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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
REGISTRATION NO. 333- --
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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ORBCOMM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4812 54-1890273
(STATE OR OTHER JURISDICTION OF (PRIMARY INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION) IDENTIFICATION NO.)
------------------------
2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(703) 406-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARY ELLEN SERAVALLI, ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
2455 HORSE PEN ROAD, SUITE 100
HERNDON, VIRGINIA 20171
(703) 406-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
JOHN D. WATSON, JR., ESQ. JEAN E. HANSON, ESQ.
MICHAEL A. BELL, ESQ. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
LATHAM & WATKINS ONE NEW YORK PLAZA
1001 PENNSYLVANIA AVENUE, N.W., SUITE 1300 NEW YORK, NEW YORK 10004
WASHINGTON, DC 20004 (212) 859-8000
(202) 637-2200
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE (1) FEE
Common Stock, par value $0.01 per share..................... $143,750,000 $42,406.25
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY THEM BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 21, 1998
PROSPECTUS
--,000,000 SHARES
ORBCOMM(SM) LOGO W/TEXT LINE UNDER
ORBCOMM CORPORATION
COMMON STOCK
All of the -- shares of Common Stock offered hereby (the "Offering") will
be sold by ORBCOMM Corporation (the "Company"). The Company will use the
proceeds of the Offering to purchase -- Partnership Units (as defined) in
ORBCOMM Global, L.P., a Delaware limited partnership ("ORBCOMM"). See
"Underwriting." On consummation of the Offering and the application of the net
proceeds therefrom to purchase Partnership Units, the Company will be admitted
as a general partner of ORBCOMM. The shares of Common Stock are equity
securities of the Company and do not represent Partnership Units in ORBCOMM.
Prior to the Offering, there has been no public market for the Company's
Common Stock. It is currently estimated that the initial public offering price
of the Common Stock will be between $-- and $-- per share. For a discussion of
factors to be considered in determining the initial public offering price, see
"Underwriting."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "ORBC."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
Per Share............................. $ $ $
Total (3)............................. $ $ $
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses related to the Offering, estimated to be $2.5
million.
(3) The Company has granted the Underwriters a 30-day option to purchase in the
aggregate up to -- additional shares of Common Stock on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. The
Company will use the net proceeds from the sale of any shares of Common
Stock in respect of such over-allotment option to purchase an equivalent
number of Partnership Units. If the over-allotment option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $--, $-- and $--, respectively. See
"Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them and subject to
certain conditions, including the approval of certain legal matters by counsel.
The Underwriters reserve the right to withdraw, cancel or modify the Offering
and to reject orders in whole or in part. It is expected that delivery of the
shares of Common Stock will be made against payment therefor on or about --,
1998 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167.
------------------------------
Joint Lead Managers and Joint Book Runners
BEAR, STEARNS & CO. INC. J.P. MORGAN & CO.
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The date of this Prospectus is --, 1998
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Simply Everywhere(SM)
ORBCOMM provides two-way data and
messaging services through the world's
first commercial low-Earth orbit
satellite communications system.
Through a constellation of low-Earth orbit satellites, a network
of terrestrial Gateways and small, relatively inexpensive subscriber
units, ORBCOMM will enable customers to collect data from
multiple locations, track assets on a global basis and transmit and
receive short text messages outside the coverage area of other
communications systems. ORBCOMM intends to provide reliable,
global communications services that are affordable, convenient and
easily accessible through the Internet, or by subscriber unit, personal
computer or facsimile.
[Picture of a globe, over which is
superimposed a picture of a person typing
on a computer keyboard, with the image of
an ORBCOMM satellite appearing to the
left of the globe.]
logo:
ORBCOMM(R)
GLOBAL DATA & MESSAGING
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
FORWARD LOOKING INFORMATION
ORBCOMM is a development stage enterprise. Many statements in this
Prospectus are not historical and are forward looking in nature. Examples of
such forward looking statements include statements concerning ORBCOMM's
operations, prospects, markets, technical capabilities, funding needs, financing
sources, pricing, launch and commercial service schedules and cash flows, as
well as information concerning the estimated size of the addressable markets for
satellite data and messaging communications services, future regulatory
approvals, expected characteristics of competing systems and expected actions of
third parties such as equipment suppliers, International Licensees (as defined)
and VARs (as defined). These forward looking statements are inherently
predictive and speculative and no assurance can be given that any of such
statements will prove to be correct. Actual results and developments may be
materially different from those expressed or implied by such statements. See
"Risk Factors" for a discussion of various factors that, among other things,
could result in any of such forward looking statements proving to be inaccurate.
All trademarks or trade names referred to in this Prospectus are the
property of their respective owners.
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ORBCOMM plans to deliver just
what customers need to know for fixed
asset monitoring, mobile asset tracking
and messaging.
Vital messages generated by a variety of applications are collected and
transmitted by an appropriate subscriber unit to a satellite in the ORBCOMM
constellation. The satellite relays these messages to an ORBCOMM Gateway
Earth Station. The message is sent through a Gateway Control Center through
the Internet to a personal computer, or otherwise to a subscriber unit or
facsimile machine.
[The above text is superimposed over a two-page picture of the surface of the
Earth, on which appear the following additional pictures:
(1) Includes pictures (from left to right) depicting actual and proposed
ORBCOMM applications for fixed asset monitoring, including monitoring of power
consumption, tank level and pipeline corrosion, mobile asset tracking,
including tracking government, trailer and heavy equipment vehicle location and
status and messaging, including personal messaging, traveler's aid and
automotive.
(2) Identifies different models of subscriber units suitable for use with
the ORBCOMM system, including (from left to right) a Scientific-Atlanta meter
reading subscriber unit, a Stellar Satellite Communications, Ltd. data
subscriber unit, a Panasonic data subscriber unit, a Torrey Science data
subscriber unit, a Magellan messaging subscriber unit and a CTI messaging
subscriber unit that is in development.
(3) An image of an ORBCOMM satellite appears in the sky above the surface
of the Earth, with two-way arrows pointing to each of the pictures of the
subscriber units that appears below the satellite.
(4) A picture of a Gateway Earth Station appears to the right of the
picture of the satellite, with a two-way arrow pointing from the satellite to
the Gateway Earth Station.
(5) A picture of the Gateway Control Center appears to the right of the
picture of the Gateway Earth Station, with two-way arrows pointing from the
Gateway Control Center to the Gateway Earth Station and each of the
pictures included in paragraph (6) below.
(6) Pictures (one on top of the other) that represent the different means
of receiving messages through the ORBCOMM system appear to the right of the
Gateway Control Center, including (in order) a personal computer, a subscriber
unit and a facsimile machine, with two-way arrows pointing from each picture to
the Gateway Control Center.]
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Certain
capitalized terms used in this Prospectus are defined in the Glossary of Terms.
For purposes of this Prospectus, unless otherwise indicated or the context
otherwise requires, references to "ORBCOMM" refer to ORBCOMM Global, L.P., a
Delaware limited partnership, and references to the "Company" refer to ORBCOMM
Corporation, a Delaware corporation and the issuer of the Common Stock. The
Company was incorporated in March 1998 for the sole purpose of investing in and
acting as a general partner of ORBCOMM. Unless otherwise indicated, all
information contained in this Prospectus assumes that (i) the Underwriters'
over-allotment option is not exercised and (ii) the Restructuring (as defined)
is complete. Prospective investors should carefully consider the specific
matters set forth under "Risk Factors" beginning on page 11, as well as the
other information and data included in this Prospectus.
THE COMPANY AND ORBCOMM
ORBCOMM Global, L.P. ("ORBCOMM") provides two-way monitoring, tracking and
messaging services through the world's first commercial low-Earth orbit ("LEO")
satellite-based data communications system. ORBCOMM believes that it will
provide a reliable, cost-effective method of providing fixed asset monitoring,
mobile asset tracking and messaging services to a broad range of customers
around the world, enabling such customers to collect data from multiple
locations, track assets on a global basis and transmit and receive short text
messages outside the coverage area of other systems. ORBCOMM has launched 12
satellites to date and expects to launch 16 additional satellites by mid-1998,
which will complete its planned 28-satellite constellation. An additional eight
satellites that will create a planned 36-satellite enhanced constellation with
increased capacity and improved service in equatorial regions are expected to be
launched in the third quarter of 1999.
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through two satellites. ORBCOMM has begun to place in
commercial service satellites that were launched in late 1997 and early 1998
and, as a result, ORBCOMM expects to offer commercial service on a broader basis
in the near future. ORBCOMM expects to have the ability to significantly expand
its commercial services later in 1998 in the United States and other temperate
regions, when 16 additional satellites are expected to be placed in commercial
service. Service outside the United States will be expanded as the necessary
ground infrastructure is completed and the necessary regulatory approvals are
received. Enhanced service in equatorial regions is expected to be available by
the fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service.
ORBCOMM is targeting specific markets for its data communications services,
including those in which potential customers currently have geographically
limited or otherwise inefficient methods of obtaining information. ORBCOMM's
current primary target markets include: (i) fixed asset monitoring services for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects; (ii) mobile asset tracking services for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels,
barges and government assets; and (iii) messaging services for consumers and
commercial and government entities. Future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. Based on market analyses conducted by and on
behalf of ORBCOMM, ORBCOMM estimates that the current addressable market
worldwide for data and messaging services of the type that can be provided by
Little LEO (as defined) systems such as ORBCOMM's is in excess of 160 million
subscriber units.
ORBCOMM has made substantial progress toward its goal of full commercial
operation of the ORBCOMM system. ORBCOMM has entered into agreements with over
40 value-added resellers ("VARs"), each of which is authorized to market and
distribute ORBCOMM services within specific regions and to targeted industries
or markets. ORBCOMM has also established two internal value-added resellers
("Internal VARs") to market and distribute monitoring and tracking services to
the oil and gas and
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transportation industries. In addition, ORBCOMM has entered into agreements with
13 international licensees ("International Licensees") that are expected to
market and distribute ORBCOMM services in over 95 countries within North and
South America, Europe, Asia, the Middle East and Africa following completion of
the necessary ground infrastructure and receipt of the necessary regulatory and
other approvals. ORBCOMM has also entered into agreements with six subscriber
unit manufacturers, Kyushu Matsushita Electric Company, Ltd. (also known as
"Panasonic"), Scientific-Atlanta, Inc., also a VAR ("Scientific-Atlanta"),
Magellan Corporation ("Magellan"), Stellar Electronics Ltd. ("Stellar"), Torrey
Science Corporation ("Torrey") and Communications Technology Inc. ("CTI"), and
has type approved ten subscriber unit models for commercial use with the ORBCOMM
system. Four subscriber unit manufacturers have commenced production of
subscriber units that can be used for electric utility meter, oil and gas
storage tank, well and pipeline and environmental monitoring and commercial
truck, trailer, container, rail car, heavy equipment, fishing vessel and
government asset tracking applications.
The ORBCOMM system consists of small and relatively inexpensive satellites
and subscriber units and a relatively low-cost ground infrastructure. ORBCOMM
expects that the aggregate cost to design, construct, launch and place in
commercial service the planned 36-satellite enhanced constellation and design
and construct the associated ground infrastructure in the United States (the
"U.S. Ground Segment"), which includes an ORBCOMM system gateway (the "U.S.
Gateway") and the master network control center for the entire ORBCOMM network
(the "Network Control Center"), will be approximately $332 million through the
third quarter of 1999, when the final eight satellites of such enhanced
constellation are expected to be launched, of which approximately $242 million
had been spent through December 31, 1997, excluding capitalized interest. On
consummation of the Offering, and taking into account the capital contributions
of ORBCOMM's current partners and the net proceeds of the Notes Offering (as
defined) and the MetLife Note (as defined), ORBCOMM believes that it will have
sufficient funds to meet its anticipated net cash loss from operations and
capital needs through the third quarter of 1999, when the last eight satellites
of the planned 36-satellite enhanced constellation are expected to be launched.
See "Risk Factors -- Financing Risks -- Additional Funding Requirements" and
"Risk Factors -- Market Demand -- Forward Looking Statements and Market
Estimates."
SERVICE OFFERINGS
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world. ORBCOMM intends to integrate the
ORBCOMM system with related applications software and hardware developed by or
for ORBCOMM, International Licensees or third parties that address the needs of
specific industries and market segments.
Fixed Asset Monitoring. ORBCOMM believes its services will provide a means
of collecting data from assets in multiple locations around the world, thereby
allowing customers to monitor productivity, minimize "downtime" and realize
other operational benefits. Ultimately, ORBCOMM also expects to provide a method
of controlling the functions of such assets, for example, by remotely operating
valves, electrical switches and other devices, providing further operational,
economic and competitive advantages. Primary applications currently include or
are expected to include monitoring and control applications for: (i) electric
utility meters; (ii) oil and gas storage tanks and wells; (iii) oil and gas
pipelines; and (iv) environmental projects. Many of the customers for these
applications manage numerous, widely dispersed assets in locations not currently
or adequately served by other communications systems. ORBCOMM estimates that the
size of the addressable market for these applications worldwide is approximately
60 million subscriber units in 1998. ORBCOMM subscriber units are currently
operational or in various stages of beta testing for monitoring applications for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects. Current beta test and operational customers that are
working with VARs and Internal VARs include: (i) Florida Power Corporation
("Florida Power"), which is working with Scientific-Atlanta to develop automatic
meter reading systems for commercial and residential customers; (ii) Barton
Instrument Systems, LLC ("Barton Instrument"), which is working with one of the
Internal VARs to test monitoring systems for oil and gas storage tanks, wells
and pipelines; (iii) Acanthus Resource Ltd. ("Acanthus"), which is working with
Intrex Data
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Communications Group ("Intrex") to test monitoring systems for oil and gas
pipelines; and (iv) the Salt River Valley Water Users' Association, which is
working with Leupold & Stevens, Inc., Stevens Water Monitoring Division
("Stevens Water Monitoring") on water monitoring systems.
Mobile Asset Tracking. ORBCOMM believes its services will provide a means
to regularly and reliably track the location and report the status or condition
of mobile assets around the world, thereby enabling customers to reduce
"downtime," repair costs, theft and other losses, improve service and more
effectively utilize transportation, heavy equipment and other assets. Primary
applications currently include or are expected to include tracking and
monitoring applications for: (i) commercial trucks; (ii) trailers, containers
and rail cars; (iii) heavy equipment; (iv) fishing vessels and barges; and (v)
government assets. Certain of the customers in this market segment have no
efficient means of tracking the location and may have no means of monitoring the
status or condition of their assets. ORBCOMM estimates that the size of the
addressable market for certain of these applications worldwide is approximately
13 million subscriber units in 1998. ORBCOMM subscriber units are currently
operational or in various stages of beta testing for tracking applications for
commercial trucks, trailers, containers, rail cars, heavy equipment, fishing
vessels and military vehicles. Current beta test and operational customers that
are working with VARs and Internal VARs include: (i) Caterpillar Inc.
("Caterpillar"), which is working with Globitrac, Inc. ("Globitrac") to test a
heavy equipment tracking and engine monitoring system; (ii) the U.S. Postal
Service, which is working with ARCO Global Tracking Systems, Inc. ("ARCO") to
test a commercial truck tracking system; (iii) the U.S. Army, which is working
with Arinc, Inc. ("Arinc") to test a military vehicle tracking system; (iv)
various U.S. trucking firms, which are working with Arinc to test trailer
tracking systems; (v) Burlington Northern Santa Fe Railroad ("Burlington
Northern"), which is working with MobileNet, Inc. ("MobileNet") to deploy a rail
asset tracking and engine monitoring system; and (vi) various fishing fleets
that are working with SASCO, Inc. ("SASCO") to test a fleet tracking and
messaging system.
Messaging. The ORBCOMM system is designed to provide short, alphanumeric
two-way paging-like communications services on a global basis. ORBCOMM plans to
introduce messaging services in the United States in the fall of 1998 and
thereafter on a global basis as the necessary ground infrastructure is
completed, the necessary regulatory approvals are received and, in equatorial
regions, as additional satellites are launched. ORBCOMM expects that messaging
customers will include a broad range of consumer, commercial and government
customers that require a means of communicating with various locations such as
their offices, dispatch centers, command posts or homes or who require the
ability to send priority messages or position information. Certain customers in
this market segment currently have no cost-effective alternatives or rely on
pagers, cellular phones or fleet dispatch systems, all of which services can be
expensive, unavailable or inconvenient in certain locations. ORBCOMM estimates
that the size of the addressable market for certain of these applications
worldwide is approximately 39 million subscriber units in 1998. ORBCOMM expects
that messaging subscriber units that can be used in the United States and
certain other regions will be commercially available from Magellan in mid-1998
and thereafter from one or more other manufacturers.
Future Applications. In addition to the addressable markets described
above for data and messaging services, future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. ORBCOMM estimates that the size of the
addressable markets for automotive and home security system applications is
approximately 53 million subscriber units in 1998.
DISTRIBUTION CHANNELS
ORBCOMM markets its services to customers within the United States
indirectly through VARs and directly through Internal VARs, and internationally
through International Licensees that may distribute ORBCOMM services directly or
through a distribution network.
VARs. ORBCOMM's VARs target industries or markets within specific regions.
Many VARs have an established market presence through their current customer
bases, industry knowledge, market-specific brand name recognition and
distribution networks. Such market experience and customer bases enable the VARs
to develop software and information systems for specific consumer, commercial
and government applications,
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thereby enhancing the functionality of the ORBCOMM system. To date, ORBCOMM has
entered into agreements with over 40 VARs, including Scientific-Atlanta, Arinc,
Sky-Eye Railway Services International ("Sky-Eye"), Intrex and Titan Industries,
Inc. ("Titan").
Internal VARs. In 1997, ORBCOMM established two Internal VARs to market
and distribute monitoring and tracking services to the oil and gas and
transportation industries. The Internal VARs are working closely with customers
to develop and integrate the ORBCOMM system with related applications hardware
and software. The Internal VAR for fixed asset monitoring applications has begun
beta testing with several companies in the oil and gas industry. By mid-1998,
the second Internal VAR plans to begin beta testing for mobile asset tracking
applications with customers that include one of the largest operators of
trucking fleets in the United States. ORBCOMM may establish additional Internal
VARs to market and distribute applications to the automotive and other
industries and to provide messaging services.
International Licensees. Outside the United States, ORBCOMM will
distribute its services through International Licensees that are responsible
for, among other things, paying to ORBCOMM a monthly satellite usage fee and in
certain cases a license fee, procuring from ORBCOMM and installing the necessary
ground infrastructure, obtaining the necessary regulatory and other approvals
and marketing and distributing ORBCOMM services in their designated regions. To
date, ORBCOMM has entered into agreements with 13 International Licensees,
including a European consortium led by Nuova Telespazio, S.p.A., and a Japanese
consortium that includes Okura & Co. Ltd., Mitsui & Co. Ltd., Kyushu Matsushita
Electric Co. Ltd. and KDD Co. Ltd. These International Licensees are expected to
market and distribute ORBCOMM services in over 95 countries following completion
of the necessary ground infrastructure and receipt of the necessary regulatory
and other approvals in their respective regions. ORBCOMM continues to negotiate
with potential International Licensees and expects to execute agreements with
several additional International Licensees during 1998. In addition to the
United States, full regulatory approvals to provide ORBCOMM services have been
received in Canada and Malaysia and limited regulatory approvals have been
received in Germany, Italy, Japan, South Korea, Spain, Sweden, Argentina, Chile,
South Africa and Iceland.
BUSINESS STRATEGY
Key components of ORBCOMM's business strategy include:
Reliable, Global Coverage. ORBCOMM believes that the integration of proven
technologies into the ORBCOMM system and the redundancy provided by the ORBCOMM
satellite constellation will enable it to provide reliable, global, two-way data
and messaging communications services. ORBCOMM's distributed constellation
architecture, consisting of numerous satellites in low-Earth orbit, is designed
not only to provide global coverage but also to reduce potential risks
associated with the loss or outage of one or more satellites.
First-to-Market Advantage. ORBCOMM began providing limited commercial
service in the United States in February 1996 and expects to have the ability to
provide expanded service in the United States and other temperate regions by the
fall of 1998 and enhanced service in equatorial regions by the fall of 1999.
Based on published reports, ORBCOMM believes that other Little LEO
constellations are not expected to be fully operational until after the year
2000. ORBCOMM believes being first to market with its Little LEO system provides
it with the opportunity to achieve a significant competitive advantage and
therefore a greater market penetration because of its ability to: (i) establish
certain industry standards for hardware and software applications; (ii)
demonstrate the ORBCOMM system in an actual operating environment; (iii) deploy
an installed base of subscriber units; (iv) solidify customer relationships; and
(v) create relationships with leading VARs, International Licensees, subscriber
unit manufacturers and other hardware and software developers.
Affordable and Convenient Service. ORBCOMM believes that its small and
relatively inexpensive satellites and subscriber units and relatively low-cost
ground infrastructure will enable it to provide customers with affordable and
convenient data and messaging communications services. ORBCOMM monitoring and
tracking subscriber units are small and lightweight, with substantial battery
lives, and are available from suppliers at initial prices generally ranging from
$250 to $750. ORBCOMM believes that as more subscriber
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units become commercially available and as the overall production volume for
subscriber units increases, the price for subscriber units will decline.
Global Marketing and Distribution of Services. ORBCOMM believes that it
can rapidly achieve a global presence by capitalizing on the customer
relationships, technical expertise and other resources of the VARs, Internal
VARs and International Licensees. Many of the VARs and International Licensees
have an established market presence as a result of their current customer bases,
industry knowledge, market-specific brand name recognition and distribution
networks. The Internal VARs enable ORBCOMM to broaden its distribution base, to
capture additional revenue resulting from value-added hardware, software and
services provided directly to customers and to facilitate the development of
application hardware and software that can hasten market development by ORBCOMM
and the VARs in the United States and by the International Licensees
internationally.
Commitment and Expertise of Strategic Partners. Orbital Sciences
Corporation ("Orbital"), through Orbital Communications Corporation ("OCC"), and
Teleglobe Inc. ("Teleglobe") and Teleglobe's partner Technology Resources
Industries Bhd. ("TRI"), through Teleglobe Mobile Partners ("Teleglobe Mobile"),
had invested an aggregate of approximately $180 million in ORBCOMM through March
31, 1998. Orbital is a U.S.-based space and information systems company, with
1997 revenues of approximately $600 million, that designs, manufactures,
operates and markets a broad range of space-related products and services,
including the manufacture and launch of the ORBCOMM satellites. Teleglobe is a
North American-based overseas telecommunications carrier, with 1997 revenues of
approximately C$2 billion, whose network and service capabilities (including
voice, data, Internet and value-added services) can be accessed in virtually all
countries. TRI is a Malaysian holding company, with 1997 revenues of
approximately RM2 billion, that controls the largest cellular operator in
Malaysia and has established cellular operations in Bangladesh, Cambodia and
Tanzania. ORBCOMM has used and will continue to use the expertise and
capabilities of its current partners, including their expertise in the design,
construction and launch of satellites and the marketing and operation of
communications networks, to enhance the services offered by the ORBCOMM system.
