1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number: 333-11149
ORBCOMM GLOBAL, L.P.
ORBCOMM GLOBAL CAPITAL CORP.
(Exact Name of Registrants as Specified in their Charters)
54-1698039
DELAWARE 54-1841164
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization of Registrants) Identification Nos.)
21819 ATLANTIC BOULEVARD
DULLES, VIRGINIA 20166
(Address of Registrants' Principal Executive Offices)
(Zip Code)
(703) 433-6300
(Registrants' Telephone Number, Including Area Code)
Indicate by check mark whether the Registrants: (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports); and (2) have been subject to
such filing requirements for the past 90 days.
YES X NO
--- ---
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ORBCOMM GLOBAL, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,068 $ 8,722
Accounts receivable 4,789 1,264
Inventory 7,557 15,964
Prepaid expenses and other current assets 5,093 5,171
Current portion of deferred and prepaid contract costs 8,472 0
-------- --------
Total Current Assets 29,979 31,121
Mobile Communications Satellite System and other property, plant and
equipment, net 349,384 346,042
Deferred and prepaid contract costs, net of current portion 12,471 0
Other assets, net 5,729 5,543
Investments in and advances to affiliates 5,689 6,722
Goodwill, net 364 384
-------- --------
TOTAL ASSETS $403,616 $389,812
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 15,021 $ 11,106
Current portion of accrued liabilities - Orbital Sciences Corporation 35,037 107,513
Current portion of deferred revenue 8,278 0
Current portion of long-term debt and accrued interest 180,580 8,924
-------- --------
Total Current Liabilities 238,916 127,543
Accrued liabilities - Orbital Sciences Corporation, net of current portion 6,000 0
Deferred revenue, net of current portion 14,051 0
Revenue participation accrued interest, net of current portion 0 1,520
Long-term debt, net of current portion 0 170,000
-------- --------
Total Liabilities 258,967 299,063
Minority interest 7,489 0
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners 112,918 70,079
Orbital Communications Corporation 24,242 20,670
-------- --------
Total Partners' Capital 137,160 90,749
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $403,616 $389,812
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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3
ORBCOMM GLOBAL, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES:
Service revenues and other $ 1,017 $ 107 $ 2,139 $ 131
Product sales 284 443 845 933
-------- -------- -------- --------
Total revenues 1,301 550 2,984 1,064
-------- -------- -------- --------
EXPENSES:
Cost of sales 10,373 657 13,657 1,147
Engineering expenses 8,695 6,395 16,577 11,663
Marketing, administrative and other expenses 16,326 11,220 29,605 19,032
-------- -------- -------- --------
Total expenses 35,394 18,272 59,839 31,842
-------- -------- -------- --------
LOSS FROM OPERATIONS BEFORE DEPRECIATION
AND AMORTIZATION (34,093) (17,722) (56,855) (30,778)
Depreciation 13,552 12,306 26,056 23,757
Goodwill amortization 10 10 20 19
-------- -------- -------- --------
LOSS FROM OPERATIONS (47,655) (30,038) (82,931) (54,554)
OTHER INCOME AND EXPENSES:
Interest income 88 88 169 185
Interest expense and other financial charges (6,299) (6,668) (12,602) (13,168)
Equity in net income (losses) of affiliates (327) 2,348 (822) (509)
-------- -------- -------- --------
NET LOSS $(54,193) $(34,270) $(96,186) $(68,046)
======== ======== ======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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4
ORBCOMM GLOBAL, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (96,186) $ (68,046)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES:
Items not affecting cash:
Depreciation 26,056 23,757
Amortization 390 532
Write-down of assets 10,233 0
Equity in net losses of affiliates 822 509
--------- ---------
SUB-TOTAL (58,685) (43,248)
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable 3,722 (720)
Increase in inventory (1,560) (3,287)
Increase in prepaid expenses and other current assets (744) (3,301)
Increase in deferred and prepaid contract costs (1,656) 0
Increase (decrease) in accounts payable and accrued liabilities 4,106 (4,053)
Decrease in accrued liabilities - Orbital Sciences Corporation (29,842) 0
Other (1,812) 679
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (86,471) (53,930)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,198) (2,354)
Increase in investments in and advances to affiliates (2,196) (4,050)
Proceeds from sale of investments 0 390
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (31,394) (6,014)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt 0 (581)
Partners' contributions 115,181 67,150
Financing fees paid and other (1,970) (1,838)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 113,211 64,731
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (4,654) 4,787
CASH AND CASH EQUIVALENTS:
Beginning of period 8,722 3,799
--------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 4,068 $ 8,586
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 11,900 $ 11,944
========= =========
Non-cash capital expenditures and increase in accrued liabilities
- Orbital Sciences Corporation $ 0 $ 21,512
========= =========
Conversion of Orbital Sciences Corporation accrued liabilities
to Orbital Communications Corporation partner's capital $ 36,634 $ 0
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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5
ORBCOMM GLOBAL, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
In 1993, Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership
established by affiliates of Teleglobe Inc. ("Teleglobe"), and Orbital
Communications Corporation ("Orbital Communications"), a majority owned
subsidiary of Orbital Sciences Corporation ("Orbital"), formed ORBCOMM Global,
L.P. ("ORBCOMM" or the "Company"), a Delaware limited partnership. Orbital
Communications and Teleglobe Mobile also formed two marketing partnerships,
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International"), to market services using the ORBCOMM low-Earth orbit
satellite-based data communication system (the "ORBCOMM System") in the United
States and internationally, respectively. In 1995, the Company became a general
and limited partner in ORBCOMM USA with a 98% participation interest and Orbital
Communications' direct partnership interest was reduced to 2% and Teleglobe
Mobile's direct partnership interest was eliminated entirely. Simultaneously,
the Company became a general and limited partner in ORBCOMM International with a
98% participation interest and Teleglobe Mobile's direct partnership interest
was reduced to 2% and Orbital Communications' direct partnership interest was
eliminated entirely. On January 26, 2000, each of Orbital Communications and
Teleglobe Mobile contributed to the Company its 2% direct participation interest
in ORBCOMM USA and ORBCOMM International, respectively (the "Merger"). The
participation interests contributed to ORBCOMM represented net liabilities of
$353,000 and $63,000 for ORBCOMM USA and ORBCOMM International, respectively,
which have been accounted for as distributions to Orbital Communications and
Teleglobe Mobile.
Effective as of January 1, 2000, ORBCOMM entered into an agreement with
Teleglobe, Teleglobe Mobile, Orbital and Orbital Communications (the "Omnibus
Agreement") pursuant to which Teleglobe Mobile became the Company's sole general
partner and majority owner, with an interest of approximately 64% as of January
1, 2000 (approximately 67% as of June 30, 2000), and Orbital Communications
remained a limited partner, with a minority ownership interest of approximately
36% as of January 1, 2000 (approximately 33% as of June 30, 2000).
(2) RECENT DEVELOPMENTS
Although it was not contractually obligated to do so, since January 2000,
Teleglobe Mobile had been funding the Company's operations and other
requirements through equity contributions. In August 2000, Teleglobe Mobile
advised ORBCOMM that Teleglobe Mobile was no longer in a position to continue
to provide equity capital to ORBCOMM. In August 2000, Teleglobe, Teleglobe
Mobile, Orbital, Orbital Communications and ORBCOMM entered into a Memorandum
of Understanding ("MOU"). The MOU provides, among other things, that:
- ORBCOMM devote commercially reasonable efforts to implement a new
business plan agreed to by the parties;
- Orbital continue discussions with potential investors in ORBCOMM;
- ORBCOMM work with its creditors to restructure its debt in a manner
consistent with the business plan and take such other steps as may be
appropriate in the event that ORBCOMM and its partners decide to
pursue a filing under Chapter 11 of the United States Bankruptcy Code;
and
- an affiliate of Teleglobe provide an aggregate of $17,000,000 of
interim debt financing to ORBCOMM, a portion of which will be provided
in the form of a secured loan, and the remainder of which will be
provided in a form to be determined by Teleglobe.
In connection with the implementation of the new business plan, the Company
wrote down approximately $10,200,000 of inventory and other assets as of June
30, 2000, and reclassified its long-term debt to a current liability. See note
6, Long-Term Debt; note 7, Related Party Transactions; and note 8, Commitments
and Contingencies.
5
6
ORBCOMM GLOBAL, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(UNAUDITED)
(3) BASIS OF PRESENTATION
Prior to the Merger, Orbital Communications and Teleglobe Mobile had
effective control over ORBCOMM USA and ORBCOMM International, respectively.
Accordingly, ORBCOMM previously accounted for each of ORBCOMM USA and ORBCOMM
International using the equity method of accounting. Therefore, ORBCOMM's
proportionate share of the net income and losses of each of ORBCOMM USA and
ORBCOMM International was recorded under the caption "Equity in net losses of
affiliates" in its condensed consolidated financial statements. ORBCOMM's
investment in each of ORBCOMM USA and ORBCOMM International was carried at cost,
and was subsequently adjusted for its proportionate share of the net income and
losses, additional capital contributions and distributions under the caption
"Investments in and advances to affiliates." As a result of the Merger, ORBCOMM
USA and ORBCOMM International ceased doing business as separate entities and
ORBCOMM assumed their business operations. Accordingly, ORBCOMM's condensed
consolidated financial statements include ORBCOMM USA's and ORBCOMM
International's assets, liabilities and operating revenues and expenses as of
January 1, 2000. The Merger resulted in non-cash changes in balance sheet
accounts as follows (in thousands):
Increase in accounts receivable $ 7,281
Increase in deferred and prepaid contract costs 19,253
Increase in accounts payable and accrued liabilities 923
Increase in deferred revenue 23,677
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, including all normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company as of June 30, 2000, the results of its operations for the three- and
six-month periods ended June 30, 2000 and 1999 and its cash flows for the
six-month periods ended June 30, 2000 and 1999. These statements include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
These condensed consolidated financial statements are unaudited and do not
include all related footnote disclosures and, therefore, should be read in
conjunction with the audited consolidated financial statements and the footnotes
thereto for the year ended December 31, 1999 filed with the Securities and
Exchange Commission (the "SEC"). Operating results for the three- and six-month
periods ended June 30, 2000 are not necessarily indicative of the results of
operations expected in the future, although the Company anticipates a net loss
for the year ending December 31, 2000.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the SEC issued "Staff Accounting Bulletin" No. 101,
"Revenue Recognition" ("SAB No. 101"). SAB No. 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. The
Company is currently evaluating the impact of SAB No. 101 on the Company's
consolidated results of operations and financial condition.
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 2000, ORBCOMM had signed 17 agreements with international
licensees, 12 of which had associated gateway procurement contracts and software
license agreements. These agreements authorize the international licensees to
use the ORBCOMM System to provide two-way data communication services in their
designated territories. As of June 30, 2000, $22,329,000 was recorded as
deferred revenue under these agreements
6
7
ORBCOMM GLOBAL, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) SERVICE LICENSE OR SIMILAR AGREEMENTS - (CONTINUED)
and the associated gateway procurement agreements. Prior to January 1, 2000, the
deferred revenue under these agreements was reported by ORBCOMM International on
its balance sheet. As a result of the Merger, the deferred revenue under these
agreements is now reflected on ORBCOMM's condensed consolidated balance sheet.
(6) LONG-TERM DEBT
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint and
several basis by Teleglobe Mobile, Orbital Communications and ORBCOMM Holding
Corporation, a subsidiary of ORBCOMM, and were guaranteed by ORBCOMM USA and
ORBCOMM International prior to the Merger. 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 Indenture governing the Notes contains certain
financial covenants providing for, among other things, limitations on payments
and cash transfers between the credit parties and Teleglobe and Orbital,
limitations on transactions between certain affiliates, limitations on the
incurrence of additional indebtedness and restrictions on the sale of certain
assets. The Indenture also imposes limitations governing the conduct of
ORBCOMM's business and creates restrictions relating to ORBCOMM's investment
activities.
Due to the limited amount of funds available to ORBCOMM, it is highly
unlikely that the Company will make the interest payment scheduled to be paid on
August 15, 2000 on the Notes. If the interest payment is not paid, this will be
a violation of a covenant in the Indenture, for which there is a 30 day cure
period. Accordingly, we have classified the Notes, and all associated accrued
interest, as a current liability on ORBCOMM's condensed consolidated balance
sheet. If the interest is not paid by September 14, 2000, or the Notes are not
successfully restructured by that time, bondholders representing at least 25% of
the total amount of the Notes will be able to declare the principal and all
accrued interest currently due. On August 11, 2000, the Company retained
Donaldson, Lufkin & Jenrette Securities Corporation to, among other things,
assist the Company in exploring recapitalization alternatives.
(7) RELATED PARTY TRANSACTIONS
The Company had accrued liabilities to Orbital of $41,037,000 and
$107,513,000 as of June 30, 2000 and December 31, 1999, respectively. These
amounts were for work performed pursuant to the ORBCOMM System Procurement
Agreement dated September 12, 1995, the ORBCOMM Procurement Agreement dated as
of February 1, 1999 and the Administrative Services Agreement dated as of
January 1, 1997 (for the provision of ongoing administrative support to the
Company). As of December 31, 1999, Orbital had deferred invoicing $91,300,000
under the Company's 1995 and 1999 procurement agreements with Orbital. The
Company had also accrued an additional $16,213,000 under the 1995 procurement
agreement as well as under the Administrative Services Agreement, which amount
is due in installments from 2000 through 2005.
Pursuant to the Omnibus Agreement, the Company made arrangements to settle
the $91,300,000 of deferred invoiced amounts as of December 31, 1999 and, during
the six-month period ended June 30, 2000, the following transactions took place:
- On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds
for this payment came from an equity contribution to ORBCOMM made on
that date by Teleglobe Mobile;
7
8
ORBCOMM GLOBAL, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(7) RELATED PARTY TRANSACTIONS - (CONTINUED)
- On March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and
simultaneously assigned such invoice to Orbital Communications.
Orbital Communications subsequently requested that ORBCOMM convert,
and ORBCOMM converted, the full amount of this invoice into an equity
contribution to ORBCOMM; and
- The parties agreed that the remaining $16,758,000, together with
accrued interest, will be paid by ORBCOMM to Orbital 50% on each of
March 31, 2001 and June 30, 2001.
In addition, in January 2000, Orbital Communications requested that ORBCOMM
convert, and ORBCOMM converted, into an equity contribution to ORBCOMM
$2,962,000 of invoices due to Orbital pursuant to the Administrative Services
Agreement and previously accrued by ORBCOMM as of December 31, 1999.
