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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 333-11149
ORBCOMM USA, L.P.
(Exact name of Registrant as specified in its charter)
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DELAWARE 54-1689429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization of Registrant) Identification No.)
21700 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of Registrant's principal executive offices)
(Zip Code)
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(703) 406-6000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 8. Financial Statements and Supplementary Data................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 25
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 25
Item 11. Executive Compensation...................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 27
Item 13. Certain Relationships and Related Transactions.............. 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 29
Signatures.................................................. 31
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PART I
ITEM 1. BUSINESS
The information contained in this report on Form 10-K speaks as of and for
the year ended December 31, 1996 and not as of or for any other date or period
except as otherwise provided herein.
BACKGROUND
ORBCOMM USA, L.P. (the "Company" or "ORBCOMM USA") is a Delaware limited
partnership formed in 1993 to market services using the low-Earth orbit ("LEO")
satellite communications system under development by ORBCOMM Global L.P.
("ORBCOMM"), a general partner of ORBCOMM USA. ORBCOMM is establishing the first
commercial low-Earth orbit ("LEO") satellite-based mobile data and messaging
communications system that will be available on a global basis (the "ORBCOMM
System"). The ORBCOMM System, planned to be fully deployed in early 1998, is
designed to provide reliable, low-cost, two-way global data and messaging
communications through a constellation of 28 LEO satellites and a complement of
associated ground infrastructure situated around the world. Major target markets
include worldwide mobile asset tracking; remote industrial monitoring and
control applications; environmental data collection; and real time
person-to-person and machine-to-machine communications, including two-way
Internet electronic mail ("email") communications and recreational and business
messaging. ORBCOMM USA has the exclusive right to market the ORBCOMM System in
the United States.
The general and limited partnership interests in ORBCOMM USA are held 98%
by ORBCOMM, a Delaware limited partnership, and 2% by Orbital Communications
Corporation ("OCC"), a Delaware corporation and a subsidiary of Orbital Sciences
Corporation ("Orbital"). ORBCOMM is a Delaware limited partnership formed in
1993 to develop, construct, operate and market the ORBCOMM System. The general
and limited partnership interests in ORBCOMM are held by each of OCC and
Teleglobe Mobile Partners ("Teleglobe Mobile"), a Delaware general partnership
whose interests are wholly owned on an indirect basis by Teleglobe Inc.
("Teleglobe") and Technology Resources Industries Bhd. ("TRI"). OCC and
Teleglobe Mobile have invested approximately $160 million in the ORBCOMM
project.
Orbital, a Delaware corporation, is a space technology and satellite
services company that designs, manufactures, operates and markets a broad range
of space products and services, including launch systems, satellites, space
sensors and electronics, ground systems and software products, satellite access
products and communications and information services. Teleglobe, a Canadian
corporation, provides international telecommunications services to approximately
240 countries worldwide through a network of submarine cables and satellite
Earth stations. Teleglobe is owned approximately 22% by BCE Inc., which is the
largest public corporate entity in Canada, and indirectly approximately 20% by
Telesystem Ltd., a Canadian company, that also has an interest in Telesystem
International Wireless Corporation N.V. ("TIW"). TIW has paging and cellular
interests in several countries around the world, including China, Mexico,
Romania and India. Teleglobe has formed a partnership, Teleglobe Mobile, with
TRI to hold its interest in the ORBCOMM project. TRI operates the largest and
one of the fastest-growing cellular networks in Malaysia, with over 800,000
subscribers and also has cellular and paging joint ventures in five countries.
In addition to ORBCOMM USA, ORBCOMM has two other subsidiaries, ORBCOMM
International Partners, L.P. ("ORBCOMM International"), a Delaware limited
partnership, and ORBCOMM Global Capital Corp. ("Capital"), a Delaware
corporation. ORBCOMM holds general and limited partnership interests with a 98%
participation percentage ("Participation Percentage") in ORBCOMM International.
OCC directly holds general and limited partnership interests in ORBCOMM USA with
a 2% Participation Percentage. ORBCOMM International was formed to market
services using the ORBCOMM System internationally.
Capital, a Delaware corporation, was formed in July 1996 to act as a
co-issuer in connection with the private placement (the "Old Notes Offering") of
$170 million 14% Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). The Old Notes were exchanged in January 1997 for notes that are
substantially similar to the Old Notes except that the new notes (the "Notes")
are registered under the
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Securities Act of 1933, as amended. The Notes are fully and unconditionally
guaranteed on a joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA
and ORBCOMM International, except that the guarantees are non-recourse to the
shareholders and/or partners of the guarantors, limited only to the extent
necessary for each such guarantee not to constitute a fraudulent conveyance
under applicable law. Capital has nominal assets and will not conduct any
operations.
THE ORBCOMM SYSTEM
General
ORBCOMM offers commercial intermittent data communications services in the
United States through its existing network, which consists of two LEO satellites
launched in April 1995 and related U.S. ground infrastructure. When fully
deployed, the ORBCOMM System is designed to provide data and short, alphanumeric
paging-like messaging communications coverage virtually anywhere on the Earth's
surface in a reliable and cost-effective manner. In contrast to "Big LEO"
systems, which are designed primarily for voice applications, the ORBCOMM
System, which is a "Little LEO" system, is focused on data communications and
messaging applications. The ORBCOMM System is designed to address the
substantial existing and growing demand for communications services worldwide,
without the high cost and geographic and technical limitations imposed by other
communications systems. The Company intends to distribute ORBCOMM services in
the United States in a cost-effective manner primarily through value-added
resellers ("Resellers") and other distribution channels, as appropriate.
To use the ORBCOMM System for text messaging, a user creates a message
using a computer connected to an ORBCOMM subscriber communicator ("Subscriber
Communicator") or a stand-alone Subscriber Communicator, which message is sent
to the nearest ORBCOMM System satellite and delivered to an ORBCOMM Earth
station, which supports communication with the satellites, and then to the
Gateway Switching System, which processes the messages. Within the Gateway, the
message is processed using a combination of ORBCOMM-developed and commercial
email software, and sent on to its ultimate destination. If desired, an
acknowledgment message is returned to the sender. The final delivery may be to
another Subscriber Communicator or may make use of public/private X.25 data
networks or the Internet.
In October 1994, OCC became the first company to be awarded Federal
Communications Commission ("FCC") authority to construct, launch and operate a
LEO satellite-based data and messaging communications system in the United
States (the "FCC License"). The ORBCOMM System is the only commercial Little LEO
system that is fully licensed for all segments of its system in the United
States. In 1992, certain portions of the radio spectrum were allocated by the
International Telecommunications Union ("ITU") for use by Little LEO satellite
systems, such as the ORBCOMM System, on an international basis.
Recent Developments
In 1995, in addition to the successful launch of the first two ORBCOMM
System satellites, ORBCOMM completed initial development and construction of the
ground infrastructure located in the United States and associated network
control systems, and tested prototype Subscriber Communicators. In 1996,
additional progress was made on the ORBCOMM System. In February 1996, ORBCOMM
initiated intermittent data communications services in the United States. The
two ORBCOMM System satellites and four U.S. Earth stations are providing data
communications services, focused on environmental and industrial monitoring
applications for the U.S. environmental and oil and gas industries, and asset
and cargo tracking applications for the U.S. government and commercial entities,
with additional tracking and positioning applications targeted for the near
future. ORBCOMM has two satellites on orbit, with 26 additional satellites
scheduled for launch in 1997 and 1998.
ORBCOMM USA plans to provide initial services in the United States
primarily through Resellers, many of whom have an existing, well-established
market presence through their existing customer bases, market-specific brand
name recognition and distribution networks. During 1996, ORBCOMM USA executed
agreements with 14 additional Resellers. ORBCOMM USA has 33 reseller agreements
with companies
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including Arinc, Inc., Corexco Consulting Services, Inc., Globitrac, Inc.,
Sky-Eye Railway Services, Inc. and the Stevens Water Monitoring Division of
Leupold & Stevens, Inc.
Services
ORBCOMM System service offerings for mobile data and messaging
communications will fall into two broad categories with variations based on
market requirements: tracking and monitoring; and message and priority
communications.
Tracking and Monitoring. The Company believes that tracking and monitoring
users will include a broad group of industries that require a means of regularly
collecting data from, or in some cases controlling equipment in, multiple remote
locations. Major target markets include: (i) worldwide mobile asset tracking;
(ii) industrial monitoring and control applications; and (iii) environmental
data collection. Many of these users manage numerous, widely dispersed sites in
remote areas out of reach of the public switched telephone network ("PSTN") or
terrestrial-based wireless systems, and often accomplish data collection and
equipment control functions manually with on-site personnel.
Messaging and Priority Communications. The Company believes that messaging
communications users will include a broad range of commercial and consumer users
who require a means of communicating with locations such as their office,
dispatch center or home or who require the ability to send priority messages or
positioning information. Examples include professionals who work away from their
office, fleet operators who require reliable messaging between a central office
and mobile assets, and individuals who desire a means of communicating short
messages or positioning information from an automobile, boat or other remote
locations. These users rely on pagers, cellular phones, fleet dispatch systems
and public pay phones, all of which can be unavailable, inconvenient or
expensive in certain geographic locations.
Addressable Markets
ORBCOMM has identified a number of industries and industry segments in the
United States where there exists a demand for mobile data and messaging
communications services for tracking and monitoring, which the Company views as
the initial primary target applications for its services. The Company believes
that certain portions of the transportation, energy, environmental and marine
industries or industry segments and the U.S. government possess characteristics
or requirements that are particularly well-suited to the services offered by
Little LEO systems. The Company refers to these portions as "addressable
markets." The Company's description of potential markets for its data and
messaging communications service offerings and the Company's addressable markets
represent only the Company's estimates with respect to such markets.