STRUCTURE
On consummation of the Offering and the application of the net proceeds of
the Offering to purchase Partnership Units, the Company will become a general
partner of ORBCOMM and is expected to own approximately --% of the outstanding
Partnership Units (as defined) (approximately --% if the Underwriters'
over-allotment option is exercised in full). Each of OCC and Teleglobe Mobile,
the current general partners (following consummation of the Offering, together
with the Company, the "General Partners") of ORBCOMM, will own approximately --%
of the outstanding Partnership Units (approximately --% if the Underwriters'
over-allotment option is exercised in full). Unless otherwise indicated, the
term "Partners" includes the Company, OCC and Teleglobe Mobile and any partners
subsequently admitted as partners of ORBCOMM, collectively.
On consummation of the Offering: (i) OCC and Teleglobe Mobile will
contribute to ORBCOMM their respective two percent partnership interests in
ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P.
("ORBCOMM International," and together with ORBCOMM USA, the "Marketing
Partnerships"), two limited partnerships that were previously formed for the
purpose of marketing ORBCOMM services in the United States and internationally,
respectively, dissolve each of the Marketing Partnerships and amend or terminate
certain agreements to which either or both of the Marketing Partnerships is a
party; and (ii) OCC and Teleglobe Mobile will enter into the Amended and
Restated Agreement of Limited Partnership of ORBCOMM Global, L.P. (the
"Partnership Agreement") and admit the Company as a General Partner
(collectively, the "Restructuring"). ORBCOMM and the Marketing Partnerships are
collectively referred to as ORBCOMM. See "The Company and Relationships Among
the ORBCOMM Parties" for a description and diagram of the organizational
structure. See also "Certain Relationships and Related Transactions" and
"Description of the Partnership Agreement."
5
10
RECENT DEVELOPMENTS
In connection with the Offering, ORBCOMM intends to seek from the
registered holders (the "Holders") of its 14% Senior Notes due 2004 with Revenue
Participation Interest (the "Notes") amendments of certain provisions of the
indenture (the "Indenture") dated August 7, 1996, among ORBCOMM, ORBCOMM Global
Capital Corp., the guarantors named therein and Marine Midland Bank, as trustee.
The purpose of the proposed amendments is to permit the Offering and to
facilitate other business objectives. The record date for the solicitation of
consents for the proposed amendments is as of the close of business on April 21,
1998.
Since late December 1997, ORBCOMM has launched ten satellites, which
ORBCOMM has begun to place in commercial service, with the first satellite
placed in service in mid-April 1998. Certain satellites have experienced
anomalies and outages. See "Risk Factors -- Technology Risks -- Design and
Operation Risks."
The principal executive offices of each of ORBCOMM and the Company are
located at 2455 Horse Pen Road, Suite 100, Herndon, Virginia 20171 and their
telephone number is (703) 406-6000. ORBCOMM's Internet address is
http://www.orbcomm.com.
6
11
SOURCES AND USES OF FUNDS BY ORBCOMM
(IN MILLIONS)
The following table summarizes the estimated sources and uses of funds by
ORBCOMM for the period from June 30, 1993 (date of inception) through the third
quarter of 1999. The projection of total sources and uses of funds is forward
looking and could vary, perhaps substantially, from actual results and events,
some of which may be outside of ORBCOMM's control, including unanticipated
expenses and delays. See "Risk Factors -- Market Demand -- Forward Looking
Statements and Market Estimates."
ORBCOMM believes that the net proceeds of the Offering, the capital
contributions of ORBCOMM's current Partners and the net proceeds of the Notes
Offering and the MetLife Note will be sufficient to fund ORBCOMM's anticipated
net cash loss from operations and capital expenditures through the third quarter
of 1999, when the final eight satellites of the planned 36-satellite enhanced
constellation are expected to be launched. ORBCOMM's ability to generate
revenues is subject to numerous uncertainties. Additional funds may be necessary
in the event of launch or other delay, loss or inoperability of satellites, cost
overruns or any shortfall in estimated levels of operating cash flows, or to
meet other unanticipated expenses. There can be no assurance that ORBCOMM will
be able to obtain any such additional financing on favorable terms, on a timely
basis or at all. See "Risk Factors -- Technology Risks -- Schedule Delays; Cost
Increases," "Risk Factors -- Financing Risks -- Additional Funding Requirements"
and "Risk Factors -- Market Demand -- Forward Looking Statements and Market
Estimates."
SOURCES OF FUNDS
----------------
Partners' capital(1)................. $190
Net proceeds of the sale of the
Notes(2)........................... 164
Net proceeds of the Offering(3)...... 114
Other indebtedness................... 5
----
Total sources.............. $473
====
USES OF FUNDS
-------------
ORBCOMM system:
Satellite construction and launch
services........................ $244
U.S. Ground Segment(4)............. 39
Insurance.......................... 17
Other system costs(5).............. 32
----
Total system costs(6)...... 332
Debt repayment and interest
expense(7)......................... 78
Cash used in or available for
operations(8)...................... 63
----
Total uses................. $473
====
- ---------------
(1) As of March 31, 1998, ORBCOMM's current Partners had invested an aggregate
of approximately $180 million in ORBCOMM.
(2) Represents $170 million of gross proceeds of the offering of the Notes (the
"Notes Offering"), including funds used to purchase a portfolio of U.S.
government securities pledged as security for repayment of principal and
interest on the Notes (the "Pledged Securities") in an amount sufficient to
make scheduled interest payments on the Notes through August 15, 1998, less
discounts and commissions and other expenses of the Notes Offering. See
"Description of the Senior Notes."
(3) Reflects the purchase by the Company of -- Partnership Units with the net
proceeds of the Offering, assuming an initial public offering price of $--
per share of Common Stock (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus) and
total net proceeds to the Company from the Offering of $114 million (after
expenses related to the Offering, estimated to be $2.5 million).
(4) Represents the total costs to design and construct the U.S. Ground Segment.
Assumes that costs to construct Gateways located outside of the United
States are incurred by International Licensees. See "Risk
Factors -- Operating Risks -- Reliance on Third Parties -- Reliance on
International Licensees."
(5) Represents certain project management costs; engineering costs related to
laboratory facilities, test equipment and product development; development
and certain operating costs associated with the ORBCOMM customer care and
billing system; and other costs.
(6) Through December 31, 1997, ORBCOMM spent approximately $242 million on
satellite constellation design, construction and launch services, design and
construction of the U.S. Ground Segment and insurance and other system costs
(excluding $34.5 million of capitalized interest).
(7) Represents required fixed interest payments on the Notes and scheduled
payments of principal and interest (at an interest rate of 9.2% per annum)
related to the Loan and Security Agreement dated December 22, 1994 between
MetLife Capital Corporation ("MetLife") and ORBCOMM (the "MetLife Note"), in
each case through the third quarter of 1999. Through December 31, 1997,
ORBCOMM spent $37.2 million in debt repayment and interest expense.
(8) Through December 31, 1997, ORBCOMM spent $51.5 million in operating and
other related costs (including cost of product sales, engineering, marketing
and general administrative and other expenses, and working capital). The
balance of cash used in or available for operations is available to cover
operating expenses through the third quarter of 1999. There can be no
assurance that such funds, together with the sources of funds set forth
above, will be sufficient to cover such expenses. See "Risk
Factors -- Financing Risks -- Additional Funding Requirements."
7
12
SUMMARY FINANCIAL DATA
THE COMPANY
The summary financial data of the Company presented below as of March 31,
1998 are derived from the audited balance sheet of the Company. The summary
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Company's balance sheet as of March 31, 1998 and the notes thereto and ORBCOMM's
combined financial statements as of December 31, 1996 and 1997 and for each of
the years in the three-year period ended December 31, 1997 and the notes thereto
included elsewhere in this Prospectus.
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (1)
------ ---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Investments in ORBCOMM...................................... $ -- $114,000
Total assets................................................ -- 114,000
Total stockholders' equity.................................. -- 114,000
- ------------------------------
(1) As adjusted to reflect the issuance and sale by the Company of the -- shares
of Common Stock offered hereby, assuming an initial public offering price of
$-- per share of Common Stock (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus), total
net proceeds to the Company of the Offering of $114 million and an aggregate
purchase price of approximately $114 million for the -- Partnership Units
purchased by the Company. See "Use of Proceeds" and "Capitalization."
ORBCOMM
The summary combined financial data of ORBCOMM presented below under the
captions "Combined Statements of Operations Data" and "Combined Balance Sheets
Data" for, and as of, each of the years in the five-year period ended December
31, 1997, are derived from the audited combined financial statements of ORBCOMM.
The summary combined financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and ORBCOMM's combined financial statements as of
December 31, 1996 and 1997 and for each of the years in the three-year period
ended December 31, 1997 and the notes thereto included elsewhere in this
Prospectus.
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
----- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AND OTHER DATA)
COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues (1).......................... $749 $2,093 $2,260 $ 400 $ 268
Cost of product sales....................... -- -- -- 268 517
Depreciation................................ -- -- -- 6,198 7,348
Engineering expenses (2).................... -- -- -- 5,453 8,160
Marketing expenses.......................... 749 2,093 2,232 6,832 10,673
General, administrative and other
expenses.................................. -- 9 50 4,777 9,722
Interest income, net........................ -- -- 59 3,554 4,545
---- ------ ------ -------- --------
Net income (loss)........................... $ -- $ (9) $ 37 $(19,574) $(31,607)
==== ====== ====== ======== ========
Pro forma net income (loss) per
Partnership Unit.......................... $
========
OTHER DATA: (3)
Number of VARs.............................. -- 2 15 29 41
Number of International Licensees........... -- -- 1 5 12
8
13
DECEMBER 31,
------------------------------------------------------------------------
1997
--------------------------
1993 1994 1995 1996 ACTUAL AS ADJUSTED(4)
------- ------- -------- -------- -------- --------------
(IN THOUSANDS)
COMBINED BALANCE SHEETS DATA:
Cash, cash equivalents and
investments (5).............. $ 20 $ 5,020 $ 1,805 $153,482 $ 38,862 $152,862
ORBCOMM system, net (6)........ 43,924 68,647 106,990 170,034 263,379 263,379
Total assets................... 47,685 73,667 109,242 336,615 331,961 445,961
Total long-term debt........... -- 5,000 4,175 173,269 172,277 172,277
Total Partners' capital........ 47,685 58,529 94,603 137,850 106,155 220,155
- ------------------------------
(1) ORBCOMM is a development stage enterprise. Total revenues for the years
ended December 31, 1993, 1994 and 1995 represent a non-refundable fee
received from a potential International Licensee and revenues from OCC with
respect to certain marketing costs.
(2) Prior to 1996, ORBCOMM capitalized substantially all engineering expenses as
part of the total costs of the ORBCOMM system. See footnote 6 below.
(3) Other Data is calculated as of the end of the period presented.
(4) Reflects the purchase by the Company of -- Partnership Units with the net
proceeds of the Offering, assuming an initial public offering price of $--
per share of Common Stock (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus) and
total net proceeds to the Company from the Offering of $114 million (after
expenses related to the Offering, estimated to be $2.5 million).
(5) Includes the aggregate principal amount of Pledged Securities of
approximately $44.8 million and $21.5 million as of December 31, 1996 and
1997, respectively, and the amount in a segregated account related to the
MetLife Note of approximately $3.8 million and $2.8 million as of December
31, 1996 and 1997, respectively. See "Description of the Senior Notes."
(6) Represents the aggregate costs of satellite constellation design,
construction and launch services, design and construction of the U.S. Ground
Segment and insurance and other system costs (including $34.5 million of
capitalized interest), net of accumulated depreciation.
9
14
THE OFFERING
Offering...................... --,000,000 shares
Common Stock to be outstanding
after the Offering.......... --,000,000 shares (1)(2)
Use of Proceeds............... The net proceeds of the Offering are estimated
to be approximately $114 million (approximately
$131.5 million if the Underwriters'
over-allotment option is exercised in full).
The net proceeds of the Offering will be used
by the Company to purchase -- Partnership Units
(-- Partnership Units if the Underwriters'
over-allotment option is exercised in full).
ORBCOMM will use the net proceeds of the sale
of Partnership Units to the Company primarily
for: (i) the design, construction and launch of
the planned 36-satellite enhanced
constellation, including amounts payable to
Orbital under the Procurement Agreement (as
defined) as of consummation of the Offering
($29.5 million as of March 31, 1998); (ii)
related development, operating and marketing
expenses, including expenses incurred in
connection with Internal VARs; (iii) the
payment of interest on the Notes and scheduled
payments of principal and interest on the
MetLife Note; and (iv) other general corporate
purposes related to commercial deployment of
the ORBCOMM system. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol................. "ORBC"
ORBCOMM Partnership Units
outstanding after the
Offering.................... --,000,000 Partnership Units(1)(2)
- ------------------------------
(1) If the Underwriters' over-allotment option is exercised in full, there will
be -- shares of Common Stock and -- Partnership Units outstanding
immediately following the Offering and the Company will own -- Partnership
Units.
(2) Excludes options issued under the Orbital Communications Corporation 1992
Stock Option Plan (the "OCC Stock Option Plan"), which on consummation of
the Offering will be converted into options to purchase -- shares of Common
Stock reserved for issuance under the 1998 Equity Plan of ORBCOMM
Corporation and ORBCOMM Global, L.P. (the "Equity Plan"), of which, assuming
such conversion had taken place, options to purchase -- shares of Common
Stock have been granted and options to purchase -- shares of Common Stock
were exercisable at December 31, 1997 at a weighted average exercise price
of $-- per share. See "Management -- Equity Plan."
RISK FACTORS
See "Risk Factors" beginning on page 11 for a discussion of certain factors
that should be considered by prospective investors in the Common Stock offered
hereby.
10
15
RISK FACTORS
An investment in the Common Stock offered hereby is speculative in nature
and involves a high degree of risk. Because the sole asset of the Company will
be its Partnership Units in ORBCOMM, prospective investors should carefully
consider the following risk factors related to both the Company and ORBCOMM, in
addition to the other information contained elsewhere in this Prospectus, in
evaluating whether to make an investment in the Company prior to purchasing
shares of Common Stock in the Offering.
DEVELOPMENT STAGE ENTERPRISE
Expectation of Continued Net Losses. ORBCOMM is a development stage
enterprise that has generated only nominal revenues from its limited operations
to date. ORBCOMM has incurred cumulative net losses of $51.2 million through
December 31, 1997 and expects losses to continue for the foreseeable future.
ORBCOMM commenced limited commercial service in the United States in February
1996 with the first two satellites in the planned 36-satellite enhanced
constellation. ORBCOMM's activities have focused primarily on the acquisition of
U.S. regulatory approvals for the operation of the ORBCOMM system, the design,
construction and launch of satellites, the design and construction of associated
ground network and operating systems (including associated software), the
development of subscriber unit manufacturing sources, the negotiation of
agreements with VARs and International Licensees, the development of Internal
VARs, the development of customer software and hardware applications,
preliminary marketing and sales activities associated with ORBCOMM's limited
commercial operations to date and the hiring of key personnel. The continued
development of ORBCOMM's business will require significant capital expenditures,
a substantial portion of which will need to be incurred prior to the time, if
any, that ORBCOMM realizes significant revenues from the ORBCOMM system.
Together with ORBCOMM's operating expenses, these capital expenditures will
result in negative cash flows until such time, if any, as ORBCOMM establishes an
adequate revenue-generating customer base. No assurances can be given that, or
when, the ORBCOMM system will become commercially operational in key markets or
on a global basis, or that, or when, ORBCOMM will have positive cash flows or
become profitable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Limited Operating and Financial Data. Prospective investors have limited
operating and financial data about ORBCOMM on which to base an evaluation of
ORBCOMM's business performance or an investment in the Common Stock. To date,
ORBCOMM has conducted only limited commercial operations. ORBCOMM's ability to
provide commercial service in key markets or on a global basis and to generate
positive operating cash flows will depend on its ability to, among other things:
(i) successfully construct, launch, place in commercial service, operate and
maintain the ORBCOMM satellites in a timely and cost-effective manner; (ii)
develop and integrate the various ORBCOMM system segments (including the
satellites, the ground and control infrastructure and the hardware and software
used in connection with customer applications); (iii) develop distribution
capabilities within the United States and licensing and distribution
arrangements outside the United States sufficient to capture and retain an
adequate customer base; (iv) install the necessary ground infrastructure and
obtain the necessary regulatory and other approvals outside the United States
through its existing or future International Licensees; and (v) provide for the
timely design, manufacture and distribution of subscriber units in sufficient
quantities, with appropriate functional characteristics and at a competitive
price, for various applications. Given ORBCOMM's limited operating history,
there can be no assurance that it will be able to achieve these objectives, or
to develop a sufficiently large revenue-generating customer base to achieve
profitability. See "-- Technology Risks -- Design and Operation Risks."
TECHNOLOGY RISKS
Design and Operation Risks. Individual ORBCOMM satellites have limited
internal redundancy against technical failure. A number of factors will affect
the useful lives of the ORBCOMM satellites, including the quality of design and
construction, the expected gradual environmental degradation of solar panels,
batteries and electronics or other components, the durability of component parts
and the orbits in which the satellites are placed. Random failure of satellite
components could result in damage to or loss of one
11
16
or more satellites. In some cases, satellites could be damaged or destroyed by
electrostatic storms, high levels of radiation or, in rare cases, collisions
with other objects. There can be no assurance that the longevity of an ORBCOMM
satellite will not be affected by any of these or other factors or events.
Since late December 1997, ORBCOMM has launched ten satellites. ORBCOMM has
begun to place these satellites in commercial service, with the first satellite
placed in service in mid-April. Certain of these satellites experienced an
anomaly in their solar power system resulting in reduced power margins. ORBCOMM
expects that the power for these satellites will be sufficient to meet planned
service and lifetime requirements. In addition, two satellites have experienced
an anomaly in their subscriber transmitters that currently results in the
inability of such satellites to transmit data to subscriber units. Orbital and
ORBCOMM are developing software that is intended to bypass the anomaly so that
such satellites can perform substantially all of their functions, although, even
if successful, the coverage footprint of the affected satellites will be
reduced. Orbital and ORBCOMM are also taking similar action, with a similar
effect, to reduce the likelihood that such an anomaly will occur with respect to
the other in-orbit satellites launched since December 1997. Orbital and ORBCOMM
believe they have identified the reason for both of these anomalies and that
they are being addressed on future satellites. With respect to its initial two
satellites launched in April 1995, ORBCOMM has experienced certain technical
difficulties including outages of certain electronic systems and subsystems,
resulting in the inability during such outages to process customer
communications. Currently, one of the initial two satellites launched in April
1995 is experiencing such an outage.
There can be no assurance that Orbital and ORBCOMM will be successful in
resolving these anomalies or outages or that similar anomalies or outages will
not occur on any of the ORBCOMM satellites. The inability to resolve or prevent
such anomalies or outages could have a material adverse effect on ORBCOMM's
ability to provide service, financial condition and results of operations.
Launch Risks. Under its current timetable, ORBCOMM plans to launch 16
additional satellites on two separate launch vehicles by mid-1998 and plans to
launch eight additional satellites on one launch vehicle by the third quarter of
1999. For the ORBCOMM system to function at maximum design efficiency, each
individual plane of satellites comprising the ORBCOMM constellation must be
launched into its proper orbit. To date, ORBCOMM has successfully launched a
total of 12 satellites into their proper orbit. ORBCOMM has contracted with
Orbital to provide three separate Pegasus launch vehicles to launch the
remaining 24 satellites, eight per Pegasus launch vehicle. See "-- Technology
Risks -- Design and Operation Risks."
Satellite launches are subject to significant risks, including failure of
the launch vehicle, which may result in disabling damage to or loss of the
satellites, or failure of the satellites to achieve their proper orbits. In
addition, the risk of a material adverse effect associated with a launch failure
is increased because each launch vehicle contains multiple ORBCOMM satellites.
There can be no assurance that any of the remaining ORBCOMM satellite launches
will be successful.
Under the Procurement Agreement, Orbital bears the risk of Pegasus launch
failures occurring prior to the release of the launch vehicle from Orbital's
L-1011 aircraft. Thereafter, title to, and the risk of loss of, the launch
vehicle and the satellites passes to ORBCOMM. ORBCOMM's remedies under the
Procurement Agreement are limited to non-payment of certain milestone and
satellite performance payments and termination of the Procurement Agreement.
ORBCOMM's insurance against the loss of a launch vehicle and its satellite
payload is limited. See "-- Limited Insurance." As a result, in the event of a
launch failure, ORBCOMM may be required to make significant additional capital
expenditures to purchase additional satellites to deploy the ORBCOMM system as
currently planned. In addition, in the event that sufficient satellites were not
then available, alternative launches would be delayed pending assembly of
additional satellites. Similar delays could result in the event that Orbital is
unable to provide launch services for the remaining satellites and ORBCOMM is
required to procure launch services from an alternative source. The failure of
any of ORBCOMM's remaining satellite launches or the requirement to procure
launch services from an alternative source could result in significant delays
and increased costs in the deployment of the ORBCOMM system. See "-- Schedule
Delays; Cost Increases."
12
17
Orbital's Pegasus launch vehicle has experienced launch failures from time
to time. Orbital has conducted 21 Pegasus missions, with approximately a 90%
success rate. There are a number of additional Pegasus launches currently
planned during the scheduled launch period for the remaining ORBCOMM satellites,
and the failure of any one of these launch vehicles could result in a delay in
the planned launch of such satellites.
Orbital's Pegasus vehicle is launched from beneath a modified Lockheed
L-1011 aircraft owned by Orbital. In the event the modified L-1011 is
unavailable for any reason, ORBCOMM would experience significant timing delays
as a result of Orbital having to acquire and modify a new aircraft or ORBCOMM
having to arrange for the launch of the satellites using an alternative aircraft
or by means of a ground launch. There can be no assurance that another aircraft
could be obtained and properly modified or that alternate launch services could
be obtained on a timely or cost-effective basis, if at all. See "-- Schedule
Delays; Cost Increases."
Integration Risks. While the ORBCOMM system has successfully transmitted
in excess of one million messages, the ORBCOMM system is exposed to the risks
inherent in a large-scale complex communications system employing advanced
technologies. The operation of the ORBCOMM system requires the detailed design
and integration of communications technologies and devices ranging from
satellites operating in space to Gateways located around the world. There can be
no assurance that, even if built to specifications, the ORBCOMM system will
function as expected in a timely and cost-effective manner. The failure of any
of the diverse and dispersed elements to function and coordinate as required
could delay the full deployment of the ORBCOMM system or render it unable to
perform at the quality and capacity levels required for successful operation of
ORBCOMM's business.
Schedule Delays; Cost Increases. The launch of the satellites in the
ORBCOMM constellation has been delayed primarily due to enhancements made to the
design of the ORBCOMM satellites based on, among other things, information
obtained from the operation of the two satellites launched in April 1995 and
subcontractor late deliveries. At the time of the Notes Offering in August 1996,
ORBCOMM anticipated that it would have launched a total of 28 satellites by the
end of 1997. ORBCOMM currently expects to have launched a total of 28 satellites
by mid-1998. In addition, ORBCOMM expects that it will launch eight additional
satellites in an equatorial orbit by the third quarter of 1999. Due to the
increased costs associated with modifications and enhancements made to the
ORBCOMM system, ORBCOMM's current estimate of the total funds required for
satellite constellation design, construction and launch services, design and
construction of the U.S. Ground Segment and insurance and other system costs
(excluding capitalized interest expense) is approximately $332 million through
the third quarter of 1999, when the final eight satellites of the planned
36-satellite enhanced constellation are expected to be launched, as compared to
approximately $258 million estimated in August 1996. Approximately $27 million
of this increase is attributable to the planned launch of eight satellites in an
equatorial orbit to create the planned 36-satellite enhanced constellation.