As of May 19, 2000, pursuant to the Omnibus Agreement, Teleglobe sold to
ORBCOMM the business of ORBCOMM Canada Inc., a majority owned subsidiary of
Teleglobe and ORBCOMM's international licensee for Canada, and Orbital sold to
ORBCOMM the net assets of Orbital's GEMtrak business, which ORBCOMM had operated
since March 1999. As required for transactions between related parties, ORBCOMM
recorded the assets and liabilities acquired in both transactions using their
carryover basis. The basis of the net assets of Orbital's GEMtrak business was
$591,000. In connection with the purchase of ORBCOMM Canada (which had $76,000
of net assets), the Company assumed ORBCOMM Canada's obligations under its
CDN$11,100,000 (approximately $7,489,000) of preferred stock held by Teleglobe
and Meder Communications Inc., a company owned by an officer of ORBCOMM. The
preferred stock carries a CDN$0.0225 per share quarterly dividend. The preferred
stock held by Teleglobe is puttable to the Company for cash of approximately
CDN$10,100,000 plus accrued and unpaid dividends. If Teleglobe elects to
exercise this right prior to May 19, 2003, Teleglobe is required to advance or
contribute to ORBCOMM an amount adequate to fund the put. The preferred stock
held by Meder Communications is puttable to the Company for cash if certain
subscriber activation levels are achieved by ORBCOMM. Such preferred stock is
reflected on ORBCOMM's balance sheet under the caption "Minority Interest."
During 2000, Orbital has invoiced ORBCOMM approximately $13,000,000 for
work performed or services rendered by Orbital that remained unpaid as of June
30, 2000.
ORBCOMM's limited partnership agreement and resolutions adopted by the
partners of ORBCOMM require ORBCOMM to reimburse Orbital Communications for
Orbital Communications' repurchase of certain shares of Orbital Communications'
common stock issued pursuant to the Orbital Communications' 1992 Stock Option
Plan ("Stock Option Plan"). In June 2000, ORBCOMM reimbursed Orbital
Communications $1,254,000 under the Stock Option Plan (none for the year ended
December 31, 1999).
8
9
ORBCOMM GLOBAL, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES
Construction of Gateways
ORBCOMM has entered into agreements with certain manufacturers for the
purchase of 24 gateway Earth stations and one gateway antenna that have been or
will be installed around the world. As of June 30, 2000, ORBCOMM had $20,943,000
of deferred and prepaid contract costs, of which $11,153,000 represents advance
payments to such manufacturers for gateway Earth stations that have not yet been
completed. Total commitments under the gateway Earth station manufacturing
agreements approximated $22,000,000, of which approximately $5,100,000 was
outstanding as of June 30, 2000. Prior to January 1, 2000, deferred and prepaid
contract costs under these agreements were reported by ORBCOMM International on
its balance sheet. As a result of the Merger, deferred and prepaid contract
costs under these agreements are now reflected on ORBCOMM's condensed
consolidated balance sheet.
Contingencies
From time to time, the Company is involved in claims by licensees or
potential licensees. In management's opinion, there will be no material adverse
impact on the financial condition or results of operations of the Company as a
result of such claims made to date.
Risks and Uncertainties
The Company's operations are subject to certain risks and uncertainties
that are inherent in satellite communication companies. The Company expects to
have continuing losses for at least the next several quarters and is dependent
upon additional financing to fund operations. Due to a slower than expected
subscriber ramp-up, and the accompanying lower than expected revenues, the
Company adopted a revised sales and marketing strategy subsequent to June 30,
2000. In connection with the implementation of this new strategy, ORBCOMM
reduced its overall workforce by approximately 37% in August 2000. While an
affiliate of Teleglobe has agreed to provide interim debt financing (see note
2), ORBCOMM is continuing to seek additional third party equity investors to
join ORBCOMM's existing partners. In addition, ORBCOMM is continuing to explore
a variety of financing alternatives, including selling various assets and
restructuring or reorganizing its outstanding debt (see note 6) and/or its
business. The Company cannot assure you, however, that other equity investors or
other financing alternatives will be available, and if available, that they will
be available on terms acceptable to the Company. The Company has been advised by
its independent public accountants that, if the Company's future funding
situation is not resolved prior to the completion of their audit of ORBCOMM's
financial statements for the year ending December 31, 2000, their auditors'
report on those financial statements will be modified for that contingency and
will include a going-concern qualification. In addition, a further write-down of
assets due to impairment may be required.
9
10
TELEGLOBE MOBILE PARTNERS
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS; UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,069 $ 1
Accounts receivable 4,789 6,539
Inventory 7,557 0
Prepaid expenses and other current assets 5,093 0
Current portion of deferred and prepaid contract costs 8,472 10,870
-------- --------
Total Current Assets 29,980 17,410
Mobile Communications Satellite System and other property, plant and
equipment, net 349,384 0
Deferred and prepaid contract costs, net of current portion 12,471 8,383
Other assets, net 5,729 0
Investments in and advances to affiliates 5,689 70,075
Goodwill, net 19,292 0
-------- --------
TOTAL ASSETS $422,545 $ 95,868
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 15,257 $ 668
Current portion of accrued liabilities - Orbital Sciences Corporation 35,037 0
Current portion of deferred revenue 8,278 9,642
Current portion of long-term debt and accrued interest 180,580 0
-------- --------
Total Current Liabilities 239,152 10,310
Accrued liabilities - Orbital Sciences Corporation, net of current portion 6,000 0
Amount due to affiliates 0 4,689
Deferred revenue, net of current portion 14,051 14,035
Revenue participation accrued interest, net of current portion 0 0
Long-term debt, net of current portion 0 0
-------- --------
Total Liabilities 259,203 29,034
Non-controlling interest in net assets of consolidated subsidiaries 53,063 (1,510)
COMMITMENTS AND CONTINGENCIES
Partners' Capital:
Teleglobe Mobile, L.P. 109,178 67,661
Teleglobe Mobile Investment Inc. 1,101 683
-------- --------
Total Partners' Capital 110,279 68,344
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $422,545 $ 95,868
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
10
11
TELEGLOBE MOBILE PARTNERS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES:
Service revenues and other $ 1,017 $ 508 $ 2,139 $ 525
Product sales 284 6,318 845 12,451
-------- -------- -------- --------
Total revenues 1,301 6,826 2,984 12,976
-------- -------- -------- --------
EXPENSES:
Cost of sales 10,373 2,606 13,657 7,391
Engineering expenses 8,695 0 16,577 0
Marketing, administrative and other expenses 16,364 455 29,683 1,771
-------- -------- -------- --------
Total expenses 35,432 3,061 59,917 9,162
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS BEFORE DEPRECIATION
AND AMORTIZATION (34,131) 3,765 (56,933) 3,814
Depreciation 13,552 0 26,056 0
Goodwill amortization 505 0 909 0
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (48,188) 3,765 (83,898) 3,814
OTHER INCOME AND EXPENSES:
Interest income 88 0 169 0
Interest expense and other financial charges (6,299) 0 (12,602) 0
Equity in net losses of affiliates (327) (19,104) (822) (36,147)
Non-controlling interest in net losses (income) of
consolidated subsidiaries 17,862 (1,851) 32,250 (1,889)
-------- -------- -------- --------
NET LOSS $(36,864) $(17,190) $(64,903) $(34,222)
======== ======== ======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
11
12
TELEGLOBE MOBILE PARTNERS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (64,903) $ (34,222)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
Items not affecting cash:
Depreciation 26,056 0
Amortization 1,279 0
Write-down of assets 10,233 0
Equity in net losses of affiliates 822 36,147
Non-controlling interest in net losses (income) of consolidated
subsidiaries (32,250) 1,889
--------- ---------
SUB-TOTAL (58,763) 3,814
Net changes in non-cash working capital items:
Decrease (increase) in accounts receivable 3,722 (12,545)
Increase in inventory (1,560) 0
Increase in prepaid expenses and other current assets (744) 0
Decrease (increase) in deferred and prepaid contract costs (1,656) 2,667
Increase in accounts payable and accrued liabilities 4,184 1,135
Decrease in accrued liabilities - Orbital Sciences Corporation (30,251) 0
Other (1,812) 8,021
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (86,880) 3,092
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,198) 0
Increase in investments in and advances to affiliates (2,196) (36,500)
Cash assumed by consolidating ORBCOMM Global, L.P. 8,722 0
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (22,672) (36,500)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in amount due to affiliates 0 (3,142)
Partners' contributions 115,181 36,540
Repurchase of Orbital Communications Corporation's stock 0 0
Financing fees paid and other (1,561) 0
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 113,620 33,398
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,068 (10)
CASH AND CASH EQUIVALENTS:
Beginning of period 1 11
--------- ---------
CASH AND CASH EQUIVALENTS:
End of period $ 4,069 $ 1
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 11,900 $ 0
========= =========
Conversion of Orbital Sciences Corporation accrued liabilities
to Orbital Communications Corporation partner's capital $ 36,043 $ 0
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
12
13
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Teleglobe Mobile Partners, a Delaware general partnership ("Teleglobe
Mobile"), was formed in 1993 for the purpose of acting as a general and a
limited partner in ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited
partnership, which provides data communication services using a low-Earth orbit
satellite-based data communication system (the "ORBCOMM System"). Teleglobe
Mobile and Orbital Communications Corporation ("Orbital Communications"), a
majority owned subsidiary of Orbital Sciences Corporation ("Orbital"), 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 System in the United States and internationally, respectively. In
1995, ORBCOMM became a general and limited partner in ORBCOMM USA with a 98%
participation interest and Orbital Communications' direct partnership interest
was reduced to 2% and Teleglobe Mobile's direct partnership interest was
eliminated entirely. Simultaneously, ORBCOMM became a general and limited
partner in ORBCOMM International with a 98% participation interest and Teleglobe
Mobile's direct partnership interest was reduced to 2% and Orbital
Communications' direct partnership interest was eliminated entirely. On January
26, 2000, each of Orbital Communications and Teleglobe Mobile contributed to
ORBCOMM its 2% direct participation interest in ORBCOMM USA and ORBCOMM
International, respectively (the "Merger"). The participation interests
contributed to ORBCOMM represented net liabilities of $353,000 and $63,000 for
ORBCOMM USA and ORBCOMM International, respectively, which have been accounted
for as distributions to Orbital Communications and Teleglobe Mobile. As a result
of the Merger, ORBCOMM USA and ORBCOMM International ceased doing business as
separate entities and ORBCOMM assumed their business operations.
Effective as of January 1, 2000, Teleglobe Mobile entered into an agreement
with ORBCOMM, Teleglobe Inc. ("Teleglobe"), Orbital and Orbital Communications
(the "Omnibus Agreement") pursuant to which Teleglobe Mobile became ORBCOMM's
sole general partner and majority owner, with an interest of approximately 64%
as of January 1, 2000 (approximately 67% as of June 30, 2000), and Orbital
Communications remained a limited partner, with a minority ownership interest of
approximately 36% as of January 1, 2000 (approximately 33% as of June 30, 2000).
(2) RECENT DEVELOPMENTS
Although it was not contractually obligated to do so, since January 2000,
Teleglobe Mobile had been funding ORBCOMM's operations through equity
contributions. In August 2000, Teleglobe Mobile advised ORBCOMM that Teleglobe
Mobile was no longer in a position to continue to provide equity capital to
ORBCOMM. In August 2000, Teleglobe, Teleglobe Mobile, Orbital, Orbital
Communications and ORBCOMM entered into a Memorandum of Understanding ("MOU").
The MOU provides, among other things, that:
- ORBCOMM devote commercially reasonable efforts to implement a new
business plan agreed to by the parties;
- Orbital continue discussions with potential investors in ORBCOMM;
- ORBCOMM work with its creditors to restructure its debt in a manner
consistent with the business plan and take such other steps as may be
appropriate in the event that ORBCOMM and its partners decide to
pursue a filing under Chapter 11 of the United States Bankruptcy Code;
and
- an affiliate of Teleglobe provide an aggregate of $17,000,000 of
interim debt financing to ORBCOMM, a portion of which will be provided
in the form of a secured loan, and the remainder of which will be
provided in a form to be determined by Teleglobe.
In connection with the implementation of the new business plan, ORBCOMM
wrote down approximately $10,200,000 of inventory and other assets as of June
30, 2000, and reclassified its long-term debt to a current liability. See note
7, Long-Term Debt; note 8, Related Party Transactions; and note 9, Commitments
and Contingencies.
13
14
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(3) BASIS OF PRESENTATION
Prior to the Merger and pursuant to the terms of the relevant partnership
agreements: (i) Teleglobe Mobile controlled the operational and financial
affairs of ORBCOMM International; and (ii) Orbital Communications controlled the
operational and financial affairs of ORBCOMM USA. Since Teleglobe Mobile was
unable to control, but was able to exercise significant influence over,
ORBCOMM's operating and financial policies, Teleglobe Mobile accounted for its
investment in ORBCOMM using the equity method of accounting. Accordingly,
historically Teleglobe Mobile did not consolidate ORBCOMM and therefore did not
report in its condensed consolidated financial statements ORBCOMM's assets,
liabilities and operating revenues and expenses. Instead, Teleglobe Mobile's
proportionate share of the net losses of ORBCOMM was recorded under the caption
"Equity in net losses of ORBCOMM Global, L.P." in its condensed consolidated
financial statements. Correspondingly, its investment of ORBCOMM was carried at
cost, and was subsequently adjusted for its proportionate share of the net
losses, additional capital contributions and distributions under the caption
"Investments in affiliates." Pursuant to the Omnibus Agreement, Teleglobe Mobile
has had effective control over ORBCOMM and, consequently, Teleglobe Mobile
consolidates the financial results of ORBCOMM, as of January 1, 2000. As a
result of ORBCOMM's results being consolidated with the financial results of
Teleglobe Mobile, non-cash changes in the condensed consolidated statements of
cash flows consist primarily of the activities of ORBCOMM.