Transportation. Transportation companies require a cost-effective means of
regularly and reliably monitoring the location and the status of cargo globally
to reduce cargo losses, improve service and better use transportation assets.
The transportation market can be separated into four categories: trailers
including full truckload, less-than-full truckload and private trucking;
long-haul trucking; containers; and rail cars.
The Company believes that the U.S. addressable market for full truckloads
comprises non-refrigerated trailers belonging to large trucking fleets that need
to improve trailer utilization, and for less-than-full truckload comprises
non-refrigerated trailers that carry high-value goods and travel longer,
less-than-full truckload routes (greater than 400 miles) between regional
centers. The addressable market for private fleet trucks is expected to be those
used in "just-in-time" manufacturing and distribution systems and which,
therefore, typically require high levels of efficiency due to competition from
for-hire companies. The Company expects the addressable market for refrigerated
trailers to comprise those trailers for which cargo monitoring and trailer
utilization are required. Trailers (both refrigerated and non-refrigerated) are
being tracked by geostationary satellite-based systems (such as those offered by
QUALCOMM) that offer seamless coverage, but depend on larger power sources that
require the trailer to be attached to the main engine of the tractor. As a
result, when the trailer is detached from the tractor, it can no longer be
tracked. A low-power cellular system can be used to track untethered trailers;
however, geographic coverage is limited and the Company believes that the cost
of cellular roaming may make this service cost-prohibitive. Private trucking
fleets typically use
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systems internal to their companies where each trailer's number is manually
recorded as trailers enter and leave a point of distribution.
The Company believes that its addressable portion of the U.S. long-haul
trucking market is characterized by smaller fleets (typically less than 50
trucks) that need mobile communications to compete with larger fleets but have
been unable to afford the service offerings where equipment costs are
approximately $4,000 per unit. A low-cost alternative for these smaller fleets
has been paging, although paging offers only a one-way short data link to the
vehicle. The Company believes that the addressable market for the owner-operated
transportation vehicle sub-segment comprises those vehicles contracted to
larger, long-haul carriers. While these larger carriers resist installing $4,000
mobile communications units on vehicles they do not own, many are requiring
owner-operators to equip their vehicles with mobile communications.
The Company expects that its addressable market in the container
(intermodal) industry segment in the United States will comprise those
containers carrying the most valuable items subject to theft. Intermodal
container transportation systems use manual systems to record containers as they
enter and leave yards. Unlike the ORBCOMM System, these passive systems record
where a trailer has been, but not where it is, its status or the condition of
its contents.
The Company believes that the addressable market for rail transportation
will comprise those rail cars used to transport high-value cargo 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 only record where the trailer has
been, not its current location, status or the condition of its contents.
Energy. The Company believes that the ORBCOMM System can provide an
effective means of monitoring and controlling various assets used in the energy
industry. Pipeline operators take active measures to monitor lines and limit
pipeline corrosion to comply with laws by installing cathodic protection systems
that include a device called a rectifier. Protection systems also are required
by federal regulations on storage tanks, utility systems and injection wells.
The majority of protection system records are compiled from data collected by
personnel who travel to the site and record the readings. Conventional industry
practice is to install one rectifier per mile of pipeline with generally one
transceiver (subscriber communication device) per rectifier. However, several
pipelines can be laid along one right-of-way, with a common rectifier system,
meaning that multiple rectifiers can feed into one transceiver unit. The Company
believes that its addressable market comprises the aggregate number of
rectifiers deployed on U.S. pipelines. In addition, the Company believes that
its addressable market for wells producing natural gas and crude oil and gas and
electric utility meters in the United States will be those production wells and
utility meters located in remote geographic locations.
Environmental. Many industrial companies and government agencies have a
need to monitor meteorological, hydrological and environmental data such as
rainfall, water levels and water quality at remote sites. For example, the
Environmental Protection Agency has established standards for air and water
quality that require pollution abatement procedures, which procedures rely
heavily on the automated logging and collection of data from remote sites. In
addition to pollutants, water monitoring devices are used to measure flow rate,
temperature and water level. The Company believes that the addressable market
comprises those sites that are located in highly remote areas not served by
terrestrial systems, which can use Subscriber Communicators to transmit small
amounts of data relatively infrequently and on an exception basis.
Marine. ORBCOMM has identified two U.S. marine industry segments,
Fisheries, and Barges and Workboats. The Company's addressable market is
expected to be those fishing vessels that operate primarily in the Gulf of
Alaska, the Northwest United States and the Northwestern Atlantic. These vessels
usually remain at sea for extended periods and operate on extremely tight
margins with operating costs that are carefully controlled. As a result, they
need low-cost communications systems to meet safety and regulatory requirements
and to exchange commercial and operational information with their offices, fuel
providers, provisioners and packing houses. The Company expects that the
addressable market for barges and workboats will comprise barges that operate
without independent sources of power and carry grain, coal and other
commodities. They traverse U.S. waterways in groups of barges that are "fleeted"
together and pushed by
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towboats and require energy-efficient monitoring and communications devices to
transmit position reports, cargo status reports and security information. Tugs,
towboats and supply/service boats also need low-cost two-way communications to
send operational and service-related data to their land-based headquarters and
receive dispatch instructions in return.
U.S. Government. The Company believes U.S. Government applications
represent a major target market for its services. Pressures to contain Federal
spending and specific acts of Congress have resulted in a major change in the
procurement practices in the Department of Defense ("DoD") and civil agencies,
causing them, where possible, to purchase satellite-based services from
commercial providers. The Company believes that use of LEO systems like the
ORBCOMM System will provide Government users with low-cost solutions, low
probability of intercept and detection and worldwide availability. The Company
believes that DoD programs have requirements that are unfulfilled by existing
systems. Each program promotes the vision of extending communications down to
individual soldiers and system operators. There is no dedicated DoD system
available using inexpensive, small, lightweight communication units. The Company
expects to compete to provide LEO service to the U.S. Government, including in
connection with certain programs already announced by the U.S. Government.
Future Markets. In addition to the markets and applications (such as those
described above) that have already displayed a demand for mobile data and
messaging communications services, the Company believes that with the full
deployment of the constellation, the ORBCOMM System's combination of
capabilities will stimulate new demand, especially among potential messaging
users. The Company expects that in the United States, the ORBCOMM System will
complement existing and planned terrestrial wireless communications systems by
providing coverage in geographic areas where such services are not offered or by
enhancing data applications being provided through the PSTN or the public
switched data network ("PSDN").
Domestic Marketing
The exclusive right to market the ORBCOMM System in the United States is
held by ORBCOMM USA. ORBCOMM USA has developed a comprehensive marketing plan
that includes distribution, applications development, customer service and
pricing strategies. While offering commercial intermittent service, ORBCOMM USA
is seeking to build an initial base of subscribers in the United States and
expand on its agreements with key channels of distribution. During the fully
operational stage, ORBCOMM USA expects that its sales and marketing staff will
primarily support indirect channels of distribution.
ORBCOMM USA is in the process of negotiating and signing agreements with
Resellers who purchase ORBCOMM System services directly from the Company and
resell these services to end-users in a specific industry and/or market as part
of a package that may include other products or services. In soliciting
customers, the Reseller "adds value" to the basic service offering by bundling
related applications software, hardware or product packaging for its respective
industry or market segment. Mobile data carriers are expected to offer ORBCOMM
System services by taking advantage of the ORBCOMM System's "gap-filler"
properties as well as its geolocation and acknowledgment features. Such
additional ORBCOMM partners are likely to come from such areas as paging,
personal communications services ("PCS"), mobile data, cellular and intelligent
transportation systems.
System Architecture
Overview. The ORBCOMM System has been designed to provide for the delivery
and receipt of data communications and short, alphanumeric paging-like messages
anywhere in the world on a highly efficient and cost-effective basis. ORBCOMM
System satellites are designed specifically for the transmission of short
messages. This design focus 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 System satellites (approximately 95 pounds) reduces the cost and
time of production and enables ORBCOMM to launch multiple satellites using a
single, relatively low-cost launch vehicle. The ORBCOMM System uses a digital
packet-switched communication protocol. ORBCOMM believes this
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design will provide it with a substantial cost advantage versus the
communication protocols to be used by the proposed Big LEO systems such as
Iridium and Globalstar. Unlike the ORBCOMM System, Big LEO systems, which are
designed primarily for two-way voice traffic, are required to establish a
circuit-oriented connection over their network to transmit even short messages,
which significantly increases the per-message transmission cost for short
messages.
The two operational ORBCOMM System satellites have provided ORBCOMM with
significant information regarding actual satellite performance in a space
environment. As a result of analyzing this information, as well as information
obtained prior to launch, ORBCOMM, in conjunction with Orbital, has undertaken a
redesign of certain system elements of the satellites. ORBCOMM also continues to
experience, from time to time, certain technical difficulties with the ORBCOMM
network, including unplanned outages of certain electronic systems and
subsystems on its initial two satellites resulting in the temporary inability to
process subscriber communications. While ORBCOMM believes these technical
difficulties have been addressed as experienced, and that none of these
difficulties has resulted in a significant degradation of satellite performance,
there can be no assurance that performance degradation in these two satellites
will not occur in the future.
The ORBCOMM System consists of four operational segments: (i) a base space
segment consisting of a constellation of 28 LEO satellites; (ii) a ground
segment consisting of Gateways, the major elements of which include Earth
stations sending and receiving signals and a message switching system that
processes the message traffic; (iii) a control segment to monitor and manage the
flow of information through the system; and (iv) a subscriber segment consisting
of communicators used by subscribers to transmit and receive messages to and
from nearby satellites.