Additional delays and associated increases in costs in the construction,
launch and implementation of the ORBCOMM system could result from a variety of
causes, including: (i) delays encountered in the construction, integration and
testing of the ORBCOMM system; (ii) launch delays or failures; (iii) delays
caused by design reviews in the event of a launch vehicle failure or a loss of
satellites or other events beyond the control of ORBCOMM; (iv) further
modification of the design of all or a portion of the ORBCOMM system in the
event of, among other things, technical difficulties or changes in regulatory
requirements; (v) the failure of ORBCOMM to enter into, at the times or on the
terms expected by ORBCOMM, VAR and International Licensee agreements for
additional markets or territories; (vi) the failure to develop effective
applications for use with the ORBCOMM system; and (vii) the failure of
International Licensees to install and accept international Gateways, obtain the
necessary regulatory approvals or successfully distribute ORBCOMM services
internationally. There can be no assurance that the ORBCOMM satellites or the
ORBCOMM data and messaging communications services will be available on a timely
basis, or at all, or that other factors, some of which are beyond the control of
ORBCOMM, will not result in a delay in construction, launch and implementation
of the ORBCOMM system. A significant delay in the completion of the ORBCOMM
system could erode the competitive position and first-to-market advantage of
ORBCOMM and could have a material adverse effect on ORBCOMM's financial
condition and results of operations. See
13
18
"-- Design and Operation Risks," "-- Launch Risks" and "-- Financing
Risks -- Additional Funding Requirements."
Limited Insurance. ORBCOMM has limited insurance against losses arising
out of launch failures. ORBCOMM's next planned Pegasus launch (the "Second
Pegasus Launch") is insured only as to the replacement value of the launch
vehicle in the event of a launch vehicle failure. Unless there is a loss of
three or more satellites in the plane of eight satellites launched in December
1997, the Second Pegasus Launch will not be insured as to the satellite payload
of eight satellites. The Pegasus launch scheduled to follow the Second Pegasus
Launch (the "Third Pegasus Launch") is insured as to the replacement of the
launch vehicle in the event of a launch vehicle failure. The Third Pegasus
Launch is also insured as to the satellite payload of eight satellites, but only
if the Second Pegasus Launch fails, causing the loss of three or more satellites
or if there is a loss of three or more satellites in either of the planes of
eight satellites that were launched prior to the Third Pegasus Launch. With
respect to the Pegasus launch of an equatorial plane of eight satellites planned
to occur in the third quarter of 1999 (the "Fourth Pegasus Launch"), in the
event that either the Second Pegasus Launch or the Third Pegasus Launch fails,
resulting in the loss of three or more satellites, or if there is a loss of
three or more satellites in any of the planes of eight satellites that were
launched prior to the Fourth Pegasus Launch, ORBCOMM has insurance that would
cover the costs of obtaining a replacement launch vehicle and eight replacement
satellites. In the event that neither the Second Pegasus Launch nor the Third
Pegasus Launch fails, resulting in the loss of three or more satellites, ORBCOMM
does not currently have insurance that would cover the costs of obtaining a
replacement launch vehicle or eight replacement satellites; however, ORBCOMM
expects to obtain insurance for such circumstances prior to such launch assuming
such insurance is available on commercially reasonable terms.
ORBCOMM has no insurance against in-orbit satellite failure for the two
satellites that were launched in April 1995 or for the two satellites launched
in February 1998 on a Taurus launch vehicle. ORBCOMM has procured satellite
insurance against the in-orbit failure of satellites in each of the first three
planes of eight satellites it has launched or will launch using the Pegasus
launch vehicle (including the plane of eight satellites launched in December
1997). This in-orbit insurance covers all eight satellites in a single plane for
a period of five years after the successful placement in orbit of such plane,
but only in the event that three or more in-orbit satellites in such plane fail
after their successful placement in orbit, and only if three or more satellites
originally intended as ground spares have been used to replace satellites lost
in an unsuccessful launch or as a result of in-orbit failure.
As is typically the case with satellite insurance policies, in the event
there is a covered loss under ORBCOMM's insurance policy for the ORBCOMM
constellation, prior to the occurrence of the next event that would be subject
to such policy, ORBCOMM will be required to satisfy the insurance underwriters
that it has addressed the technological and/or other issues associated with the
covered loss.
The space segment of the ORBCOMM system is subject to significant risks,
including the risk of failure of the launch vehicle, failure of the satellites
to achieve their proper orbits and in-orbit satellite failure. There can be no
assurance that the insurance obtained by ORBCOMM will provide adequate
mitigation of the adverse impact on ORBCOMM of a loss of satellites or launch
vehicles. See "-- Design and Operation Risks" and "-- Launch Risks."
Limited Life of Satellites; Cost of Maintaining the Space Segment; Risk of
Satellite Failure or Damage. The ORBCOMM satellites, which constitute a
substantial portion of ORBCOMM's total assets, will have a limited useful life.
The first generation satellites (with the exception of the initial two
satellites currently in orbit that are designed to have a useful life of four
years) are designed to operate for eight years. There can be no assurance that
any satellite will actually achieve such a useful life. A number of factors will
affect the useful lives of the ORBCOMM satellites, including the quality of
design and construction, the expected gradual environmental degradation of solar
panels, batteries and electronics or other components, the durability of
component parts and the orbits in which the satellites are placed. Random
failure of satellite components could result in damage to or loss of one or more
satellites. In some cases, satellites could be damaged or destroyed by
electrostatic storms, high levels of radiation or, in rare cases, collisions
with other objects. See "-- Design and Operation Risks."
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Premature failure or interruption of one or more satellites, including
temporary losses, that for whatever reason are not promptly corrected or
replaced, could, among other things, cause gaps in service availability,
significantly degrade service quality and result in loss of revenue for the
period that service is compromised and, as a result, could have a material
adverse effect ORBCOMM's financial condition and results of operations.
ORBCOMM anticipates using funds generated from operations to develop a
second generation of satellites. If sufficient funds from operations are not
available and ORBCOMM is unable to obtain financing for the second generation
satellite constellation, ORBCOMM will not be able to launch a second generation
satellite constellation to replace first generation satellites at the end of
their useful lives. There can be no assurance that additional capital will be
available to develop the second generation of satellites on favorable terms or
on a timely basis, if at all. See "-- Financing Risks -- Additional Funding
Requirements."
Technological Change. The communications industry is characterized by
continuous technological change. Future technological advances in the
communications industry may result in the availability of new services, products
or information delivery methods that could compete with, or render obsolete, the
monitoring, tracking and messaging services that ORBCOMM provides or intends to
provide. There can be no assurance that ORBCOMM will not be materially adversely
affected in the event of such technological change, or that changes in
technology will not enable additional companies to offer services that replace
some or all of the services that ORBCOMM provides or intends to provide. Such
new technologies, even if not ultimately successful, could have a material
adverse effect on ORBCOMM's financial condition and results of operations. See
"-- Market Demand -- Competition."
Limited System Capacity. ORBCOMM could experience unexpected usage
patterns that could exceed the capacity of the ORBCOMM system, although ORBCOMM
believes that the capacity of the ORBCOMM system will be sufficient to meet
currently forecasted demand. In particular, to provide commercially adequate
service, ensure customer acceptance and operate successfully, the ORBCOMM system
will need to provide acceptable levels of availability, which will depend on
system capacity. Various factors will have a significant impact on the capacity
of the ORBCOMM system, the most important being usage patterns and the
architectural structure of the ORBCOMM system, including spectrum allocation,
Gateway capacity and subscriber unit performance. Failure to achieve a
commercially viable capacity level for any reason could have a material adverse
effect on ORBCOMM's financial condition and results of operations.
Internet Security Risks. Like many other modern communication networks,
ORBCOMM currently delivers a substantial portion of its data to customers via
the Internet and expects to continue to use the Internet as a primary delivery
method for data collected from subscriber units and satellites. ORBCOMM
currently takes certain measures to ensure the security of customer data. There
can be no assurance, however, that persons seeking unauthorized access to
ORBCOMM customer data will not be able to gain such access. ORBCOMM believes
that if such unauthorized access were to occur, or potential ORBCOMM customers
were to perceive that such unauthorized access could occur, the market for
ORBCOMM services would be adversely affected.
FINANCING RISKS
Additional Funding Requirements. The completion and maintenance of the
ORBCOMM system and the commencement of service on a global basis will require
significant additional expenditures of funds. See "Prospectus Summary -- Sources
and Uses of Funds by ORBCOMM." ORBCOMM currently expects to require
approximately $332 million for capital expenditures and development costs of the
ORBCOMM system from June 30, 1993 (date of inception) through the third quarter
of 1999 (excluding expected debt repayment and capitalized interest of
approximately $78 million). Through December 31, 1997, ORBCOMM spent
approximately $242 million on satellite constellation design, construction and
launch services, design and construction of the U.S. Ground Segment and
insurance and other system costs (excluding approximately $34.5 million of
capitalized interest). To finance such expenditures, Orbital, through OCC, and
Teleglobe and TRI, through Teleglobe Mobile, had invested an aggregate of
approximately $180 million in ORBCOMM through March 31, 1998 and ORBCOMM had
received net proceeds of approximately $164 million from the
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Notes Offering and a loan of approximately $5 million from MetLife. ORBCOMM
believes that the net proceeds of the Offering, the capital contributions of
ORBCOMM's current Partners and the net proceeds of the Notes Offering and the
MetLife Note will be sufficient to fund ORBCOMM's anticipated net cash loss from
operations and capital expenditures through the third quarter of 1999, when the
last eight satellites of the planned 36-satellite enhanced constellation are
expected to be launched, although no assurance can be given that such funds will
in fact be sufficient to meet such funding requirements. See "-- Technology
Risks -- Schedule Delays; Cost Increases" and "-- Market Demand -- Forward
Looking Statements and Market Estimates."
The development, marketing and distribution of data and messaging
communications services to customers and the construction of certain components
of the ground segment may require ORBCOMM to make significant expenditures that
are not provided for under ORBCOMM's current plans. These expenditures of funds
may arise as a result of, among other things, ORBCOMM's decision to establish
additional Internal VARs to develop, market and distribute data and messaging
communications services that are currently expected to be developed by VARs, or
the requirement to construct international Gateways because of the inability or
unwillingness of International Licensees to do so. See "-- Operating
Risks -- Reliance on Third Parties -- Reliance on VARs" and "-- Operating
Risks -- Reliance on Third Parties -- Reliance on International Licensees."
ORBCOMM has experienced delays with respect to the implementation of the
ORBCOMM system, which have resulted in a deferral of revenues and, among other
things, have increased ORBCOMM's funding requirements. In addition, primarily as
a result of its decision to launch the planned 36-satellite enhanced
constellation rather than the originally planned 28-satellite constellation and
to develop Internal VARs, ORBCOMM has experienced significant increases in
costs. See "-- Technology Risks -- Schedule Delays; Cost Increases." Moreover,
commencing February 15, 1999, after the Pledged Securities are depleted,
interest expense on the Notes will represent a significant cash requirement for
ORBCOMM. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." There can be no
assurance that ORBCOMM will generate sufficient cash from operations or that
future increases in costs or delays will not result in a need for additional
funding. In the event such additional funding becomes necessary, there can be no
assurance that such additional funding will be available from the public or
private markets or from ORBCOMM's Partners on favorable terms or on a timely
basis, if at all.
Substantial Leverage; Restrictive Covenants. ORBCOMM is a development
stage enterprise with a highly leveraged capital structure. As of March 31,
1998, ORBCOMM's total indebtedness (including trade payables) was approximately
$212.7 million. ORBCOMM's accounts payable as of March 31, 1998 includes
approximately $29.5 million owed to Orbital under the Procurement Agreement for
work completed but not yet invoiced, which will be paid with a portion of the
net proceeds of the Offering. ORBCOMM's debt service requirements could
negatively affect the value of the Common Stock as a result of the following:
(i) ORBCOMM's ability to obtain additional financing for future working capital
needs or for other purposes may be limited; (ii) a substantial portion of
ORBCOMM's cash flows from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing funds available for
operations; and (iii) ORBCOMM may have greater exposure to adverse economic
conditions than competing companies that are not as highly leveraged. These
factors could adversely affect ORBCOMM's financial condition and results of
operations.
The Indenture contains, and any additional financing agreements are likely
to contain, certain restrictive covenants. The restrictions contained in the
Indenture affect, and in some cases significantly limit or prohibit, among other
things, the ability of ORBCOMM to incur indebtedness, make prepayments of
certain indebtedness, make distributions (including distributions to the Company
for the payment of the Company's expenses or taxes), make investments, engage in
transactions with affiliates, issue capital stock, create liens, sell assets and
engage in mergers and consolidations. If ORBCOMM fails to comply with the
restrictive covenants in the Indenture, ORBCOMM's obligation to repay such
obligations may be accelerated. In connection with the Offering, ORBCOMM intends
to seek from the Holders amendments of certain provisions of the Indenture. The
purpose of the proposed amendments is to permit the Offering and to facilitate
other business objectives.
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MARKET DEMAND
Acceptance of ORBCOMM Services. The success of the ORBCOMM system will
depend on customer acceptance of ORBCOMM services. Customer acceptance of
ORBCOMM services will depend on a number of factors, including the technical
capabilities and availability of the ORBCOMM system, which are dependent in part
on the number of satellites launched and operational at any time, as well as
completion of the necessary ground infrastructure and receipt of the necessary
regulatory and other approvals to operate in a particular jurisdiction, the
availability of relatively inexpensive subscriber units that are compatible with
the ORBCOMM system and meet the varying needs of customers, the price of ORBCOMM
services, and the extent, availability and price of alternative data and
messaging communications services. As with any new communications service, there
can be no assurance that ORBCOMM services will attain market acceptance. See
"-- Competition."
In addition, ORBCOMM believes that market acceptance of certain services
provided by the ORBCOMM system depends on the design, development and commercial
availability of integrated hardware and software applications that support the
specific needs of its targeted customers. ORBCOMM has entered into and is
continuing to enter into agreements with VARs and applications developers and is
developing Internal VARs that are responsible for developing a portion of these
applications. In the event there is a delay in the availability or lack of all
of the components necessary to fulfill its customers' business requirements,
market acceptance of services using the ORBCOMM system could be adversely
affected. See "-- Technology Risks -- Schedule Delays; Cost Increases" and
"-- Operating Risks -- Reliance on Third Parties."
ORBCOMM's business plan assumes that potential customers of ORBCOMM
services will accept certain limitations inherent in satellite communications
services. For example, the ORBCOMM system's line-of-sight limitation,
particularly in "urban canyons," and its inability to penetrate buildings and
other objects could limit the use of the ORBCOMM system and services. In
addition, prior to the commercial operation of the 28-satellite constellation,
the availability of the ORBCOMM system will be limited in the United States and
other temperate regions and will be further limited in equatorial regions prior
to the commercial operation of the planned 36-satellite enhanced constellation
such that data or messages may be transmitted or received only during particular
hours of a given day. In addition to the limitations imposed by the architecture
of the ORBCOMM system, the absence of necessary regulatory and other approvals
in a given jurisdiction will preclude the availability of ORBCOMM services in
such jurisdiction until such time, if any, that such approvals have been
obtained. See "-- Regulatory Risks -- International Licensing Risks." Certain
potential customers, particularly those requiring messaging services and, prior
to full commercial operation, those requiring service on a global basis, may
find the limitations on the availability of ORBCOMM services unacceptable.
Competition. Competition in the communications industry is intense, fueled
by rapid and continuous technological advances and alliances between industry
participants seeking to use such advances on an international scale to capture
significant market share. Although currently no other company is providing the
same global, satellite-based commercial data and messaging communications
services to be provided by ORBCOMM, it is anticipated that the ORBCOMM system
will face competition from numerous existing and potential alternative
communications products and services provided by various large and small
companies. ORBCOMM expects that potential competitors will include operators or
users of other Little LEO satellite systems and operators or users of Big LEO
and medium-Earth orbit ("MEO") satellite systems. ORBCOMM also believes that it
currently competes in certain of its market segments with operators and users of
certain GEO systems and terrestrial-based data communications systems, although
ORBCOMM believes that it will complement terrestrial-based data communications
systems in certain market segments. If any of ORBCOMM's competitors succeed in
marketing and deploying systems with services similar to those expected to be
offered through the ORBCOMM system, ORBCOMM's ability to compete in markets
served by such competitors may be adversely affected.
Some of ORBCOMM's actual or potential competitors have financial, personnel
and other resources substantially greater than those of ORBCOMM. In addition, a
continuing trend toward consolidation and strategic alliances in the
communications industry could give rise to significant new competitors, and any
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foreign competitor may benefit from subsidies from, or other protective measures
by, its home country. There can be no assurance that some of these competitors
will not develop more technologically advanced systems than the ORBCOMM system
or more efficient or less expensive services than those expected to be provided
by ORBCOMM.
ORBCOMM may also face competition in the future from companies using new
technologies and new satellite systems. See "-- Technology
Risks -- Technological Change." A number of these new technologies, even if they
are not ultimately successful, could have an adverse effect on ORBCOMM. Also,
ORBCOMM's business would be adversely affected if competitors begin operations
or existing or new communications service providers are able to penetrate
ORBCOMM's target markets. See "Business -- Competition."
Forward Looking Statements and Market Estimates. ORBCOMM is a development
stage enterprise. Many statements in this Prospectus are not historical and are
forward looking in nature. Examples of such forward looking statements include
statements concerning ORBCOMM's operations, prospects, markets, technical
capabilities, funding needs, financing sources, pricing, launch and commercial
service schedules and cash flows, as well as information concerning the
estimated size of the addressable markets for satellite data and messaging
communications services, future regulatory approvals, expected characteristics
of competing systems and expected actions of third parties such as equipment
suppliers, International Licensees and VARs. These forward looking statements
are inherently predictive and speculative and no assurance can be given that any
of such statements will prove to be correct. Actual results and developments may
be materially different from those expressed or implied by such statements.
Prospective investors should carefully review the other risk factors set forth
in this Prospectus for a discussion of various factors that could result in any
of such forward looking statements proving to be inaccurate.
In addition, the information in this Prospectus under "Prospectus
Summary -- Sources and Uses of Funds by ORBCOMM" (other than historical
information) and the statements therein and elsewhere that ORBCOMM believes that
the net proceeds of the Offering, the capital contributions of ORBCOMM's current
Partners and the net proceeds of the Notes Offering and the MetLife Note will be
sufficient to fund ORBCOMM's anticipated net cash loss from operations and
capital expenditures through the third quarter of 1999 are forward looking
statements that may turn out to be inaccurate for the reasons described in the
preceding paragraph as well as in the other risk factors set forth in this
Prospectus and are also based upon a number of assumptions. One or more of these
assumptions is likely to be incorrect. The projected financial information
assumes, among other things, that: (i) expanded commercial service will be
available in the spring and fall of 1998 when additional satellites are placed
in commercial service and that the ORBCOMM system will become fully commercially
operational within the current schedule; (ii) the ORBCOMM system will meet all
systems specifications and will have service characteristics at least as
favorable as those expected by ORBCOMM and described in this Prospectus; (iii)
there will be no increased costs, whether resulting from delays or otherwise;
(iv) subscriber unit manufacturers will develop, manufacture and sell in
sufficient quantities subscriber units that perform according to design
specifications on a timely basis and with features and at prices acceptable to
customers without unplanned material purchase requirements or subsidies by
ORBCOMM; (v) a sufficient number of Gateways will be constructed and delivered
on a timely basis and will be fully operational as planned; (vi) ORBCOMM will
contract with a sufficient number of VARs to ensure effective marketing of the
ORBCOMM services; (vii) the capacity of the ORBCOMM system, as affected by,
among other things, ORBCOMM service usage patterns, will be sufficient to serve
the needs of the customers assumed in ORBCOMM's business plan; (viii) there will
be no material change in legislation or regulations or in the administration
thereof that will have an adverse effect on the business of ORBCOMM; (ix) there
will be no material adverse change in any of ORBCOMM's existing material
contracts; (x) the International Licensees or other parties will obtain on a
timely basis the necessary regulatory and other approvals to provide services in
sufficient countries to enable ORBCOMM to carry out its business strategy.
In addition, the information in this Prospectus under "Prospectus
Summary -- Sources and Uses of Funds by ORBCOMM" (other than historical
information) and the statements therein, "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," and elsewhere with respect to assumed net cash flows and additional
funding requirements, are forward looking statements that are based on a number
of assumptions, one or more of which is likely to be
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incorrect, and may turn out to be inaccurate for the reasons described in the
preceding paragraphs. ORBCOMM's current estimate of the total funds required for
satellite constellation design, construction and launch services, design and
construction of the U.S. Ground Segment and insurance and other system costs
(excluding capitalized interest expense), is approximately $332 million through
the third quarter of 1999, when the final eight satellites of the planned
36-satellite enhanced constellation are expected to be launched, as compared to
approximately $258 million estimated in August 1996. The increase in this
estimate is due to, among other things, costs associated with modifications and
enhancements made to the ORBCOMM system, including the planned launch of eight
satellites in an equatorial orbit to create a 36-satellite enhanced
constellation. See "Prospectus Summary -- Sources and Uses of Funds by ORBCOMM"
and "-- Technology Risks -- Schedule Delays; Costs Increases."
With regard to the statements concerning the estimated size of the
addressable markets for ORBCOMM services set forth in "Prospectus Summary" and
under "Business -- Overview" and "Business -- Addressable Markets," and in
addition to the information set forth above, prospective investors are cautioned
that such statements are based exclusively on market analyses conducted by or on
behalf of ORBCOMM. The estimates of the current addressable market for various
market segments are based on a review and analysis of secondary market data
supplemented with primary market research in the form of interviews with persons
knowledgeable about that market segment. In estimating the size of the current
addressable market for various market segments, the market analyses conducted by
or on behalf of ORBCOMM estimated the total number of subscriber units in each
market segment, and then reduced such total number based on factors such as
whether there was a perceived significant need for the type of services provided
by the ORBCOMM system and an ability to pay for such services. While based on
certain market, industry and demographic data, these estimates represent
professional judgments and are predictive in nature. There can be no assurance
that these addressable markets estimates will prove to be accurate. There are a
number of factors supporting the estimates that are of an inherently uncertain
nature, including, but not limited to, the lack of precise industry and
demographic data, the variance between different statistical sources and the
need to extrapolate certain data for countries and regions that do not provide
sufficient information. Furthermore, the analyses are based on Gross Domestic
Product ("GDP") growth predictions that are historically based and may not be
met in the future. It is likely that some of these assumptions will not prove
correct and events may occur that could affect actual markets realized.