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, including all normal recurring
adjustments, necessary for a fair presentation of the financial position of
Teleglobe Mobile as of June 30, 2000, the results of its operations for the
three- and six-month periods ended June 30, 2000 and 1999 and its cash flows for
the six-month periods ended June 30, 2000 and 1999. These statements include the
accounts of Teleglobe Mobile and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and, therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the year
ended December 31, 1999 filed with the Securities and Exchange Commission (the
"SEC"). Operating results for the three- and six-month periods ended June 30,
2000 are not necessarily indicative of the results of operations expected in the
future.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
On December 3, 1999, the SEC issued "Staff Accounting Bulletin" No. 101,
"Revenue Recognition" ("SAB No. 101"). SAB No. 101 provides guidance on the
recognition, presentation and disclosure of revenue in financial statements.
ORBCOMM is currently evaluating the impact of SAB No. 101 on its consolidated
results of operations and financial condition.
(5) GOODWILL
Included in goodwill of $19,292,000 is $16,707,000 that was recorded during
the six-month period ended June 30, 2000 in Teleglobe Mobile's condensed
consolidated financial statements as a result of the equity contributions made
by Teleglobe Mobile and its increased participation interest in ORBCOMM. The
goodwill represents the
14
15
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) GOODWILL - (CONTINUED)
excess of costs over the fair value of identifiable assets acquired and is being
amortized on a straight-line basis over eight years.
Teleglobe Mobile's policy is to review its long-lived assets, including
goodwill, for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
recognizes impairment losses when the sum of the expected future undiscounted
cash flows is less than the carrying amount of the assets.
Based on the outcome of the actions referred to in note 2, Teleglobe Mobile
expects to treat ORBCOMM as a discontinued operation in the third quarter of
2000 and to record a significant write-down of this investment.
(6) SERVICE LICENSE OR SIMILAR AGREEMENTS
As of June 30, 2000, ORBCOMM had signed 17 agreements with international
licensees, 12 of which had associated gateway procurement contracts and software
license agreements. These agreements authorize the international licensees to
use the ORBCOMM System to provide two-way data communication services in their
designated territories. As of June 30, 2000, $22,329,000 was recorded as
deferred revenue under these agreements and the associated gateway procurement
agreements.
(7) LONG-TERM DEBT
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with
Revenue Participation Interest (the "Old Notes"). All of the Old Notes were
exchanged for an equal principal amount of registered 14% Series B Senior Notes
due 2004 with Revenue Participation Interest (the "Notes"). Revenue
Participation Interest represents an aggregate amount equal to 5% of ORBCOMM
System revenues generated from August 1996 and is payable on the Old Notes and
the Notes on each interest payment date subject to certain covenant
restrictions. The Notes are fully and unconditionally guaranteed on a joint and
several basis by Teleglobe Mobile, Orbital Communications and ORBCOMM Holding
Corporation, a subsidiary of ORBCOMM, and were guaranteed by ORBCOMM USA and
ORBCOMM International prior to the Merger. 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 Indenture governing the Notes contains certain
financial covenants providing for, among other things, limitations on payments
and cash transfers between the credit parties and Teleglobe and Orbital,
limitations on transactions between certain affiliates, limitations on the
incurrence of additional indebtedness and restrictions on the sale of certain
assets. The Indenture also imposes limitations governing the conduct of
ORBCOMM's business and creates restrictions relating to ORBCOMM's investment
activities.
Due to the limited amount of funds available to ORBCOMM, it is highly
unlikely that ORBCOMM will make the interest payment scheduled to be paid on
August 15, 2000 on the Notes. If the interest payment is not paid, this will be
a violation of a covenant in the Indenture, for which there is a 30 day cure
period. Accordingly, the Notes, and all associated accrued interest, have been
classified as a current liability on ORBCOMM's condensed consolidated balance
sheet. If the interest is not paid by September 14, 2000, or the Notes are not
successfully restructured by that time, bondholders representing at least 25% of
the total amount of the Notes will be able to declare the principal and all
accrued interest currently due.
15
16
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) RELATED PARTY TRANSACTIONS
ORBCOMM had accrued liabilities to Orbital of $41,037,000 and $107,513,000
as of June 30, 2000 and December 31, 1999, respectively. These amounts were for
work performed pursuant to the ORBCOMM System Procurement Agreement dated
September 12, 1995, the ORBCOMM Procurement Agreement dated as of February 1,
1999 and the Administrative Services Agreement dated as of January 1, 1997 (for
the provision of ongoing administrative support to ORBCOMM). As of December 31,
1999, Orbital had deferred invoicing $91,300,000 under ORBCOMM's 1995 and 1999
procurement agreements with Orbital. ORBCOMM had also accrued an additional
$16,213,000 under the 1995 procurement agreement as well as under the
Administrative Services Agreement, which amount is due in installments from 2000
through 2005.
Pursuant to the Omnibus Agreement, ORBCOMM made arrangements to settle the
$91,300,000 of deferred invoiced amounts as of December 31, 1999 and, during the
six-month period ended June 30, 2000, the following transactions took place:
- On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds
for this payment came from an equity contribution to ORBCOMM made on
that date by Teleglobe Mobile;
- On March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and
simultaneously assigned such invoice to Orbital Communications.
Orbital Communications subsequently requested that ORBCOMM convert,
and ORBCOMM converted, the full amount of this invoice into an equity
contribution to ORBCOMM; and
- The parties agreed that the remaining $16,758,000, together with
accrued interest, will be paid by ORBCOMM to Orbital 50% on each of
March 31, 2001 and June 30, 2001.
In addition, in January 2000, Orbital Communications requested that ORBCOMM
convert, and ORBCOMM converted, into an equity contribution to ORBCOMM
$2,962,000 of invoices due to Orbital pursuant to the Administrative Services
Agreement and previously accrued by ORBCOMM as of December 31, 1999.
As of May 19, 2000, pursuant to the Omnibus Agreement, Teleglobe sold to
ORBCOMM the business of ORBCOMM Canada Inc., a majority owned subsidiary of
Teleglobe and ORBCOMM's international licensee for Canada, and Orbital sold to
ORBCOMM the net assets of Orbital's GEMtrak business, which ORBCOMM had operated
since March 1999. As required for transactions between related parties, ORBCOMM
recorded the assets and liabilities acquired in both transactions using their
carryover basis. The basis of the net assets of Orbital's GEMtrak business was
$591,000. In connection with the purchase of ORBCOMM Canada (which had $76,000
of net assets), ORBCOMM assumed ORBCOMM Canada's obligations under its
CDN$11,100,000 (approximately $7,489,000) of preferred stock held by Teleglobe
and Meder Communications Inc., a company owned by an officer of ORBCOMM. The
preferred stock carries a CDN$0.0225 per share quarterly dividend. The preferred
stock held by Teleglobe is puttable to ORBCOMM for cash of approximately
CDN$10,100,000 plus accrued and unpaid dividends. If Teleglobe elects to
exercise this right prior to May 19, 2003, Teleglobe is required to advance or
contribute to ORBCOMM an amount adequate to fund the put. The preferred stock
held by Meder Communications is puttable to ORBCOMM for cash if certain
subscriber activation levels are achieved by ORBCOMM. Such preferred stock is
reflected on ORBCOMM's balance sheet under the caption "Minority Interest."
During 2000, Orbital has invoiced ORBCOMM approximately $13,000,000 for
work performed or services rendered by Orbital that remained unpaid as of June
30, 2000.
16
17
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(8) RELATED PARTY TRANSACTIONS - (CONTINUED)
ORBCOMM's limited partnership agreement and resolutions adopted by the
partners of ORBCOMM require ORBCOMM to reimburse Orbital Communications for
Orbital Communications' repurchase of certain shares of Orbital Communications'
common stock issued pursuant to the Orbital Communications' 1992 Stock Option
Plan ("Stock Option Plan"). In June 2000, ORBCOMM reimbursed Orbital
Communications $1,254,000 under the Stock Option Plan (none for the year ended
December 31, 1999).
In 1996, Teleglobe Mobile entered into an administrative services agreement
with Teleglobe. Under this agreement, Teleglobe provides management services to
Teleglobe Mobile. As of June 30, 2000 and December 31, 1999, Teleglobe Mobile
owed Teleglobe $235,000 and $153,000, respectively, under this agreement.
(9) COMMITMENTS AND CONTINGENCIES
Construction of Gateways
ORBCOMM has entered into agreements with certain manufacturers for the
purchase of 24 gateway Earth stations and one gateway antenna that have been or
will be installed around the world. As of June 30, 2000, ORBCOMM had $20,943,000
of deferred and prepaid contract costs, of which $11,153,000 represents advance
payments to manufacturers for gateway Earth stations that have not yet been
completed. Total commitments under the gateway Earth station manufacturing
agreements approximated $22,000,000, of which approximately $5,100,000 was
outstanding as of June 30, 2000.
Contingencies
From time to time, ORBCOMM is involved in claims by licensees or potential
licensees. In management's opinion, there will be no material adverse impact on
the financial condition or results of operations of ORBCOMM as a result of such
claims made to date.
Risks and Uncertainties
ORBCOMM's operations are subject to certain risks and uncertainties that
are inherent in satellite communication companies. ORBCOMM expects to have
continuing losses for at least the next several quarters and is dependent upon
additional financing to fund operations. Due to a slower than expected
subscriber ramp-up, and the accompanying lower than expected revenues, ORBCOMM
adopted a revised sales and marketing strategy subsequent to June 30, 2000. In
connection with the implementation of this new strategy, ORBCOMM reduced its
overall workforce by approximately 37% in August 2000. While an affiliate of
Teleglobe has agreed to provide interim debt financing (see note 2), ORBCOMM is
continuing to seek additional third party equity investors to join ORBCOMM's
existing partners. In addition, ORBCOMM is continuing to explore a variety of
financing alternatives, including selling various assets and restructuring or
reorganizing its outstanding debt (see note 7) and/or its business. We cannot
assure you, however, that other equity investors or other financing alternatives
will be available, and if available, that they will be available on terms
acceptable to ORBCOMM and its partners. ORBCOMM has been advised by its
independent public accountants that, if ORBCOMM's future funding situation
17
18
TELEGLOBE MOBILE PARTNERS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(9) COMMITMENTS AND CONTINGENCIES - (CONTINUED)
is not resolved prior to the completion of their audit of ORBCOMM's financial
statements for the year ending December 31, 2000, their auditors' report on
those financial statements will be modified for that contingency and will
include a going-concern qualification. In addition, a further write-down of
assets due to impairment may be required.
18
19
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6 $ 10
Accounts receivable and other current assets 31 830
--------- ---------
Total Current Assets 37 840
Investments in affiliates 45,304 30,699
--------- ---------
TOTAL ASSETS $ 45,341 $ 31,539
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Accounts payable and other accrued liabilities - current $ 178 $ 270
Due to parent and affiliates - non current 191,879 173,358
--------- ---------
Total Liabilities 192,057 173,628
Non-controlling interest in net assets of consolidated subsidiary 0 (8,656)
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, par value $0.01;
8,000,000 shares authorized;
4,818,892 shares issued;
4,675,235 and 4,713,620 shares outstanding, respectively 48 48
Additional paid-in capital 21,287 732
Treasury stock, at cost, 143,657 and 105,272 shares, respectively (2,676) (1,193)
Accumulated deficit (165,375) (133,020)
--------- ---------
Total Stockholders' Deficit (146,716) (133,433)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 45,341 $ 31,539
========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
19
20
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS; UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
SERVICE AND PRODUCT SALES $ 27 $ 327 $ 98 $ 593
EXPENSES:
Costs of sales 22 150 86 390
Marketing, administrative and other expenses 77 1,309 117 4,228
-------- -------- -------- --------
Total expenses 99 1,459 203 4,618
-------- -------- -------- --------
LOSS FROM OPERATIONS (72) (1,132) (105) (4,025)
OTHER INCOME AND EXPENSES:
Equity in net losses of affiliates (17,862) (16,581) (32,250) (32,053)
Non-controlling interest in losses
of consolidated subsidiary 0 553 0 1,970
-------- -------- -------- --------
NET LOSS $(17,934) $(17,160) $(32,355) $(34,108)
======== ======== ======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
20
21
ORBITAL COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(32,355) $(34,108)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED
IN OPERATING ACTIVITIES, NET OF BUSINESS DIVESTITURE:
Amortization expense 70 0
Equity in net losses of affiliates 32,250 32,053
Non-controlling interest in net loss of consolidated subsidiary 0 (1,970)
Decrease (increase) in accounts receivable and other current assets (12) 802
Increase (decrease) in accounts payable and other accrued liabilities (1) (610)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (48) (3,833)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends from (investments in) affiliates 1,254 (30,650)
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,254 (30,650)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock to employees 1 205
Purchases of treasury stock (1,483) 0
Net borrowings from parent and affiliates 272 34,278
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,210) 34,483
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4) 0
CASH AND CASH EQUIVALENTS:
Beginning of period 10 10
-------- --------
CASH AND CASH EQUIVALENTS:
End of period 6 10
======== ========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
21
22
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION
Orbital Communications Corporation ("Orbital Communications") is a
majority owned and controlled subsidiary of Orbital Sciences Corporation
("Orbital") and is included in Orbital's consolidated financial statements. In
1993, Orbital Communications and Teleglobe Mobile Partners ("Teleglobe Mobile"),
a partnership established by affiliates of Teleglobe Inc. ("Teleglobe"), formed
ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited partnership, and two
marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM
International Partners, L.P. ("ORBCOMM International"). As of December 31, 1999,
each of Orbital Communications and Teleglobe Mobile was a 50% general partner in
ORBCOMM, and ORBCOMM was a 98% general partner in each of the two marketing
partnerships. Additionally, Orbital Communications was a 2% general partner in
ORBCOMM USA, and Teleglobe Mobile was a 2% general partner in ORBCOMM
International. Directly and indirectly, as of December 31, 1999, Orbital
Communications held and controlled 51% and 49% of ORBCOMM USA and ORBCOMM
International, respectively. On January 26, 2000, Orbital Communications and
Teleglobe Mobile contributed their respective direct participation interest in
ORBCOMM USA and ORBCOMM International to ORBCOMM (the "Merger"). As a result of
the Merger, these companies ceased doing business as separate entities and
ORBCOMM assumed their business operations.
Effective January 1, 2000, Orbital Communications entered into an
agreement with ORBCOMM, Teleglobe, Orbital, and Teleglobe Mobile (the "Omnibus
Agreement") pursuant to which Teleglobe Mobile became ORBCOMM's sole general
partner and majority owner, with an interest of approximately 64% as of January
1, 2000, and Orbital Communications remained a limited partner, with a minority
ownership interest of approximately 36% as of January 1, 2000.