Space Segment. The base Space Segment will consist of a constellation of
28 satellites comprising three planes of eight satellites and two planes of two
satellites in highly inclined orbits (of which one plane of two satellites has
been launched), all at approximately 775 kilometers above the Earth. The two
in-orbit satellites are in a 70 degrees inclined plane at an altitude of
approximately 740 kilometers. The MicroStar(TM) satellites are produced by
Orbital and generally will be deployed in groups of eight using Orbital's
Pegasus(R) XL launch vehicle. Two satellites are to be placed in a
high-inclination orbit using an Orbital Taurus(R) launch vehicle. The design of
the remaining 26 satellites (as well as the eight ground spare satellites) is
expected to be substantially identical.
Under the terms of the ORBCOMM System Procurement Agreement (the
"Procurement Agreement") between Orbital and ORBCOMM, ORBCOMM is purchasing,
among other things, 34 LEO satellites and launch services for 26 satellites.
Eight of the 34 satellites may be used as ground spares and launched in the
event of the loss of satellites as a result of a launch failure or in-orbit
satellite failure. In the event such satellites are not needed for such purpose,
ORBCOMM intends to launch these satellites as an additional plane of eight, as
authorized by the FCC License. This would increase global coverage and provide
additional system redundancy. Except for the communications software, which is
the responsibility of ORBCOMM, Orbital is responsible for the performance of the
satellites, the U.S. Earth stations and the satellite management functionality
of the Network Control Center ("NCC").
The ORBCOMM network is unique in that both the Ground Segment and the
Subscriber Segment (described below) 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
satellites also contain an intelligent packet-routing capability, including a
limited store-and-forward capability.
Ground Segment. The Ground Segment consists of Gateways strategically
located throughout the world. 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:
- Earth stations, each of which is composed of two radomes, with enclosed
VHF tracking antennae, one of which is redundant, associated pedestal,
controller, and radio equipment;
- Gateway Message Switching System, which processes the message traffic and
provides the interconnection to the terrestrial networks; and
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- Gateway Management System, which manages the Gateway elements.
To provide real time services using the ORBCOMM System in a particular
geographic region, an appropriately located Gateway is required. Substantially
all elements of the U.S. Gateway have been constructed, including four Earth
stations located in New York, Arizona, Georgia and Washington. ORBCOMM
International has entered into agreements with six International Licensees for
the construction of Gateways outside the United States and expects to enter into
similar additional agreements in connection with the execution of new Service
License Agreements. The cost and implementation of these Gateways is expected to
be borne by the International Licensees.
The Gateway satellite links have been designed to make use of single uplink
and downlink channels for all ORBCOMM System satellites by using a Time Division
Multiple Access ("TDMA") protocol. This protocol will permit multiple 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 Earth station to Earth station under the
centralized control of the NCC.
Control Segment. The Control Segment monitors and manages all network
elements to ensure continuous, consistent operations in the provision of quality
service. The Control Segment is housed at the NCC. ORBCOMM is constructing a new
NCC, which is scheduled to be completed during the third quarter of 1997, that
will allow ORBCOMM to control, monitor and administer the 28 satellite
constellation and ground control assets.
The Control Segment systems include a network management system that
presents the status of all network elements and a space vehicle management
system. Through the U.S. Gateway, managed from the NCC, 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 Communicators that are generally designed to support specific
application needs of users. The Subscriber Communicator models will include: (i)
vehicular/battery-powered Subscriber Communicators that could be used in asset
tracking, cargo monitoring, or vehicular operation monitoring; (ii) externally
powered Subscriber Communicators for fixed applications such as pipeline
monitoring, remote device control, or environmental monitoring; and (iii)
self-contained, battery- and/or solar-powered Subscriber Communicators that
would support applications where commercial or other external power is not
available, including personal messaging applications.
SUMMARY SATELLITE DATA
The most significant characteristics of the satellites that comprise the
ORBCOMM System, such as their design specifications, coverage and design life,
as well as licensing and launch information for the satellites, are summarized
in the following table.
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NUMBER OF LAUNCH DESIGN
SATELLITES(1) PLANE VEHICLE LICENSED LIFE
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A. OPERATIONAL(2)
1. FM 1-2 2 70 degrees Pegasus October 20, 1994(3) 4 Years
B. LICENSED
1. FM 3-4 2 70 degrees Taurus(4) October 20, 1994 5 Years
2. FM 5-12 8 45 degrees Pegasus XL October 20, 1994 5 Years
3. FM 13-20 8 45 degrees Pegasus XL October 20, 1994 5 Years
4. FM 21-28 8 45 degrees Pegasus XL October 20, 1994 5 Years
5. FM 29-36(5) 8 45 degrees Pegasus XL October 20, 1994 5 Years
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(1) Each of the satellites that comprise the ORBCOMM System is an Orbital
MicroStar satellite, 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 two ORBCOMM System satellites that are in orbit provide communications
availability in the United States for approximately 10% of each 24-hour
period (eight to ten passes over a fixed point on the Earth's surface each
day), with maximum outages of approximately nine hours.
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(3) The license for the ORBCOMM System issued to OCC by the FCC on October 20,
1994 supersedes the earlier experimental licenses granted to OCC and
includes the two satellites launched by OCC in April 1995. The October 20,
1994 license grants OCC the authority to construct, launch and operate 36
LEO satellites in the United States.
(4) These two satellites are intended to be launched as a secondary payload on a
Taurus launch vehicle, also manufactured by Orbital.
(5) These eight satellites represent ground spares that may be deployed as a
fourth plane by ORBCOMM, provided that, subject to FCC approval, ORBCOMM may
determine not to so deploy such satellites.
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. The ORBCOMM System is the only commercial Little LEO system to be
licensed fully for all segments of its system within the United States. ORBCOMM
inaugurated commercial service on February 1, 1996, becoming the first
commercial Little LEO mobile satellite service provider. The Company believes
that commencement of commercial service by ORBCOMM provides it with a
substantial head start in developing markets, distribution systems, applications
and customers in the United States. The Company expects that potential
competitors will include other Little LEO systems, such as Starsys Global
Positioning, Inc. ("Starsys"), Big LEO systems, such as the Iridium and
Globalstar systems and several existing and planned geosynchronous Earth orbit
("GEO") systems such as the American Mobile Satellite Corporation system.
Starsys is licensed to construct and operate a multiple-satellite
constellation that, if deployed, could compete directly with the ORBCOMM System.
Starsys employs code division multiple access ("CDMA") modulation (spread
spectrum) that must operate in spectrum that is allocated on both a "primary"
and "secondary" basis to Little LEO services. As a result, Starsys will operate
at low power levels to avoid interference to other services. The low power
levels result in a maximum transmission rate of 600 bps from Subscriber
Communicators compared with 2,400 bps for the ORBCOMM System. In addition, the
U.S. Government has imposed a channel occupancy limit on Starsys of 25% of that
permitted for the ORBCOMM System to prevent interference to existing U.S.
Government systems. The Company believes that no operational Starsys satellites
will be launched until 1998 at the earliest, and that completion of the network
will not be accomplished before 2000.
One other entity has been licensed by the FCC to provide Little LEO
satellite services in the United States. Volunteers in Technical Assistance
("VITA"), a not-for-profit organization, has been licensed for one of the two
satellites for which it applied. VITA will use a small amount of uplink and
downlink spectrum to transmit health, research and scientific data on a delayed
basis between developing countries and the United States. VITA's first satellite
was destroyed in 1995 as a result of a launch vehicle failure. VITA has
requested that the FCC authorize it to launch a replacement satellite. It is
expected that the FCC will authorize VITA to launch a replacement satellite.
The Company does not expect that any of the other proposed Little LEO
systems participating in a second licensing round before the FCC will be in a
position to offer competing real time data and messaging communications services
before the year 2000. Even if the FCC were to license one or more of these other
applicants, ORBCOMM holds a substantial advantage over these potential
competitors by virtue of its having already obtained FCC licensing for all
elements of its system in the United States, by achieving, in large part,
international coordination of its designated frequencies through the ITU, and
having already designed, constructed and deployed a fully functional, end-to-end
system. Over the course of the next several years, ORBCOMM is expected to obtain
further advantages over these potential competitors by (i) launching the
remaining satellites in the ORBCOMM System, (ii) signing agreements with
additional Subscriber Communicator manufacturers, (iii) signing additional
reseller agreements through the Company, (iv) signing additional Service License
Agreements through ORBCOMM International and (v) expanding its marketing
activities generally as the ORBCOMM System matures.
Plans for other Little LEO systems have been announced in Russia, France,
Tonga, Brazil, Mexico, Uganda, Australia and Korea. However, with the sole
exception of the French candidate system, the
8
<PAGE> 11
ORBCOMM System and those of the other U.S. licensees are expected to occupy all
but a small portion of the allocated spectrum and are protected from harmful
interference from all other systems.
The Big LEO systems, which will operate LEO mobile satellite systems using
radio frequencies above 1 GHz, are not expected to be ready for real time,
uninterrupted service before 1998. In addition, all the Big LEO systems are
designed primarily to provide two-way voice services which require larger, more
complex satellites than the ORBCOMM System satellites, and larger constellations
to provide coverage. As a result, the cost of the Big LEO systems is
significantly greater than those of the ORBCOMM System. Based on filings with
the FCC, Iridium anticipates an initial service date in 1998 for a proposed
66-satellite constellation to provide voice and other communications services at
usage charges of approximately $3.00 per minute plus tail charges (land-line
extension charges). The total system cost is expected to be approximately $4.7
billion. The Globalstar system is expected to cost approximately $2.5 billion
and consists of a constellation of 48 satellites with usage charges of
approximately $0.55 per minute. The announced objective service date for the
Globalstar system is in 1998.
Satellite-based communications systems are characterized by high up-front
costs and relatively low marginal costs of providing service. A number of Big
LEO and Little LEO systems are being constructed or proposed, and while the
proponents of these systems foresee substantial demand for the services they
will provide, the actual level of demand will not become known until such
systems are constructed, launched and begin operations. Big LEO and GEO systems
are designed primarily to provide two-way voice services, which require larger,
more complex satellites and require a circuit-oriented connection over their
network to transmit even short messages, which significantly increases their
per-message cost for such short messages. However, these systems could seek to
offer services similar to those offered by the ORBCOMM System. In such case,
price competition could be intense.