Moreover, the risks associated with market analysis are heightened in cases such
as this, where the analysis addresses products and services some of which do not
yet exist and that are not directly comparable to any product or service with
which the respondents could be familiar. Consequently, actual markets should be
expected to vary from the addressable markets estimated herein and such
variations may be material. ORBCOMM does not intend to publish updates or
revisions of the addressable market estimates included in this Prospectus to
reflect events or circumstances after the date hereof or to reflect subsequent
market analyses.
REGULATORY RISKS
Domestic Licensing Risks. ORBCOMM's business may be affected by the
regulatory activities of various U.S. government agencies, primarily the Federal
Communications Commission (the "FCC"). On October 20, 1994, the FCC granted to
OCC a license (the "Original FCC License") authorizing OCC to construct, launch
and operate 36 LEO satellites for the purpose of providing two-way data and
messaging communications and position determination services in the United
States. On March 31, 1998, the FCC also granted to OCC a license for, among
other things, 12 additional LEO satellites (the "Supplemental FCC License and,
together with the Original FCC License, the "FCC Licenses"). Although the FCC
Licenses are currently valid, they are subject to revocation if OCC fails to
satisfy certain conditions or to meet certain prescribed milestones, including
the December 2000 milestone by which OCC must launch 36 satellites, the
September 2002 milestone by which OCC must launch two of the 12 satellites
recently licensed under the Supplemental FCC License and the March 2004
milestone by which OCC must launch the remaining ten of these satellites, unless
such dates are extended by application to the FCC. While the FCC Licenses are
valid for a period of ten years from the operational date of the first ORBCOMM
satellite, which was April 1995, OCC is required, three years prior to the
expiration of each of the FCC Licenses, to apply for a license renewal with the
FCC. While, based on past experience, OCC believes the FCC generally grants the
renewal
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applications of existing licensees where the licensee has satisfied the
requirements of the license, there can be no assurance that the FCC will in fact
renew either of the FCC Licenses. Should the FCC revoke or fail to renew on
application by OCC the FCC Licenses, or if OCC fails to satisfy any of the
conditions of the FCC Licenses, such action would have a material adverse impact
on ORBCOMM's financial condition and results of operations.
The FCC has licensed OCC to operate as a private carrier. ORBCOMM believes
that OCC currently is not subject to the restrictions that apply to common
carriers or to providers of Commercial Mobile Radio Services ("CMRS") because of
the method of distribution of ORBCOMM services. ORBCOMM plans to provide
services to customers indirectly through VARs and directly through Internal
VARs. The services provided to customers by ORBCOMM will not be interconnected
with the public switched telephone network and, in most cases, will be enhanced
services. Therefore, ORBCOMM does not believe that these services will be
regarded by the FCC as common carrier or CMRS services. There can be no
assurance, however, that in the future, ORBCOMM will not provide services that
the FCC deems common carrier or CMRS or that the FCC will not exercise its
discretionary authority to apply the common carrier or CMRS rules to ORBCOMM.
The application of these rules could have a material adverse effect on ORBCOMM's
financial condition and results of operations by, for instance, requiring
ORBCOMM to offer to the public just, reasonable and nondiscriminatory rates,
subjecting ORBCOMM to certain tariff filing requirements, limiting some foreign
ownership in ORBCOMM and subjecting ORBCOMM to state regulation (if ORBCOMM were
deemed to be a common carrier).
OCC recently filed an application with the FCC seeking to modify the FCC
Licenses to permit it to launch eight of its authorized satellites in an
equatorial orbit (rather than a 45 degree orbit) and to increase the spacing
between the other three planes of eight satellites (the "Modification Request").
While ORBCOMM believes that the FCC will grant the Modification Request on a
timely basis, because there would be no adverse effect on any other Little LEO
licensee or service, there can be no assurance that the FCC will grant the
Modification Request.
Finally, ORBCOMM's financial condition and results of operations could be
adversely affected by the adoption of new laws, policies or regulations in the
United States, or changes in the interpretation or application of existing laws,
policies and regulations in the United States, that modify the present
regulatory environment. See "Regulation."
International Licensing Risks. ORBCOMM's business is affected by the
regulatory authorities of the countries in which it or the International
Licensees will operate and in which ORBCOMM services will be offered. ORBCOMM's
International Licensees will be required to obtain local regulatory approvals to
offer ORBCOMM services, to operate Gateways and to offer the use of subscriber
units located within their territories. As a result, numerous approvals must be
obtained before ORBCOMM can offer full global coverage. ORBCOMM's current
business plan is based on the receipt of regulatory approvals in several foreign
jurisdictions by the third quarter of 1999, when the final eight satellites of
the planned 36-satellite enhanced constellation are currently expected to have
been launched. In addition to the United States, ORBCOMM services have received
full regulatory approvals in Canada and Malaysia and preliminary, experimental
or demonstrational regulatory approvals in Germany, Italy, Japan, South Korea,
Spain, Sweden, Argentina, Chile, South Africa and Iceland. While obtaining
regulatory approvals is the responsibility of an International Licensee, there
can be no assurance that an International Licensee will be successful in doing
so. If any such International Licensee is not successful, service will not be
available in the affected territories.
Although many countries have moved to privatize the provision of
communications services and to permit competition in the provision of such
services, some countries continue to require that all communications services be
provided by a government-owned entity. While ORBCOMM anticipates that
substantially all of the International Licensees will be private entities,
ORBCOMM may be required to offer its services through a government-owned or
- -controlled entity in those territories where government monopolies prevail.
ORBCOMM's inability to offer service in a foreign country or countries
could have a material adverse effect on ORBCOMM's financial condition and
results of operations. Regulatory provisions in countries in
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which ORBCOMM or the International Licensees seek to operate may impose
impediments on ORBCOMM's or the International Licensees' operations and there
can be no assurance that such restrictions would not be unduly burdensome.
ORBCOMM's business may also be adversely affected by regulatory changes
resulting from judicial decisions and/or the adoption of treaties, legislation
or regulations by the national authorities of countries or territories where
ORBCOMM plans to operate its system.
ITU Coordination. The United States, on behalf of OCC, is required to
coordinate the frequencies used by the ORBCOMM system under the auspices of the
International Telecommunication Union ("ITU"). Frequency coordination is a
necessary prerequisite to obtaining interference protection from other satellite
systems. There is no penalty for launching a satellite system prior to
completion of the ITU coordination process, although protection from
interference through this process is only afforded as of the date of successful
completion of the process and notification of the system by the ITU. Although
the United States has substantially completed the ITU coordination process with
respect to the planned 36-satellite enhanced constellation, because OCC has been
granted authority for 12 additional satellites in the second processing round,
the FCC must modify ORBCOMM's ITU registration documentation and proceed with a
supplementary coordination process. This process is not expected to affect
coordination of ORBCOMM's 36-satellite system.
The United States has not yet completed coordination of the ORBCOMM system
with Russia and France. There can be no assurance that the United States will be
successful in coordinating the ORBCOMM system with the Russian and French
systems. Any delay in or failure to successfully complete the ITU coordination
process may result in potential interference to the ORBCOMM system by other
mobile satellite systems operating internationally, which could have a material
adverse effect on ORBCOMM's financial condition and results of operations.
Furthermore, International Licensees working with their respective governments
are required to complete ITU coordination of subscriber units and Gateways
located in their territories with countries located within distances determined
by ITU recommendations. There can be no assurance that these coordinations will
be completed successfully or in a timely manner, which could result in delayed
availability of ORBCOMM services in the affected territories.
Launch Licensing Risk. Commercial U.S. space launches require licenses
from the U.S. Department of Transportation ("DoT"). In addition, the launch of
the equatorial plane currently expected to occur in the third quarter of 1999 is
expected to be made from a launch facility outside the United States, and will
therefore require a license from the applicable U.S. government authorities to
export the satellites from the United States to such location and a license from
the applicable government authorities outside the United States to launch the
satellites. Under the Procurement Agreement, Orbital is responsible for ensuring
that the appropriate DoT commercial launch licenses and other licenses or
approvals are in place for the ORBCOMM satellite launches. There can be no
assurance that Orbital will continue to be successful in its efforts to obtain
the necessary licenses or regulatory approvals. The inability of Orbital to
secure any necessary licenses or regulatory approvals for any launch of ORBCOMM
satellites could delay such launch, which could have a material adverse effect
on ORBCOMM's financial condition and results of operations.
OPERATING RISKS
Risks Associated with Commencement of Global Operations. ORBCOMM's ability
to achieve profitability will depend in part on its ability to offer ORBCOMM
services on a global basis. Offering ORBCOMM services on a global basis will
require ORBCOMM to, among other things: (i) enter into agreements with
International Licensees representing additional territories; (ii) install the
necessary ground infrastructure outside the United States through its existing
or future International Licensees or otherwise; (iii) obtain the regulatory and
other approvals necessary to offer ORBCOMM services outside the United States
through its existing or future International Licensees; and (iv) distribute
ORBCOMM services internationally through its International Licensees. In
addition, each agreement between ORBCOMM and an International Licensee provides
that the International Licensee may terminate the agreement upon one year's
written notice. There can be no assurance that ORBCOMM or the International
Licensees will be able to construct the necessary international ground
infrastructure, obtain the necessary regulatory and other approvals or
effectively distribute ORBCOMM services internationally. Moreover, there can be
no assurance that an International
21
26
Licensee will not terminate its agreement with ORBCOMM after giving one year's
notice. See "-- Reliance On Third Parties -- Reliance on International
Licensees" and "-- Regulatory Risks -- International Licensing Risks."
Risks of International Operations and Developing Markets. Since ORBCOMM
expects to derive substantial revenues by providing international communications
services, it is subject to certain multinational operational risks, such as
changes in domestic and foreign government regulations and communications
standards, licensing requirements, tariffs or taxes and other trade barriers,
price, wage and exchange controls, political, social and economic instability,
inflation and interest rate and currency fluctuations. The risks enumerated
above are often greater in developing countries or regions. In addition,
although ORBCOMM anticipates that the International Licensees will make all
payments in U.S. dollars, the potential lack of available U.S. currency in
developing markets may prevent International Licensees in such markets from
being able to do so. Because ORBCOMM expects to receive most payments in U.S.
dollars, it does not intend to hedge against exchange rate fluctuations. Under
current U.S. law, ORBCOMM, as a U.S. entity, is prohibited from doing business
in certain countries, which may limit, or eliminate entirely, the provision of
ORBCOMM services in these countries.
Reliance on Third Parties
-- Reliance on VARs. In the United States, ORBCOMM intends to rely
generally on VARs to market and distribute its services to customers. The
willingness of companies to become VARs will depend on a variety of factors,
including whether potential VARs perceive ORBCOMM services as compatible with
their own, whether the prices that VARs can charge for their services provide an
adequate return and regulatory restrictions, if any. ORBCOMM believes that
successfully marketing certain ORBCOMM services will depend on the design,
development and commercial availability of data and messaging applications that
support the specific needs of its targeted customers. The design, development
and implementation of data and messaging applications require the commitment of
substantial financial and technological resources on the part of VARs. Certain
of such VARs are or are likely to be newly formed ventures with limited
financial resources, and there can be no assurance that any such entities will
be successful in their efforts to design data and messaging applications or
effectively market ORBCOMM services. The inability of VARs to provide data and
messaging applications to customers could adversely affect market acceptance of
ORBCOMM services. To date, approximately 30 applications have been developed by
or behalf of VARs for use with the ORBCOMM system. In the event that VARs fail
to develop data and messaging applications, ORBCOMM may do so, which will cause
increased expenses. See "-- Market Demand -- Acceptance of ORBCOMM Services."
Furthermore, ORBCOMM's reseller agreements provide that VARs will use all
reasonable commercial efforts to market and distribute ORBCOMM services, but in
substantially all cases do not require VARs to meet established sales
objectives. There can be no assurance that VARs will successfully develop a
market for and distribute ORBCOMM services.
Although ORBCOMM is developing Internal VARs, ORBCOMM currently acts
primarily as a wholesaler to VARs and thus the cost to customers for ORBCOMM
services is largely beyond the control of ORBCOMM. Furthermore, ORBCOMM will
have no rights independently to offer particular data and messaging applications
developed by VARs or to use the associated software, unless it enters into
appropriate licensing agreements. ORBCOMM's development of Internal VARs may
result in actual or apparent conflicts with VARs, which could adversely affect
the willingness of VARs to invest resources in the development and distribution
of data and messaging applications for the ORBCOMM system.
-- Reliance on International Licensees. Outside the United States,
ORBCOMM enters into agreements with International Licensees that are responsible
in their territory for, among other things, procuring and installing the
necessary Gateways, obtaining the necessary regulatory and other approvals to
provide services using the ORBCOMM system and marketing and distributing ORBCOMM
services. ORBCOMM selects the International Licensees primarily by evaluating
their ability successfully to market and distribute ORBCOMM services. Key
components of such an evaluation include the prospective International
Licensee's: (i) reputation in the marketplace; (ii) existing distribution
capabilities and infrastructure; (iii) financial condition and other resources;
and (iv) ability to obtain the necessary regulatory
22
27
approvals. Although the foregoing factors are considered by ORBCOMM in
evaluating potential International Licensees, there can be no assurance that
each International Licensee will satisfy any one or more of the foregoing
factors. In addition, certain International Licensees are entitled to satellite
usage fee credits if ORBCOMM fails to meet certain milestones with respect to
launch of the ORBCOMM system and certain of the agreements grant International
Licensees the right to terminate their agreements with ORBCOMM in the event that
they are unable to obtain the necessary regulatory and other approvals within
certain time parameters. There can be no assurance that ORBCOMM's International
Licensees will be successful in obtaining the necessary regulatory and other
approvals. If successful, there can be no assurance that the International
Licensees will develop a market and or a distribution network for ORBCOMM
services. See "-- Regulatory Risks -- International Licensing Risks" and
"-- Risks Associated with Commencement of Global Operations."
Certain of the International Licensees are or are likely to be newly formed
ventures with limited financial resources, and there can be no assurance that
any such entities will be successful in their efforts to procure and install the
necessary Gateways, obtain the necessary regulatory approvals or successfully
market and distribute ORBCOMM services. The general form of agreement between
ORBCOMM and the International Licensees does not obligate ORBCOMM or give
ORBCOMM the contractual right to construct the necessary Gateway in the event an
International Licensee is unable or unwilling to do so. In the future and if an
International Licensee is unable or unwilling to do so, ORBCOMM may desire to
construct, or finance the construction of, the necessary Gateway. However, there
can be no assurance that the International Licensee or the relevant governmental
authority will permit the construction of such Gateway or that ORBCOMM will be
able to bear the cost of construction of such Gateway which costs may in the
aggregate be material. See "-- Financing Risks -- Additional Funding
Requirements."
-- Reliance on Subscriber Unit Manufacturers. The development and
availability on a timely basis of relatively inexpensive subscriber units are
critical to the successful commercial operation of the ORBCOMM system. While
ORBCOMM has executed six subscriber unit manufacturing agreements, including one
with Magellan, a subsidiary of Orbital, and has type approved ten different
subscriber unit models for use with the ORBCOMM system, there can be no
assurance that a sufficient supply of these subscriber units will be available
to customers at price points or with functional characteristics that meet
customers' needs. ORBCOMM on occasion has found it advisable to purchase or
subsidize the purchase of subscriber units and may desire to do so in the
future. ORBCOMM recently committed to purchase $6.2 million of subscriber units
from certain manufacturers to accelerate initial customer sales by VARs and
International Licensees. In addition, ORBCOMM recently agreed to pay Magellan a
subsidy for each Magellan subscriber unit sold through March 1999 up to an
aggregate of $2.4 million. See "Certain Relationships and Related
Transactions -- Subscriber Unit Manufacture Agreement with Magellan." Expenses
associated with such purchases or subsidies could be significant. An inability
to successfully develop and manufacture subscriber units that both meet the
needs of customers and are available in sufficient numbers and at prices that
render ORBCOMM services cost-effective to customers could limit the acceptance
of the ORBCOMM system and potentially affect the quality of ORBCOMM services,
which could have a material adverse effect on ORBCOMM's financial condition and
results of operations. See "-- Market Demand -- Acceptance of ORBCOMM Services."
-- Reliance on Single Supplier; Potential Conflict of Interest. ORBCOMM
does not independently have, and does not intend to acquire, except by
contracting with other parties, the ability to design, construct or launch the
satellites in the ORBCOMM system. Under the Procurement Agreement, ORBCOMM has
contracted with Orbital to provide these services on a fixed price basis,
subject to adjustments for out-of-scope work. ORBCOMM may terminate the
Procurement Agreement on the failure of Orbital to achieve certain milestones
within 56 weeks after the contracted completion date or on Orbital's material
noncompliance with any terms of the Procurement Agreement. ORBCOMM may not,
however, withhold payments under the Procurement Agreement with respect to the
untimely achievement of certain milestones solely as a result of Orbital's
failure to achieve such milestones by the dates originally planned. In the event
that Orbital fails to perform its obligations under the Procurement Agreement,
the launch of the ORBCOMM system will be delayed until ORBCOMM is able to locate
an alternative provider of necessary services to replace Orbital. In
23
28
addition, a material adverse effect on Orbital and its business for whatever
reason may adversely affect Orbital's ability to perform under the Procurement
Agreement. ORBCOMM has not identified any alternate provider of the services
currently being provided by Orbital, and there can be no assurance that such an
alternate service provider would be available or, if available, would be
available at a cost or on terms favorable to ORBCOMM.
Orbital, through OCC, has a substantial ownership interest in ORBCOMM.
Accordingly, a conflict of interest may exist between ORBCOMM and Orbital under
the Procurement Agreement and other related agreements between Orbital and OCC.
Pursuant to the Partnership Agreement, transactions between ORBCOMM and Orbital
are subject to the approval of a related party transaction committee of ORBCOMM.
See "Description of the Partnership Agreement." There can be no assurance that
any potential conflict of interest between ORBCOMM and Orbital would not have a
material adverse effect on ORBCOMM.
Dependence on Intellectual Property Rights. ORBCOMM's success and ability
to compete are dependent to a certain degree on its proprietary technology.
ORBCOMM is dependent on the intellectual property rights held by Orbital
relating to the ORBCOMM system. Under the terms of the Procurement Agreement,
the intellectual property relating to or resulting from the work performed by
Orbital under the Procurement Agreement, including the ORBCOMM satellites (other
than certain communications software) and the U.S. Ground Segment, is generally
owned by Orbital or its subcontractors. ORBCOMM relies primarily on copyright
and trade secret law to protect its technology. ORBCOMM currently holds no
patents. ORBCOMM's policy is to enter into confidentiality agreements with its
employees, consultants and vendors, which, where appropriate, also contain an
agreement to assign to ORBCOMM proprietary technology developed during
performance thereunder, and generally to control access to and distribution of
its software, documentation and other proprietary information. Notwithstanding
these precautions, it may be possible for a third party to copy or otherwise
obtain and use ORBCOMM's software or other proprietary information without
authorization or to develop similar software independently. In addition, absent
the appropriate licensing agreements, ORBCOMM will have no rights independently
to offer particular applications developed by VARs or to use the software
included in these applications. Enforcement of intellectual property rights with
respect to these products will depend on VARs. Furthermore, the laws of
countries outside the United States may afford ORBCOMM and the VARs little or no
effective protection of their intellectual property. The loss of protection of
such intellectual property rights of Orbital and ORBCOMM could have a material
adverse effect on ORBCOMM's financial condition and results of operations.
There can be no assurance that the steps taken by ORBCOMM will prevent
misappropriation of its technology or that agreements entered into for that
purpose will be enforceable. In addition, litigation may be necessary in the
future to enforce ORBCOMM's intellectual property rights, to protect ORBCOMM's
trade secrets, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material adverse
effect on ORBCOMM's financial condition and results of operations.
Dependence on Key Management and Qualified Personnel. ORBCOMM's success
will depend on the efforts of its management team and its ability to attract and
retain qualified management and personnel in the future. ORBCOMM generally does
not have employment contracts with its employees and, therefore, is subject to
the loss of one or more key employees at any time. In addition, ORBCOMM must
rely on several employees of Orbital who play a key role in the performance of
Orbital's obligations under the Procurement Agreement. ORBCOMM has no control
over the relationship between Orbital and such employees. ORBCOMM could be
materially adversely affected by the loss of one or more of such key employees.
Risks Associated with Growth. While there can be no assurance that
customer acceptance of and satisfaction with ORBCOMM services will result in
substantial and increasing demand for ORBCOMM services, significant and rapid
growth in demand for ORBCOMM services would require ORBCOMM to make additions to
personnel and management information systems to manage such growth while
continuing to meet customer expectations. In addition, current spectrum
allocations and satellite infrastructure characteris-
24
29
tics of the ORBCOMM system set inherent capacity limitations that would prevent
growth above certain levels without additional spectrum allocation and
additional investment in satellites and/or ground infrastructure. See
"-- Technology Risks -- Limited System Capacity."
STRUCTURAL AND MARKET RISKS
Control by Strategic Partners. ORBCOMM is a limited partnership whose
current Partners, OCC and Teleglobe Mobile, each hold 50% of the partnership
interests in ORBCOMM. Under the terms of the current Partnership Agreement,
substantially all actions by ORBCOMM require the approval of at least a
majority-in-interest (i.e., Partners holding a majority of the partnership
interests in ORBCOMM). Subsequent to the Offering, ORBCOMM will be managed by
the General Partners through a Committee (the "ORBCOMM Committee"), which will
be controlled by representatives designated directly or indirectly by Orbital
and Teleglobe. The Company's independent representatives on the ORBCOMM
Committee (the "Independent Company Members") will, however, have the right to
pass on and approve certain matters prior to the submission of such matters to a
vote of the Partners. In addition, the Company's independent directors not
affiliated with Orbital and Teleglobe will determine the vote of the Partnership
Units held by the Company in votes submitted to the General Partners as to the
approval of the financial terms and conditions of certain material transactions.
See "Description of the Partnership Agreement." Members of the Company's Board
of Directors (the "Company Board"), which initially consists of directors
elected by Orbital and Teleglobe, may only be removed "for cause" and then only
by vote of the holders of at least 80% of the voting power of the then
outstanding voting stock, voting together as a single class.
No Prior Public Market. Prior to the Offering, there has been no public
market for the Common Stock. Accordingly, there can be no assurance that an
active trading market will develop or be sustained on completion of the Offering
or that the market price of the Common Stock will not decline below the initial
public offering price. The initial public offering price of the Common Stock
will be determined by negotiations between the Company and the representatives
of the Underwriters and may not be indicative of the prices that will prevail in
the public market. See "Underwriting."
The trading prices of the Common Stock could be subject to wide
fluctuations in response to quarter-to-quarter variations in ORBCOMM's operating
results, launch and commercial service delays, launch and satellite failures,
governmental regulatory action, increased price and product competition, changes
in earnings estimates by analysts, changes in market conditions for equity
securities generally or for communications companies in particular or other
events or factors, many of which are beyond ORBCOMM's control.