(2) BASIS OF PRESENTATION
Pursuant to the terms of the relevant partnership agreements, as of
December 31, 1999: (i) Orbital Communications and Teleglobe Mobile shared equal
responsibility for the operational and financial affairs of ORBCOMM; (ii)
Orbital Communications controlled and consolidated the operational and financial
affairs of ORBCOMM USA; and (iii) Teleglobe Mobile controlled the operational
and financial affairs of ORBCOMM International. Since Orbital Communications was
unable to control, but was able to exercise significant influence over ORBCOMM's
operating and financial policies, Orbital Communications accounted for its
investments in ORBCOMM using the equity method of accounting. As discussed in
note 1, in January 2000, Orbital Communications contributed its ownership
interest in ORBCOMM USA to ORBCOMM. Consequently, Orbital Communications no
longer consolidates ORBCOMM USA's financial statements. The contribution of
ORBCOMM USA to ORBCOMM resulted in a decrease in Orbital Communication's
investments in affiliates of $9,008,000 and non-cash changes to balance sheet
accounts as follows (in thousands):
Decrease in accounts receivable and other current assets $ (742)
Decrease in accounts payable and other accrued liabilities 414
Decrease in due to affiliates 17,992
Increase in non controlling interest in net assets of consolidated subsidiary (8,656)
--------
Net $ (9,008)
========
In the opinion of management, the accompanying condensed consolidated
financial statements reflect all adjustments, including all normal recurring
accruals, necessary for a fair presentation of the financial position of Orbital
Communications as of June 30, 2000, and the results of its operations for the
three- and six-month periods ended June 30, 2000 and 1999, and its cash flows
for the six-month periods ended June 30, 2000 and 1999. These condensed
consolidated financial statements are unaudited and do not include all related
footnote disclosures and, therefore, should be read in conjunction with the
audited consolidated financial statements and the footnotes thereto for the year
ended December 31, 1999 filed with the Securities and Exchange Commission (the
"SEC").
22
23
ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(2) BASIS OF PRESENTATION - (CONTINUED)
The results of operations for the three and six months ended June 30, 2000 are
not necessarily indicative of the results of operations expected in the future.
(3) RELATED PARTY TRANSACTIONS
Orbital Communications obtains virtually all of its funding for its
operations and for its capital investments in ORBCOMM from Orbital via a
non-interest bearing intercompany borrowing arrangement. As of June 30, 2000 and
December 31, 1999, Orbital Communications owed Orbital $191,879,000 and
$154,973,000, respectively, none of which is currently payable. As of December
31, 1999, Orbital Communications and ORBCOMM USA owed ORBCOMM $18,385,000. This
balance was eliminated as a result of the Merger.
(4) INVESTMENT IN AFFILIATES
As explained in note 1, Orbital Communications is currently a limited
partner and Teleglobe Mobile is currently the sole general partner of ORBCOMM.
As of June 30, 2000, Orbital Communications' balance sheet reflected a carrying
amount of $45,304,000 for its investment in ORBCOMM. ORBCOMM has incurred, and
expects to continue to incur, operating losses. During 2000, Teleglobe had been
funding the majority of ORBCOMM's cash requirements through capital
contributions. In August 2000, Teleglobe Mobile advised ORBCOMM that Teleglobe
Mobile was no longer in a position to continue to provide equity capital to
ORBCOMM. At that time, Orbital, Teleglobe, ORBCOMM and the partners agreed on
limited interim debt financing that is expected to provide ORBCOMM with
$17,000,000 in additional cash from an affiliate of Teleglobe to support near
term operations (see note 7). ORBCOMM has recently reduced its short-term cash
needs while it seeks additional third party investors to join the existing
partners. There is no assurance that other equity investors or other financing
alternatives will be available, and if available, that they will be available at
terms acceptable to ORBCOMM and the partners. If ORBCOMM is unsuccessful at
raising additional capital, a portion, or all of Orbital Communications'
investment in ORBCOMM may become impaired. In addition, ORBCOMM has been advised
by its independent public accountants that if ORBCOMM's funding situation is not
resolved prior to the completion of their audit of ORBCOMM's financial
statements for the year ending December 31, 2000, the auditors' report on those
financial statements will be modified for that contingency and will include a
going-concern qualification.
Pursuant to the Omnibus Agreement, on March 3, 2000, Orbital invoiced
ORBCOMM $33,082,000 and simultaneously assigned such invoice to Orbital
Communications. Orbital Communications subsequently converted the full amount of
this invoice into an equity contribution to ORBCOMM. In addition, in January
2000, Orbital Communications converted $2,962,000 of invoices due to Orbital
from ORBCOMM pursuant to an administrative services agreement into an equity
contribution to ORBCOMM. During the second quarter of 2000, Orbital
Communications contributed certain assets to ORBCOMM in exchange for $591,000 in
additional partners' capital.
As a result of the realignment of ownership interest pursuant to the
Omnibus Agreement and of subsequent capital contributions by ORBCOMM's partners,
Orbital Communication's ownership interest in ORBCOMM decreased to approximately
33% as of June 30, 2000. Consequently Orbital Communication's share of ORBCOMM's
total capital exceeded the book value of Orbital Communication's investment in
ORBCOMM. Accordingly, Orbital Communications for the three and six months ended
June 30, 2000 recognized a gain of $4,338,000 and $20,555,000, respectively in
accordance with SEC rules, as an increase in additional paid-in capital. In
connection with this gain, a deferred tax obligation of $1,644,000 and
$7,790,000, respectively, was established, with a corresponding reduction in the
deferred tax valuation allowance, for the three and six months ended June 30,
2000.
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ORBITAL COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) FCC LICENSES
In January 2000, Orbital Communications agreed to file an application
with the FCC to transfer to ORBCOMM the FCC licenses held by Orbital
Communications with respect to the ORBCOMM low-Earth orbit satellite system if
ORBCOMM has paid all amounts invoiced under the 1995 and 1999 procurement
agreements between Orbital and ORBCOMM, and if an aggregate of $75,000,000 of
additional capital contributions or similar equity investments is made to
ORBCOMM by any entity after January 1, 2000. For purposes of this agreement, the
$33,000,000 of capital contributed by Teleglobe Mobile in January 2000 and
$33,082,000 of capital contributed in March 2000 by Orbital Communications (see
note 4) are excluded. As of June 30, 2000, $75,000,000 of additional capital
contributions or similar equity investments had been made to ORBCOMM, but
ORBCOMM had not paid all amounts invoiced by Orbital under the procurement
agreements. Consequently, the FCC licenses have not been transferred to ORBCOMM.
(6) COMMITMENTS AND CONTINGENCIES
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 senior unsecured notes due in 2004 (the "Notes") to institutional
investors. The Notes bear interest at a fixed rate of 14% and provide for
noteholder participation in future ORBCOMM revenues. The Notes are fully and
unconditionally guaranteed on a joint and several basis by Orbital
Communications and Teleglobe Mobile, and were additionally guaranteed by ORBCOMM
USA and ORBCOMM International prior to the Merger (see note 1). The guarantees
are non-recourse to Orbital Communications' shareholders (including Orbital) and
Teleglobe Mobile's partners (including Teleglobe).
Due to the limited amount of funds currently available to ORBCOMM, it is
highly unlikely that ORBCOMM will make its interest payment on the Notes due
August 15, 2000. If the interest is not paid by September 14, 2000, or if the
Notes are not successfully restructured by that time, ORBCOMM would be in
default. The bondholders could seek some type of legal recourse against Orbital
Communications, as Orbital Communications is a guarantor of the Notes.
(7) SUBSEQUENT EVENT
In August 2000, Teleglobe, Teleglobe Mobile, Orbital, ORBCOMM and Orbital
Communications entered into a Memorandum of Understanding ("MOU"). The MOU
provides for, among other things, that:
- ORBCOMM devote commercially reasonable efforts to implement a new
business plan agreed to by the parties,
- Orbital continue discussions with potential investors in ORBCOMM,
- ORBCOMM work with its creditors to restructure its debt in a
manner consistent with the business plan and take such other
steps as may be appropriate in the event that ORBCOMM and its
partners decide to pursue a filing under Chapter 11 of the United
States Bankruptcy Code, and,
- an affiliate of Teleglobe provide an aggregate of $17,000,000 of
interim debt financing to ORBCOMM, a portion of which will be
provided in the form of a secured loan and the remainder of which
will be provided in a form to be determined by Teleglobe.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In 1993, Teleglobe Inc. ("Teleglobe"), acting through Teleglobe Mobile
Partners ("Teleglobe Mobile"), and Orbital Sciences Corporation ("Orbital"),
acting through Orbital Communications Corporation ("Orbital Communications"),
formed ORBCOMM Global, L.P. ("ORBCOMM"). At that time, Teleglobe Mobile and
Orbital Communications each acquired general and limited partnership interests
with a 50% participation interest in us. Effective as of January 1, 2000,
Teleglobe Mobile became our sole general partner and, as of June 30, 2000,
Teleglobe Mobile and Orbital Communications owned approximately a 67% and a 33%
partnership interest in us, respectively.
Concurrently with our formation, Orbital Communications and Teleglobe
Mobile formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and
ORBCOMM International Partners, L.P. (ORBCOMM International"), each of which had
the exclusive right to market our services in the United States and
internationally, respectively. As of December 31, 1999, we held general and
limited partnership interests with a 98% participation interest in each of
ORBCOMM USA and ORBCOMM International, while each of Orbital Communications and
Teleglobe Mobile held the remaining 2% participation interest in ORBCOMM USA and
ORBCOMM International, respectively. On January 26, 2000, each of Orbital
Communications and Teleglobe Mobile contributed to us its 2% interest in ORBCOMM
USA and ORBCOMM International, respectively (the "Merger"). As a result of the
Merger, these companies ceased doing business as separate entities and we
assumed their business operations.
Orbital Communications retains control over the licenses granted to it by
the U.S. Federal Communications Commission (the "FCC"). In January 2000, Orbital
Communications agreed to file an application with the FCC to transfer the FCC
licenses for the ORBCOMM system to us if we have paid all amounts invoiced under
the 1995 and 1999 procurement agreements with Orbital and an aggregate of $75.0
million in capital contributions or similar equity investments has been made to
us by any entity after January 1, 2000, excluding certain specified capital
contributions made to us by Teleglobe Mobile and Orbital Communications. As of
June 30, 2000, an aggregate of $75.0 million in capital contributions or similar
equity investments had been made to us, but we had not paid all amounts invoiced
by Orbital under the procurement agreements. Consequently, the FCC licenses have
not been transferred to us.
On February 15, 2000, BCE Inc. ("BCE"), which currently owns approximately
23% of Teleglobe indirectly through Bell Canada, announced that it had executed
a definitive agreement to acquire the remaining 77% of Teleglobe, which
agreement was modified on June 18, 2000. This transaction is currently expected
to close by the end of the third quarter of 2000. BCE, Canada's largest
communications company, provides residential and business customers in Canada
with wireline and wireless communications products and applications, satellite
communications and direct-to-home television services and directories.
On May 19, 2000, Teleglobe sold to us the business of ORBCOMM Canada Inc.,
a majority owned subsidiary of Teleglobe and our international licensee for
Canada, and Orbital sold to us the net assets of Orbital's GEMtrak business,
which we had operated since March 1999.
Due to a slower than expected subscriber ramp-up, and the accompanying
lower than expected revenues, we adopted a revised sales and marketing strategy
subsequent to June 30, 2000. In connection with the implementation of this new
strategy, we reduced our overall workforce by approximately 37% in August 2000
and wrote down approximately $10.2 million of inventory and other assets as of
June 30, 2000. Although it was not contractually obligated to do so, since
January 2000, Teleglobe, through Teleglobe Mobile, had been funding our
operations and other requirements through equity contributions. In August 2000,
Teleglobe advised us that it was no longer in a position to continue to provide
equity capital to us. In August 2000, Teleglobe, Teleglobe Mobile, Orbital,
Orbital Communications and ORBCOMM entered into a Memorandum of Understanding
(the "MOU"). The MOU provides, among other things, that an affiliate of
Teleglobe provide us with an aggregate of $17.0 million of interim debt
financing to us. Notwithstanding the foregoing, we are continuing to seek
additional third party equity investors to join our existing partners. In
addition, we are continuing to explore a variety of financing alternatives,
including selling various assets and restructuring or reorganizing our
outstanding debt and/or our business. We have been advised by our independent
public accountants that, if our future funding situation is not resolved prior
to the completion of the accountants' audit of our financial statements for the
year ending December 31, 2000, their auditors' report on those financial
statements will be modified for that contingency and will include a going
concern
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qualification. In addition, a further write-down of assets due to impairment may
be required. See "Capital Requirements and Financing Plan."
Due to the limited amount of funds available to us, it is highly unlikely
that we will make the interest payment scheduled to be paid on August 15, 2000
on our 14% Senior Notes due 2004 with Revenue Participation Interest (the
"Notes"). If the interest is not paid by September 14, 2000, or the Notes are
not successfully restructured by that time, we would be in default under the
terms of the Amended and Restated Indenture governing the Notes (the
"Indenture"). At that time, bondholders representing at least 25% of the total
amount of the Notes will be able to declare the principal and all accrued
interest currently due. On August 11, 2000, we retained Donaldson, Lufkin &
Jenrette Securities Corporation to, among other things, assist us in exploring
recapitalization alternatives.
OUR ORGANIZATIONAL STRUCTURE; BASIS OF OUR FINANCIAL REPORTING
Our condensed consolidated financial statements include our accounts and
the accounts of our direct and indirect wholly owned subsidiaries, including
ORBCOMM Global Capital Corp. ("ORBCOMM Global Capital"). ORBCOMM Global Capital
was formed in July 1996 to act as a co-issuer of the Notes. ORBCOMM Global
Capital has nominal assets and does not conduct any operations.
Since, through December 31, 1999, Orbital Communications and Teleglobe
Mobile had effective control over ORBCOMM USA and ORBCOMM International,
respectively, we previously accounted for each of ORBCOMM USA and ORBCOMM
International using the equity method of accounting. Accordingly, we did not
consolidate either ORBCOMM USA or ORBCOMM International and therefore did not
report in our condensed consolidated financial statements either of ORBCOMM
USA's or ORBCOMM International's assets, liabilities and operating revenues and
expenses. Instead, our proportionate share of the net income and losses of each
of ORBCOMM USA and ORBCOMM International was recorded under the caption "Equity
in net losses of affiliates" in our condensed consolidated financial statements.