The ORBCOMM System is not intended to compete directly with existing and
planned terrestrial messaging and data systems including cellular paging
systems. The Company believes that the ORBCOMM System will complement these
services, including the cellular and paging services provided by TIW or TRI,
which provide low-cost 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 some vertical markets such as field service operations and trucking, where
assets spend large portions of their operating time outside terrestrial system
coverage areas. The ORBCOMM System presents an attractive complement to
tower-based services because it can provide geographic gap-filler service at
affordable costs without the need for additional infrastructure investment.
It is expected that as terrestrial communications services expand to
regions that are underserved or not served by wireline or cellular services,
demand for ORBCOMM System service in these regions may be reduced. The Company
may also face competition in the future from companies using new technologies
and new satellite systems. A number of these new technologies, even if they are
not ultimately successful, could have an adverse effect on the Company. The
Company's business would be adversely affected if competitors begin operations
or existing or new communications service providers penetrate its target markets
before completion of the ORBCOMM System. Additionally, as with any
satellite-based system, the ORBCOMM System will function when there is an
unobstructed line-of-sight between the user and one or more of the ORBCOMM
System satellites overhead, and services will not be available inside buildings
or other similar structures. There can be no assurance that these
characteristics will not adversely affect subscriber demand for the ORBCOMM
System.
REGULATION
United States FCC Regulation
Regulatory History of ORBCOMM System. All commercial non-voice,
non-geosynchronous ("NVNG") satellite systems, including 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. agency with jurisdiction over commercial
uses of the radio spectrum. Little LEOs must obtain an authorization from the
FCC to construct and launch their satellites and to operate their satellites to
provide services in assigned spectrum segments.
9
<PAGE> 12
On February 28, 1990, OCC filed an application with the FCC for a Little
LEO system and on March 13, 1992 and May 28, 1993, the FCC awarded OCC
experimental licenses to develop and test a limited Little LEO service. These
licenses, plus other licenses previously granted to OCC, permitted the launch of
two satellites, the construction of two ground stations, the development and
production of 1,000 subscriber terminals and the marketing of revenue-producing
services.
On October 20, 1994, the FCC License was issued to OCC. Pursuant to the FCC
License, OCC was granted authority by the FCC to construct, launch and operate
an additional 34 satellites located 775 kilometers above Earth, in four inclined
orbital and two near-polar planes, for the purpose of providing two-way data and
message communications and position determination services in certain specified
segments of the radio frequency spectrum. The FCC License grants OCC the
authority to operate in certain segments of the radio frequency spectrum for its
uplink and downlink functions.
<TABLE>
<S> <C>
Uplink: 148.0-149.9 MHz
Downlink: 137.0-138.0 MHz and 400.075-400.125 MHz
</TABLE>
The FCC License is for private carriage and extends ten years from the
operational date of the first ORBCOMM satellite, FM1, which was April 3, 1995.
The milestone requirements of the FCC License mandate that OCC launch its first
two satellites by December 1998 and its remaining 34 authorized satellites by
December 2000. OCC has already met the first milestone with the launch of its
first two satellites, FM1 and FM2, in April 1995. OCC has set an aggressive
launch schedule for 26 satellites that, if successful, will result in OCC
reaching the second milestone by the end of the first quarter of 1998, subject
to receipt of FCC approval by such date in the event ORBCOMM determines not to
deploy the eight ground spares as a fourth plane. In addition, OCC is required,
three years prior to the expiration of the FCC License, to apply for a license
renewal. Although the FCC has indicated that it is inclined to grant license
renewals, it is not certain that OCC's license would be renewed should it apply.
Under the terms of a coordination agreement between Starsys and OCC, which
was incorporated into the terms of the FCC License, OCC is required to shut down
its left-hand circular polarization ("LHCP") satellite-to-subscriber downlink
channels under certain circumstances when operation of such channels would
interfere with the Starsys system. To further lessen the possibility of
co-polarization interference, OCC also agreed to modify its frequency plan to
locate its LHCP channels in the lower portion of the 137.0-138.0 MHz band.
Although this agreement only applies to OCC's domestic operations, the FCC
reserved the right to consider extending these coordination provisions to OCC's
international operations if notified of actual sharing difficulties between the
ORBCOMM System and Starsys.
In 1995, the FCC granted OCC licenses to operate four Earth stations in the
continental United States and granted OCC a blanket license to deploy up to
200,000 Subscriber Communicators. Thus, the ORBCOMM System is the only
commercial Little LEO system to be licensed fully for all segments of its system
within the United States.
Second Processing Round. On November 16, 1994, the FCC closed the
application filing period for applications for other proposed NVNG satellite
systems. There are seven NVNG applicants in the second processing round
(including OCC), each of which proposes to operate in all or part of the same
frequencies as the ORBCOMM System in the United States.
In its second round application before the FCC, OCC seeks authorization to
construct 12 more satellites to improve its high-latitude coverage over Alaska,
Canada and Europe, as well as to provide additional capacity and greater
in-orbit redundancy. This proposal would require the FCC to allocate an
additional 90 kHz of spectrum in the 137-138 MHz downlink to OCC. OCC also has
requested use of an additional 50 kHz in the 149.9-150.05 MHz band for a
worldwide gateway uplink. This spectrum, while registered to OCC, is occupied by
Russian military satellite downlinks.
Although the FCC has closed the second processing round for NVNG systems,
it has not yet licensed any of the second round applicants. On October 29, 1996,
the FCC issued a Notice of Proposed Rulemaking (the "Notice") that sets forth
proposed rules for the second licensing round for Little LEO systems. In the
Notice,
10
<PAGE> 13
the FCC indicated that there was sufficient spectrum available for only one to
three additional licensees. Due to the scarcity of spectrum, the FCC proposed to
limit the second processing round to applicants who were not licensed in the
first processing round and are not affiliated with companies licensed in the
first processing round. In addition, to the extent there are mutually exclusive
applicants in the second round, the FCC has sought comments on whether it should
conduct an auction for the available licenses. The FCC anticipates that it will
issue a final order on licensing rules by April 1997 and that it will proceed to
licensing promptly thereafter. If the FCC's proposal to limit the second
licensing round to "new" applicants is adopted and upheld, it would exclude OCC
from participation in the second round. If OCC is in fact excluded from the
second licensing round, OCC would likely only obtain additional spectrum to
provide expansion capacity for the ORBCOMM System if additional spectrum is
subsequently allocated for use by Little LEO systems.
Request for Modification of FCC License. On October 20, 1995, OCC
submitted to the FCC a request for modification of the FCC License (the
"Modification Request"), proposing to reduce each of the ORBCOMM System
satellites' subscriber downlinks operating in the 137-138 MHz band from two to
one, while changing the downlink data rate to a selectable rate of either 4.8 or
9.6 kbps, which would reduce the ORBCOMM System's overall bandwidth requirements
by 40 kHz. OCC also proposed to continue to operate at 4.8 kbps in
high-inclination planes, and at 56 kbps in the gateway downlink on all
satellites. The Modification Request would eliminate the need for OCC to shut
down its LHCP when in view of a Starsys Earth station and thus obviate many of
the restrictions imposed on the ORBCOMM System under the terms of the FCC
License. In addition, the Modification Request would facilitate coordination of
the ORBCOMM System with Russian meteorological satellites operating in this
bandwidth and could facilitate OCC's coordination efforts with the proposed
French S/80-1 satellite system. Several of the other second round applicants
have filed comments with the FCC opposing the Modification Request. The
Modification Request has now completed the public comment cycle and OCC believes
that the Modification Request will be granted within the next several months.
Should the FCC fail to grant the Modification Request, it could have a material
adverse effect on the ORBCOMM System.
International Regulation
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
International Telecommunications Union (the "ITU"). Major portions of the 137 to
150 MHz band and a narrow portion of the spectrum band at 400 MHz have been
allocated on a global basis to Little LEO systems. The specific frequency
allocations for uplink and downlink operations include the following:
<TABLE>
<S> <C>
Uplink: 148.0-149.9 MHz (1.9 MHz on a primary basis)
Downlink: 137.0-138.0 MHz (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 have been
allocated on a secondary basis in the 300 MHz band. 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 OCC's planned use of
this bandwidth complies with the regulations governing its use.
A designation of "primary" places the Little LEO systems on an equal
footing with existing users of these frequencies, subject to the provision that
they not interfere with those services or constrain their growth and, with
respect to certain countries and certain frequency bands, that the Little LEO
systems not claim protection from those other services. 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.
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
11
<PAGE> 14
obtaining interference protection from other satellite systems. The United
States through the FCC, on behalf of OCC, notified the ITU that the ORBCOMM
System was placed in service on April 3, 1995 and that it has operated without
complaints 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 and the FCC has notified (registered) the ORBCOMM
System with the ITU except for Russia and France. OCC believes that the
Modification Request would facilitate its coordination efforts with Russia and
could facilitate its coordination efforts with France. OCC expects that it will
successfully complete the ITU coordination process with Russia and with France
in 1997, at which time the ORBCOMM System will be fully registered with the ITU
and accorded protection from interference from any other subsequently developed
system.
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 government
authority.
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 has been completed successfully. The
Inmarsat treaty similarly requires both technical and economic harm
coordination. OCC was notified in October 1995 that it had successfully
completed both technical and economic coordination with Inmarsat.