Shares Eligible for Future Sale. Following completion of the Offering, the
only shares of Common Stock of the Company that will be outstanding will be the
- -- shares issued in the Offering (-- shares if the Underwriters' over-allotment
option is exercised in full). However, the Company has agreed in the Unit
Exchange and Registration Rights Agreement (the "Unit Exchange Agreement") that
it will exchange shares of Common Stock for Partnership Units at the rate of one
share of Common Stock for each Partnership Unit and to register with the
Securities and Exchange Commission (the "Commission") those shares of Common
Stock for sale. Pursuant to the Unit Exchange Agreement, the holders of
Partnership Units may not exchange their Partnership Units for shares of Common
Stock prior to certain specified events. Based on the number of Partnership
Units expected to be outstanding at the time of consummation of the Offering, --
shares of Common Stock would be issuable upon such exchange. Including all
Partnership Units that will be issuable in the future and options issued under
the Equity Plan (excluding the Underwriters' over-allotment option) expected to
be outstanding immediately following completion of the Offering, an aggregate of
- -- shares of Common Stock would be issuable upon such exchange or exercise. See
"Dilution," "Management -- Executive Compensation," "Management -- Equity Plan"
and "Governance of the Company and Relationship with ORBCOMM -- Exchange Rights
of ORBCOMM Partners."
Future sales of Common Stock could adversely affect the market price of the
Common Stock. The -- shares of Common Stock offered hereby (including any shares
issued upon exercise of the Underwriters' over-allotment option) will be freely
tradable without restriction in the public market as of the date of this
Prospectus, except as described under "Underwriting."
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30
Risk of Loss of Management Rights on a Change of Control or Reduction in
Interest. Under the Partnership Agreement, the Company has certain special
rights, including the right to designate the Independent Company Members and the
right to approve certain significant transactions involving ORBCOMM. See
"Governance of the Company and Relationship with ORBCOMM -- Participation in the
Governance of ORBCOMM" and "Description of the Partnership Agreement." These
special rights will automatically terminate following a Company Change of
Control (as defined) or upon a reduction in the Company's interest in ORBCOMM as
a result of a sale of Partnership Units by the Company after which the Company
owns less than 5% of the then outstanding Partnership Units. A Company Change of
Control includes circumstances in which an entity other than ORBCOMM becomes the
beneficial owner of more than 30% of the Company's outstanding Common Stock or
in which there is a change in a majority of the members of the Company Board
over a two-year period that was not approved by a vote of 66 2/3% of the members
of the Company Board then still in office who were directors at the beginning of
such two-year period or whose election or nomination for election was previously
so approved. As a result of these provisions, as well as the risks described
below under "-- Risks Related to the Investment Company Act of 1940," holders of
Common Stock may effectively be precluded from replacing a majority of the
Company Board, which initially consists of directors selected by Orbital and
Teleglobe.
Risks Related to the Investment Company Act of 1940. The sole asset of the
Company consists of its Partnership Units in ORBCOMM. Under the United States
Investment Company Act of 1940 (the "1940 Act"), the Company could be deemed to
be an "investment company" if the Partnership Units constitute "securities," as
defined in the 1940 Act. The Company believes that it is not required to
register as an investment company under the 1940 Act. This determination is
based on the Company's belief that the Partnership Units it will hold will not
be "securities" for purposes of the 1940 Act. This belief is based on the
Company's management role in the affairs of ORBCOMM. If the Company were to
cease participation in the management of ORBCOMM, which would result if the
Company were to undergo a Company Change of Control or a reduction in interest,
its Partnership Units in ORBCOMM could be deemed "securities" for purposes of
the 1940 Act. Such a determination could result in the Company being deemed an
investment company under the 1940 Act and thereby becoming subject to the
registration and other requirements of the 1940 Act. ORBCOMM intends to conduct
its operations so as to avoid being deemed an investment company under the 1940
Act. See "-- Risk of Loss of Management Rights on a Change of Control or
Reduction in Interest."
Dividend Policy. The Company has never declared or paid any dividends on
its Common Stock and ORBCOMM has never made distributions on its Partnership
Units. The Company and, except for distributions for the payment of taxes by its
Partners, ORBCOMM do not currently anticipate paying any such dividends or
distributions in the foreseeable future. Cash distributions by ORBCOMM are
restricted by the Indenture. See "Description of the Senior Notes -- Covenants."
The Company's sole asset consists of its Partnership Units in ORBCOMM and the
Company has no independent means of generating revenues.
ORBCOMM is intended to be treated as a partnership for U.S. federal income
tax purposes. The Company will be responsible for paying U.S. federal, state and
local income tax on its allocable share of the income of ORBCOMM. The Company
will have no source of funds to pay such U.S. federal, state and local income
taxes other than distributions from ORBCOMM. In connection with the Offering,
ORBCOMM intends to seek from the Holders amendments of certain provisions of the
Indenture to, among other things, permit distributions to the Company for
purposes of paying taxes on the income of ORBCOMM. Such distributions are
currently limited by the Indenture and may be limited by the provisions of other
future indebtedness of ORBCOMM. See "-- Financing Risks -- Substantial Leverage;
Restrictive Covenants."
Dilution Risk. On the purchase by the Company of Partnership Units with
the proceeds of the Offering, the Company will realize a substantial dilution in
pro forma net tangible book value per Partnership Unit. See "Dilution."
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31
THE COMPANY AND RELATIONSHIPS AMONG THE ORBCOMM PARTIES
The Company was incorporated as a Delaware corporation on March 23, 1998.
The Company was formed for the sole purpose of investing in, and acting as a
General Partner of, ORBCOMM. The Company will use the net proceeds of the
Offering to acquire Partnership Units in ORBCOMM. On consummation of the
Offering and application of the proceeds therefrom to purchase Partnership
Units, the Company is expected to own approximately --% of the outstanding
Partnership Units (approximately --% if the Underwriters' over-allotment option
is exercised in full). The expenses related to the Offering, estimated to be
$2.5 million, will be borne entirely by the Company. The Company's sole asset
consists of its Partnership Units in ORBCOMM and its only activity will be
participating in the management of ORBCOMM.
The following is a chart of ORBCOMM's ownership structure after the sale of
Partnership Units to the Company.
LOGO
- ---------------
(1) Represents current ownership by Orbital in OCC, with the remaining interests
acquired pursuant to the exercise of stock options granted under the OCC
Stock Option Plan. Unexercised options previously granted under the OCC
Stock Option Plan will be converted on consummation of the Offering into
options to acquire shares of Common Stock of the Company pursuant to the
Equity Plan. See "Management -- Equity Plan."
(2) Represents percentage of Partnership Units in ORBCOMM.
(3) OCC holds the FCC Licenses.
For a description of the potential for dilution of the Company's interest
in ORBCOMM, see "Dilution." For additional information on the Company's
governance arrangements and its relationship with ORBCOMM, see "Certain
Relationships and Related Transactions," "Governance of the Company and
Relationship with ORBCOMM" and "Description of the Partnership Agreement."
ORBCOMM is a Delaware limited partnership formed in 1993 to develop,
construct, operate and market the ORBCOMM system. The partnership interests in
ORBCOMM are currently held 50% by OCC, a Delaware corporation and subsidiary of
Orbital, a Delaware corporation, and 50% by Teleglobe Mobile, a Delaware general
partnership, the general partners of which are affiliates of Teleglobe and TRI.
ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe Mobile are sometimes referred to
herein as the "ORBCOMM Parties."
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32
USE OF PROCEEDS
The net proceeds of the Offering are estimated to be approximately $114
million (approximately $131.5 million if the Underwriters' over-allotment option
is exercised in full), assuming an initial public offering price of $-- per
share of Common Stock (the mid-point of the estimated initial public offering
price range set forth on the cover page of this Prospectus) and after deducting
underwriting discounts and commissions, and expenses of the Offering estimated
to be $2.5 million. The net proceeds of the Offering will be used by the Company
to purchase -- Partnership Units (-- Partnership Units if the Underwriters'
over-allotment option is exercised in full). Following application of the net
proceeds of the Offering to purchase the Partnership Units, the Company is
expected to own approximately --% of the outstanding Partnership Units
(approximately --% if the Underwriters' over-allotment option is exercised in
full). See "Dilution" and "Underwriting."
ORBCOMM will use the net proceeds from the sale of Partnership Units to the
Company primarily for: (i) the design, construction and launch of the planned
36-satellite enhanced constellation, including amounts payable to Orbital under
the Procurement Agreement as of consummation of the Offering ($29.5 million as
of March 31, 1998); (ii) related development, operating and marketing expenses,
including expenses incurred in connection with Internal VARs; (iii) the payment
of interest on the Notes and scheduled payments of principal and interest on the
MetLife Note; and (iv) other general corporate purposes related to commercial
deployment of the ORBCOMM system. See "Prospectus Summary -- Sources and Uses of
Funds by ORBCOMM" and "Certain Relationships and Related
Transactions -- Procurement Agreement."
The Notes mature on August 15, 2004 and bear interest at a rate of 14% per
annum, with Revenue Participation Interest (as defined in the Indenture). See
"Description of the Senior Notes." The MetLife Note matures in December 1999 and
bears interest at a rate of 9.2% per annum.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock
and ORBCOMM has never made distributions on its Partnership Units. The Company
and, except as described below, ORBCOMM do not anticipate paying any such
dividends or distributions for the foreseeable future.
The Company's sole asset consists of its Partnership Units in ORBCOMM and
the Company has no independent means of generating revenues. ORBCOMM will
reimburse the Company for its operating expenses, which expenses are not
expected to be material. The Partnership Agreement requires the ORBCOMM
Committee, to the extent of legally available funds, to declare and pay a pro
rata distribution at the end of each fiscal quarter in an amount sufficient to
ensure that each Partner shall have received at least an amount equal to the
product of (i) forty percent multiplied by (ii) the lesser of (a) such Partner's
distributive share of ORBCOMM's estimated taxable income for the preceding
fiscal quarter or (b) the excess of cumulative net income over cumulative net
loss allocated to such Partner. Cash distributions by ORBCOMM are restricted by
the Indenture. See "Risk Factors -- Financing Risks -- Substantial Leverage;
Restrictive Covenants" and "Description of the Senior Notes."
The Company intends to distribute promptly, as dividends to its
stockholders, the distributions, if any, made to it by ORBCOMM, less any amounts
reasonably required to be retained for payment of taxes, to satisfy any
liabilities and to fund any contingencies.
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33
DILUTION
Purchasers of Common Stock in the Offering will not experience significant
dilution with respect to the Common Stock of the Company on consummation of the
Offering. Dilution to investors with respect to the Common Stock (although not
with respect to the Company's interest in ORBCOMM) will occur at any time the
holders of Partnership Units of ORBCOMM exchange Partnership Units for Common
Stock pursuant to the Unit Exchange Agreement. In addition, dilution to new
investors with respect to the Common Stock (and the Company's interest in
ORBCOMM) will occur pro rata with the other Partners on exercise of options
issued under the Equity Plan. In addition, pursuant to the terms of the
Indenture, Orbital and Teleglobe, until certain operational milestones have been
achieved, will be required to provide additional funding to ORBCOMM in the event
ORBCOMM's cash and cash equivalents total less than $25 million. If such funding
is in the form of equity and occurs after consummation of the Offering, such
equity issuances could dilute the Company's ownership in ORBCOMM. See
"Management -- Equity Plan," "Governance of the Company and Relationship with
ORBCOMM -- Exchange Rights of ORBCOMM Partners" and "Shares Eligible for Future
Sale."
The price per Partnership Unit to be paid by the Company for the
Partnership Units to be purchased with the proceeds of the Offering will exceed
the price per Partnership Unit paid by ORBCOMM's current Partners. The following
table illustrates the dilution in pro forma net tangible book value on a per
Partnership Unit basis, assuming an initial public offering price of $-- per
share of Common Stock (the mid-point of the estimated initial public offering
price range set forth on the cover page of this Prospectus), total net proceeds
to the Company of the Offering of approximately $114 million and an aggregate
purchase price of approximately $114 million for the -- Partnership Units
purchased by the Company. Net tangible book value per Partnership Unit is equal
to ORBCOMM's total tangible assets less total liabilities as of March 31, 1998,
divided by the number of Partnership Units outstanding at that date.
Estimated purchase price per Partnership Unit purchased by
the Company with the net proceeds of the Offering......... $
Net tangible book value per Partnership Unit at March 31,
1998...................................................... $
Pro forma increase in net tangible book value per
Partnership Unit attributable to the sale of Partnership
Units to the Company......................................
------
Pro forma net tangible book value per Partnership Unit after
the Offering..............................................
------
Pro forma dilution per Partnership Unit to the Company after
the Offering.............................................. $
======
The following table summarizes the relative investment in ORBCOMM of the
current Partners and the Company, as adjusted to give effect to the sale of
Partnership Units to the Company in connection with the Offering, assuming an
initial public offering price of $-- per share of Common Stock (the mid-point of
the estimated initial public offering price range set forth on the cover page of
this Prospectus), total net proceeds to the Company of the Offering of
approximately $114 million and an aggregate purchase price of approximately $114
million for the -- Partnership Units purchased by the Company.
PARTNERSHIP UNITS CONSIDERATION
------------------ ---------------- AVERAGE PRICE PER
NUMBER PERCENT PAID PERCENT PARTNERSHIP UNIT
------- -------- ------ ------- -----------------
(IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT)
Current Partners.............................. % $ % $
The Company...................................
------ --- ------ ---
Total (1)................................ 100% $ 100%
====== === ====== ===
- ------------------------------
(1) Does not give effect to the exercise of outstanding options to purchase
shares of OCC common stock that will be converted into options to purchase
shares of Common Stock reserved for issuance under the Equity Plan. See
"Management -- Equity Plan."
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CAPITALIZATION
THE COMPANY
The following table sets forth as of March 31, 1998: (i) the capitalization
of the Company; and (ii) the capitalization of the Company as adjusted to
reflect the issuance and sale by the Company of -- shares of Common Stock in the
Offering at an assumed initial public offering price of $-- per share (the
mid-point of the estimated initial public offering price range set forth on the
cover page of this Prospectus) and the receipt of the estimated net proceeds
thereof (assuming expenses related to the Offering estimated to be $2.5
million). This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
balance sheet as of March 31, 1998 and the notes thereto included elsewhere in
this Prospectus.
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
Investment in ORBCOMM....................................... $ -- $114,000
Total asset............................................ $ -- $114,000
======= ========
Stockholders' Equity:
Common Stock, par value $.01 per share, 1,000 shares
authorized; 100 shares issued and outstanding; --
shares issued and outstanding as adjusted............. $ -- $ --
Additional paid-in capital............................. -- 114,000
Retained earnings...................................... -- --
------- --------
Total stockholders' equity............................. -- 114,000
------- --------
Total capitalization.............................. $ -- $114,000
======= ========
ORBCOMM
The following table sets forth as of December 31, 1997: (i) the
capitalization of ORBCOMM on a combined basis; and (ii) the capitalization of
ORBCOMM on a combined basis as adjusted to reflect the issuance and sale by
ORBCOMM of -- Partnership Units to the Company in exchange for the net proceeds
of the Offering (estimated to be $-- million, assuming an initial public
offering price of $-- per share (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus) and
expenses related to the Offering estimated to be $2.5 million). This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and ORBCOMM's combined financial
statements as of December 31, 1997 and the notes thereto included elsewhere in
this Prospectus.
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash, cash equivalents and investments (1).................. $ 38,862 $152,862
======== ========
Long-term debt:
Notes (2).............................................. $170,000 $170,000
Other long-term debt (3)............................... 2,277 2,277
-------- --------
Total long-term debt.............................. 172,277 172,277
Total partners' capital..................................... 106,155 220,155
-------- --------
Total capitalization.............................. $278,432 $392,432
======== ========
- ------------------------------
(1) Includes the aggregate principal amount of Pledged Securities of
approximately $21.5 million and the amount in a segregated account related
to the MetLife Note of approximately $2.8 million as of December 31, 1997.
(2) Approximately $44.8 million of the net proceeds of the Notes Offering was
used to purchase the Pledged Securities.
(3) Represents the outstanding balance as of December 31, 1997 of the MetLife
Note.
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SELECTED HISTORICAL FINANCIAL DATA
THE COMPANY
The selected historical financial data of the Company presented below as of
March 31, 1998 are derived from the audited balance sheet of the Company. The
selected historical financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's balance sheet as of March 31, 1998 and the notes
thereto, and ORBCOMM's combined financial statements as of December 31, 1996 and
1997 and for each of the years in the three-year period ended December 31, 1997,
and the notes thereto included elsewhere in this Prospectus.
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (1)
------- ---------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Investment in ORBCOMM....................................... $ -- $114,000
Total assets................................................ -- 114,000
Stockholders' equity........................................ -- 114,000
- ------------------------------
(1) As adjusted to reflect the issuance and sale by the Company of the -- shares
of Common Stock offered hereby, assuming an initial public offering price of
$-- per share of Common Stock (the mid-point of the estimated initial public
offering price range set forth on the cover page of this Prospectus), total
net proceeds to the Company of the Offering of approximately $114 million
(after expenses related to the Offering, estimated to be $2.5 million) and
an aggregate purchase price of approximately $114 million for the --
Partnership Units purchased by the Company. See "Use of Proceeds" and
"Capitalization."
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ORBCOMM
The selected historical combined financial data of ORBCOMM presented below
under the captions "Combined Statements of Operations Data" and "Combined
Balance Sheets Data" for, and as of, each of the years in the five-year period
ended December 31, 1997, are derived from the audited combined financial
statements of ORBCOMM. The selected historical combined financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and ORBCOMM's combined
financial statements as of December 31, 1996 and 1997 and for each of the years
in the three-year period ended December 31, 1997 and the notes thereto included
elsewhere in this Prospectus.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER PARTNERSHIP UNIT AND OTHER DATA)
COMBINED STATEMENTS OF OPERATIONS DATA:
Total revenues (1).......................... $ 749 $ 2,093 $ 2,260 $ 400 $ 268
Cost of product sales....................... -- -- -- 268 517
Depreciation................................ -- -- -- 6,198 7,348
Engineering expenses (2).................... -- -- -- 5,453 8,160
Marketing expenses.......................... 749 2,093 2,232 6,832 10,673
General, administrative and other
expenses.................................. -- 9 50 4,777 9,722
Interest income, net........................ -- -- 59 3,554 4,545
------- ------- -------- -------- --------
Net income (loss)........................... $ -- $ (9) $ 37 $(19,574) $(31,607)
======= ======= ======== ======== ========
Pro forma net income (loss) per Partnership
Unit...................................... $
========
OTHER DATA:(3)
Number of VARs.............................. -- 2 15 29 41
Number of International Licensees........... -- -- 1 5 12
DECEMBER 31,
----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
COMBINED BALANCE SHEETS DATA:
Cash, cash equivalents and investments
(4)....................................... $ 20 $ 5,020 $ 1,805 $153,482 $ 38,862
ORBCOMM system, net (5)..................... 43,924 68,647 106,990 170,034 263,379
Total assets................................ 47,685 73,667 109,242 336,615 331,961
Total long-term debt........................ -- 5,000 4,175 173,269 172,277
Total partners' capital..................... 47,685 58,529 94,603 137,850 106,155
- ------------------------------
(1) ORBCOMM is a development stage enterprise. Total revenues presented for the
years ended December 31, 1993, 1994 and 1995 represent a non-refundable fee
received from a potential International Licensee and revenues from OCC with
respect to certain marketing costs.
(2) Prior to 1996, ORBCOMM capitalized substantially all engineering expenses as
part of the total costs of the ORBCOMM system. See footnote 5 below.
(3) Other Data is calculated as of the end of the period presented.
(4) Includes the aggregate principal amount of Pledged Securities of
approximately $44.8 million and $21.5 million as of December 31, 1996 and
1997, respectively, and the amount in a segregated account related to the
MetLife Note of approximately $3.8 million and $2.8 million as of December
31, 1996 and 1997, respectively. See "Description of the Senior Notes."
(5) Represents the aggregate costs of satellite constellation design,
construction, launch services, design and construction of the U.S. Ground
Segment and insurance and other system costs (including $34.5 million of
capitalized interest), net of accumulated depreciation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company, which is the issuer of the Common Stock offered hereby, was
organized in March 1998 to invest in, and act as a General Partner of, ORBCOMM.
The Company's sole asset is its Partnership Units in ORBCOMM and the Company's
results of operations will reflect its proportionate share of ORBCOMM's net
income or loss using the equity method of accounting. In its annual and
quarterly reports, the Company will present separate financial statements for
the Company and ORBCOMM. The following is a discussion of the combined financial
condition and results of operations of ORBCOMM and should be read in conjunction
with the combined financial statements and related notes thereto and other
combined financial information included elsewhere in this Prospectus.
OVERVIEW
ORBCOMM was organized in 1993 by OCC and Teleglobe Mobile, each of which
currently owns 50% of the partnership interests of ORBCOMM. Through March 31,
1998, Orbital, through OCC, and Teleglobe and TRI, through Teleglobe Mobile,
have invested in the aggregate approximately $180 million in ORBCOMM. OCC and
Teleglobe Mobile also formed the Marketing Partnerships to market services using
the ORBCOMM system in the United States and internationally. On consummation of
the Offering, OCC and Teleglobe Mobile will contribute to ORBCOMM their
respective two percent partnership interests in ORBCOMM USA and ORBCOMM
International, dissolve each of the Marketing Partnerships and amend or
terminate certain agreements to which either or both of the Marketing
Partnerships is a party.
ORBCOMM provides two-way data and messaging services through the world's
first commercial LEO satellite-based communications system. ORBCOMM's current
primary target markets include: (i) fixed asset monitoring services for electric
utility meters, oil and gas storage tanks, wells and pipelines and environmental
projects; (ii) mobile asset tracking services for commercial trucks, trailers,
containers, rail cars, heavy equipment, fishing vessels, barges and government
assets; and (iii) messaging services for consumers and commercial and government
entities. Future target markets are expected to include: (i) tracking, messaging
and security services for automobiles; (ii) monitoring applications for home
security systems; and (iii) additional U.S. and foreign government applications.
ORBCOMM has entered into agreements with over 40 VARs, each of which is
authorized to market and distribute ORBCOMM services within specific regions and
to targeted industries or markets. ORBCOMM has also established two Internal
VARs to market and distribute monitoring and tracking services to the oil and
gas and transportation industries. In addition, ORBCOMM has entered into
agreements with 13 International Licensees that are expected to market and
distribute ORBCOMM services in over 95 countries within North and South America,
Europe, Asia, the Middle East and Africa following completion of the necessary
ground infrastructure and receipt of the necessary regulatory and other
approvals. ORBCOMM has also entered into agreements with six subscriber unit
manufacturers, Panasonic, Scientific-Atlanta, Magellan, Stellar, Torrey and CTI,
and has type approved ten subscriber unit models for commercial use with the
ORBCOMM system. Four subscriber unit manufacturers have commenced production of
subscriber units that can be used for electric utility meter, oil and gas
storage tank, well and pipeline and environmental monitoring and commercial
truck, trailer, container, rail car, heavy equipment, fishing vessel and
government asset tracking applications.
SERVICE ROLL-OUT
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world, enabling such customers to
collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. ORBCOMM has launched 12 satellites to date and expects to launch 16
additional satellites by mid-1998, which will complete its planned 28-satellite
constellation. An additional eight satellites that will create a 36-satellite
enhanced constellation with increased capacity and improved service in
equatorial regions are expected to be launched in the third quarter of 1999.