As a result of the Merger, our condensed consolidated financial statements
include ORBCOMM USA's and ORBCOMM International's assets, liabilities and
operating revenues and expenses as of January 1, 2000. Previous reports by us
included the separate financial statements of ORBCOMM USA and ORBCOMM
International because they were guarantors of the Notes. As these companies no
longer exist, separate financial statements are no longer provided. The audited
financial statements of ORBCOMM USA and ORBCOMM International for the year ended
December 31, 1999 can be found in our annual report on Form 10-K for the year
ended December 31, 1999 filed with the Securities and Exchange Commission.
We own minority interests in several international licensees and a third
party. For those investments in which we own at least a 20% interest, we account
for our investment using the equity method of accounting. For those investments
in which we own less than a 20% interest, we account for our investment using
the cost method of accounting.
ROLL-OUT OF OUR SERVICES
We offer our commercial customers turnkey solutions, enabling them to
monitor and control via the Internet their fixed and mobile assets located
around the world. In November 1998, we commenced full commercial service in the
United States and Canada and we have since launched commercial service in
Europe, Japan, Mexico, South America, Morocco and Malaysia.
REVENUES
Through June 30, 2000, we generated revenues through three principal
sources: (1) value-added resellers ("VARs"); (2) international licensees and (3)
internal value-added resellers ("internal VARs"). Subsequent to June 30, 2000,
we announced a new sales and marketing strategy whereby we will focus on our
top-tier customers in a number of key industries and distribute our services
through VARs and other distribution partners, including our international
licensees, rather than through both direct (internal VARs) and indirect sales
channels.
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Through our domestic VARs, we generate service revenues from the direct
sale of satellite access and usage to the VARs, which sales are primarily for
resale to customers. In the United States, pricing to our VARs for satellite
access and usage is based on many variables, including the availability and cost
of substitute services, the cost of providing service and the nature of the
customer application. Pricing to our VARs generally is based on a structure that
incorporates, among other things, an initial activation charge and a recurring
monthly charge for access to, and use of, our system. During 2000, we intend to
implement usage fees based on designated "bands" or levels of use. It is likely
that multiple pricing alternatives will eventually be offered in the United
States including usage-sensitive billing, peak/off-peak, priority messaging,
volume discounts and annual contract commitment options. The prices charged by
the VARs to their customers are set by the VARs and are largely outside our
control.
Internationally, we generate revenues through license fees paid by, and the
sale of gateways to, international licensees. In addition, all international
licensees in commercial service pay a monthly satellite usage fee based on a
percentage of gross revenues. In the future, we expect to be able to charge the
international licensees a monthly satellite usage fee based on the greater of a
percentage of gross revenues and a data throughput fee. International licensees'
gross revenues are based on a pricing structure similar to the prices charged to
VARs, which includes an activation charge and a recurring monthly charge based
on access to, and use of, our system. On execution of a service license or
similar agreement with us, international licensees purchase a gateway or gateway
components from us under a gateway procurement contract or arrange to share a
gateway with an international licensee that is in close proximity. Cash received
under gateway procurement contracts is generally accounted for as deferred
revenues and recognized when the gateway has successfully completed acceptance
testing. License fees from service licenses or similar agreements are accounted
for as deferred revenues and recognized over the term of the agreements.
In addition to service revenues, we also generate revenues from the sale of
subscriber units. We have type-approved 15 subscriber unit models from five
manufacturers for use with our system, all of which are commercially available.
Our customers may order units directly from the manufacturers. In addition, we
have entered into agreements to purchase subscriber units for resale. Due to a
slower than expected subscriber ramp-up, and the adoption of our new sales and
marketing strategy, we evaluated the subscriber units in inventory and recorded
a write-down as of June 30, 2000 of approximately $9.0 million to reduce the
carrying value of our inventory to its estimated net realizable value.
OPERATING EXPENSES
Satellite-based communication systems are characterized by high initial
capital expenditures and relatively low marginal costs for providing service. In
November 1998, we commenced full commercial service in the United States and
Canada and we commenced depreciation of our satellite system. Additionally, we
continually incur:
- engineering expenses related to the development and operation of
our system;
- marketing expenses related to the marketing of our services; and
- administrative and other expenses related to the operation of our
system.
We have also incurred significant expenses related to the development of
internal VARs, which are included in our marketing, administrative and other
expenses. As a result of our decision to focus on our top-tier customers and
distribute our services through VARs and other distribution partners, we expect
that expenses related to the development and operation of internal VARs will
decrease substantially beginning in the third quarter of 2000.
RESULTS OF OPERATIONS
We have generated substantial negative cash flows to date. Our activities
through June 30, 2000 have focused primarily on the:
- design, construction and launch of satellites;
- design and construction of associated ground network and operating
systems (including associated software);
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- establishment of contractual agreements with VARs and
international licensees;
- acquisition of U.S. regulatory approvals for the operation of the
ORBCOMM system;
- development of subscriber unit manufacturing sources;
- development of internal VARs;
- development of customer software and hardware applications; and
- marketing and sales activities associated with our commercial
operations.
As a result of the Merger, ORBCOMM USA's and ORBCOMM International's
results are included in our condensed consolidated financial statements for the
three and six months ended June 30, 2000, while ORBCOMM's reported results for
the three and six months ended June 30, 1999 reflect ORBCOMM USA's and ORBCOMM
International's results as reported using the equity method of accounting. The
information provided below includes a comparison of the three and six months
ended June 30, 2000 with the three and six months ended June 30, 1999 on an as
reported basis, and also with ORBCOMM's results for the same periods of 1999 as
if the Merger had occurred as of January 1, 1999 (the "Combined Basis"
presentation).
Revenues. During the second quarter of 2000 and 1999, we recognized $1.3
million and $550,000 ($7.4 million on a Combined Basis) of revenues,
respectively. For the six months ended June 30, 2000 and 1999, these revenues
were $3.0 million and $1.1 million ($13.8 million on a Combined Basis),
respectively. Total revenues were higher on a Combined Basis during the three
and six months ended June 30, 1999 versus the same periods of 2000 primarily
because certain gateways were installed and accepted during the three and six
months ended June 30, 1999, resulting in the recognition of gateway revenues,
whereas no gateways were installed and accepted during the same periods of 2000.
Our revenues consist primarily of:
Service revenues and other.
- ORBCOMM services. During the second quarter of 2000 and 1999, we
recognized $756,000 and $107,000 ($269,000 on a Combined Basis),
respectively, of revenues relating to ORBCOMM services. For the
six months ended June 30, 2000 and 1999, these revenues were $1.6
million and $131,000 ($407,000 on a Combined Basis), respectively.
These revenues consist primarily of revenues from the direct sale
of satellite access and usage. Our service revenues were higher
period-over-period primarily due to an increase in the number of
activated subscriber units.
- Service license or similar agreements ("SLAs"). During the second
quarter of 2000 and 1999, we recognized $261,000 and $0 ($250,000
on a Combined Basis), respectively, as amortization of license
fees associated with SLAs. For the six months ended June 30, 2000
and 1999, these revenues were $514,000 and $0 ($475,000 on a
Combined Basis), respectively. These SLAs authorize the
international licensees to use the ORBCOMM system to provide
two-way data communication services in their respective
territories. License fees from SLAs are accounted for as deferred
revenues and recognized over the term of the SLAs.
- Other. During the second quarter of 1999, we recognized $0 ($3.1
million on a Combined Basis) in revenue reflecting payments
previously made by our former international licensees SEC ORBCOMM
(Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus
Communications Ltd. ("CEC Bosphorus") under their respective SLAs
and associated agreements with us. We had terminated these
licensees for non-performance and had deferred recognizing this
revenue pending the outcome of a motion for a preliminary
injunction filed by SATCOM International Group PLC, the alleged
successor-in-interest to each of SEC ORBCOMM and CEC Bosphorus.
SATCOM's motion for a preliminary injunction was denied by the
district court on March 18, 1999. See "Other Information."
Product sales.
- Construction of gateways and message distribution centers
("MDCs"). During the second quarter of 2000 and 1999, we
recognized $146,000 and $0 ($3.5 million on a Combined Basis),
respectively, of revenues from the installation and final
acceptance of an MDC (in 2000) and of a gateway (in 1999). During
the second quarter of 2000, installation and final
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acceptance of an MDC in Venezuela occurred, whereas, during the
second quarter of 1999, installation and final acceptance of a
gateway in Malaysia occurred. For the six months ended June 30,
2000 and 1999, we recognized $296,000 and $0 ($9.2 on a Combined
Basis), respectively, of revenues from the installation and final
acceptance of MDCs and of gateways. During the six months ended
June 30, 2000, installation and final acceptance of MDCs in Mexico
and Venezuela occurred, whereas, during the six months ended June
30, 1999, installation and final acceptance of gateways in Brazil,
Argentina and Malaysia occurred.
- Sale of subscriber units. During the second quarter of 2000 and
1999, we recognized $138,000 and $443,000 ($277,000 on a Combined
Basis), respectively, of revenues relating to the sale of
subscriber units. For the six months ended June 30, 2000 and 1999,
these revenues were $549,000 and $933,000 ($610,000 on a Combined
Basis), respectively.
Cost of sales. During the second quarter of 2000 and 1999, we incurred
$10.4 million and $657,000 ($3.0 million on a Combined Basis), respectively, of
cost of sales. For the six months ended June 30, 2000 and 1999, these costs were
$13.7 million and $1.1 million ($8.1 million on a Combined Basis), respectively.
During the three and six months ended June 30, 2000, we recorded $9.5 million
and $11.8 million, respectively (none during the same periods of 1999), of
expense to provide a valuation reserve for subscriber units currently in
inventory that may be sold at prices below cost. We believe these subscriber
units in inventory may be sold at prices below cost based on our slower than
expected subscriber ramp-up and the new sales and marketing strategy that we
adopted in August 2000 as a result thereof, and our belief that prices for
subscriber units will decline as a result of competition among manufacturers. In
addition, we recorded costs associated with the construction and delivery of
MDCs and gateways of $129,000 and $2.6 million on a Combined Basis for the
second quarter of 2000 and 1999, respectively, and of $243,000 and $7.2 million
on a Combined Basis for the six months ended June 30, 2000 and 1999,
respectively. Cost of sales also includes $298,000 and $502,000 for the three
and six months ended June 30, 2000, respectively (none during the same periods
of 1999) related to costs incurred for the installation of subscriber units. The
remaining cost of sales consists primarily of the cost of subscriber units sold
to customers.
Engineering expenses. During the second quarter of 2000 and 1999, we
incurred $8.7 million and $6.4 million (the same on a Combined Basis),
respectively, in ORBCOMM system engineering expenses. For the six months ended
June 30, 2000 and 1999, these expenses were $16.6 million and $11.7 million (the
same on a Combined Basis), respectively. We are capitalizing a portion of
engineering direct labor costs that relates to hardware and system design and
development and coding of the software products that enhance the operation of
the ORBCOMM system. Engineering expenses, which consist primarily of salaries,
consultant fees and employee-related expenses, were higher period-over-period
due in substantial part to a lower capitalization of engineering expenses and
consultant fees, as well as a greater number of employees.
Marketing, administrative and other expenses. During the second quarter of
2000 and 1999, we incurred $16.3 million and $11.2 million ($13.0 million on a
Combined Basis), respectively, of marketing, administrative and other expenses.
For the six months ended June 30, 2000 and 1999, these expenses were $29.6
million and $19.0 million ($25.0 million on a Combined Basis), respectively.
Marketing, administrative and other expenses were higher period-over-period due
in substantial part to increased costs relating to a greater number of
employees.
Depreciation. During the second quarter of 2000 and 1999, we incurred $13.6
million and $12.3 million (the same on a Combined Basis), respectively, in
depreciation expense. For the six months ended June 30, 2000 and 1999, these
expenses were $26.1 million and $23.8 million (the same on a Combined Basis),
respectively. Depreciation expense increased period-over-period due to an
increase in depreciable assets.
Interest expense and other financial charges. During the second quarter of
2000 and 1999, we incurred $6.3 million and $6.7 million (the same on a Combined
Basis), respectively, of interest expense and other financial charges. For the
six months ended June 30, 2000 and 1999, these expenses were $12.6
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million and $13.2 million (the same on a Combined Basis), respectively. Interest
expense primarily consists of interest on the Notes.
Equity in net losses of affiliates. During the second quarter of 2000 and
1999, we recognized $327,000 of equity in net losses of affiliates and $2.4
million of equity in net income of affiliates ($248,000 of equity in net losses
of affiliates on a Combined Basis), respectively. For the six months ended June
30, 2000 and 1999, $822,000 and $509,000 ($348,000 on a Combined Basis),
respectively, were recognized as equity in net losses of affiliates. On a
Combined Basis, the equity in net losses of affiliates represents our
proportionate share of net losses of ORBCOMM Japan Limited, our international
licensee for Japan, and ORBCOMM Middle East & Central Asia Ltd. ("OMECA"), our
international licensee for the Middle East and central Asia. On a Combined
Basis, equity in net losses increased period-over-period primarily because we
acquired our initial 20% interest in OMECA in September 1999.
SUPPLEMENTAL DATA
As of June 30, 2000, there were 30,976 subscriber units activated on the
ORBCOMM system, 21,916 of which were revenue generating. For the three and six
months ended June 30, 2000, we recognized $1.3 million and $3.0 million of
revenues, respectively, of which $574,000 and $1.3 million, respectively, came
from our international operations.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred cumulative net losses from inception and have financed our
operations to date primarily with capital contributions from our partners and
through financing activities. For the six months ended June 30, 2000 and 1999,
net cash used in operating activities was $86.5 million and $53.9 million ($54.6
million on a Combined Basis), respectively, primarily as a result of a net loss
(excluding items not affecting cash for depreciation, amortization, write down
of assets and equity in net losses of affiliates) of $58.7 million and $43.2
million ($43.4 million on a Combined Basis), respectively, as well as a net
decrease in Orbital's accrued liabilities of $29.8 million for the six months
ended June 30, 2000. The increased net loss period-over-period, excluding items
not affecting cash, is primarily attributable to higher operating expenses due
in substantial part to a greater number of employees.