EMPLOYEES
As of December 31, 1996, ORBCOMM USA had 17 full-time employees, none of
whom is subject to any collective bargaining agreement. The Company's management
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company shares approximately 31,000 square feet of office space in
Dulles, Virginia, which is leased by ORBCOMM from Orbital.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings material to its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is a Delaware limited partnership that is owned 98% by ORBCOMM
and 2% by OCC. There is no public trading market for any securities of ORBCOMM
USA. To date, no cash dividends have been paid by ORBCOMM USA to either ORBCOMM
or OCC and the Company does not intend to do so in the near future.
There are no distributions required to be made to the partners of the
Company other than a minimum annual distribution required by the Partnership
Agreement of ORBCOMM USA in the amount of (i) 40%, multiplied by the lesser of
(a) such partners distributive share of the Company's taxable income for the
preceding year, and (b) the excess, if any, of cumulative Net Income (as
defined) over cumulative Net Loss (as defined) allocated to such partner since
the inception of the Company. All other distributions are to be made at the
discretion of the partners. Pursuant to the covenants contained in the Indenture
dated August 7,
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<PAGE> 15
1996 among ORBCOMM, Capital, ORBCOMM USA, ORBCOMM International, OCC, Teleglobe
Mobile and Marine Midland Bank, as trustee (the "Indenture") governing the
Notes, no additional cash distributions are permitted to be made to the partners
of the Company other that those distributions that satisfy the requirements of
the various limitations on "Restricted Payments" contained in the Indenture.
ITEM 6. SELECTED FINANCIAL DATA
The following selected income and expense data of ORBCOMM USA for the years
ended December 31, 1994, 1995 and 1996 and the selected balance sheet data of
ORBCOMM USA at December 31, 1993, 1994, 1995 and 1996 have been derived from the
audited financial statements of ORBCOMM USA. The selected financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements of ORBCOMM USA and notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1993(1) 1994 1995 1996
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Income and Expense Data:
Total income(2)....................... $749,262 $2,093,289 $1,360,328 $ 240,248
Excess (deficiency) of income over
expenses........................... 0 0 (870,684) (3,005,758)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................................ $10,000 $10,000 $ 10,000 $ 53,932
Long-term debt.............................. 0 0 0 0
Partners' capital........................... 10,000 10,000 (860,684) (3,866,442)
</TABLE>
- ---------------
(1) For the period June 30, 1993 (date of inception) through December 31, 1993.
(2) ORBCOMM USA is a development stage enterprise and had no significant system
revenue.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In 1993, the Company was formed by Orbital, acting through OCC, and
Teleglobe, acting through Teleglobe Mobile. The Company was formed to serve as a
marketing partnership, with the exclusive right to market the ORBCOMM System in
the United States. In 1995, ORBCOMM became a 98% general and limited partner in
the Company, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely.
On August 7, 1996, ORBCOMM and Capital completed the Old Notes Offering. In
January 1997, all of the Old Notes were exchanged for the Notes, which are
substantially similar to the Old Notes, except that the Notes are registered
under the Securities Act of 1933, as amended. The Notes are fully and
unconditionally guaranteed on a joint and several basis by OCC, Teleglobe
Mobile, ORBCOMM USA and ORBCOMM International, except that the guarantees are
nonrecourse 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.
ORGANIZATIONAL STRUCTURE; FINANCIAL REPORTING
Pursuant to the terms of the Partnership Agreement of ORBCOMM USA, OCC
generally controls the operational and financial affairs of ORBCOMM USA.
ORBCOMM USA pays to OCC an Output Capacity Charge that is a quarterly fee
equal to 23% of its total service revenues for such calendar quarter in exchange
for the exclusive right to market, sell, lease and
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<PAGE> 16
franchise all ORBCOMM System output capacity in the United States and exclusive
use of the tangible assets (including software) to be delivered to ORBCOMM
pursuant to certain procurement agreements (the "System Assets") located in the
United States. In consideration of the construction and financing of the System
Assets, OCC, in turn, pays to ORBCOMM a System Charge that is a quarterly fee
equal to the Output Capacity Charge minus 1.15% of Total Aggregate Revenues,
defined as the total of ORBCOMM USA and ORBCOMM International total system
service revenues.
SERVICE ROLL-OUT
The roll-out of ORBCOMM System services will occur in two stages.
Commercial intermittent service commenced in the United States in February 1996.
ORBCOMM USA serves several U.S. market segments that can benefit from
intermittent data communications services, such as oil and gas pipeline
monitoring, certain environmental monitoring, and tracking and positioning
applications. As additional satellites are added to the constellation, it will
become possible to serve additional market segments such as certain messaging
applications that require real time services. Two additional satellites are
planned to be launched on a Taurus launch vehicle and an additional eight
satellites are planned to be launched on a Pegasus XL launch vehicle during the
third quarter of 1997. Service outside the United States will be provided as
International Licensees receive regulatory approval and build network ground
systems.
To facilitate the introduction and development of commercial service,
ORBCOMM procured several thousand Subscriber Communicators from certain of its
Subscriber Communicator manufacturers. In addition, ORBCOMM USA provides
subscriber communicator hardware to commercial customers. ORBCOMM believes that
this inventory will be sufficient to support certain market sales activities
into the second half of 1997.
REVENUE
During the period of commercial intermittent service, ORBCOMM USA is
building an initial base of subscribers in the United States through the
negotiation and execution of agreements with Resellers. Resellers purchase
ORBCOMM System services directly from ORBCOMM USA and resell these services to
end-users in a specific industry and/or market.
In the United States, service pricing is based on many variables, including
the availability and cost of substitute services, the cost of providing service
and the nature of the user application. Pricing generally incorporates an
initial registration charge, a recurring monthly charge for access to the
ORBCOMM System and usage charges based on the customer's activity. In charging
for registration, access and usage, ORBCOMM USA has developed a pricing
structure in the United States that suits the initial markets addressed by the
existing two-satellite system. Priority and other real time messaging pricing
will be developed as the full deployment of satellites in the ORBCOMM System
occurs. 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.
RESULTS OF OPERATIONS -- ORBCOMM USA
Income. In 1994 and 1995, ORBCOMM USA performed marketing activities for
the U.S. market pursuant to a contract with OCC (the "System Charge Agreement"),
whereby OCC reimbursed ORBCOMM USA for all marketing costs incurred.
Accordingly, ORBCOMM USA recognized contract revenues of approximately
$2,093,000 and $1,360,000 for the years ended December 31, 1994 and 1995,
respectively. The U.S. marketing service portion of the System Charge Agreement
expired in 1995. During 1996, ORBCOMM USA recognized its first revenues relating
to the provision of products and services of approximately $240,000.
Expenses. ORBCOMM USA incurred approximately $2,984,000 of marketing and
administrative expenses and $262,000 of cost of product sales for the year ended
December 31, 1996, once the ORBCOMM System began operations. Pursuant to the
System Charge Agreement, ORBCOMM USA incurred contract
14
<PAGE> 17
marketing costs of approximately $2,093,000 and $1,360,000 for the years ended
December 31, 1994 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
ORBCOMM USA is currently in development stage and obtains funds to support
operations through non-interest bearing advances from ORBCOMM.
Payments by OCC to the Company for U.S. marketing services were based on
the Company's monthly costs incurred. ORBCOMM USA received approximately
$2,093,000, $1,360,000 and $0, from OCC as reimbursement of costs for U.S.
marketing services for the years ended December 31, 1994, 1995 and 1996,
respectively.
The Notes contain a revenue participation feature providing for payment by
ORBCOMM, on each interest payment date, of interest ("Revenue Participation
Interest") in an aggregate amount equal to 5.0% of System Revenue (as defined in
the Indenture) for the six-month period ending on December 31 or June 30 most
recently completed prior to such interest payment date. ORBCOMM is not required
to pay any Revenue Participation Interest, however, until the Credit Parties
Fixed Charge Coverage Ratio (as defined in the Indenture) for the four
consecutive fiscal quarters last completed prior to such interest payment date
equals or exceeds 2.0:1. The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International. The guarantees are nonrecourse to the shareholders and/or
partners of the guarantors.
There are no distributions required to be made to the partners of the
Company other than a minimum annual distribution required by the ORBCOMM USA
Partnership Agreement in the amount of (i) 40%, multiplied by the lesser of (a)
such partners' distributive share of the Company's taxable income for the
preceding year, and (b) the excess, if any, of cumulative Net Income (as
defined) over cumulative Net Loss (as defined) allocated to such partner since
the inception of the Company. All other distributions are to be made at the
discretion of the partners. See Item 13, The Partnership Agreement --
Allocations and Distributions. Pursuant to the covenants contained in the
Indenture, no additional cash distributions are permitted to be made to the
partners of the Company other that those distributions that satisfy the
requirements of the various limitations on "Restricted Payments" contained in
the Indenture. To the extent that such requirements are met and the partners
receive additional cash distributions from the Company beyond that required by
the ORBCOMM USA Partnership Agreement, this could negatively impact the
Company's liquidity.
15
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ORBCOMM USA, L.P.
Independent Auditors' Report.............................. 18
Balance Sheets as of December 31, 1995 and 1996........... 19
Statements of Income and Expenses for the Years Ended
December 31, 1994, 1995 and 1996 and Total Accumulated
During Development Stage through December 31, 1996..... 20
Statements of Partners' Capital for the Years Ended
December 31, 1993, 1994, 1995 and 1996................. 21
Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996 and Total Cash Flows During
Development Stage through December 31, 1996............ 22
Notes to Financial Statements............................. 23
</TABLE>
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<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM USA, L.P.:
We have audited the accompanying balance sheets of ORBCOMM USA, L.P.