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38
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through two satellites. ORBCOMM has begun to place in
commercial service satellites that were launched in late 1997 and early 1998
and, as a result, ORBCOMM expects to offer commercial service on a broader basis
in the near future. ORBCOMM expects to have the ability to significantly expand
its commercial services later in 1998 in the United States and other temperate
regions, when 16 additional satellites are expected to be placed in commercial
service. Service outside the United States will be expanded as the necessary
ground infrastructure is completed and the necessary regulatory approvals are
received. Enhanced service in equatorial regions is expected to be available by
the fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service.
The U.S. Ground Segment, including the Network Control Center and four
Gateway Earth Stations, is operational. In March 1998, a Gateway located in
Italy successfully completed acceptance testing. In each of South Korea and
Japan, a Gateway is under construction and is expected to be completed by
mid-1998. During 1998, ORBCOMM expects that certain of its International
Licensees will be able to offer ORBCOMM services in portions of Europe, Japan,
Brazil, South Korea and Morocco, subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory and other approvals.
REVENUES
Domestically, ORBCOMM generates revenues from the direct sale of satellite
capacity to VARs, which sales to date have been primarily for resale to beta
test customers. The pricing of satellite capacity is based on many variables,
including the availability and cost of substitute services, the cost of
providing service and the nature of the customer application. Pricing generally
is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage.
ORBCOMM expects that beginning in 1998 it will also generate revenues from
the sale of data and messaging communications services and applications
developed and distributed by Internal VARs. The pricing of services provided by
the Internal VARs will be based on a pricing structure similar to the VAR
pricing structure except that the Internal VAR pricing structure will generate
additional revenues from value-added software, hardware and services provided to
the customer.
ORBCOMM has on occasion purchased and recently entered into agreements, and
may enter into additional agreements in the future, to purchase subscriber units
for resale. In the past, ORBCOMM has not generated substantial revenues from the
sale of subscriber units. ORBCOMM recently committed to purchase $6.2 million of
subscriber units from certain manufacturers to accelerate initial customer sales
by VARs and International Licensees. ORBCOMM expects to sell these subscriber
units at prices equal to or greater than cost, although there can be no
assurance that ORBCOMM will be able to do so.
Internationally, ORBCOMM generates revenues through license fees paid by,
and through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
International Licensees' gross operating revenues are generally based on a
wholesale pricing structure similar to the prices charged to VARs, which
includes an activation charge, a recurring monthly access charge and a usage
charge. On execution of a service license or similar agreement, an International
Licensee purchases a Gateway or Gateway components from ORBCOMM pursuant to a
Gateway procurement contract or arranges to share a Gateway with an
International Licensee that is in close proximity. Cash received under the
Gateway procurement contracts is generally accounted for as deferred revenues
and recognized when the Gateway has successfully completed acceptance testing.
License fees from service license or similar agreements are generally accounted
for as deferred revenues and recognized over the term of the agreements or when
ORBCOMM's obligations under the agreements are substantially complete.
OPERATING EXPENSES
ORBCOMM owns and operates the assets that comprise the ORBCOMM system other
than the FCC Licenses (which are held by OCC, with certain contractual rights
relating thereto granted to ORBCOMM).
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39
Satellite-based communications systems are characterized by high initial capital
expenditures and relatively low marginal costs for providing service. ORBCOMM
has been depreciating certain of its assets beginning in 1996, when commercial
operation of the ORBCOMM system began. Cost of products sold consists of the
cost of sale of subscriber units sold to customers. ORBCOMM has agreed to pay to
Magellan a subsidy for each Magellan subscriber unit sold, through March 1999,
up to an aggregate of $2.4 million. Additionally, ORBCOMM incurs engineering
expenses related to the development and operation of the ORBCOMM system and
marketing, administrative and other expenses related to the operation of the
ORBCOMM system. ORBCOMM has also incurred nominal expenses related to the
development of Internal VARs which are included in marketing expenses. ORBCOMM
anticipates that its expenses related to the continued development and operation
of the Internal VARs (including the development of applications for customers)
will increase substantially as ORBCOMM expands the marketing and distribution
efforts of the Internal VARs.
RESULTS OF OPERATIONS
ORBCOMM commenced limited commercial service in the United States in
February 1996 and has generated nominal revenues and substantial negative cash
flows to date. ORBCOMM's activities have focused primarily on the acquisition of
U.S. regulatory approvals for the operation of the ORBCOMM system, the design,
construction and launch of satellites, the design and construction of associated
ground network and operating systems (including associated software), the
development of subscriber unit manufacturing sources, the negotiation of
agreements with VARs and International Licensees, the development of Internal
VARs, the development of customer software and hardware applications,
preliminary marketing and sales activities associated with ORBCOMM's limited
commercial operations to date and the hiring of key personnel.
For the year ended December 31, 1995, ORBCOMM generated revenues of $2.3
million, of which $900,000 represented a contract extension fee received from a
potential International Licensee and $1.4 million represented contractual
marketing services to OCC. For the years ended December 31, 1996 and 1997,
ORBCOMM generated revenues of $400,000 and $268,000, respectively, relating
primarily to the sale of subscriber units and the provision of limited
communications services to customers. The cost of product sales associated with
revenues for the years ended December 31, 1996 and 1997 was $268,000 and
$517,000, respectively.
For the years ended December 31, 1995, 1996 and 1997, ORBCOMM incurred $0,
$6.2 million and $7.3 million, respectively, of ORBCOMM system depreciation
expenses. ORBCOMM began depreciating its initial two satellites in 1996, when
such satellites commenced commercial operations.
For the years ended December 31, 1995, 1996 and 1997, ORBCOMM incurred $0,
$5.5 million and $8.2 million, respectively, of ORBCOMM system engineering
expenses. ORBCOMM capitalized a portion of engineering direct labor costs that
relate to hardware and system design, development and coding of the software
products that enhance the operation of the ORBCOMM system in amounts totaling
$0, $1.2 million and $4.6 million, respectively, for the years ended December
31, 1995, 1996 and 1997. For the years ended December 31, 1995, 1996 and 1997,
ORBCOMM incurred $2.2 million, $6.8 million and $10.7 million, respectively, of
marketing expenses related to the marketing of ORBCOMM services. For the years
ended December 31, 1995, 1996 and 1997, ORBCOMM incurred $50,000, $4.8 million
and $9.7 million, respectively, of general, administrative and other expenses
related to the operation of the ORBCOMM system. The increase in engineering,
marketing and administrative expenses since 1995 is attributable primarily to
increased staffing and expansion of commercial network operations and
operational support services for the commencement of commercial service.
ORBCOMM recognized interest income (excluding interest expense of $0,
$307,000 and $833,000) on the invested portion of the MetLife Note and the
proceeds of the Notes Offering of $59,000, $3.9 million and $5.4 million for the
years ended December 31, 1995, 1996 and 1997, respectively. ORBCOMM capitalized
interest as part of the historical cost of the ORBCOMM system of $426,000, $10.0
million and $24.1 million for the years ended December 31, 1995, 1996 and 1997,
respectively.
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40
ORBCOMM expects engineering and marketing and administrative expenses to
continue to increase during 1998 due to a continued increase in the number of
employees, expanded commercial network operations, continued development of the
Internal VARs and operational support for the commencement of commercial
service. In addition, with the planned launch of the 28-satellite constellation
by mid-1998, ORBCOMM expects depreciation expense associated with the ORBCOMM
system to increase substantially.
As of December 31, 1997, 880 subscriber units were either generating
revenues or being used in beta tests. This figure does not include subscriber
units used for demonstration purposes, delivered to resellers or on back order
with subscriber unit manufacturers.
LIQUIDITY AND CAPITAL RESOURCES
ORBCOMM is a development stage enterprise and has incurred cumulative net
losses from inception. ORBCOMM has financed its operations to date primarily
with capital contributions from its current Partners and through financing
activities. For the year ended December 31, 1997, net cash used in operating
activities was $12.3 million, primarily as a result of a net loss excluding
non-cash charges for depreciation and amortization of $23.4 million and an
increase in inventory for the construction of Gateways of $15.8 million. This
use of cash was partially offset by an increase in accounts payable and accrued
liabilities of $20.9 million and an increase in deferred revenue of $7.1
million. Net cash of $84,000 and $4.6 million was used in operating activities
during 1995 and 1996, respectively. As of December 31, 1996 and 1997, ORBCOMM
had $3.9 million and $19.6 million, respectively, of inventory for construction
of Gateways scheduled for delivery over the next two years. As of December 31,
1997, ORBCOMM had received $3.7 million under service license or similar
agreements and $9.6 million under ground segment agreements that are recorded as
deferred revenue. As of December 31, 1997, cash and investments had been reduced
by $114.6 million, which decrease was attributable to capital expenditures,
operating expenses and interest payments. This was offset by an increase in
accounts payable to Orbital under the Procurement Agreement as a result of the
achievement of milestones under the Procurement Agreement, including the launch
of eight satellites in December 1997.
Cash flows used in investing activities for the year ended December 31,
1997 were $27.3 million primarily as a result of additional capital expenditures
and purchases and sales of securities. In 1997, ORBCOMM invested $100.7 million,
including $24.1 million of capitalized interest, for satellite constellation
design, construction and launch services and design and construction of the U.S.
Ground Segment. This use of cash was partially offset by $73.8 million of net
proceeds of the sale of securities. For the years ended December 31, 1995 and
1996, $38.3 million and $165.8 million, respectively, were used in investing
activities, primarily for capital expenditures and purchases and sales of
securities. In 1995 and 1996, ORBCOMM invested $38.3 million and $69.2 million,
respectively, on capital expenditures. In 1995 and 1996, investing activities
also included $0 and $96.5 million, respectively, of cash used to purchase
securities.
Cash flows used in financing activities for the fiscal year ended December
31, 1997 were $1.2 million, $1.0 million of which was used to repay a portion of
the principal of the MetLife Note. Cash flows related to financing activities
for the fiscal years ended December 31, 1995 and 1996 resulted in increases of
$35.2 million and $225.4 million, respectively. These increases reflect
additional contributions by the current Partners of $38.1 million and $62.7
million in 1995 and 1996, respectively, and net proceeds of approximately $164.5
million from the Notes Offering in 1996.
Expected future uses of cash include continued hiring of employees, capital
expenditures related to the completion of the ORBCOMM constellation, debt
servicing and working capital requirements. In addition, ORBCOMM intends to
continue to increase marketing and product development expenditures in
anticipation of expanded commercial operations. The total cost of the
36-satellite enhanced constellation is expected to be $332.0 million. Of this
amount, $244.0 million is for the design, development and construction of the
satellite constellation and launch services, $39.0 million is for the design and
construction of the U.S. Ground Segment, $17.0 million is for insurance and
approximately $32.0 million is for other system costs such as engineering and
billing system costs. Through December 31, 1997, $242.0 million had been spent
for the ORBCOMM system, excluding a total of $35.0 million of interest expenses
that have been capitalized. The foregoing information reflects ORBCOMM's current
estimate of its funding requirements for the
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ORBCOMM system. Actual amounts may vary from such estimates for a variety of
reasons, including delays or launch or satellite failures. See "Risk
Factors -- Market Demand -- Forward Looking Statements and Market Estimates."
ORBCOMM expects to continue to generate negative cash flows through all of
1998 and at least a portion of 1999. ORBCOMM expects that a portion of its cash
requirements will be met through cash expected to be generated from operations.
ORBCOMM's ability to generate significant revenues is subject to numerous
uncertainties. In 1998, ORBCOMM expects to receive additional cash payments
related to certain milestones under agreements with International Licensees.
ORBCOMM's service and equipment contracts are U.S. dollar based and do not
generate foreign currency risk. Without giving effect to the Offering, ORBCOMM
believes that the capital contributions of ORBCOMM's current Partners and the
net proceeds of the Notes Offering and the MetLife Note will be sufficient to
fund ORBCOMM's anticipated net cash loss from operations and capital
expenditures through mid-1998. During the first half of 1998, OCC and Teleglobe
Mobile are expected to provide ORBCOMM with up to an additional $30.0 million in
capital contributions, $20.0 million of which had been contributed to ORBCOMM as
of March 31, 1998. Additionally, Orbital has indicated that it will continue to
defer invoicing of certain amounts otherwise due under the Procurement Agreement
until consummation of the Offering. ORBCOMM expects, however, to pay such
amounts in full with a portion of the net proceeds of the Offering. See "Use of
Proceeds."
ORBCOMM believes that the net proceeds of the Offering, the capital
contributions of ORBCOMM's current Partners, and the net proceeds of the Notes
Offering and the MetLife Note will be sufficient to fund ORBCOMM's anticipated
net cash loss from operations and capital expenditures through the third quarter
of 1999. ORBCOMM may require additional capital and may seek to raise such
additional capital through equity or debt financing or by entering into other
strategic arrangements. There can be no assurance, however, that debt or equity
financing will be available and, if so, that it will be available on terms
acceptable to ORBCOMM or that strategic arrangements will be possible and, if
so, that they will be possible on terms acceptable to ORBCOMM. See "Risk
Factors -- Financing Risks -- Additional Funding Requirements" and "Risk
Factors -- Market Demand -- Forward Looking Statements and Market Estimates."
ORBCOMM has made a preliminary assessment of potential "Year 2000" issues
with respect to various of its computer-related systems. ORBCOMM has developed
an initial corrective action plan that includes reprogramming impacted software
when appropriate and feasible, obtaining vendor-provided software upgrades when
available and completely replacing impacted systems when necessary. ORBCOMM
currently expects that all identified "Year 2000" impacted systems will be
corrected by the end of 1998, although there can be no assurance that ORBCOMM
has identified all "Year 2000" impacted systems or that its corrective action
plan will be timely and successful. ORBCOMM believes that the costs to correct
its impacted systems will not materially affect its results of operations or its
financial condition. In addition, ORBCOMM has not received any indication to
date that the impact of "Year 2000" issues on its customers and suppliers will
have a material adverse effect on ORBCOMM's financial condition and results of
operations.
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BUSINESS
OVERVIEW
ORBCOMM provides two-way monitoring, tracking and messaging services
through the world's first commercial LEO satellite-based data communications
system. ORBCOMM believes that it will provide a reliable, cost-effective method
of providing fixed asset monitoring, mobile asset tracking and messaging
services to a broad range of customers around the world, enabling such customers
to collect data from multiple locations, track assets on a global basis and
transmit and receive short text messages outside the coverage area of other
systems. ORBCOMM has launched 12 satellites to date and expects to launch 16
additional satellites by mid-1998, which will complete its planned 28-satellite
constellation. An additional eight satellites that will create a planned
36-satellite enhanced constellation with increased capacity and improved service
in equatorial regions are expected to be launched in the third quarter of 1999.
Since early 1996, ORBCOMM has been providing limited commercial service in
the United States through two satellites. ORBCOMM has begun to place in
commercial service satellites that were launched in late 1997 and early 1998
and, as a result, ORBCOMM expects to offer commercial service on a broader basis
in the near future. ORBCOMM expects to have the ability to significantly expand
its commercial services later in 1998 in the United States and other temperate
regions, when 16 additional satellites are expected to be placed in commercial
service. Service outside the United States will be expanded as the necessary
ground infrastructure is completed and the necessary regulatory approvals are
received. Enhanced service in equatorial regions is expected to be available by
the fall of 1999, when the final eight satellites of the planned 36-satellite
enhanced constellation are scheduled to be placed in commercial service.
ORBCOMM is targeting specific markets for its communications services,
including those in which potential customers currently have geographically
limited or otherwise inefficient methods of obtaining information. ORBCOMM's
current primary target markets include: (i) fixed asset monitoring services for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects; (ii) mobile asset tracking services for commercial
trucks, trailers, containers, rail cars, heavy equipment, fishing vessels,
barges and government assets; and (iii) messaging services for consumers and
commercial and government entities. Future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. Based on market analyses conducted by and on
behalf of ORBCOMM, ORBCOMM estimates that the current addressable market
worldwide for data and messaging services of the type that can be provided by
Little LEO systems such as ORBCOMM's is in excess of 160 million subscriber
units.
ORBCOMM has made substantial progress toward its goal of full commercial
operation of the ORBCOMM system. ORBCOMM has entered into agreements with over
40 VARs, each of which is authorized to market and distribute ORBCOMM services
within specific regions and to targeted industries or markets. ORBCOMM has also
established two Internal VARs to market and distribute monitoring and tracking
services to the oil and gas and transportation industries. In addition, ORBCOMM
has entered into agreements with 13 International Licensees that are expected to
market and distribute ORBCOMM services in over 95 countries within North and
South America, Europe, Asia, the Middle East and Africa following completion of
the necessary ground infrastructure and receipt of the necessary regulatory and
other approvals. ORBCOMM has also entered into agreements with six subscriber
unit manufacturers, Panasonic, Scientific-Atlanta, also a VAR, Magellan,
Stellar, Torrey and CTI, and has type approved ten subscriber unit models for
commercial use with the ORBCOMM system. Four subscriber unit manufacturers have
commenced production of subscriber units that can be used for electric utility
meter, oil and gas storage tank, well and pipeline and environmental monitoring
and commercial truck, trailer, container, rail car, heavy equipment, fishing
vessel and government asset tracking applications.
The ORBCOMM system consists of small and relatively inexpensive satellites
and subscriber units and a relatively low-cost ground infrastructure. ORBCOMM
expects that the aggregate cost to design, construct, launch and place in
commercial service the planned 36-satellite enhanced constellation and design
and
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construct the U.S. Ground Segment, which includes the U.S. Gateway and the
Network Control Center, will be approximately $332 million through the third
quarter of 1999, when the final eight satellites of such constellation are
expected to be launched, of which approximately $242 million had been spent
through December 31, 1997, excluding capitalized interest. On consummation of
the Offering, and taking into account the capital contributions of ORBCOMM's
current Partners and the net proceeds of the Notes Offering and the MetLife
Note, ORBCOMM believes that it will have sufficient funds to meet its
anticipated net cash loss from operations and capital expenditures through the
third quarter of 1999, when the last eight satellites of the planned
36-satellite enhanced constellation are expected to be launched. See "Risk
Factors -- Financing Risks -- Additional Funding Requirements" and "Risk
Factors -- Market Demand -- Forward Looking Statements and Market Estimates."
SERVICE OFFERINGS
ORBCOMM believes that it will provide a reliable, cost-effective method of
providing fixed asset monitoring, mobile asset tracking and messaging services
to a broad range of customers around the world. ORBCOMM intends to integrate the
ORBCOMM system with related applications software and hardware developed by or
for ORBCOMM, International Licensees or third parties that address the needs of
specific industries and market segments.
Fixed Asset Monitoring. ORBCOMM believes its services will provide a means
of collecting data from assets in multiple locations around the world, thereby
allowing customers to monitor productivity, minimize "downtime" and realize
other operational benefits. Ultimately, ORBCOMM also expects to provide a method
of controlling the functions of such assets, for example, by remotely operating
valves, electrical switches and other devices, providing further operational,
economic and competitive advantages. Primary applications currently include or
are expected to include monitoring and control applications for: (i) electric
utility meters; (ii) oil and gas storage tanks and wells; (iii) oil and gas
pipelines; and (iv) environmental projects. Many of the customers for these
applications manage numerous, widely dispersed assets in locations not currently
or adequately served by other communications systems. ORBCOMM estimates that the
size of the addressable market for these applications worldwide is approximately
60 million subscriber units in 1998. ORBCOMM subscriber units are currently
operational or in various stages of beta testing for monitoring applications for
electric utility meters, oil and gas storage tanks, wells and pipelines and
environmental projects. Current beta test and operational customers that are
working with VARs and Internal VARs include: (i) Florida Power, which is working
with Scientific-Atlanta to develop automatic meter reading systems for
commercial and residential customers; (ii) Barton Instrument, which is working
with one of the Internal VARs to test monitoring systems for oil and gas storage
tanks, wells and pipelines; (iii) Acanthus, which is working with Intrex to test
monitoring systems for oil and gas pipelines; and (iv) the Salt River Valley
Water Users' Association, which is working with Stevens Water Monitoring on
water monitoring systems.
Mobile Asset Tracking. ORBCOMM believes its services will provide a means
to regularly and reliably track the location and report the status or condition
of mobile assets around the world, thereby enabling customers to reduce
downtime, repair costs, theft and other losses, improve service and more
effectively utilize transportation, heavy equipment and other assets. Primary
applications currently include or are expected to include tracking and
monitoring applications for: (i) commercial trucks; (ii) trailers, containers
and rail cars; (iii) heavy equipment; (iv) fishing vessels and barges; and (v)
government assets. Certain of the customers in this market segment have no
efficient means of tracking the location and may have no means of monitoring the
status or condition of their assets. ORBCOMM estimates that the size of the
addressable market for certain of these applications worldwide is approximately
13 million subscriber units in 1998. ORBCOMM subscriber units are currently
operational or in various stages of beta testing for tracking applications for
commercial trucks, trailers, containers, rail cars, heavy equipment, fishing
vessels and military vehicles. Current beta test and operational customers that
are working with VARs and Internal VARs include: (i) Caterpillar, which is
working with Globitrac to test a heavy equipment tracking and engine monitoring
system; (ii) the U.S. Postal Service, which is working with ARCO to test a
commercial truck tracking system; (iii) the U.S. Army, which is working with
Arinc to test a military vehicle tracking system; (iv) various U.S. trucking
firms, which are working with Arinc to test trailer tracking systems; (v)
Burlington Northern,
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which is working with MobileNet to deploy a rail car asset tracking and engine
monitoring system; and (vi) various fishing fleets, which are working with SASCO
to test a fleet tracking and messaging system.
Messaging. The ORBCOMM system is designed to provide short, alphanumeric
two-way paging-like communications services on a global basis. ORBCOMM plans to
introduce messaging services in the United States in the fall of 1998 and
thereafter on a global basis as the necessary ground infrastructure is
completed, the necessary regulatory approvals are received and, in equatorial
regions, as additional satellites are launched. ORBCOMM expects that messaging
customers will include a broad range of consumer, commercial and government
customers that require a means of communicating with various locations such as
their offices, dispatch centers, command posts or homes or who require the
ability to send priority messages or position information. Certain customers in
this market segment currently have no cost-effective alternatives or rely on
pagers, cellular phones or fleet dispatch systems, all of which services can be
expensive, unavailable or inconvenient in certain locations. ORBCOMM estimates
that the size of the addressable market for certain of these applications
worldwide is approximately 39 million subscriber units in 1998. ORBCOMM expects
that messaging subscriber units that can be used in the United States and
certain other regions will be commercially available from Magellan in mid-1998
and thereafter from one or more other manufacturers.
Future Applications. In addition to the addressable markets described
above for data and messaging services, future target markets are expected to
include: (i) tracking, messaging and security services for automobiles; (ii)
monitoring applications for home security systems; and (iii) additional U.S. and
foreign government applications. ORBCOMM estimates that the size of the
addressable markets for automotive and home security system applications is
approximately 53 million subscriber units in 1998.
BUSINESS STRATEGY
ORBCOMM's business strategy is to provide data and messaging communications
services to customers in fixed asset monitoring, mobile asset tracking and
messaging markets worldwide. These services are being provided through the
world's first commercial LEO satellite-based communications system. Key
components of this strategy include:
Reliable, Global Coverage. ORBCOMM believes that the integration of proven
technologies into the ORBCOMM system and the redundancy provided by the ORBCOMM
constellation will enable it to provide reliable, global, two-way data and
messaging communications services. ORBCOMM's distributed constellation
architecture, consisting of numerous satellites in low-Earth orbit, is designed
not only to provide global coverage but also to reduce potential risks
associated with the loss or outage of one or more satellites.
