), for the purpose of canceling the Certificate of Limited Partnership
of the Partnership pursuant to Section 17-203 of the Act, hereby certifies
that:
FIRST: The name of the Partnership is ORBCOMM USA, L.P.
SECOND: The Partnership's Certificate of Limited Partnership was
originally filed in the Office of the Secretary of State on July 21, 1993.
THIRD: This Certificate of Cancellation is being filed because
the Partnership has ceased transacting business.
FOURTH: This Certificate of Cancellation shall become effective
on _______ __, 1998.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, constituting the sole
General Partner of the Partnership, has executed this Certificate of
Cancellation as of this ___ day of _______, 1998.
ORBCOMM GLOBAL, L.P.
By: Orbital Communications Corporation,
its General Partner
By:
---------------------------------
Scott L. Webster
President
By: Teleglobe Mobile Partners,
its General Partner
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By:
-----------------------------
Claude Seguin
Chief Executive Officer
<PAGE> 1
EXHIBIT 2.3
CERTIFICATE OF CANCELLATION
OF
CERTIFICATE OF LIMITED PARTNERSHIP
OF
ORBCOMM INTERNATIONAL PARTNERS, L.P.
ORBCOMM International Partners, L.P. (the "Partnership"), a
limited partnership organized under the Delaware Revised Uniform Limited
Partnership Act (the "Act"), for the purpose of canceling the Certificate of
Limited Partnership of the Partnership pursuant to Section 17-203 of the Act,
hereby certifies that:
FIRST: The name of the Partnership is ORBCOMM International
Partners, L.P.
SECOND: The Partnership's Certificate of Limited Partnership was
originally filed in the Office of the Secretary of State on July 21, 1993.
THIRD: This Certificate of Cancellation is being filed because
the Partnership has ceased transacting business.
FOURTH: This Certificate of Cancellation shall become effective
on _______ __, 1998.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, constituting the sole
General Partner of the Partnership, has executed this Certificate of
Cancellation as of this ___ day of _______, 1998.
ORBCOMM GLOBAL, L.P.
By: Orbital Communications Corporation,
its General Partner
By:
---------------------------------
Scott L. Webster
President
By: Teleglobe Mobile Partners,
its General Partner
By: Teleglobe Mobile Investment Inc.,
its Managing Partner
By:
------------------------------
Claude Seguin
Chief Executive Officer
<PAGE> 1
EXHIBIT 10.5.3
AMENDMENT NO. 3 TO
ORBCOMM SYSTEM PROCUREMENT AGREEMENT
This Amendment No. 3 ("Amendment No. 3") to the ORBCOMM System
Procurement Agreement is entered into this 31st day of March, 1998 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 and No. 2 thereto dated December 9, 1996 and March 24,
1997, respectively; and
WHEREAS, the parties wish to set forth their agreement pertaining to a
certain claim for equitable price adjustment to the Procurement Agreement for
changes made and associated costs incurred by Orbital under the Procurement
Agreement through December 31, 1997.
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 3.1(a) of the Procurement Agreement shall be
amended to add a new subparagraph (iv) immediately following subparagraph (iii)
that reads as follows:
"(iv) Price Adjustment for Changes through $ 3,500,000
December 31, 1997 Outside the
General Scope of the Agreement"
Section 2.2 Section 3.1(a) of the Procurement Agreement shall be
amended to delete the "TOTAL" price of $157,872,143 set forth therein and to
replace it with the new "TOTAL" price of $161,372,143.
Section 2.3 Section 4.1(b) of the Procurement Agreement shall be
deleted in its entirety and replaced with the following:
<PAGE> 2
"(b) Monthly Invoicing.
(i) Orbital shall be entitled to invoice ORBCOMM Global on a
monthly basis for a maximum of 90% of its costs incurred during such
month plus, to the extent permitted by Section 4.1(f), such portion of
the cost in excess of the maximum amount to be invoiced to ORBCOMM
Global in accordance with such Section 4.1(f) and not previously
invoiced and paid; provided however that Orbital shall not be entitled
to invoice ORBCOMM Global under Section 4.1(a) and this Section
4.1(b)(i) in a cumulative total amount greater than $125,884,929.