("ORBCOMM USA") (a development stage enterprise) as of December 31, 1996 and
1995, and the related statements of income and expenses, partners' capital, and
cash flows for each of the years in the three year period ended December 31,
1996 and for the period from June 30, 1993 (date of inception) to December 31,
1996. These financial statements are the responsibility of ORBCOMM USA's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ORBCOMM USA (a development
stage enterprise) as of December 31, 1996 and 1995, and the results of its
income and expenses and its cash flows for each of the years in the three year
period ended December 31, 1996 and for the period from June 30, 1993 (date of
inception) to December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, DC
January 31, 1997
17
<PAGE> 20
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,000 $ 0
Receivable -- Orbital Communications Corporation.......... 0 9,427
Accounts receivable....................................... 0 44,505
--------- -----------
TOTAL ASSETS...................................... $ 10,000 $ 53,932
========= ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable.......................................... $ 177,100 $ 120,089
Other current liabilities................................. 32,230 222,061
--------- -----------
Total Current Liabilities.............................. 209,330 342,150
Amount due to ORBCOMM Global, L.P. ....................... 661,354 3,578,224
--------- -----------
Total Liabilities...................................... 870,684 3,920,374
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Orbital Communications Corporation........................ (17,214) (77,329)
ORBCOMM Global, L.P....................................... (843,470) (3,789,113)
--------- -----------
Total Partners' Capital................................ (860,684) (3,866,442)
--------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $ 10,000 $ 53,932
========= ===========
</TABLE>
(See accompanying notes to the financial statements)
18
<PAGE> 21
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF INCOME AND EXPENSES
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEAR ENDED DECEMBER 31, STAGE THROUGH
--------------------------------------- DECEMBER 31,
1994 1995 1996 1996
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
INCOME:
Product sales........................ $ 0 $ 0 $ 229,236 $ 229,236
Contract revenues.................... 2,093,289 1,360,328 0 4,202,879
Service revenues..................... 0 0 11,012 11,012
---------- ---------- ----------- ------------
Total Income...................... 2,093,289 1,360,328 240,248 4,443,127
EXPENSES:
Cost of product sales................ 0 0 262,120 262,120
Marketing and administrative
expenses.......................... 2,093,289 2,231,012 2,983,886 8,057,449
---------- ---------- ----------- ------------
Total Expenses.................... 2,093,289 2,231,012 3,246,006 8,319,569
---------- ---------- ----------- ------------
EXCESS (DEFICIENCY) OF INCOME OVER
EXPENSES............................. $ 0 $ (870,684) $(3,005,758) $ (3,876,442)
========== ========== =========== ============
</TABLE>
(See accompanying notes to the financial statements)
19
<PAGE> 22
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS ORBCOMM
PARTNERS CORPORATION GLOBAL, L.P. TOTAL
--------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Capital contributions..................... $ 1,500 $ 8,500 $ 0 $ 10,000
Excess (deficiency) of income over
expenses............................... 0 0 0 0
------- -------- ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1993........ 1,500 8,500 0 10,000
Excess (deficiency) of income over
expenses............................... 0 0 0 0
------- -------- ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1994........ 1,500 8,500 0 10,000
Capital transfer.......................... (1,500) (8,300) 9,800 0
Excess (deficiency) of income over
expenses............................... 0 (17,414) (853,270) (870,684)
------- -------- ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1995........ 0 (17,214) (843,470) (860,684)
Excess (deficiency) of income over
expenses............................... 0 (60,115) (2,945,643) (3,005,758)
------- -------- ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1996........ $ 0 $(77,329) $(3,789,113) $(3,866,442)
======= ======== =========== ===========
</TABLE>
(See accompanying notes to the financial statements)
20
<PAGE> 23
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TOTAL CASH
FLOWS DURING
DEVELOPMENT
YEAR ENDED DECEMBER 31, STAGE THROUGH
--------------------------------- DECEMBER 31,
1994 1995 1996 1996
------- --------- ----------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess (deficiency) of income over
expenses................................ $ 0 $(870,684) $(3,005,758) $(3,876,442)
ADJUSTMENTS TO RECONCILE EXCESS
(DEFICIENCY) OF INCOME OVER EXPENSES TO
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES:
Increase in receivable -- Orbital
Communications Corporation............ 0 0 (9,427) (9,427)
Increase in accounts receivable......... 0 0 (44,505) (44,505)
Increase (decrease) in accounts
payable............................... 0 177,100 (57,011) 120,089
Increase in other current liabilities... 0 32,230 189,831 222,061
------- --------- ----------- -----------
NET CASH USED IN OPERATING
ACTIVITIES......................... 0 (661,354) (2,926,870) (3,588,224)
------- --------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in amount due to ORBCOMM Global,
L.P..................................... 0 661,354 2,916,870 3,578,224
Partners' contribution..................... 0 0 0 10,000
------- --------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES......................... 0 661,354 2,916,870 3,588,224
------- --------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.... 0 0 (10,000) 0
CASH AND CASH EQUIVALENTS:
Beginning of period........................ 10,000 10,000 10,000 0
------- --------- ----------- -----------
CASH AND CASH EQUIVALENTS:
End of period.............................. $10,000 $ 10,000 $ 0 $ 0
======= ========= =========== ===========
</TABLE>
(See accompanying notes to the financial statements)
21
<PAGE> 24
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) THE ORBCOMM SYSTEM
Organization
In 1993, Orbital Communications Corporation ("OCC"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the
"Company"), a Delaware limited partnership. OCC and Teleglobe Mobile 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 General
Partner interest to 2% and eliminating Teleglobe Mobile's interest entirely.
Pursuant to the terms of the Agreement of Limited Partnership of ORBCOMM
USA between OCC and ORBCOMM, action by ORBCOMM USA generally requires the
approval of General Partners holding a majority of the participating percentages
held by the General Partners, with OCC and Teleglobe Mobile each voting their
direct and indirect participation percentages as a whole. OCC and Teleglobe
Mobile each currently holds 51% and 49%, respectively, of the direct and
indirect participation percentages of ORBCOMM USA. Accordingly, ORBCOMM USA's
financial statements are included in OCC's consolidated financial statements.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. ORBCOMM intends to construct and
implement the initial 28 satellite ORBCOMM System in two phases: the ORBCOMM
Phase 1A System, consisting of the worldwide network control center (including
the satellite management system), the U.S. Gateway control center, four U.S.
Earth stations and two satellites; and the ORBCOMM Phase 1B System, consisting
of the ORBCOMM Phase 1A System, three additional planes each consisting of eight
satellites and one plane consisting of two high-inclination satellites.
Orbital is the primary supplier of the communications satellites, launch
vehicles and U.S. ground systems and successfully launched the ORBCOMM Phase 1A
System satellites in April 1995. The ORBCOMM Phase 1A System began commercial
intermittent service in early 1996.
The Output Capacity Charge and the U.S. Marketing Services
Pursuant to the terms of the System Charge Agreement between OCC and
ORBCOMM USA, ORBCOMM USA has agreed to pay OCC an Output Capacity Charge that is
a quarterly fee equal to 23% of its total aggregate service revenues for such
calendar quarter in exchange for the exclusive right to market, sell, lease and
franchise all ORBCOMM System output capacity in the United States and for the
exclusive use of the System Assets in the United States.
Additionally, pursuant to the terms of the System Charge Agreement, through
September 12, 1995 ORBCOMM USA furnished all management, labor, facilities and
material necessary to perform, on a best efforts basis, certain marketing
services in the United States (the "U.S. Marketing Services"), on a cost-
reimbursable basis. The U.S. Marketing Services portion of the System Charge
Agreement expired on September 12, 1995.
22
<PAGE> 25
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) THE ORBCOMM SYSTEM -- (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
the various International Licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
ORBCOMM USA is in its development stage, devoting substantially all of its
efforts to establishing commercial and governmental markets in the United States
for the ORBCOMM System. ORBCOMM USA's planned principal operations are expected
to commence in 1998. The accompanying financial statements of ORBCOMM USA have
been prepared on the accrual basis of accounting in conformity with generally
accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
in the accompanying financial statements.
Cash and Cash Equivalents
ORBCOMM USA considers all highly liquid investments with maturities of
three months or less to be cash equivalents.
Revenue Recognition
ORBCOMM USA provides subscriber communicator hardware to commercial
customers. Revenue is recognized when products are shipped or when customers
have accepted the products or services, depending on contractual terms. Through
September 1995, ORBCOMM USA provided U.S. Marketing Services to OCC on a
cost-reimbursable basis.
(3) RELATED PARTY TRANSACTIONS
Payments by OCC to ORBCOMM USA for U.S. Marketing Services were based on
ORBCOMM USA's monthly costs incurred. For the years ended December 31, 1994,
1995 and 1996, ORBCOMM USA received approximately $2,093,000, $1,360,000, and
$0, respectively, and approximately $749,000 from June 30, 1993 (date of
inception) through December 31, 1993, from OCC as reimbursement of costs for
U.S. Marketing Services.
At December 31, 1995 and 1996, ORBCOMM USA had a payable of approximately
$661,000 and $3,578,000, respectively, to ORBCOMM for amounts advanced to
support ORBCOMM USA commercial
23
<PAGE> 26
ORBCOMM USA, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATED PARTY TRANSACTIONS -- (CONTINUED)
and government markets. ORBCOMM USA is currently in development stage and
obtains funds to support operations through non-interest bearing advances from
ORBCOMM.
At December 31, 1996, ORBCOMM USA had a receivable of approximately $9,400
for bonus payments to ORBCOMM USA employees paid on behalf of OCC for employees
previously employed by OCC (none for the year ending December 31, 1995).
(4) COMMITMENTS AND CONTINGENCIES
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. (the "Issuers")
issued $170,000,000 of Senior Notes due in full in 2004 with Revenue
Participation Interest (the "Old Notes"). Revenue Participation Interest
represents an aggregate amount equal to 5% of the ORBCOMM System revenue and is
payable on the Old Notes on each interest payment date subject to certain
covenant restrictions. Interest on the Old Notes accrues at a rate of 14% per
annum and will be payable semi-annually in arrears on February 15 and August 15
of each year, commencing on February 15, 1997.