First-to-Market Advantage. ORBCOMM began providing limited commercial
service in the United States in February 1996 with two satellites and expects to
have the ability to provide expanded service in the United States and other
temperate regions by the fall of 1998 and enhanced service in equatorial regions
by the fall of 1999. ORBCOMM's first two satellites, as well an operational U.S.
Gateway and type approved subscriber units, have permitted ORBCOMM to conduct a
significant number of beta tests beginning in the second half of 1997 for
companies in various industries including the heavy equipment, oil and gas and
transportation industries. Based on published reports, ORBCOMM believes that
other Little LEO constellations are not expected to be fully operational until
after the year 2000. ORBCOMM believes that being first to market with its Little
LEO system provides it with the opportunity to achieve a significant competitive
advantage and therefore a greater market penetration because of its ability to:
(i) establish certain industry standards for hardware and software applications;
(ii) demonstrate the ORBCOMM system in an actual operating environment; (iii)
deploy an installed base of subscriber units; (iv) solidify customer
relationships; and (v) create relationships with leading VARs, International
Licensees, subscriber unit manufacturers and other hardware and software
developers.
Affordable and Convenient Service. ORBCOMM believes that its small and
relatively inexpensive satellites and subscriber units and relatively low-cost
ground infrastructure will enable it to provide customers with affordable and
convenient data and messaging communications services. Each satellite is
designed specifically for the transmission of short messages. This design
eliminates a number of complex and expensive components such as customized spot
beams, on-board switching and high-powered amplifiers that are required
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on larger, more complex satellites designed to carry voice, video and data
traffic. The less complex and more compact design of the ORBCOMM satellites
(which weigh approximately 90 pounds each with the exception of the two
satellites launched in April 1995, which weigh approximately 104 pounds each)
reduces the cost and time of production and enables ORBCOMM to launch multiple
satellites using a single, relatively low-cost launch vehicle. As a result of
ORBCOMM's relatively inexpensive satellites and relatively low-cost ground
infrastructure, ORBCOMM believes that it will be in a position to offer
affordable and convenient data and messaging communications services.
Additionally, ORBCOMM monitoring and tracking subscriber units are small and
lightweight, with substantial battery lives, and are or are expected to be
available from suppliers at initial prices ranging from $250 to $750. ORBCOMM
believes that as more subscriber units become commercially available and as the
overall production volume for subscriber units increases, the price for
subscriber units will decline.
Global Marketing and Distribution of Services. ORBCOMM intends to target
specific markets for ORBCOMM services, including those in which customers have
geographically limited or otherwise inefficient methods of obtaining information
using other systems. ORBCOMM believes that it can rapidly achieve a global
presence by capitalizing on the customer relationships, technical expertise and
other resources of the VARs, Internal VARs and International Licensees.
ORBCOMM's National Account Program provides complementary marketing and
application engineering services that support the marketing and distribution
efforts of the VARs and Internal VARs. The Internal VARs enable ORBCOMM to
broaden its distribution base, to capture additional revenue from value-added
hardware, software and services provided directly to customers and to facilitate
the development of application hardware and software that can hasten market
development by ORBCOMM and the VARs in the United States and by the
International Licensees internationally.
Commitment and Expertise of Strategic Partners. Orbital, through OCC, and
Teleglobe and TRI, through Teleglobe Mobile, had invested an aggregate of
approximately $180 million in ORBCOMM through March 31, 1998. Orbital is a
U.S.-based space and information systems company, with 1997 revenues of
approximately $600 million, that designs, manufactures, operates and markets a
broad range of space-related products and services, including satellites, launch
vehicles, electronics and sensor systems, ground systems, satellite-based
navigation and communications products and transportation management systems.
Orbital manufactures and launches the ORBCOMM satellites. Teleglobe is a North
American-based overseas telecommunications carrier, with 1997 revenues of
approximately C$2 billion, whose network and service capabilities (including
voice, data, Internet and value-added services) can be accessed in virtually all
countries. TRI is a Malaysian holding company, with 1997 revenues of
approximately RM2 billion, that controls the largest cellular operator in
Malaysia and has established cellular operations in Bangladesh, Cambodia and
Tanzania. Orbital, Teleglobe and TRI have significant operating, regulatory and
marketing experience in the satellite and communications industries, which has
contributed to ORBCOMM becoming the operator of the first commercial global
satellite-based data and messaging communications system. ORBCOMM has used and
will continue to use the expertise and capabilities of its current Partners,
including their expertise in the design, construction and launch of satellites
and the marketing and operation of communications networks, to enhance the
services offered by the ORBCOMM system.
PROJECT MILESTONES
Milestones Achieved to Date
Through March 31, 1998, ORBCOMM has achieved the following milestones:
- Launch of Satellites and Commencement of Commercial Service. In April
1995, ORBCOMM's first two satellites were launched. In February 1996,
after extensive testing, ORBCOMM commenced limited commercial service in
the United States. Since December 1997, an additional ten satellites have
been successfully launched on two separate launch vehicles. ORBCOMM has
begun to place these satellites in commercial service, with the first
satellite placed in commercial service in mid-April 1998.
- Gateways. The U.S. Ground Segment, including the Network Control Center
and four Gateway Earth Stations, is operational. The U.S. Gateway will be
used to serve the United States, Canada and
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Mexico. In March 1998, a Gateway located in Italy successfully completed
acceptance testing. In each of South Korea and Japan, a Gateway is under
construction and is expected to be completed by mid-1998. ORBCOMM expects
that many International Licensees will enter into agreements to share
Gateways.
- VARs. ORBCOMM has entered into agreements with over 40 VARs to provide
services in the United States to various market segments, including the
electric utility meter, oil and gas storage tank, well and pipeline,
environmental monitoring, commercial trucks, trailers, containers, rail
cars, heavy equipment, fishing vessels, barges, and government market
segments.
- Internal VARs. ORBCOMM is engaged in direct sales activities to customers
through the Internal VARs, which are currently focused on developing
monitoring and tracking applications for use in the oil and gas and
transportation industries. One of the Internal VARs has application
software and an information system that is capable of monitoring oil and
gas storage tanks and wells in various stages of beta testing.
- International Licensees. ORBCOMM has entered into agreements with 13
International Licensees (one of which agreements is subject to approval
by the board of directors of the International Licensee) that are
expected to market and distribute ORBCOMM services in over 95 countries.
- Monitoring and Tracking Subscriber Units. ORBCOMM has type approved ten
subscriber unit models for commercial use with the ORBCOMM system. Four
subscriber unit manufacturers have commenced production of subscriber
units that can be used for electric utility meter, oil and gas storage
tank, well and pipeline and environmental monitoring and commercial
truck, trailer, container, rail car, heavy equipment, fishing vessel and
government asset tracking applications.
- ORBCOMM Customer Care and Billing System. In January 1998, ORBCOMM
accepted a customer care and billing system from CSC Intelicom, Inc.
pursuant to which ORBCOMM and the International Licensees will be able to
provision and bill for subscriber units and provide certain customer care
functions.
- Beta Tests. ORBCOMM has completed or is in the process of conducting beta
tests in a variety of market segments including the electric utility
meter, oil and gas storage tank, well and pipeline and environmental
monitoring and commercial truck, trailer, container, rail car, heavy
equipment and government asset tracking market segments. Current beta
test and operational customers that are working with VARs and Internal
VARs include (i) Florida Power, which is working with Scientific-Atlanta
to develop automatic meter reading systems for commercial and residential
customers; (ii) Caterpillar, which is working with Globitrac to test a
heavy equipment tracking and engine monitoring system; (iii) the U.S.
Army, which is working with Arinc to test a military vehicle tracking
system; (iv) Burlington Northern, which is working with MobileNet to
deploy a rail asset tracking and engine monitoring system; (v) Barton
Instrument, which is working with one of the Internal VARs to test
monitoring systems for oil and gas storage tanks, wells and pipelines;
(vi) Acanthus, which is working with Intrex to test monitoring systems
for oil and gas pipelines; and (vii) the Salt River Valley Water Users'
Association, which is working with Stevens Water Monitoring on water
monitoring systems.
- FCC Authorizations. In October 1994, OCC was granted authority pursuant
to the Original FCC License to construct, deploy and operate 36 LEO
satellites in the United States. In May and June 1995, OCC received FCC
authority to operate the U.S. Gateway and to operate subscriber units in
the United States. On March 31, 1998, OCC was granted authority pursuant
to the Supplemental FCC License to, among other things, construct, deploy
and operate 12 additional satellites.
- ITU Allocations. In 1992, certain portions of the radio spectrum were
allocated by the ITU for use by Little LEO systems such as the ORBCOMM
system on an international basis.
- International Regulatory Approvals. In February 1996, ORBCOMM Canada Inc.
("ORBCOMM Canada") received full regulatory approval to provide ORBCOMM
services in Canada. In
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March 1998, Celcom Sdn. Bhd. (Celcom) of Malaysia received full regulatory
approval to provide ORBCOMM services in Malaysia. To date, preliminary,
experimental or limited regulatory approvals have been received in Germany,
Italy, Japan, South Korea, Spain, Sweden, Argentina, Chile, South Africa
and Iceland.
- Equity and Debt Funding. As of March 31, 1998, ORBCOMM's current Partners
had invested an aggregate of $180 million in ORBCOMM. In addition, in
August 1996, ORBCOMM completed the Notes Offering and received net
proceeds of approximately $164 million. Collectively, the International
Licensees have also committed significant additional resources for
license fees, infrastructure, marketing, distribution and other expenses.
Future Milestones
ORBCOMM expects to achieve the following future milestones:
- Launch of Additional Satellites. By mid-1998, ORBCOMM plans to have
launched 16 additional satellites in two planes of eight satellites each
and, by the third quarter 1999, ORBCOMM plans to have launched an
additional plane of eight satellites in an equatorial orbit.
- Messaging Subscriber Units. By mid-1998, ORBCOMM expects that hand-held
subscriber units will be commercially available from Magellan for
messaging services and thereafter from one or more other manufacturers.
- Internal VARs. By mid-1998, one of the Internal VARs plans to have a
commercial product capable of tracking trailers and other assets
available.
- International Licensees. By December 1998, ORBCOMM plans to have executed
agreements with several additional International Licensees. During 1998,
ORBCOMM expects that certain of its International Licensees will be able
to offer ORBCOMM services in portions of Europe, Japan, South Korea,
Brazil and Morocco subject to completion of the necessary ground
infrastructure and receipt of the necessary regulatory approvals. In
1998, ORBCOMM expects to install a number of additional Gateways for
International Licensees.
- Commencement of Expanded Global Service. In 1998, following the planned
launch and placement in commercial service of 16 additional satellites,
ORBCOMM plans to offer expanded services in the United States and to be
able to offer expanded services in other temperate regions on completion
of the necessary ground infrastructure and receipt of the necessary
regulatory approvals. In the third quarter of 1999, following the launch
and placement in commercial service of the final eight satellites in the
36-satellite enhanced constellation in an equatorial orbit, ORBCOMM plans
to be able to offer enhanced services in equatorial regions, subject to
completion of the necessary ground infrastructure and receipt of the
necessary regulatory approvals.
MARKETING AND DISTRIBUTION
ORBCOMM markets its services to customers within the United States
indirectly through VARs and directly through Internal VARs, and internationally
through International Licensees that may distribute ORBCOMM services directly or
through a distribution network.
ORBCOMM's National Account Program, a sales and marketing initiative,
supplements the activities of VARs and Internal VARs by identifying specific
large corporations that are perceived as likely to purchase ORBCOMM services.
The National Account Program and the VAR and Internal VAR activities are
designed as complementary strategies, with the goals of coordinated penetration
of targeted markets and the efficient use of the full range of ORBCOMM services.
VARs. ORBCOMM has entered into agreements with over 40 VARs and is
currently negotiating agreements with prospective VARs. The VARs have primary
responsibility for marketing ORBCOMM services to industries or markets within
specific regions in accordance with a marketing plan and program
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approved by ORBCOMM at the time of selection. The VARs are also responsible for
developing applications, retail pricing, customer service, billing, training,
customer support and maintaining an inventory of or having subscriber units
available. ORBCOMM's relationship with a VAR is governed by a reseller agreement
that establishes the VAR's responsibilities with respect to developing and
maintaining customer relationships, as well as the cost of service to the VAR.
In soliciting customers, the VAR "adds value" to the basic data service provided
by ORBCOMM by integrating the ORBCOMM system with related applications software
and hardware in a manner intended to address the needs of a particular industry
or market segment.
The VARs will provide one or more of ORBCOMM's monitoring, tracking and
messaging services in one or more of the market segments identified by ORBCOMM
within its target markets. See "-- Addressable Markets." The following chart
identifies the number of reseller agreements that have been entered into by
ORBCOMM as of March 1, 1998 for each of the services it offers and for each of
the market segments it has targeted:
FIXED ASSET MONITORING MOBILE ASSET TRACKING MESSAGING
- ------------------------------------- ------------------------------------- -------------------------------------
NUMBER OF NUMBER OF NUMBER OF
MARKET SEGMENT VARS (1) MARKET SEGMENT VARS (1) MARKET SEGMENT VARS (1)
- ------------------------- --------- ------------------------- --------- ------------------------- ---------
Electric Utility 1 Commercial Trucks........ 9 Consumer................. 2
Meters................. Trailers, Containers and Commercial............... 18
Oil and Gas Storage Tanks Rail Cars................ 19 Government............... 11
and Wells.............. 7 Heavy Equipment.......... 7
Oil and Gas Pipelines.... 3 Fishing Vessels and
Environmental Projects... 10 Barges................... 5
Government Assets........ 10
- ------------------------------
(1) For purposes of this chart, a VAR is included in multiple columns whenever
such VAR is authorized to serve more than one market segment or provides
more than one service.
Internal VARs. ORBCOMM also markets and distributes its services directly
to customers through Internal VARs. In 1997, ORBCOMM established two Internal
VARs to market and distribute monitoring and tracking services to the oil and
gas and transportation industries. In the future, ORBCOMM may establish
additional Internal VARs to market and distribute applications to the automotive
and other industries and to provide messaging services. The Internal VARs are
working closely with customers to develop and integrate the ORBCOMM system with
related applications and development hardware and software to address the
specific needs of customers in particular industries and market segments.
The Internal VAR for fixed asset monitoring applications has focused
initially on developing applications to monitor oil and gas storage tanks and
wells. The applications developed and to be developed by this Internal VAR
involve the integration of sensors, subscriber units and automation equipment
located in the field with the ORBCOMM system and, eventually, with information
systems centrally located in the offices of customers. These integrated
applications are expected to be used by customers to efficiently and accurately
collect and deliver data from remote assets to central locations and, once
collected, to assist in the management of such data. This Internal VAR has begun
beta testing with several companies in the oil and gas industry and currently
has a commercial product, including application software and information
systems, that is capable of monitoring oil and gas storage tanks and wells. In
the future, this Internal VAR intends to develop monitoring and control
applications for chemical tanks, oil and gas pipelines, agricultural assets,
such as grain silos and irrigation systems, water treatment facilities and
environmental projects.
The Internal VAR for mobile asset tracking applications is currently
developing applications to track assets in the transportation industry. These
applications involve the integration of subscriber units mounted on mobile
assets with the ORBCOMM system and with applications software for use by
customers in conjunction with their existing management information systems.
Applications developed by this Internal VAR may also include a sensor,
particularly in the case of applications developed to track mobile assets with
controlled environments, such as refrigerated trailers, containers and rail
cars. This Internal VAR plans to have a commercial product capable of tracking
trailers and other assets available by mid-1998. In the future, this Internal
VAR may develop applications to track and monitor intermodal power generation
equipment and chassis.
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International Licensees. ORBCOMM expects to market and distribute its
services outside the United States through International Licensees. ORBCOMM has
executed agreements with 13 International Licensees (one of which agreements is
subject to approval by the board of directors of the International Licensee)
covering over 95 countries. ORBCOMM continues to negotiate agreements with
potential International Licensees and expects to execute agreements with several
additional International Licensees during 1998.
ORBCOMM's relationship with International Licensees is governed by service
license or similar agreements. Subject to certain limitations, these agreements
grant to the International Licensee, among other things, the exclusive right to
market services using the ORBCOMM satellites in a designated region and a
limited right to use certain ORBCOMM proprietary technologies and intellectual
property. In return, the International Licensees are responsible for, among
other things, paying to ORBCOMM a monthly satellite usage fee and in certain
cases a license fee, procuring and installing the necessary Gateways, obtaining
the necessary regulatory approvals to provide ORBCOMM services in their
designated regions and marketing and distributing ORBCOMM services in such
regions. International Licensees generally are required to make the ORBCOMM
system available to VARs in their designated regions on the same terms as
resellers authorized by such International Licensees. These agreements generally
have a ten-year term and provide that the International Licensee may request an
extension of up to ten years, which ORBCOMM may not unreasonably deny. On the
occurrence of certain events of default, the non-defaulting party may terminate
the agreement.
ORBCOMM selects the International Licensees primarily by evaluating their
ability to successfully market and distribute ORBCOMM services. Key components
of such an evaluation include the International Licensee's: (i) reputation in
the marketplace; (ii) existing distribution capabilities and infrastructure;
(iii) financial condition and other resources; and (iv) ability to obtain the
necessary regulatory approvals. International Licensees will pay fees for access
to the ORBCOMM system in their region, including a monthly satellite usage fee.
This fee is calculated as the greater of a percentage of gross operating
revenues and a data throughput fee, which percentage and dollar amount may be
adjusted by ORBCOMM in accordance with the terms of the agreements. Certain
International Licensees are entitled to satellite usage fee credits if ORBCOMM
fails to meet certain milestones with respect to the launch of the ORBCOMM
system.
ORBCOMM PRICING
Services. In the United States, pricing of satellite capacity is based on
many variables, including the availability and cost of substitute services, the
cost of providing service and the nature of the customer application. Pricing
generally is based on a wholesale pricing structure that incorporates an initial
activation charge, a recurring monthly charge for access to the ORBCOMM system
and charges based on the customer's usage. In charging for activation, access
and usage, ORBCOMM has developed pricing structures in the United States that it
believes suit the initial markets ORBCOMM is targeting. Additional pricing,
including priority and other messaging pricing, is expected to be developed in
the future as additional satellites in the ORBCOMM system are placed in
commercial service. It is likely that multiple pricing alternatives will be
offered in the United States, including peak/off-peak, volume discounts and
annual contract commitment options. Retail pricing for ORBCOMM services will be
largely outside the control of ORBCOMM and will be established by VARs or
International Licensees or their respective distribution networks. See "Risk
Factors -- Operating Risks -- Reliance on Third Parties."
The pricing of services provided by the Internal VARs will be based on a
pricing structure similar to the VAR pricing structure except that the Internal
VAR pricing structure will generate additional revenues from value-added
software, hardware and services provided to the customer.
Internationally, ORBCOMM earns revenues through license fees paid by, and
through the sale of Gateways to, International Licensees. In addition, all
International Licensees will pay a monthly satellite usage fee based on the
greater of a percentage of gross operating revenues and a data throughput fee.
International Licensees' gross operating revenues are generally based on a
wholesale pricing structure similar to the prices charged to VARs, which
includes an activation charge, a recurring monthly access charge and a usage
charge.
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Subscriber Units. To access the ORBCOMM system, customers will use
subscriber units. ORBCOMM has type approved ten subscriber unit models for use
with the ORBCOMM system. Four subscriber unit manufacturers have commenced
production of subscriber units. ORBCOMM monitoring and tracking subscriber units
are or are expected to be available from suppliers at initial prices generally
ranging from $250 to $750. ORBCOMM believes that as more subscriber units become
commercially available and as the overall production volume for subscriber units
increases, the price for subscriber units will decline. See "-- System
Architecture -- Subscriber Segment," and "Certain Relationships and Related
Transactions -- Subscriber Unit Manufacture Agreement with Magellan."
ADDRESSABLE MARKETS
Based on marketing analyses conducted by or on behalf of ORBCOMM, ORBCOMM
estimates that the addressable market worldwide in 1998 for data and messaging
services of the type that can be provided by Little LEO systems such as
ORBCOMM's is in excess of 160 million subscriber units, including approximately
48 million subscriber units in the United States. ORBCOMM has defined its
"addressable market" as certain market segments that possess a significant
unsatisfied need for, and can afford, the products and services provided by
Little LEO systems. ORBCOMM's addressable market estimates exclude several large
potential markets due to the lack of available data to estimate the actual size
of such markets and the potential demand in such markets for Little LEO
services.
The estimates of the current addressable markets for various market
segments are based on a review and analyses of secondary market data
supplemented with primary market research in the form of interviews with persons
knowledgeable about that market segment. In estimating the size of the current
addressable market for various market segments, the market analyses conducted by
or on behalf of ORBCOMM estimated the total number of potential subscriber units
in each market segment, and then reduced such total number based on factors such
as whether there was a significant need for the type of services provided by the
ORBCOMM system and an ability to pay for such services. While based on certain
market, industry and demographic data, these addressable market estimates
represent professional judgments and are predictive in nature. There can be no
assurance that these addressable market estimates will prove to be accurate.
There are a number of factors supporting the estimates that are of an inherently
uncertain nature, including, but not limited to, the lack of precise industry
and demographic data, the variance between different statistical sources and the
need to extrapolate certain data for countries and regions that do not provide
sufficient information. Furthermore, the analyses are based on GDP growth
predictions that are historically based and may not be met in the future. See
"Risk Factors -- Market Demand -- Forward Looking Statements and Market
Estimates."
ORBCOMM has identified a number of industries and industry segments in
which a demand currently exists for fixed asset monitoring, mobile asset
tracking and messaging services. ORBCOMM views these industries and industry
segments as its primary target markets. ORBCOMM estimates that the addressable
market comprising its primary target markets, including those for which it is
actively developing applications, is approximately 112 million subscriber units.
The following chart lists ORBCOMM's target markets and target market segments
within ORBCOMM's addressable market and provides examples of specific data and
messaging applications that have been, or may be, developed for customers in
each of these markets.
TARGET MARKET SEGMENTS APPLICATION EXAMPLES
- --------------------------------------------- ---------------------------------------------
FIXED ASSET MONITORING
Electric Utility Meters................. monitoring of meter operation and power
usage; load control
Oil and Gas Storage Tanks and Wells..... monitoring of tank level and leakage;
monitoring and control of valves, pumps and
compressors
Oil and Gas Pipelines................... monitoring of corrosion and flow; monitoring
and control of valves, pumps and compressors
Environmental Projects.................. monitoring of water level and quality
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TARGET MARKET SEGMENTS APPLICATION EXAMPLES
- --------------------------------------------- ---------------------------------------------
MOBILE ASSET TRACKING
Commercial Trucks....................... tracking of location and operational
information
Trailers, Containers and Rail Cars...... tracking of location and status (e.g.,
temperature controls and condition of
contents)
Heavy Equipment......................... tracking of location and operational
information
Fishing Vessels and Barges.............. tracking of location and operational
information
Government Assets....................... tracking of personnel and equipment location
MESSAGING
Consumer................................ high-priority personal communications and/or
location information
Commercial.............................. field communication, dispatch and/or location
information
Government.............................. field communication and/or location
information
FIXED ASSET MONITORING
ORBCOMM estimates that the addressable market in 1998 for fixed asset
monitoring services is approximately 60 million subscriber units. The fixed
asset monitoring market segment includes a broad group of industries that
require a means of regularly collecting data from, or in some cases controlling
equipment in, multiple locations. Primary applications include or are expected
to include monitoring and control applications for: (i) electric utility meters;
(ii) oil and gas storage tanks and wells; (iii) oil and gas pipelines; and (iv)
environmental projects.