(ii) Orbital shall be entitled to invoice ORBCOMM Global for costs
associated with Section 3.1(a)(iv) as follows:
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
Signing of Amendment No. 3 $1,000,000
July 1, 1998 $2,000,000
October 1, 1998 $ 500,000"
</TABLE>
Section 2.4 Section 4.1(e) of the Procurement Agreement shall be
deleted in its entirety and replaced with the following:
"The total amount paid under Section 4.1(a), (b)(i) and (c) shall not
exceed $139,872,143 (the "Total Costs"). In the event costs incurred
through December 31, 1997, are less than the Total Costs, the parties
shall negotiate additional Category B Milestones for payment of the
remaining balance of the Total Costs."
Section 2.5 The first sentence of Section 4.4 of the Procurement
Agreement shall be deleted in its entirety and replaced with the following:
"Subject to the foregoing, Orbital shall be entitled to submit to
ORBCOMM Global at the address below monthly invoices covering the
amounts as described in Subsection 4.1(b)(i), invoices covering the
amounts set forth in Subsection 4.1(b)(ii) or invoices for Category A
and Category B Milestone payments, in each case certified by the
Vice-President and Controller of Orbital or by any other officer
designated by the Vice-President and Controller of Orbital in the form
provided for in Schedule 4.4."
Section 2.6 The parties have mutually agreed to make certain
changes outside the general scope of the Procurement Agreement, and have
mutually agreed to an equitable adjustment to the Price, as set forth in this
Amendment No. 3. The changes made outside the general scope of the Procurement
Agreement are set forth in Exhibit A hereto.
2
<PAGE> 3
Section 2.7 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:
The combined mass of 8 satellites, as launched, plus the adapter and
deployment structure, must be injected into orbit according to the
parameters stated below. Three or four planes will be launched into
different ascending nodes spaced to maximize the coverage of latitudes
between 25 and 50 degrees. The launch parameters for the satellites
shall be:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Parameter Plane A Plane B Plane C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target mean altitude 825 km, circular 810 to 840 km{1} 810 to 840 km{1}
Maximum apogee altitude 882 km Target + 15 km Target + 15 km
Minimum perigee altitude 767 km Target - 15 km Target - 15 km
Target inclination 45 deg. 43 to 46 deg.{2} 43 to 46 deg.{2}
Inclination accuracy +/- 0.3 deg. +/- 0.1 deg. +/- 0.1 deg
Target right ascension of Unconstrained 120-140 deg. West of Plane A{2} 110-130 deg. East of Plane A{2}
ascending nodes
Accuracy of ascending N/A +/- 2.5 deg. +/- 2.5 deg.
node
</TABLE>
To the extent possible, the satellite propulsion system shall be used
to correct for launch vehicle injection errors. The relative spacing
between the ascending or descending nodes of any two planes shall not
be less than 30 degrees five years after the launch of plane 3. The
phasing of satellites within each plane shall be maintained at 45
degrees +/- 5 degrees.
1 If the actual mean altitude of Plane A is higher than its target
mean altitude, the target mean altitude for Planes B and C will be
raised to that attained by Plane A, up to 840 km.
2 Target shall be selected by ORBCOMM Global from this range based on
actual insertion parameters of previous planes.