All of the Old Notes have been exchanged for an equal principal amount of
registered 14% Series B Senior Notes due in full in 2004 with Revenue
Participation Interest (the "Notes"). The Notes are substantially similar to the
Old Notes except that the Notes are registered under the Securities Act of 1933,
as amended, and do not bear legends restricting the transfer thereof. The Notes
are fully and unconditionally guaranteed on a joint and several basis by OCC,
Teleglobe Mobile, ORBCOMM USA and ORBCOMM International (each a "Guarantor" and
collectively the "Guarantors"), except that the guarantees are non-recourse to
the shareholders and/or partners of the Guarantors, limited only to the extent
necessary for each such guarantee not to constitute a fraudulent conveyance
under applicable law. The guarantee of each Guarantor ranks pari passu in right
of payment with all senior indebtedness of such Guarantor and senior in right of
payment to all indebtedness expressly subordinated to the guarantee of such
Guarantor. The guarantees are non-recourse to the shareholders and/or partners
of each Guarantor and no shareholders or partners of any Guarantors will have
any liability for any claim under the Notes.
On closing, ORBCOMM used a portion of the net proceeds from the sale of the
Old Notes, approximately $44,800,000, to purchase a portfolio of United States
Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998.
24
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership Agreement of ORBCOMM USA provides that the management of
ORBCOMM USA is the exclusive responsibility of the General Partners. Officers of
ORBCOMM USA are nominated by the President of ORBCOMM USA and elected by the
General Partners and exercise such authority as they are granted by the General
Partners.
EXECUTIVE OFFICERS
The following table sets forth information as of December 31, 1996
regarding the executive officers of ORBCOMM USA.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan L. Parker.............. 57 President
Robert J. Pizzimenti........ 48 Executive Vice President, Marketing and Business
Development
W. Bartlett Snell........... 44 Vice President and Treasurer
Mary Ellen Seravalli........ 38 Vice President and Secretary
</TABLE>
Alan L. Parker has been the President of ORBCOMM USA since January 1994.
Mr. Parker has also been the President of ORBCOMM since January 1994 and Chief
Executive Officer of ORBCOMM since February 1996. Mr. Parker was previously, and
continues to be, the President of OCC. Mr. Parker was a member of the U.S.
delegation to World Administrative Radio Conference '92 and the 1993 and 1995
World Radio Conferences ("WRC"). Mr. Parker's experience includes 25 years with
Ford Aerospace and Ford Motor Company. Mr. Parker served as Chairman and CEO of
Ford Aerospace Satellite Services Corporation from 1982 to 1986 and was Vice
President of Marketing and Business Planning of Ford Aerospace Corporation from
1976 to 1986. Prior to 1976, 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 J. Pizzimenti has been the Executive Vice President, Marketing and
Business Development of ORBCOMM USA since June 1996 and Executive Vice
President, Marketing and Business Development of ORBCOMM since April 1994. Prior
to April 1994, Mr. Pizzimenti was Vice President of Marketing for Iridium, Inc.
Mr. Pizzimenti has over 20 years of experience in wireless communications and
international business development. During the 1980s, Mr. Pizzimenti served as
Ericsson Radio Systems' North American Marketing Manager, and as President of
Ericsson Paging Systems, North America. Mr. Pizzimenti also has served as Vice
President of Marketing for Metro One, the non-wireline cellular system serving
New York and New Jersey. Mr. Pizzimenti has participated in a variety of
industry associations and committees, including the Telocator POCSAG
Coordination Initiative.
W. Bartlett Snell has been the Vice President and Treasurer of ORBCOMM USA
since June 1996. Mr. Snell has also been the Senior Vice President, Finance and
Administration and the Chief Financial Officer of ORBCOMM since February 1996.
From 1993 to 1996, Mr. Snell was President and Chief Executive Officer of Power
Source 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
25
<PAGE> 28
Corporation. Mr. Snell is a member of both the Northern Virginia Business Round
Table and the Northern Virginia Technology Council.
Mary Ellen Seravalli has been the Vice President and Secretary of ORBCOMM
USA since June 1996 and was the Secretary of ORBCOMM USA from January 1994 to
June 1996. Ms. Seravalli has also been the Vice President and General Counsel of
ORBCOMM since January 1996. From 1991 to 1995, Ms. Seravalli was Assistant
General Counsel of Orbital and from January 1995 to December 1995, she was also
a Vice President of Orbital. Prior to 1991, Ms. Seravalli was an associate in
the law firm of Jones, Day, Reavis & Pogue, where she worked on mergers and
acquisitions, with an emphasis on the telecommunications industry, and where she
gained significant experience representing both lenders and borrowers in
connection with the establishment of various types of credit facilities.
PARTNER REPRESENTATION
Pursuant to the Partnership Agreement of ORBCOMM USA, each General Partner
is represented at the meetings of the General Partners by up to three authorized
representatives. Each General Partner may by notice to the other change its
designated authorized representatives. Set forth below is information as of
December 31, 1996 regarding each of the General Partners' representatives.
OCC:
David W. Thompson, 42, is a director of OCC. Mr. Thompson also is a
co-founder of Orbital and has been its Chairman, President and Chief Executive
Officer since 1982. Prior to 1982, Mr. Thompson was Special Assistant to the
President of Hughes Aircraft Company's Missile Systems Group and was a NASA
project manager and engineer on advanced rocket engines at Marshall Space Flight
Center and on the Viking Mars landing missions at the Jet Propulsion Laboratory.
Bruce W. Ferguson, 42, is the Chairman and is a director of OCC. Mr.
Ferguson also is a co-founder of Orbital and has been Executive Vice President
and General Manager, Communications and Information Services Group since 1993.
Mr. Ferguson was Executive Vice President and Chief Operating Officer of Orbital
from 1989 to 1993, Senior Vice President, Finance and Administration and General
Counsel from 1985 to 1989 and Vice President, Finance and General Counsel from
1982 to 1985. Before co-founding Orbital, Mr. Ferguson was an attorney in the
corporate and securities department of the law firm of Kirkland & Ellis. Mr.
Ferguson is a director of Superconducting Core Technologies, Inc.
Jeffrey V. Pirone, 36, is the Vice President and Chief Financial Officer of
OCC. Mr. Pirone also is the Senior Vice President and Chief Financial Officer of
Orbital. Mr. Pirone came to Orbital in 1991, and prior to that was a Senior
Manager at KPMG Peat Marwick LLP.
Teleglobe Mobile:
Claude Seguin, 47, is the Chairman of the Board and Chief Executive Officer
of Teleglobe Mobile Investment Inc., the managing partner of Teleglobe Mobile.
He is also the Executive Vice-President, Finance and Corporate Development and
Chief Financial Officer of Teleglobe. Mr. Seguin served the Quebec Finance
Ministry as deputy minister from 1987 to 1992. He was responsible for all
departmental activities relating to Quebec's budgetary, fiscal and economic
policies and was also in charge of financing and treasury operations for the
entire government of Quebec. Mr. Seguin sits on the boards of La Societe
financiere Desjardins Laurentienne and La Societe generale de financement du
Quebec. He is also a former governor of the Montreal Exchange.
Marc J.E. Leroux, 45, is Vice President, Technology of Teleglobe and
President and Chief Operating Officer of Teleglobe's World Mobility Division.
Prior to joining Teleglobe in 1992, Mr. Leroux directed a wide range of research
and development projects at Bell-Northern Research, a subsidiary of Northern
Telecom.
Jean-Paul Tardif, 36, is Director, Financial Planning and Projects at
Teleglobe. From 1990 until he joined Teleglobe in early 1996, Mr. Tardif held
the position of Director, Planning and Special Projects Group at Telesystem
Ltd., a private holding company, and the position of Treasurer at Telesystem
International
26
<PAGE> 29
Wireless Services Ltd., a paging and cellular operator with businesses in
several countries around the world. Prior to that, Mr. Tardif was a management
consultant specialized in financial analysis and business valuation with
Raymond, Chabot, Martin, Pare, a Quebec-based accounting firm.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
No compensation was received by any of the officers of the Company by
virtue of serving as an officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth certain information regarding the beneficial
ownership of the partnership interests of the Company as of March 1, 1997.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS INTEREST
---------------- ----------
<S> <C>
ORBCOMM Global, L.P....................................... 98%
21700 Atlantic Boulevard
Dulles, Virginia 20166
Orbital Communications Corporation........................ 2%
21700 Atlantic Boulevard
Dulles, Virginia 20166
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SYSTEM CHARGE AGREEMENT
OCC and ORBCOMM USA have entered into the System Charge Agreement, restated
as of September 12, 1995, for the purpose of providing for the use by ORBCOMM
USA of all of the output capacity of the ORBCOMM System within the United States
and for the exclusive use by ORBCOMM USA of certain System Assets located within
the United States. The term of the System Charge Agreement commenced on June 30,
1993 and continues until June 30, 2013.
Exclusive Use of U.S. System Capacity. OCC has granted to ORBCOMM USA the
exclusive right in the United States to market, sell, lease and franchise all
ORBCOMM System output capacity and exclusive use of the System Assets located in
the United States. ORBCOMM USA is permitted to grant ORBCOMM International use
of the U.S. Gateway for the limited purpose of operating the ORBCOMM System in
Canada, Mexico and any other country proximate to the United States.
Notwithstanding these provisions of the System Charge Agreement, OCC has
retained all rights in and to, and ORBCOMM USA has been granted no rights to,
the ORBCOMM System.
Output Capacity Charge. In consideration of the grant by OCC to ORBCOMM
USA of the exclusive right to market, sell, lease and franchise all ORBCOMM
System output capacity in the United States, ORBCOMM USA agrees: (i) within 30
days of the end of each calendar quarter, to notify OCC of the total aggregate
revenues invoiced by it during such calendar quarter; and (ii) to remit to OCC
23% of the total aggregate revenues invoiced by it during each calendar quarter.