For the six months ended June 30, 2000 and 1999, cash used in investing
activities was $31.4 million and $6.0 million ($5.4 million on a Combined
Basis), respectively, primarily for capital expenditures and investments in and
advances to affiliates. During the six months ended June 30, 2000, we spent
$29.2 million on capital expenditures, whereas we spent $2.4 million for the
same period of 1999, excluding $21.5 million of accrued milestone obligations
under the 1995 and 1999 procurement agreements with Orbital. In January 2000, we
invested $1.9 million through ORBOMM Investment Corporation, a wholly owned
unrestricted subsidiary of ours, in European Datacomm Holding NV, the holding
company for our international licensee for sub-Saharan Africa.
During the six months ended June 30, 2000 and 1999, cash flows from
financing activities provided cash of $113.2 million and $64.7 million (the same
on a Combined Basis), respectively. The increase period-over-period is primarily
attributable to an increase in the amount of capital contributions made to us by
our partners.
CAPITAL REQUIREMENTS AND FINANCING PLAN
Through June 30, 2000, Teleglobe Mobile and Orbital Communications had made
capital contributions to us totaling approximately $510 million. We also
received net proceeds of $164.5 million from the sale of the Notes. Although it
was not contractually obligated to do so, since January 2000, Teleglobe, through
Teleglobe Mobile, had been funding our operations and other requirements through
equity contributions. In August 2000, Teleglobe advised us that it was no longer
in a position to continue to provide equity capital to us. On August 3, 2000, we
entered into a MOU with Teleglobe, Teleglobe Mobile, Orbital and Orbital
Communications. The MOU provides, among other things, that:
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- we devote commercially reasonable efforts to implement a new
business plan agreed to by the parties;
- Orbital continue discussions with potential investors in us;
- we work with our creditors to restructure our debt in a manner
consistent with the business plan and take such other steps
as may be appropriate in the event that we and our partners
decide to pursue a filing under Chapter 11 of the United States
Bankruptcy Code; and
- an affiliate of Teleglobe provide an aggregate of $17.0 million of
interim debt financing to us.
A portion of the interim debt financing from an affiliate of Teleglobe,
totaling $4.95 million, has been provided to us in the form of a secured loan
pursuant to the terms of the Bridge Credit Agreement (the "Credit Agreement")
dated as of August 8, 2000 between us and Teleglobe Holding Corp., an affiliate
of Teleglobe ("Teleglobe Holding"). An additional $3.05 million of such
financing will be provided to us in the form of a secured loan once we have
obtained an opinion that the transaction is fair to us from a financial
perspective from an independent financial advisor as provided in the Indenture.
The remainder of the $17.0 million will be provided in a form to be determined
by Teleglobe, which may, at Teleglobe's discretion, take the form of
debtor-in-possession financing.
Over the next 12 months, our cash requirements will continue to be
substantial and we do not expect to be able to satisfy these requirements with
cash from operations. Due to the limited amount of funds available to ORBCOMM,
it is highly unlikely that we will make the interest payment scheduled to be
paid on August 15, 2000 on the Notes. If the interest is not paid by September
14, 2000, or the Notes are not successfully restructured by that time,
bondholders representing at least 25% of the total amount of the Notes will be
able to declare the principal and all accrued interest currently due.
We anticipate that the $17.0 million of interim debt financing to be
provided by an affiliate of Teleglobe will satisfy our funding requirements into
the fourth quarter of 2000, based on the new business plan and assuming that we
do not make the next scheduled interest payment on the Notes. We are continuing
to seek additional third party equity investors to join our existing partners.
In addition, we are continuing to explore a variety of financing alternatives,
including selling various assets and restructuring or reorganizing our
outstanding debt and/or our business. We cannot assure you, however, that other
equity investors or other financing alternatives will be available, and if
available, that they will be available on terms acceptable to us and our
partners.
RISK FACTORS
Many statements contained in this report are not historical and are
forward-looking in nature. Examples of such forward-looking statements include
statements concerning:
- our operations, funding needs and financing sources;
- our cash flows and profitability;
- our launch and commercial service schedules;
- future regulatory approvals;
- expected characteristics of competing systems; and
- expected actions of third parties such as equipment suppliers,
VARs and international licensees.
These forward-looking statements are inherently predictive and speculative,
and are based on our current views and assumptions regarding future events and
operating performance. The following are some of the risks that could cause
actual results to differ significantly from those expressed or implied by such
statements.
LIMITED HISTORY OF OPERATIONS AND NET LOSSES
We expect to continue to incur net losses. We incurred cumulative net
losses of approximately $361 million through June 30, 2000 and expect losses to
continue for at least the next several quarters. Our
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continued business development will require substantial expenditures, most of
which we will incur before we realize significant revenues from the ORBCOMM
system. Together with our operating expenses, these expenditures will result in
negative cash flows unless or until we establish an adequate revenue-generating
customer base.
We have a limited operating and financial history. We have conducted full
commercial operations for only a limited period of time. Our ability to provide
commercial service globally or in key markets and to generate positive operating
cash flows will depend on our ability to, directly or indirectly, among other
things:
- successfully operate and maintain the satellites in the
constellation;
- successfully and timely develop and distribute applications that
enable customers to use the ORBCOMM system;
- develop distribution capabilities within the United States and
licensing and distribution arrangements outside the United States
sufficient to capture and retain an adequate customer base;
- successfully and timely launch replacement satellites as needed;
- install the necessary ground infrastructure and obtain the
necessary regulatory and other approvals outside the United
States; and
- provide for the timely design, manufacture and distribution of
subscriber units to customers in sufficient quantities, with
appropriate functional characteristics and at competitive prices
for various applications.
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SIGNIFICANT SHORT-TERM AND OTHER CAPITAL REQUIREMENTS; LIMITED FINANCIAL
RESOURCES
Additional funding requirements may be significant and we currently have
limited resources available to meet these requirements. Over the next 12 months,
our cash requirements will continue to be substantial and we do not expect
that funding currently available from our partners, including through the
interim debt financing to be provided by an affiliate of Teleglobe pursuant to
the terms of the MOU, will be sufficient to satisfy all of our future funding
requirements. We are continuing to seek additional third party investors to
join our existing partners. In addition, we are exploring a variety of
financing alternatives, including selling various assets and restructuring or
reorganizing our outstanding debt and/or our business. We cannot assure you,
however, that other equity investors or other financing alternatives will be
available, and, if available, that they will be available on terms acceptable
to us and our partners.
Interest expense on the Notes represents a significant cash requirement for
us. Due to the limited amount of funds available to us, it is highly unlikely
that we will make the interest payment schedule to be paid on August 15, 2000 on
the Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Capital Requirements and Financing Plan" and "--
Substantial Leverage; Acceleration of Outstanding Notes."
The costs of maintaining the space segment may exceed funds generated from
operations. To maintain our satellite constellation, we will require significant
additional capital expenditures. We anticipate using funds from operations to
maintain our current satellite constellation. As we believe sufficient funds
from operations will not be available and if we are unable to obtain financing,
we may not be able to effectively maintain our current satellite constellation
or develop a second generation of satellites to replenish satellites in or
expand the constellation. Under the 1999 procurement agreement with Orbital, as
amended, we have agreed to procure, at a minimum, among other things, 14
additional satellites, two satellite propulsion rings and two separate
Pegasus(R) launch vehicles, at a total cost not to exceed approximately $107
million. As of June 30, 2000, we had incurred approximately $38 million under
the 1999 procurement agreement.
Additional expenses or cost increases related to launch failures, satellite
failures and other causes could negatively affect our financial condition. We
could incur additional costs arising, for example, from launch or uninsured
satellite failures and modifications made to all or part of the ORBCOMM system
design to work out technical difficulties or to accommodate changes in market
conditions, customer needs, system requirements or regulatory requirements.
Significant increases over our current estimated costs that relate to such
events, if applicable, could negatively affect our financial condition and
results of operations.
SUBSTANTIAL LEVERAGE; ACCELERATION OF OUTSTANDING NOTES
We currently have a significant amount of indebtedness and, therefore, are
highly leveraged. As of June 30, 2000, our total liabilities were approximately
$259 million, $181 million of which relates to the Notes. Due to the limited
amount of funds available to us, it is highly unlikely that we will make the
interest payment scheduled to be paid on August 15, 2000 on the Notes. If the
interest is not paid by September 14, 2000, or the Notes are not successfully
restructured by that time, we would be in default under the terms of the
Indenture and, at that time, bondholders representing at least 25% of the total
amount of the Notes will be able to declare the principal and all accrued
interest currently due.
In addition, our substantial leverage could negatively affect us because it
may:
- require us to dedicate a substantial portion of our cash flow from
operations to repaying indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, strategic investments and other requirements;
- limit our ability to borrow additional funds;
- increase our vulnerability to general adverse economic and
industry conditions; and
- limit our flexibility in planning for, or reacting to, changes in
our business and in the communication industry generally.
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In August 2000, we executed the Credit Agreement pursuant to which
Teleglobe Holding, an affiliate of Teleglobe, lent to us on a secured basis
$4.95 million (representing a portion of the $17.0 million interim debt
financing to be provided pursuant to the MOU) to support our near-term
operations. Any additional borrowings would further increase the amount of our
leverage and the associated risks.
RESTRICTIVE COVENANTS IN THE INDENTURE
The Indenture contains certain restrictive covenants. The restrictions in
the Indenture affect, and in some cases significantly limit or prohibit, our
ability to, among other things:
- sell assets;
- incur additional indebtedness;
- engage in transactions with affiliates;
- create liens;
- issue capital stock;
- make prepayments of certain indebtedness;
- engage in mergers and consolidations;
- make distributions on the partnership interests; and
- make certain investments.
If we fail to comply with the restrictive covenants in the Indenture, our
obligation to repay the Notes may be accelerated.
MARKET DEMAND FOR OUR PRODUCTS AND SERVICES IS NOT CERTAIN
Customer acceptance depends on several factors. The success of the ORBCOMM
system will depend on customer acceptance of our services, which is contingent
on a number of factors, including:
- the number of satellites that are operational at any time;
- completion and performance of the necessary ground infrastructure;
- receipt of the necessary regulatory and other approvals to operate
in a particular country;
- the availability of subscriber units that are compatible with the
ORBCOMM system and that meet the varying needs of customers;
- the price of our services and related subscriber units; and
- the extent, availability and price of alternative data
communication services.
In addition, we believe that market acceptance of certain of our services
depends on the design, development and commercial availability of integrated
hardware and software applications that support the specific needs of our target
customers. Our VARs and international licensees are responsible for developing
and/or marketing such applications. If there is a lack of, or a delay in the
availability of, the components necessary to fulfill our customers' business
requirements or if the products our VARs develop fail to meet key customer
requirements, market acceptance of ORBCOMM services could be adversely affected.
As with any new communication service, we cannot assure you that the market will
accept our services.
Our business plan further assumes that our potential customers will accept
certain limitations inherent in satellite communication services. For example,
the ORBCOMM system's line-of-sight limitation, particularly in "urban canyons,"
and its limited ability to penetrate buildings and other objects, could limit
customers' use of the ORBCOMM system and services. In addition to the
limitations that the ORBCOMM system architecture imposes, our services will not
be available in those countries where we or our international licensees have not
obtained the necessary regulatory and other approvals. Certain potential
customers may find these limitations on the availability of our services to be
unacceptable.
DEPENDENCE ON THIRD PARTY DISTRIBUTORS
We rely heavily on VARs within the United States. In the United States, we
rely heavily on VARs to market and distribute many of our services to customers.
Our success depends, in part, on our ability to attract and retain qualified
VARs. We cannot assure you that we will be able to enter into VAR agreements for
additional markets at the times or on the terms we expect or that we will be
able to retain our existing VARs when the terms of their respective agreements
end.
We believe that for the VARs to successfully market our services, they will
need to design, develop and make commercially available data applications that
support the specific needs of our target customers. This will require the VARs
to commit substantial financial and technological resources. Certain VARs are or
are likely to be newly formed ventures with limited financial resources, and
these entities may not be successful in designing data applications or marketing
our services effectively. The inability of VARs to provide data applications to
customers could negatively affect market acceptance of our services.
Furthermore, while our reseller agreements with the VARs provide that VARs will
use all reasonable commercial efforts to market and distribute our services,
generally the VARs are not required to meet established sales objectives.
We currently act primarily as a wholesaler to VARs. Thus, the cost to
customers for our services purchased through VARs is largely beyond our control.
Furthermore, we will have no rights independently to offer particular data
applications developed by VARs or to use the associated software unless we enter
into appropriate licensing agreements. By having previously developed internal
VARs, we may have created actual or apparent conflicts with certain VARs, which
could adversely affect such VARs' continued willingness to invest resources in
developing and distributing data applications for the ORBCOMM system.
We rely heavily on international licensees outside the United States.
Outside the United States, we enter into service license or similar agreements
with international licensees. The international licensees are responsible in
their territories for procuring and installing the necessary gateways, obtaining
the necessary regulatory and other approvals to provide services using the
ORBCOMM system and marketing and distributing our services. We select the
international licensees primarily by evaluating their ability to market and
distribute our services successfully. Although we consider many elements in
evaluating
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potential international licensees, an individual international licensee may not
satisfy any one or more of these elements. Our success depends, in part, on our
ability to attract and retain qualified international licensees. In addition,
each agreement we have executed with an international licensee provides that the
international licensee may terminate the agreement upon one year's written
notice, and any international licensee may decide to do so. Also, we have the
right under the terms of these agreements to terminate such agreements based on
the non-performance of the licensee as described therein.
Certain of the agreements grant international licensees the right to
terminate their agreements if they are unable to obtain the necessary regulatory
and other approvals within certain time parameters. Our international licensees
may not be successful in obtaining the necessary regulatory and other approvals,
and, even if successful, the international licensees may not develop a market
and/or a distribution network for our services.
Certain international licensees are or are likely to be newly formed
ventures with limited financial resources. These entities may not be successful
in procuring and installing the necessary gateways, obtaining the necessary
regulatory approvals or successfully marketing and distributing our services.
The general form of our service license agreement does not obligate us or give
us the contractual right to construct the necessary gateway if an international
licensee is unable or unwilling to construct one. In the future, and if an
international licensee is unable or unwilling to do so, we may desire to
construct, or finance the construction of, the necessary gateway. However, the
international licensee or the relevant governmental authority may not permit us
to construct the gateway, or we may not be able to bear the cost of constructing
the gateway, which cost may be significant.