3
<PAGE> 4
Section 2.8 Section 3.1.1 of Exhibit A, Part 2 Statement of Work
and Specification for ORBCOMM Constellation Launch Services of the Procurement
Agreement shall be deleted in its entirety and replaced with the following:
The Pegasus shall provide a minimum lift capability and
injection accuracy to meet the requirements listed in Table 3-1 with
3-sigma probability.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Parameter Plane A Plane B Plane C
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Target mean altitude 825 km, circular 810 to 840 km{1} 810 to 840 km{1}
Maximum apogee altitude 882 km Target + 15 km Target + 15 km
Minimum perigee altitude 767 km Target - 15 km Target - 15 km
Target inclination 45 deg. 43 to 46 deg.{2} 43 to 46 deg.{2}
Inclination accuracy +/- 0.3 deg. +/- 0.1 deg. +/- 0.1 deg
Target right ascension of Unconstrained 120-140 deg. West of Plane A{2} 110-130 deg. East of Plane A{2}
ascending nodes
Accuracy of ascending N/A +/- 2.5 deg. +/- 2.5 deg.
node
</TABLE>
Table 3-1 Mission Orbital Requirements
1 If the actual mean altitude of Plane A is higher than its target
mean altitude, the target mean altitude for Planes B and C will be
raised to that attained by Plane A, up to 840 km.
2 Target shall be selected by ORBCOMM Global from this range based on
actual insertion parameters of previous planes.
SECTION 3 - MISCELLANEOUS
Section 3.1 This Amendment No. 3 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. 3.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Amendment No. 3 as
of the day and year first above written.
ORBCOMM GLOBAL, L.P.
By:
------------------------------
Name: Scott L. Webster
Title: Chairman & Chief Executive Officer
ORBITAL SCIENCES CORPORATION
By:
------------------------------
Name: Jeffrey V. Pirone
Title: Executive Vice President &
Chief Financial Officer
5
<PAGE> 6
EXHIBIT A
TO
AMENDMENT NO. 3
<PAGE> 1
EXHIBIT 10.5.4
AMENDMENT NO. 4 TO
ORBCOMM SYSTEM PROCUREMENT AGREEMENT
This Amendment No. 4 ("Amendment No. 4") to the ORBCOMM System
Procurement Agreement is entered into this 31st day of March, 1998 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 and No. 3 thereto; and
WHEREAS, the terms associated with the option to procure an additional
Pegasus launch vehicle have expired; and
WHEREAS, the parties wish to further amend the Procurement Agreement
to provide for the launch of a fourth plane of satellites 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 3.1 of the Procurement Agreement shall be
amended to add a new paragraph (d) immediately following paragraph (c) that
reads as follows:
"(d) One (1) Pegasus XL Launch Vehicle $ 26,500,000
Launch Service (0 Degree Inclination)"
Section 2.2 Section 3.2(a) of the Procurement Agreement shall be
deleted in its entirety and the remaining paragraph of Section 3.2 shall be
amended by deleting the "(b)" paragraph designation.
Section 2.3 Section 4.1(b)(i) of the Procurement Agreement shall
be deleted in its entirety and replaced with the following:
<PAGE> 2
"(i) Orbital shall be entitled to invoice ORBCOMM Global on a
monthly basis for a maximum of 90% of its costs incurred during such month
plus, to exclude costs associated with Section 3.1(a)(iv), Section 3.1(c) and
Section 3.1(d), to the extent permitted by Section 4.1(f), such portion of the
cost in excess of the maximum amount to be invoiced to ORBCOMM Global in
accordance with such Section 4.1(f) and not previously invoiced and paid;
provided however that Orbital shall not be entitled to invoice ORBCOMM Global
under Section 4.1(a) and this Section 4.1(b)(i) in a cumulative total amount
greater than $125,884,929."
Section 2.4 Section 4.1(b) of the Procurement Agreement shall be
amended to add a new subparagraph (iii) immediately following subparagraph (ii)
that reads as follows:
"(iii) Orbital shall be entitled to invoice ORBCOMM Global for costs
associated with Section 3.1(c) as follows:
<TABLE>
<CAPTION>
PAYMENT DATE AMOUNT
------------ ------
<S> <C>
October 1, 1998 $ 1,500,000
January 1, 1999 $ 2,000,000
April 1, 1999 $ 2,000,000
July 1, 1999 $ 2,000,000
October 1, 1999 $ 5,000,000
The Earlier of March 31, 2000 $14,000,000*
Or Launch of Fourth Plane"
</TABLE>
*If the launch is delayed beyond March 31, 2000 due to the
unavailability of the Satellites, Orbital shall be entitled to invoice
ORBCOMM at the monthly rate of $1,000,000, beginning on April 30,
2000, with the balance due on launch. In no event shall Orbital be
entitled to invoice ORBCOMM in an amount to exceed $14,000,000.