ORBCOMM USA retains sole discretion to set the fees to be paid by its
subscribers, Resellers and licensees for use of the ORBCOMM System.
Indemnification. OCC and ORBCOMM USA agree to indemnify, defend and hold
harmless each other and their respective successors and assigns against any
liability, damage, loss or expense incurred by or imposed upon them in
connection with any claims, suits, actions, demands or judgments arising out of
any breach of the party's obligations under the System Charge Agreement. In
addition, OCC agrees to indemnify and hold harmless ORBCOMM USA and its
respective successors and assigns from and against any claim with respect to an
infringement or other violation of any copyright, trademark or patent or other
validly registered enforceable intellectual property right of any third party
for any items OCC has authorized
27
<PAGE> 30
ORBCOMM USA to use under the System Charge Agreement (but only to the same
extent as the indemnification received by OCC from ORBCOMM, if any, under the
terms of the System Construction Agreement).
PROPRIETARY INFORMATION AND NON-COMPETITION AGREEMENT
ORBCOMM, Orbital, OCC, Teleglobe, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International have entered into the Proprietary Information and Non-Competition
Agreement, restated as of September 12, 1995, 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.
Orbital and Teleglobe entered into the agreement for the additional purpose of
prohibiting direct competition between the two entities in the provision of
certain LEO satellite services during the term of the agreement and for a period
of one year thereafter.
Orbital and Teleglobe agree that for the duration of the agreement and for
one year thereafter, they will not, directly or indirectly or in any capacity,
except in connection with the fulfillment of their respective obligations under
any of the Definitive Agreements: (i) carry on, engage, participate, invest or
have an equity or any financial interest in the marketing, construction,
development or management of any business or enterprise that competes with
Orbital or Teleglobe or their respective affiliates in offering commercial, LEO
non-voice satellite communications services operating in the 137-150 MHz band or
such other frequency allocated to the Little LEO mobile satellite service below
1 GHz, provided, however, OCC and Orbital are permitted to: (a) sell satellites,
launch vehicles, launch services and communications services to non-commercial
entities without limitation; and (b) provide all other entities up to two
satellites every two years and launch vehicles or launch services for up to two
satellites every two years; (ii) assist in or influence the hiring by any person
who competes with Orbital or Teleglobe or their respective affiliates of any
salesman, distributor, or employee of Orbital or Teleglobe or their respective
affiliates, or otherwise cause any person having a business relationship with
Orbital or Teleglobe or their respective affiliates to sever such relationship;
or (iii) employ any person to work on or represent the ORBCOMM System who will
also work on or represent another mobile communications system, without first
notifying the President of ORBCOMM.
Neither of Orbital or Teleglobe will be in default of its obligations under
this portion of the Proprietary Information and Non-Competition Agreement by
virtue of holding for portfolio purposes as a passive investor no more than 5%
of the issued and outstanding public equity securities of a corporation.
Indemnification. Orbital and Teleglobe agree to indemnify and save
harmless one another and their respective affiliates (an "Indemnified Party")
from and against any claims, demands, actions, causes of action, judgments,
damages, losses, liabilities, costs or expenses that may be made against any of
them as a result of, arising out of or relating to any violation, contravention
or breach of the Proprietary Information and Non-Competition Agreement by a
party who is not an Indemnified Party.
Termination. The Proprietary Information and Non-Competition Agreement
shall terminate upon the earlier of OCC or Teleglobe Mobile ceasing to be both a
general and a limited partner of ORBCOMM.
ADMINISTRATIVE SERVICES AGREEMENT
Under the terms of the Administrative Services Agreement, dated as of
September 12, 1995, Orbital has agreed to provide ORBCOMM defined office space
for a total price of $15,200 per month. Expenses associated with providing these
services to ORBCOMM USA are allocated by ORBCOMM to ORBCOMM USA. Orbital also
has agreed to provide ORBCOMM with certain occupancy services for a fixed
monthly price of $50,000. The services includes security and facilities support,
MIS, telephone switchboard and communication services and other support
services. Orbital provides various administrative services to ORBCOMM for a
fixed monthly fee of $15,000, including accounting support, payroll processing,
miscellaneous purchasing services and personnel services. Orbital also extends
to ORBCOMM employees (to the extent possible) participation in various benefit
and insurance plans. Orbital also has agreed to provide to ORBCOMM executive
management services payable on a time and materials basis, limited to $9,000 per
month.
28
<PAGE> 31
The Administrative Services Agreement continues in effect so long as any
category of services are being provided by Orbital, provided that ORBCOMM has
the right to terminate all or part of the services being provided upon 90 days
prior notice to Orbital, subject, in a case of a termination of services within
a specific category of services, to an agreement on the price to perform the
remaining services. The prices for the services are fixed through the end of
1996. The parties will negotiate the prices for such services and office space
for subsequent years, provided that prices for 1997 will not be more than 10%
higher than the prices in effect in 1996.
The parties are in the process of renegotiating the terms and conditions of
the Administrative Services Agreement so that the amounts paid by ORBCOMM to
Orbital are approximately equal to the actual costs incurred by Orbital in
providing the services specified in the Administrative Services Agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
2. Financial Statement Schedules.
The financial statements listed in the index to the Financial
Statements that appears on page 24 of this Report on Form 10-K are
filed as part of this Report.
Financial statement schedules have been omitted because they are
inapplicable or are not required.
3. Exhibits
The exhibits to this Report on Form 10-K are listed under Item
14(c) below.
(b) Reports on Form 8-K
The Company has not previously been required to file a Report on Form
8-K under the Act.
(c) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- ----------------------
<S> <C>
(a) 2 Purchase Agreement, dated as of August 2, 1996, by and among
ORBCOMM Global, L.P., ORBCOMM Global Capital Corp., ORBCOMM
USA, L.P., ORBCOMM International Partners, L.P., Orbital
Communications Corporation, Teleglobe Mobile Partners, Bear
Stearns & Co. Inc., J.P. Morgan Securities Inc. and RBC
Dominion Securities Company.
3 Organizational Documents.
(a) 3.3 Certificate of Limited Partnership of ORBCOMM USA, L.P.
(a) 3.4 Restated Agreement of Limited Partnership of ORBCOMM USA,
L.P.
(a) 4 Indenture, dated as of August 7, 1996, by and among ORBCOMM
Global, L.P., ORBCOMM Global Capital Corp., ORBCOMM USA,
L.P., ORBCOMM International Partners, L.P., Orbital
Communications Corporation, Teleglobe Mobile Partners and
Marine Midland Bank.
10 Material Contracts.
(a)10.1 Registration Rights Agreement, dated as of August 7, 1996,
by and among ORBCOMM Global, L.P., ORBCOMM Global Capital
Corp., ORBCOMM USA, L.P., ORBCOMM International Partners,
L.P., Orbital Communications Corporation, Teleglobe Mobile
Partners, Bear, Stearns & Co. Inc., J.P. Morgan Securities
Inc. and RBC Dominion Securities Corporation.
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- ----------------------
<S> <C>
(a)10.6 Proprietary Information and Non-Competition Agreement,
restated as of September 12, 1995, by and among ORBCOMM
Global, L.P., Orbital Sciences Corporation, Orbital
Communications Corporation, Teleglobe Inc., Teleglobe
Mobile Partners, ORBCOMM USA, L.P. and ORBCOMM
International Partners, L.P.
(a)10.7 System Charge Agreement, restated as of September 12, 1995,
by and between Orbital Communications Corporation and
ORBCOMM USA, L.P.
* 27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed Herewith.
(a) Incorporated by reference to the identically numbered exhibit to the
Registration Statement on Form S-4 of ORBCOMM Global, L.P., as amended (Reg.
No. 333-11149).
30
<PAGE> 33
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DULLES, COMMONWEALTH OF VIRGINIA, ON JUNE 25, 1998.
ORBCOMM USA, L.P.
By: ORBITAL COMMUNICATIONS
CORPORATION, a general partner
By: /s/ ALAN L. PARKER
---------------------------------
ALAN L. PARKER
PRESIDENT
By: ORBCOMM GLOBAL, L.P., a general
partner
By: ORBITAL COMMUNICATIONS
CORPORATION, a general partner
By: /s/ ALAN L. PARKER
---------------------------------
ALAN L. PARKER
PRESIDENT
By: TELEGLOBE MOBILE PARTNERS,
a general partner
By: TELEGLOBE MOBILE INVESTMENT
INC., its managing partner
By: /s/ CLAUDE SEGUIN
--------------------------------
CLAUDE SEGUIN
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
31
<PAGE> 34
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report on Form 10-K has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ALAN L. PARKER President of ORBCOMM USA, L.P. June 25, 1998
- --------------------------------------------------- (Principal Executive Officer)
ALAN L. PARKER
/s/ W. BARTLETT SNELL Vice President and Treasurer of June 25, 1998
- --------------------------------------------------- ORBCOMM USA, L.P. (Principal
W. BARTLETT SNELL Financial Officer and Principal
Accounting Officer)
/s/ DAVID W. THOMPSON Director, Orbital June 25, 1998
- --------------------------------------------------- Communications Corporation
DAVID W. THOMPSON
/s/ BRUCE W. FERGUSON Director, Orbital June 25, 1998
- --------------------------------------------------- Communications Corporation
BRUCE W. FERGUSON
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 44,505
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,932
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 53,932
<CURRENT-LIABILITIES> 342,150
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,866,442<F1>
<TOTAL-LIABILITY-AND-EQUITY> 53,932
<SALES> 229,236
<TOTAL-REVENUES> 240,248
<CGS> 262,120
<TOTAL-COSTS> 3,246,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,005,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,005,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,005,758)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Represents Total Partners' Capital
</FN>
</TABLE>