DEPENDENCE ON ORBITAL
We do not independently have, and do not intend to acquire, except by
contracting with other parties, the ability to design, construct or launch our
satellites. Under the 1999 procurement agreement with Orbital, as amended, we
agreed to procure, at a minimum, among other things, 14 additional satellites,
two satellite propulsion rings and two separate Pegasus launch vehicles, at a
total cost not to exceed approximately $107 million. In addition, we have an
option to procure additional launch services using the Pegasus launch vehicle,
if necessary. Depending on the product or service being purchased, we are
required to pay Orbital a fixed amount, subject to certain incentive payments
and other adjustments, or on a time and materials basis. Under the 1999
procurement agreement, we are entitled to withhold payments from Orbital based
on Orbital's failure to achieve certain milestones, until such time as such
milestones are achieved or we have waived in writing the requirement to achieve
such milestones.
An adverse effect on Orbital and its business for whatever reason may
adversely affect Orbital's ability to perform under the 1999 procurement
agreement. We have not identified any alternate provider of the services Orbital
currently provides. An alternate service provider may not be available or, if
available, may not be available at a cost or on terms acceptable to us.
DEPENDENCE ON AND ABILITY TO PROTECT PROPRIETARY INFORMATION
Our success and ability to compete depend to a certain degree on our
proprietary technology, and we depend on Orbital's intellectual property rights
relating to the ORBCOMM system. Under the 1995
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procurement agreement and the 1999 procurement agreement, Orbital or its
subcontractors generally own the intellectual property relating to the work
performed by Orbital under the procurement agreements, including the U.S. ground
segment and our satellites, other than certain communication software. We rely
primarily on copyright and trade secret law to protect our technology. While we
have applied for six patents, none of our patent applications has yet been
granted. We have entered into confidentiality agreements with each of our
employees, consultants and vendors, which agreements, where appropriate,
obligate the signatory to assign to us proprietary technology developed during
performance under the agreements and generally to control access to and
distribution of our software, documentation and other proprietary information.
Notwithstanding these precautions, it may be possible for a third party to copy
or otherwise obtain and use our software or other proprietary information
without authorization or to develop similar software independently. In addition,
absent the appropriate licensing agreements, we have no rights independently to
offer particular applications developed by VARs or to use the software included
in these applications. Enforcing intellectual property rights to these
applications will be the responsibility of the VARs. Furthermore, the laws of
countries outside the United States may afford us and our VARs little or no
effective protection of our intellectual property. Losing protection of these
intellectual property rights could negatively affect our financial condition and
results of operations.
The steps we have taken may not prevent misappropriation of our technology,
and agreements entered into for that purpose may not be enforceable. In
addition, we may have to resort to litigation in the future to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. This litigation, whether or not
successful, could result in substantial costs and diverted resources, each of
which could negatively affect our financial condition and results of operations.
SCHEDULE DELAYS
In view of our financial condition and our efforts to secure additional
funding for our operations and to meet other requirements, we previously
announced that Orbital has delayed production of our satellites. Although the
procurement of additional satellites at this time is neither time- nor
operationally-critical to the distribution of ORBCOMM service, the revised
production schedule could result in delays in future planned satellite
launches, including the launch of eight statellites scheduled for mid-2001. A
delay in or failure of the launch of such satellites, or a delay or failure in
placing such satellites into commercial operation, could result in a gradual
degradation of service in the affected regions, which could negatively affect
our financial condition and results of operations.
LIMITED LIFE OF SATELLITE CONSTELLATION
A significant portion of our tangible assets are our LEO satellites and the
related ground infrastructure. The loss or failure of satellites in the
constellation could negatively affect us.
There are many factors that contribute to and may affect the useful life of
any satellites, including our satellites, such as the quality of the satellites'
design and construction and the durability and expected gradual environmental
degradation of their electrical and other components.
We expect our current satellite constellation to be in commercial service
through at least 2006. We expect to launch replacement satellites periodically.
One of our satellites placed in service in 1995 is no longer operational.
DAMAGE TO OR LOSS OF SATELLITES
Damage to or loss of our satellites may result from a variety of causes,
including:
- electrostatic storms;
- collisions with other objects, including space debris, man-made
objects or certain space phenomena such as comets, meteors or
meteor showers;
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- random failure of satellite components; or
- high levels of radiation.
Also, damage to or loss of our satellites may result from the failure of
the launch vehicle that was to place the satellites in orbit.
The ORBCOMM system was designed to provide for redundancy in the event of
the loss or failure of one or more satellites in the constellation, whether due
to a satellite reaching the end of its life or some other cause. However, the
loss or failure of satellites in the constellation may cause:
- gaps in service availability;
- significantly degraded service quality;
- increased costs; or
- loss of revenue for the period that service is interrupted or
impaired.
In addition to the factors discussed above, there are a number of factors
that may cause anomalies with respect to the operation or performance of
satellites in orbit. In connection with the deployment of our current satellite
constellation, we experienced certain anomalies with respect to several of our
satellites. These anomalies include, but are not limited to, reduced power
levels on certain satellites and the failure of certain satellites to transmit
data to subscriber units. While we have bypassed certain of the data
transmission anomalies, the coverage footprint of each affected satellite has
been reduced. Moreover, implementation of the bypass requires that certain
manufacturers modify certain subscriber communicator models to enable them to
work with the modified satellites. Similarly, we have demonstrated that the
reduced power levels experienced by some of our satellites do not result in the
inability of those satellites to offer commercial service. You should also note
that:
- anomalies such as those described above, or other anomalies that
have comparable effects, could occur in the future with respect to
the in-orbit satellites or additional satellites launched by us;
and
- if we are unable to correct such anomalies, if applicable, or
should additional anomalies occur in the future with respect to
the other in-orbit satellites or additional satellites that we
launch, such events could negatively affect our business.
LAUNCH FAILURES
Satellite launches are subject to significant risks, including:
- failure of the launch vehicle due to a crash or explosion, which
could cause disabling damage to or loss of the satellites;
- damage to the satellites during loading into the launch vehicle,
during the launch itself or as the satellites are deployed by the
launch vehicle;
- failure of the satellites to achieve their proper orbits;
- unreasonable delays related to poor weather conditions or prior
launch failures; and
- delays or failures in the development or deployment of satellite
propulsion rings.
We bear the risk of loss of a launch vehicle and satellites upon release of
the Pegasus launch vehicle from Orbital's L-1011 aircraft. Our insurance against
the loss of a launch vehicle and its satellite payload may be limited. If our
next satellite launch fails, or if we should need to procure launch services
from an alternate provider for any reason, the resulting delays would increase
the costs to deploy our enhanced satellite constellation.
LIMITED INSURANCE
Our insurance may not adequately mitigate the adverse effects of a launch
failure or of a loss of satellites in-orbit. For the December 1999 launch (the
"Fourth Pegasus Launch"), we procured insurance
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against launch failure and in-orbit failure of the seven satellites launched.
This insurance provides that if there is an in-orbit failure of two or more of
the seven satellites launched in the Fourth Pegasus Launch, our insurance will
cover the cost of the launch vehicle and the satellites at the rate of 20% of
the aggregate amount of such costs based on a failure of two of such satellites,
40% of such costs based on a failure of three of such satellites, 60% of such
costs based on a failure of four of such satellites, and 100% of such costs
based on a failure of five or more of such satellites. We have not yet procured
insurance for our planned launch of eight satellites scheduled for mid-2001
(the "Fifth Pegasus Launch"). See "--Schedule Delays."
We have procured insurance against the in-orbit failure of satellites in
each of the first three planes of eight satellites launched using the Pegasus
launch vehicle. If there is a failure of any of the three planes of eight
satellites currently in orbit, where "failure" is defined as the loss of three
or more satellites in any such plane, our insurance program would cover a
portion of the cost of a replacement launch vehicle and thereafter would cover
the cost of the launch vehicle and the satellites, as well as the increased
insurance premium thereon, for subsequent launches. In the event such a failure
occurs prior to the Fifth Pegasus Launch, and we decided to launch the
satellites currently intended to be launched in the Fifth Pegasus Launch as
replacement satellites, our insurance would cover a portion of the cost to
procure the launch vehicle used in the Fifth Pegasus Launch, and thereafter, the
launch vehicle and the satellites launched in connection with the Fifth Pegasus
Launch.
We have no insurance against in-orbit satellite failure for the two
satellites that were launched in April 1995 or for the two satellites launched
in February 1998.
COMPETITION
Competition in the communication industry is intense, fueled by rapid and
continuous technological advances and alliances among industry participants
seeking to use such advances to capture significant market share. We anticipate
that the ORBCOMM system will face competition from numerous existing and
potential alternative communication services. We expect that potential
competitors may include:
- operators and users of terrestrial-based data communication
systems;
- operators or users of geostationary or geosynchronous satellite
systems that use satellites with orbits located approximately
22,300 nautical miles directly above the equator;
- operators or users of other little low-Earth orbit ("LEO")
satellite systems similar to the ORBCOMM system;
- operators or users of networks of big LEO satellite systems; and
- operators or users of medium-Earth orbit satellite systems that
use satellites with orbits located between 2,000 and 18,000 miles
above the Earth.
If any of our competitors succeeds in marketing and deploying systems with
services having functions and prices similar to those we offer or expect to
offer, our ability to compete in markets served by such competitors may be
adversely affected.
Some of our actual or potential competitors have financial, personnel and
other resources that are substantially greater than our resources. In addition,
a continuing trend toward consolidation and strategic alliances in the
communication industry could give rise to significant new competitors.
Furthermore, any foreign competitor may benefit from subsidies from, or other
protective measures taken by, its home country. Some of these competitors could
develop more technologically advanced systems than the ORBCOMM system or could
provide more efficient or less expensive services than those that we provide or
expect to provide.
We may also face competition in the future from companies using new
technologies including new satellite systems. A number of these new
technologies, even if they are not ultimately successful, could negatively
affect us. Additionally, our business could be adversely affected if competitors
begin or expand their operations or if existing or new communication service
providers are able to penetrate our target markets.
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DEPENDENCE ON MANUFACTURERS
Our success depends in part on manufacturers developing, on a timely basis,
relatively inexpensive subscriber units. While we have type-approved 15
different subscriber unit models from five manufacturers for use with our
system, a sufficient supply of these subscriber units may not be available to
customers at prices or with functional characteristics that meet customers'
needs. If subscriber unit manufacturers are unable to develop and manufacture
subscriber units successfully at cost-effective prices that both meet the needs
of customers and are available in sufficient numbers, market acceptance of the
ORBCOMM system and the quality of our services could be affected, which, in
turn, could negatively affect our financial condition and results of operations.
IMPLEMENTATION AND INTEGRATION RISKS
To be able to offer turnkey solutions to our customers, we will be required
to develop and implement successfully applications and application platforms
that create a link between our communication system and our customers' IT
systems. Our Dolphin Software Services ULC subsidiary has developed an
application service platform that processes, integrates and displays the data
collected from the ORBCOMM system. Other competing products may be commercially
available or may be developed for commercial distributionthat could offer more
efficient, cost-effective and/or user-friendly applications, which. could
reduce, perhaps substantially, the size of the market for our application
service platform. In addition, our VARs and international licensees are
responsible for developing customer applications for use with the ORBCOMM
system. If our VARs or international licensees fail to develop applications that
are technically viable and competitively priced and that meet our customers'
specific needs, such failure could negatively effect our ability to obtain or
maintain customers.
While the ORBCOMM system has successfully transmitted over 31 million
messages to date, our system is exposed to the risks inherent in any large-scale
complex communication system using new or advanced technologies. Despite
extensive testing of the different segments of our system, the nature and
complexity of our system, including the design and integration of communication
technologies and devices ranging from satellites operating in space to ground
infrastructure, including subscriber units, located around the world, is such
that we cannot assure you that our system will function in its intended manner.
Even if built to specifications, any or all of the segments of the ORBCOMM
system may not function as expected. If any of the diverse and dispersed
elements of our system fails to function or to be integrated successfully as
required, that failure could render our system unable to perform at the quality
and capacity levels required for us to operate our business successfully.
SECURITY ON THE INTERNET
Like many other modern communication networks, we currently deliver a
substantial portion of data to our customers over the Internet and expect to
continue to use the Internet as a primary delivery method for data collected
from our satellite system. While we currently take certain measures to ensure
the security of customer data, persons who are able to circumvent our security
measures could misappropriate proprietary information or cause interruptions in
our data delivery operations. Concerns over the security of our delivery of
information over the Internet may also inhibit the growth of our customer base.
If any compromise of our security measures were to occur, or if customers were
to perceive that such unauthorized access was likely, it could have a material
adverse effect on our reputation, business, prospects, financial condition or
results of operations. We may be required to expend capital and other resources
to protect against such security breaches or to alleviate problems caused by
such breaches, which expenditures may be significant.
GOVERNMENT REGULATION
The failure to maintain the necessary U.S. licenses could negatively affect
us. Our business may be affected by the regulatory activities of various U.S.
government agencies, primarily the FCC. Although each of the FCC licenses is
currently valid, the FCC could revoke these licenses if Orbital Communications
fails to satisfy certain conditions or to meet certain prescribed milestones,
including:
- the September 2002 milestone by which Orbital Communications must
launch two of the 12 additional satellites licensed in March 1998;
and
- the March 2004 milestone by which Orbital Communications must
launch the remaining ten of these satellites,
unless the FCC grants extensions or modifications for accomplishing the required
milestones. Orbital Communications is required to apply for a license renewal
three years before each FCC license expires. While, based on past experience,
Orbital Communications believes the FCC generally grants the renewal
applications of existing licensees where the licensee has satisfied the
requirements of the license, it is possible that the FCC will not, in fact,
renew the FCC licenses. Should the FCC revoke or fail to renew the
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FCC licenses, or if Orbital Communications fails to satisfy any of the
conditions of the FCC licenses, such event would negatively affect our financial
condition and results of operations.
The FCC has licensed Orbital Communications to operate as a private
carrier. Because of our method of distributing services, we believe that Orbital
Communications currently is not subject to the restrictions that apply to common
carriers or to providers of Commercial Mobile Radio Services ("CMRS"). In the
United States, we distribute our services to customers primarily through VARs.
In most cases, we will provide our customers with enhanced services and will not
be interconnected with the public switched telephone network. Therefore, we do
not believe that the FCC will regard these services as common carrier or CMRS.
In the future, however, we may provide services that the FCC deems common
carrier or CMRS, or the FCC may exercise its discretionary authority to apply
the common carrier or CMRS rules to our operations. Applying these rules to us
could negatively affect our financial condition and results of operations by,
for instance, subjecting us to rate regulation and certain tariff filing
requirements and limiting some foreign ownership in us.