Section 2.5 The first sentence of Section 4.4 of the Procurement
Agreement shall be deleted in its entirety and replaced with the following:
"Subject to the foregoing, Orbital shall be entitled to submit to
ORBCOMM Global at the address below monthly invoices covering the
amounts as described in Subsection 4.1(b)(i), invoices covering the
amounts set forth in Subsections 4.1(b)(ii) and 4.1(b)(iii) or
invoices for Category A and Category B Milestone payments, in each
case certified by the Vice-President and Controller of Orbital or by
any other officer designated by the Vice-President and Controller of
Orbital in the form provided for in Schedule 4.4."
Section 2.6 Section 5.1(b)(iv) of the Procurement Agreement shall
be deleted in its entirety and replaced with the following:
"(iv) Satellites 25 - 26 and Launch Vehicle Feb. 1998
Launch Service (Taurus)"
2
<PAGE> 3
Section 2.7 Section 5.1(b) of the Procurement Agreement shall be
amended to add a new subparagraph (v) immediately following subparagraph (iv)
that reads as follows:
"(v) Satellites 27 - 34 and Launch Vehicle Jul. 1999
Launch Service No. 4"
Section 2.8 Section 16.8(a) of the Procurement Agreement shall be
deleted in its entirety, and the remaining paragraphs of Section 16.8 shall be
sequentially renumbered.
Section 2.9 Exhibit A, Part 2 of the Procurement Agreement shall
be amended to add Attachment 1, Statement of Work and Specification for the
ORBCOMM-4 Launch Services as set forth in Exhibit A hereto.
SECTION 3 - MISCELLANEOUS
Section 3.1 This Amendment No. 4 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. 4.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Amendment No. 4 as
of the day and year first above written.
ORBCOMM GLOBAL, L.P.
By:
------------------------------
Name: Scott L. Webster
Title: Chairman & Chief Executive Officer
ORBITAL SCIENCES CORPORATION
By:
------------------------------
Name: Jeffrey V. Pirone
Title: Executive Vice President &
Chief Financial Officer
4
<PAGE> 5
EXHIBIT A
TO
AMENDMENT NO. 4
<PAGE> 1
EXHIBIT 23.1
To The Board of Directors
ORBCOMM Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Washington, DC
June 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-23-1998
<PERIOD-END> MAR-31-1998
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 99
<TOTAL-LIABILITY-AND-EQUITY> 100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-1-1997 JAN-1-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 16,106 19,255
<SECURITIES> 22,756 12,780
<RECEIVABLES> 0 1,981
<ALLOWANCES> 0 0
<INVENTORY> 21,407 25,003
<CURRENT-ASSETS> 62,722 59,233
<PP&E> 276,925 296,365
<DEPRECIATION> (13,546) 15,449
<TOTAL-ASSETS> 331,961 345,799
<CURRENT-LIABILITIES> 54,616 59,412
<BONDS> 0 170,920
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 106,155<F1> 115,467<F1>
<TOTAL-LIABILITY-AND-EQUITY> 331,961 345,799
<SALES> 231 278
<TOTAL-REVENUES> 268 305
<CGS> 517 286
<TOTAL-COSTS> 36,420 11,211
<OTHER-EXPENSES> 4,545 218
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0<F2> 0<F2>
<INCOME-PRETAX> (31,607) (10,688)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (31,607) (10,688)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (31,607) (10,688)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Represents Total Partners' Capital
<F2>Interest expense of $34.5 million and $40.5 million has been Capitalized as
of December 31, 1997 and March 31, 1998, respectively.
</FN>
</TABLE>