Our financial condition and results of operations could be adversely
affected if the United States adopts new laws, policies or changes in the
interpretation or application of existing laws, policies and regulations that
modify the present regulatory environment.
The failure to obtain regulatory approvals in other countries could hinder
global service offerings. Our business is affected by the regulatory authorities
of the countries in which we or our international licensees will operate and in
which we plan to offer our services. Our international licensees will be
required to obtain local regulatory approvals to offer our services, to operate
gateways and to sell subscriber units within their territories. Thus, our
international licensees must obtain numerous approvals before we can offer full
global coverage. Our business plan is based on our receiving regulatory
approvals in several foreign jurisdictions within specified time periods. As of
August 14, 2000, our licensees had secured licenses in over 40 countries, over
35 of which grant full commercial authority to provide ORBCOMM services in such
country including Mexico, Canada, Japan, Germany, the United Kingdom, Brazil,
Venezuela, Argentina, Colombia, Chile, Morocco and Malaysia. Certain of these
licenses permit a range of activities including the right to test and
demonstrate or operate the ORBCOMM system on a temporary or otherwise limited
basis. While each international licensee is responsible for obtaining
regulatory approvals in its territory, each international licensee may not be
successful in doing so. If any international licensee is not successful, we
will not be able to offer services in the affected territory.
Although many countries have moved to privatize communication services and
permit competition in providing these services, some countries continue to
require that a government-owned entity provide all communication services. While
we anticipate that substantially all of the international licensees will be
private entities, we may be required to offer our services through a
government-owned or -controlled entity in those territories where government
monopolies prevail.
Our inability to offer service in a foreign country or countries could
negatively affect our financial condition and results of operations. Regulatory
provisions in countries in which we or our international licensees seek to
operate may impose impediments on our or the international licensees'
operations, and such restrictions could be unduly burdensome. Our business may
also be adversely affected by regulatory changes resulting from judicial
decisions and/or the adoption of treaties, legislation or regulations by the
national authorities of countries or territories where we plan to operate the
ORBCOMM system.
Coordination with the International Telecommunications Union ("ITU") poses
risks of delays. Frequency coordination through the ITU is a necessary
prerequisite to obtaining interference protection from other satellite systems.
There is no penalty for launching a satellite system before completing the ITU
coordination process, although protection from interference through this process
is only afforded as of the date that the ITU notifies Orbital Communications
that the coordination process has been successfully completed. Orbital
Communications has completed the ITU coordination process with respect to our
satellite constellation with all administrations except France and, with respect
to two downlink channels only, Russia. Orbital Communications expects that it
will successfully complete the ITU coordination process with France later this
year and is continuing to pursue coordination of the two downlink channels
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with Russia. The fact that the coordination of the two downlink channels with
Russia is not complete has not had and is not expected to have a material
adverse effect on our financial condition and results of operations.
The FCC has modified Orbital Communications' ITU documentation to include
the proposed launch of the 12 additional satellites for which Orbital
Communications has been licensed. We do not expect this modification to affect
coordination of our satellite constellation. Moreover, supplemental coordination
of these 12 satellites is not required for countries for which the U.S.
previously completed coordination.
Any delay in or failure to complete the ITU coordination process
successfully may result in interference to the ORBCOMM system by other mobile
satellite systems operating internationally, and this interference could
negatively affect our financial condition and results of operations.
Furthermore, international licensees working with their respective governments
are required to complete ITU coordination of subscriber units and gateways
located in their territories with countries located within distances determined
by ITU recommendations. These coordinations may not be completed successfully or
in a timely manner, which could result in delayed availability of ORBCOMM
services in the affected territories.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Since we expect to derive substantial revenues by providing communication
services globally, we are subject to certain multinational operating risks, such
as:
- changes in domestic and foreign government regulations and
communication standards;
- licensing requirements;
- tariffs or taxes and other trade barriers;
- price, wage and exchange controls;
- political, social and economic instability;
- inflation;
- interest rate and currency fluctuations; and
- U.S. law prohibitions from operating in certain countries.
Many of these risks may be greater in developing countries or regions. In
addition, although we anticipate that the international licensees will make all
payments in U.S. dollars, currency control restrictions may prevent the
international licensees in those countries from being able to do so. Because we
expect to receive most payments in U.S. dollars, we do not intend to hedge
against exchange rate fluctuations.
RISKS ASSOCIATED WITH AGREEMENTS BETWEEN AND INVESTMENTS BY OUR PARTNERS
Deadlock Between Our Partners. Pursuant to the Omnibus Agreement, in
January 2000, Teleglobe Mobile became our sole general partner with sole
authority to manage us. Although, at that same time, Orbital Communications
became a limited partner in us, certain significant transactions require Orbital
Communications' approval. Any potential deadlock between our partners could
negatively affect our results of operations.
BCE Ownership of TMI Communications. BCE, which currently owns
approximately 23% of Teleglobe and has announced that it has executed a
definitive agreement to acquire the remaining 77% of Teleglobe, owns 100% of TMI
Communications. TMI Communications provides geostationary satellite-based
communication services, including wireless digital data, voice, fax and dispatch
radio services, in North, Central and South America. Some of the services
offered by TMI Communications may compete with the services offered by ORBCOMM.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have issued $170,000,000 in Notes that mature in August 2004. The Notes
earn interest at a fixed rate of 14% as well as a 5% revenue participation
interest on service and certain other revenues. The market price for the Notes
may fluctuate as a function of market interest rate changes, investors'
perceptions of the risks faced by us and our revenue growth. See "Capital
Requirements and Financing Plan."
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
On December 18, 1998, we terminated for non-performance our
service license agreements with SEC ORBCOMM (Middle East) Ltd. and
CEC Bosphorus Communications Ltd., which agreements together
covered 20 countries. On December 23, 1998, SATCOM International
Group PLC, the alleged successor-in-interest to SEC ORBCOMM's and
CEC Bosphorus' interests in these agreements, filed an action
claiming that the termination of these agreements was unjustified.
The suit sought damages and a preliminary and permanent injunction
effectively awarding the licenses to SATCOM. The district court
denied SATCOM's application for a temporary restraining order on
December 28, 1998. Following an evidentiary hearing, on March 18,
1999, the district court denied SATCOM's request for a preliminary
injunction. SATCOM appealed the district court's denial of its
request for a preliminary injunction; however, SATCOM subsequently
withdrew this appeal. On March 29, 1999, SATCOM moved for an order
staying the district court action pending arbitration before the
American Arbitration Association. On May 27, 1999, the district
court denied SATCOM's motion for a stay of the district court
action and granted a cross-motion filed by us, staying the
arbitration SATCOM had initiated and enjoining SATCOM from
proceeding with such arbitration. On December 15, 1999, the Second
Circuit summarily affirmed the district court's May 27, 1999
ruling. On January 28, 2000, we filed a motion for summary
judgment, which motion was granted on June 6, 2000. SATCOM has
appealed the district court's decision granting our motion for
summary judgment, which appeal is pending.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A complete list of the exhibits required to be filed with this
report on Form 10-Q is provided in the Exhibit Index that precedes
the exhibits filed with this report.
On June 19, 2000, we filed a report on Form 8-K attaching a press
release issued by us on June 16, 2000. On July 5, 2000, we filed a
report on Form 8-K attaching a press release issued by us on June
29, 2000. On August 8, 2000, we filed a report on Form 8-K
attaching a press release issued by us on August 4, 2000.
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EXHIBIT INDEX
The following exhibits are filed as part of this report:
EXHIBIT NO. DESCRIPTION
----------- -----------
3 Organizational Documents.
3.1(a) Certificate of Limited Partnership of ORBCOMM.
3.2(i) Amended and Restated Agreement of Limited Partnership of ORBCOMM dated January 1,
2000.
4.1(k) Amended and Restated Indenture, dated as of February 9, 1999, by and among ORBCOMM,
ORBCOMM Global Capital, ORBCOMM USA, ORBCOMM International, Orbital Communications,
Teleglobe, Teleglobe Mobile and Marine Midland Bank.
10 Material Contracts.
10.1(i) Omnibus Agreement, dated as of January 1, 2000, among Teleglobe, Teleglobe Mobile,
Orbital, Orbital Communications and ORBCOMM.
10.2(a) Pledge Agreement, dated as of August 7, 1996, by and among ORBCOMM, ORBCOMM Global
Capital and Marine Midland Bank as Collateral Agent.
10.4(a) Master Agreement, restated as of September 12, 1995, by and among ORBCOMM,
Teleglobe, Teleglobe Mobile, Orbital and Orbital Communications (the "Master
Agreement").
10.4.1(b) Amendment No. 1 to Master Agreement, dated as of February 5, 1997.
10.5(a) Procurement Agreement, dated as of September 12, 1995, by and between ORBCOMM and
Orbital (the "1995 Procurement Agreement") (provided that Appendix I is incorporated
by reference to Exhibit 10.24.6 to the Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1993 filed by Orbital on August 13, 1993).
10.5.1(c) Amendment No. 1 to the 1995 Procurement Agreement, dated December 9, 1996.
10.5.2(b) Amendment No. 2 to the 1995 Procurement Agreement, dated March 24, 1997.
10.5.3(e) Amendment No. 3 to the 1995 Procurement Agreement, dated as of March 31, 1998.
10.5.4(e) Amendment No. 4 to the 1995 Procurement Agreement, dated as of March 31, 1998.
10.5.5(g) Amendment No. 5 to the 1995 Procurement Agreement, dated as of July 30, 1998.
10.5.6(g) Amendment No. 6 to the 1995 Procurement Agreement, dated as of September 21, 1998.
10.5.7(g) Amendment No. 7 to the 1995 Procurement Agreement, dated as of December 31, 1998.
10.5.8(h) Procurement Agreement dated as of February 1, 1999, by and between ORBCOMM
and Orbital.
10.5.9(h) Amendment No. 8 to the 1995 Procurement Agreement, dated as of December 24, 1999.
10.5.9.1(h) Amendment No. 9 to the 1995 Procurement Agreement, dated as of June 30, 1999.
10.5.9.2(h) Amendment No. 10 to the 1995 Procurement Agreement, dated as of September 30, 1999.
10.6(a) Proprietary Information and Non-Competition Agreement, restated as of
September 12, 1995, by and among ORBCOMM, Teleglobe, Teleglobe Mobile,
Orbital, Orbital Communications, ORBCOMM USA and ORBCOMM International.
10.10(a) Service License Agreement, dated as of December 19, 1995, between ORBCOMM
International and ORBCOMM Canada.
10.12(a) Service License Agreement, dated as of October 15, 1996, between ORBCOMM
International and European Company for Mobile Communicator Services, B.V.,
ORBCOMM Europe ("MCS").
10.14(a) Ground Segment Facilities Use Agreement, dated as of December 19, 1995, between
ORBCOMM International and ORBCOMM Canada.
10.15(a) Ground Segment Procurement Contract, dated as of October 15, 1996, between
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ORBCOMM International and MCS.
10.16(f) Orbital Communications Corporation 1992 Stock Option Plan.
10.16.1(h) The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P.
10.16.2(h) Dolphin Information Services, Inc. 1998 Stock Option Plan.
10.19(f) Subscriber Communicator Manufacture Agreement dated as of July 31, 1996
by and between ORBCOMM and Magellan Corporation.
10.20(f) Reseller Agreement dated as of March 3, 1997 by and between ORBCOMM USA and
Orbital (the "Reseller Agreement").
10.20.1(f) Amendment No. 1 to the Reseller Agreement dated as of September 2, 1997.
10.22(f) Consulting Agreement dated as of March 18, 1998 by and between ORBCOMM
and ORBCOMM Canada.
10.23(j) ORBCOMM System Construction and Operations Agreement, dated as of
January 26, 2000, by and between ORBCOMM and Orbital Communications.
10.24(j) Consulting Agreement, dated as of January 26, 2000, by and between ORBCOMM and
Orbital Communications.
10.25(j) Services Agreement, dated as of December 9, 1998, by and between ORBCOMM and
ORBCOMM Canada.
10.26* Memorandum of Understanding dated as of August 3, 2000 by and among Teleglobe,
Teleglobe Mobile, Orbital, Orbital Communications and ORBCOMM.
10.27* Bridge Credit Agreement dated as of August 8, 2000 between ORBCOMM and Teleglobe
Holding Corp.
10.28* Security Agreement dated as of August 8, 2000 between ORBCOMM and Teleglobe Holding
Corp.
10.29* Sublease Agreement, dated as of May 19, 2000, between ORBCOMM and Orbital.
21(j) Subsidiaries of the Registrants.
27* Financial Data Schedule.
- ----------
* Filed herewith.
(a) Incorporated by reference to the identically numbered exhibit to our
Registration Statement on Form S-4, as amended (Reg. No. 333-11149).
(b) Incorporated by reference to the identically numbered exhibit to our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by
us on May 14, 1997.
(c) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 filed by us
on March 28, 1997.
(d) Incorporated by reference to Exhibit 10.16.1 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (the "Orbital 1996 Form
10-K") of Orbital, filed by Orbital on March 27, 1997.
(e) Incorporated by reference to the identically numbered exhibit to Amendment
No. 1 to our Registration Statement on Form S-1, as amended (Reg.
333-50599).
(f) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, filed by
us on March 31, 1998.
(g) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, filed by
us on March 31, 1999.
(h) Incorporated by reference to the identically numbered exhibit to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed by
us on August 16, 1999.
(i) Incorporated by reference to the identically numbered exhibit to our Report
on Form 8-K, filed by us on February 4, 2000.
(j) Incorporated by reference to the identically numbered exhibit to our Annual
Report on Form 10-K for the fiscal year ended December 31, 1999, filed by
us on March 30, 2000.
(k) Incorporated by reference to the identically numbered exhibit to our Report
on Form 8-K, filed by us on February 16, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ORBCOMM GLOBAL, L.P.
Date: August 14, 2000 By: /s/ SCOTT L. WEBSTER
----------------------------------
Scott L. Webster
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2000 By: /s/ CAROL P. HANNA
----------------------------------
Carol P. Hanna
Vice President, Finance
(Principal Accounting Officer)
ORBCOMM GLOBAL CAPITAL CORP.
Date: August 14, 2000 By: /s/ SCOTT L. WEBSTER
----------------------------------
Scott L. Webster
President
(Principal Executive Officer)
Date: August 14, 2000 By: /s/ CAROL P. HANNA
----------------------------------
Carol P. Hanna
Vice President, Finance
(Principal Accounting Officer)
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