Electric Utility Meters. ORBCOMM estimates that the addressable market in
1998 for electric utility meter monitoring services is approximately 59 million
subscriber units. This market segment includes electric utility meters only and
does not include gas or water meters. Currently, wireline, cellular and paging
systems are being used to collect data from utility meters located in urban and
suburban areas, in addition to traditional manual meter reading. For example,
Mobile Telecommunications Technologies Corp. ("Mtel") recently announced a
service agreement with Enron Energy Services, Inc., under which Mtel will use
its system to support meter reading and provide services for residential power
customers nationwide primarily in urban areas. The ORBCOMM system is capable of
reading electric utility meters in urban, suburban and rural areas. The ORBCOMM
subscriber unit for electric utility meter monitoring currently has the
capability to read meters and transmit data relating to usage to a central
location. In the future, subscriber units may be programmed to turn power on and
off and identify unauthorized usage.
Oil and Gas Storage Tanks and Wells. ORBCOMM estimates that the
addressable market in 1998 for oil and gas storage tanks is approximately 1.1
million subscriber units. ORBCOMM believes that this market segment comprises
tanks used, among other things, in petroleum upstream (e.g. crude oil
production) and petroleum downstream (e.g. retail outlets). ORBCOMM believes
that its services could be used, among other things, to monitor tank levels and
provide related tank management services, to assist in inventory management and
to aid reporting and compliance efforts by tank operators. ORBCOMM estimates
that the current addressable market in 1998 for the monitoring of wells is
approximately 150,000 subscriber units. In less remote areas, private radio
systems based on VHF radio frequency, multiple-address radio and microwave are
currently being used to collect data for storage tanks and wells. These systems
have been installed primarily for other communications purposes; therefore, the
incremental cost of monitoring storage tanks and wells is low. However, asset
monitoring based on private radio systems is not cost-effective in locations
where the system cannot be combined with other communications functions. In
addition to recording operations data such as tank level and leakage
information, subscriber units using the ORBCOMM system could be programmed to
operate tank and well valves, oil pumps and gas compressors.
Oil and Gas Pipelines. ORBCOMM estimates that the addressable market in
1998 for oil and gas pipeline monitoring services is approximately 49,000
subscriber units. This market segment consists of gas compressors, oil pumps,
pipeline rectifiers (which measure pipeline corrosion), offshore platforms and
pipeline
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valves. For remote and hard-to-read meters, manual monitoring systems are
typically used, which require personnel to travel to the site to read the meter.
ORBCOMM believes that it will be able to offer a cost-effective means of
gathering data from meters located in remote locations. In addition to recording
operations data, subscriber units could be programmed to operate pipeline,
pumps, compressors and valves on a routine basis, as well as in the event of a
leak or other emergency.
Environmental Projects. ORBCOMM believes that the environment monitoring
market segment comprises numerous sites that monitor meteorological,
hydrological and other environmental data such as rainfall, water levels and
water quality. These sites are located in remote areas not served or
inadequately served by wireline or terrestrial-based wireless communications
systems. Based on discussions with VARs that target the environmental monitoring
market, ORBCOMM believes that there are numerous sites globally that require
water and air quality monitoring devices that measure substances such as
bacteria, dissolved oxygen and concentrations of carbon monoxide and ozone, as
well as provide meteorological data on wind speed and barometric pressure.
MOBILE ASSET TRACKING
ORBCOMM estimates that the addressable market in 1998 for mobile asset
tracking services is approximately 13 million subscriber units. Primary
applications include or are expected to include monitoring and tracking of: (i)
commercial trucks; (ii) trailers, containers and rail cars; (iii) heavy
equipment; (iv) fishing vessels and barges; and (v) government assets. ORBCOMM
expects that it will provide companies in such industries with a cost-effective
means to regularly and reliably track the location and status of assets
globally, thereby enabling customers to reduce asset losses, improve service and
more effectively utilize transportation assets.
Commercial Trucks. ORBCOMM estimates that the addressable market for 1998
for the commercial truck market segment for tracking and messaging applications
is approximately 6.6 million subscriber units. This market segment includes
medium-weight owned trucks in smaller fleets. It also includes medium-weight
leased trucks and heavy-weight trucks, both leased and owned, that need mobile
communications to compete with larger fleets but have been unable to afford the
current service offerings where equipment costs are approximately $3,000 per
unit. Cellular systems (such as the system offered by HighwayMaster
Communications, Inc. ("Highway Master")) can be used to provide tracking of and
communications to trucks; however, geographic coverage is limited. Paging and
narrowband personal communications services ("NPCS") may provide cost-effective
alternatives for these smaller fleets. Paging services currently offer only a
one-way short data link to the vehicle and NPCS is limited in geographic
coverage. ORBCOMM believes that the addressable market also includes
owner-operated vehicles contracted to larger, long-haul carriers. Shippers are
requiring these carriers to be equipped with mobile communications, regardless
of whether the motor carrier is using its own fleet of vehicles or contracting
out to owner-operators. In response to their shipper customers, these larger
carriers are therefore contributing to the cost of installing $3,000 mobile
communications units on vehicles they do not own. They are also sharing the
service expense with owner-operators.
Trailers, Containers and Rail Cars. ORBCOMM estimates that the addressable
market in 1998 for trailer, container and rail car tracking services is
approximately 5.0 million subscriber units, which includes: (i) certain segments
of the trailer market; (ii) intermodal marine and land containers containing
temperature-controlled or high-value cargo; and (iii) rail cars used to
transport temperature-controlled or high-value cargo.
ORBCOMM estimates that the addressable market in 1998 for trailer tracking
services is approximately 2.5 million subscriber units, including 780,000
subscriber units in the United States. The addressable market for trailer
tracking services includes: (i) non-refrigerated trailers belonging to large
trucking fleets that need to improve trailer utilization and operational
efficiency; (ii) trailers that carry high-value goods in the medium and small
truck fleet segment; and (iii) refrigerated trailers. Many trailers (both
refrigerated and non-refrigerated) are currently being tracked by a GEO
satellite-based system offered by Qualcomm, Inc. ("Qualcomm"). This system
provides seamless coverage, but depends on larger power sources that require the
trailer to be attached to the tractor. As a result, when the trailer is detached
from the tractor, it can no longer be tracked. The GEO satellite-based services
proposed by GE LogistiCom, a GE Capital Services
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Company ("GE LogistiCom") could be used to track untethered trailers, although
ORBCOMM believes that the line-of-sight and certain other limitations imposed by
this system could cause it to be a less effective tracking method. HighwayMaster
has announced its intention to offer a cellular-based system to track untethered
trailers, although this system's coverage will be limited to the range of
cellular communications. Private trucking fleets may use systems internal to
their companies where each trailer's number is manually recorded as trailers
enter and leave a point of distribution. ORBCOMM believes it will be able to
provide a cost-effective means of tracking untethered trailers based on their
current location and will not be constrained by cellular coverage limitations,
significant power source requirements or, in general, certain line-of-sight
limitations of currently available solutions.
ORBCOMM estimates that the addressable market in 1998 for intermodal marine
and land container services is approximately 2.0 million subscriber units. The
addressable market for marine land containers includes refrigerated containers,
containers carrying valuable items subject to theft (e.g., electronics and
cigarettes) and general freight containers that need to be tracked for security
and liability purposes. Currently, intermodal container transportation systems
use manual and radio tag systems to record containers as they enter and leave
distribution facilities. These systems therefore record only where the container
has been. The ORBCOMM system will be capable of tracking the current location of
the asset, as well as monitoring its status and the condition of its contents.
ORBCOMM estimates that the addressable market in 1998 for tracking rail
cars is approximately 550,000 subscriber units. The addressable market for rail
cars includes rail cars used to transport high-value cargo (e.g., automobiles,
cigarettes, refrigerated goods and paper rolls) or hazardous cargo comprising
bulk materials. The American Association of Railroads has mandated the use of
automatic equipment identifiers ("AEI") on rail cars. AEI systems consist of a
radio tag mounted on the rail car and a reader that records the identity of the
car as it passes by. AEIs therefore share the same limitations as bar code
systems because they record only where the rail car has been, not its current
location, status or the condition of its contents. The ORBCOMM system will be
capable of tracking the current location of the railcar, as well as monitoring
its status or the condition of its contents.
Heavy Equipment. ORBCOMM estimates that the addressable market in 1998 for
heavy equipment is approximately 250,000 subscriber units. The addressable
market for heavy equipment includes equipment used in various large-scale
construction, infrastructure and mining operations. Currently, heavy equipment
and machine diagnostic information is collected manually and provided to
equipment manufacturers and operators for warranty programs and maintenance
operations. ORBCOMM believes that the ORBCOMM system will enable equipment
manufacturers and operators to automatically collect diagnostic information from
remote locations on a more timely and efficient basis.
Fishing Vessels and Barges. ORBCOMM estimates that the addressable market
in 1998 for commercial fishing vessels is approximately 640,000 subscriber
units. Fishing vessels usually remain at sea for extended periods and operate on
extremely tight margins and therefore must carefully control their operating
costs. As a result, they need cost-effective communications systems to meet
safety and regulatory requirements and to exchange commercial and operational
information with their offices, fuel providers, provisioners and packing houses.
Commercial deep sea fishing vessels currently use either high-frequency radio or
one of the Inmarsat services. High-frequency radio is not considered
cost-effective and is difficult to use, while use of the Inmarsat system
requires a considerable up-front investment of capital. Commercial fishing
vessels operating in coastal waters may also acquire service from American
Mobile Satellite Corporation ("AMSC") or use cellular telephone service,
particularly in the Gulf of Mexico. The ORBCOMM system is capable of providing
remote tracking and operational data to a central location from a fishing vessel
anywhere in the world. Given the limitation of AMSC's geographic coverage and
the high cost of cellular roaming, the ORBCOMM system may provide a more
efficient, cost-effective communications service for both deep sea and coastal
fishing vessels. ORBCOMM believes that its service will provide barge operators
with cost-effective tracking applications.
Government Assets. ORBCOMM estimates that the addressable market in 1998
for its current target market application of tracking military combat equipment
is approximately 130,000 subscriber units.
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ORBCOMM believes that use of Little LEO systems such as the ORBCOMM system will
provide government users with cost-effective solutions, low probability of
interception and detection and worldwide availability. ORBCOMM expects to
compete to provide Little LEO service to the U.S. government, including in
connection with certain programs that have already been announced by the U.S.
government. The U.S. Department of Defense ("DoD") is developing the Global
Transportation Network ("GTN") to track personnel, aircraft and weapon systems
anywhere in the world. Effective military logistics requires location
identification and the ability to communicate tasking instructions. Asset
tracking is required at all locations from rear depots to front-line combat
elements, with integrated communications providing the essential link. The GTN
is a $418 million program that is being developed because no global system
currently exists to satisfy the requirements for tracking the status of assets.
The U.S. military has been relying on manual record keeping to track assets and
this process has recently been supplemented by distributed database systems
communicating over DoD-owned and/or -leased lines. Asset tracking is currently
performed at the endpoints of the distribution chain. For this reason, a
misdirected shipment can only be relocated by tracing forward from its most
recent known location, and this can take weeks to accomplish. ORBCOMM believes
its services will provide tracking data on demand or on a scheduled basis for
use by the government for the location of personnel and military equipment.
Arinc, one of ORBCOMM's VARs, was awarded a Task Order by the U.S. Army to
develop, test and field a demonstration of a prototype Movement Tracking System.
This system, which uses the ORBCOMM system with Panasonic and Stellar subscriber
units, is to be demonstrated on several of the U.S. Army's palletized load
system vehicles over a 30-day period beginning in the spring of 1998 at the U.S.
Army's test center in Aberdeen, Maryland.
MESSAGING
ORBCOMM estimates that the addressable market in 1998 for messaging
services is approximately 39 million subscriber units (excluding many government
customers). The messaging market segment includes a broad range of consumer,
commercial and government customers. ORBCOMM expects that the ORBCOMM system
will complement existing and planned wireline and terrestrial-based wireless
communications systems by providing coverage in geographic areas where such
services are not offered or by enhancing data applications currently being
offered by such systems. Internationally, ORBCOMM believes that it will be able
to offer services in developing countries or remote regions where basic
telephone service or data and messaging communications services are not
available. With coverage of virtually all of the Earth's surface when fully
operational, ORBCOMM believes that it will be able to efficiently and
cost-effectively offer messaging services in these geographic areas through the
ORBCOMM system.
Consumer. ORBCOMM estimates that the addressable market in 1998 for
messaging applications for consumers is approximately 35 million subscriber
units worldwide. This segment includes: (i) consumers who frequently engage in
"back-country" activities (e.g., hunting, hiking, camping, and backpacking); and
(ii) boating enthusiasts who travel a considerable distance outside the range of
wireline and terrestrial-based wireless communications systems and whose boats
are generally over 26 feet in length and have overnight accommodations suitable
for extended travel. Recreational boaters typically use VHF radio and/or
cellular telephone where terrestrial-based wireless communications systems are
available. Some individuals rely on high-frequency radio and a very small number
employ Inmarsat services. However, due to the significant limitations of these
alternatives in terms of geographic coverage or expense, there are few viable
communications alternatives currently available to back-country or boating
enthusiasts. The primary market requirements of these customers are based on a
concern for safety and the desire for a reliable, cost-effective, lightweight,
personally portable unit. ORBCOMM believes that its proposed messaging services
and hand-held subscriber units will enable it to meet these market requirements.
Commercial. ORBCOMM estimates that the addressable market in 1998 for
messaging applications for remote workers is approximately 3.7 million
subscriber units worldwide. This segment includes mobile and remote workers who
frequently use terrestrial-based wireless communications in their jobs but
require the extension of coverage that ORBCOMM believes it will be able to
provide. These workers spend a significant portion of their time away from an
office and require ubiquitous messaging while in remote areas as well as
reliable, cost-effective, lightweight and personally portable units. The
industries typically populated by these
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workers include mining, construction, energy, forestry and utilities. ORBCOMM
believes that it can provide these workers with messaging services through
hand-held subscriber units and laptop-compatible modems.
Government. ORBCOMM estimates that the addressable market in 1998 for
military personnel engaged in direct combat roles is approximately 460,000
subscriber units worldwide. ORBCOMM believes that subscriber units will be able
to be used to send command and control messages between military personnel. The
Defense Messaging System ("DMS") is a $1.5 billion project with an annual
operating budget of $45 million designed to provide messaging for the DoD, NATO
and certain civilian agencies. ORBCOMM believes that Little LEO systems would
complement existing and other planned communications services. Today, numerous
independent email systems, including the Autodin system, provide messaging
services throughout the military. Autodin messages are sent between fixed
terminals located throughout the world. ORBCOMM believes that in the DMS
implementation, when the ORBCOMM system is fully operational, it could offer
users the ability to send and receive messages regardless of location.
FUTURE APPLICATIONS
In addition to the current primary target market segments described above
for data and messaging communications services, ORBCOMM believes that with the
commercial operation of its satellite constellation, the ORBCOMM system's
combination of capabilities may stimulate demand in other potential markets.
Automotive. ORBCOMM believes that the global remote coverage expected to
be provided by the ORBCOMM system will address private car owners' safety and
security concerns and could complement services such as General Motors'
OnStar(R) and Ford's RESCU(R), each of which relies on the limited coverage of
terrestrial-based wireless communications systems. ORBCOMM also believes that
certain vehicles operating in fleets in and out of remote areas in dispatch mode
have similar safety and security concerns and would also value the ORBCOMM
system's ubiquitous coverage. This segment also includes taxis and special
vehicles such as emergency-response vehicles, regional police, buses, tow
trucks, snowplows and road maintenance vehicles. ORBCOMM estimates that the
addressable market in 1998 for the automotive market segment is approximately
6.5 million subscriber units, comprising 3.7 million luxury cars, 2.2 million
taxis and 630,000 special vehicles.
Home Security Systems. ORBCOMM estimates that the addressable market in
1998 for home security systems is approximately 46 million subscriber units. In
addition to security system monitoring, home security units could be used to
remotely turn on or off alarms, lights or home appliances. Home security systems
have historically relied on telephone lines for communication with central
offices but such lines can be intentionally disabled. Wireless systems are now
being adopted to eliminate this problem and ensure service quality. The ORBCOMM
system is designed to support messaging to and from central security offices, as
well as emergency communications with ambulances, police and other public safety
personnel. ORBCOMM could supplement terrestrial-based wireless systems by
providing communications with home security systems in remote areas. While
ORBCOMM's current business plan does not include sales to the home security
system market, ORBCOMM continues to assess this market and anticipates that it
may in the future commence marketing and sales efforts in this area.
U.S. Government. ORBCOMM believes that there are additional DoD programs
that may use the services of Little LEO systems. These programs include: the
Commercial Satellite Communications Initiative, budgeted for $1.6 billion; the
Global Command and Control System, budgeted for $500 million; the Combat Search
and Rescue program to locate downed pilots, budgeted for $220 million; the Air
Mobility Command and Control Information Processing System, budgeted for $210
million; the Mobile Satellite Service program, budgeted for $87 million; and the
Joint Surveillance System, budgeted for $85 million. There are also a number of
civil government applications suitable for Little LEO systems. The Post-FTS 2000
is a program to provide long distance domestic and international wireless
Internet access, data and email to U.S. government civilian agencies. It is a
ten-year contract providing an estimated $300 to $400 million in revenues to
service providers. The existing Post-FTS 2000 provides domestic long distance
calling service to the federal government only. The new contract for service
includes wireless, mobile and international services.
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The U.S. Departments of State, Justice and Transportation are also developing
wireless email and messaging programs.
Foreign Governments. Use of Little LEO systems such as the ORBCOMM system
is expected to provide foreign governments with cost-effective applications, low
probability of interception and detection and worldwide availability. Potential
defense applications include: (i) transmission of Global Positioning System
("GPS")-determined position data for maneuvering units and recovering downed
pilots; (ii) transmission of data for air defense, fire support and asset
tracking; and (iii) tactical messaging. Potential civil government applications
include wide-area secure communications, monitoring and control of natural
resources and search and rescue functions.
RISK MITIGATION STRATEGY
System Design. ORBCOMM believes that the design of the ORBCOMM system
reduces ORBCOMM's exposure to cost overruns associated with the production and
launch of the ORBCOMM satellites due to launch or in-orbit failure. The
principal elements that contribute to this reduced exposure profile include the:
(i) integration of proven technologies into the ORBCOMM system; (ii) procurement
on a firm fixed-price basis of nearly all of the components of the ORBCOMM
system (other than certain communications software) from a single contractor
(Orbital) that is generally responsible for end-to-end satellite performance and
integration; (iii) use of launch vehicles that provide ORBCOMM with flexible
launch schedules; and (iv) conduct of early development and prototyping.
ORBCOMM's distributed constellation architecture, consisting of numerous
satellites in low-Earth orbit, is designed not only to provide global coverage
but also to reduce potential risks associated with the loss or outage of one or
more satellites. See "Risk Factors -- Technology Risks -- Schedule Delays; Cost
Increases" and "Risk Factors -- Technology Risks -- Limited Insurance."
Operations. The two ORBCOMM satellites launched in April 1995 have
provided ORBCOMM with significant information regarding actual satellite
performance in a space environment. As a result of the analysis of this
information, as well as information obtained prior to their launch, ORBCOMM, in
conjunction with Orbital, undertook a redesign of certain system elements of the
satellites. These design changes were incorporated in the ten satellites
launched since December 1997, as well as the remaining satellites being
constructed under the Procurement Agreement. The ORBCOMM satellites will
continue to provide ORBCOMM with valuable information regarding satellite
performance. Such information can be used by ORBCOMM and Orbital in the design
of future satellites to be procured under the Procurement Agreement or any
similar agreements that could be negotiated between Orbital and ORBCOMM in the
future. In addition, the ORBCOMM system is designed to operate satisfactorily in
the event ORBCOMM experiences a launch or in-orbit failure of several of its
satellites. In addition, the satellites, which are able to commercially operate
at a power of 150 watts, are designed to actually produce up to 250 watts of
power.
The ORBCOMM system has been granted FCC approval to use radio frequencies
in the United States in the 148.0-149.9 MHz band and the 137.0-138.0 MHz and
400.075-400.125 MHz bands for its uplink and downlink feeds, respectively. The
VHF frequencies are located just above those used for FM radio broadcasts and
just below those used for VHF marine push-to-talk radios. ORBCOMM believes that
the substantial technology and manufacturing base that already exists for a wide
variety of communications devices that operate near the frequency ranges used by
the ORBCOMM system facilitates the development of relatively inexpensive
subscriber units for the ORBCOMM system. See "Regulation."
System Maintenance. ORBCOMM has adopted a risk management policy
associated with the maintenance of the ORBCOMM system that provides for the
planned negotiation of a fixed price amendment to the Procurement Agreement for
the procurement of up to eight replacement satellites in 2000-2001. Obtaining
replacement satellites is expected to enable ORBCOMM to launch satellites more
quickly following an in-orbit or launch failure as soon as a launch vehicle is
available and to replenish in-orbit satellites as necessary, thereby prolonging
the life of the first generation ORBCOMM constellation. See "Risk Factors --
Technology Risks -- Schedule Delays; Cost Increases" and "Risk
Factors -- Technology Risks -- Limited Insurance."
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Insurance. ORBCOMM's insurance strategy implements a risk management plan
for the protection of the ORBCOMM system. To protect against launch costs that
may be incurred as a result of a launch vehicle failure, ORBCOMM has obtained
launch insurance for each of the next two planned Pegasus satellite launches.
The Second Pegasus Launch is insured only as to the replacement value of the
launch vehicle in the event of a launch vehicle failure. Unless there is a loss
of three or more satellites in the plane of eight satellites launched in
December 1997, the Second Pegasus Launch will not be insured as to the satellite
payload of eight satellites. The Third Pegasus Launch is insured as to the
replacement of the launch vehicle in the event of a launch vehicle failure. The
Third Pegasus Launch is also insured as to the satellite payload of eight
satellites, but only if the Second Pegasus Launch fails, causing the loss of
three or more satellites or if there is a loss of three or more satellites in
either of the planes of eight satellites that were launched prior to the Third
Pegasus Launch. With respect to the Fourth Pegasus Launch, in the event that
either the Second Pegasus Launch or the Third Pegasus Launch fails, resulting in
the loss of three or more satellites, or if there is a loss of three or more
satellites in any of the planes of eight satellites that were launched prior to
the Fourth Pegasus Launch, ORBCOMM has insurance that would cover the cost of
obtaining a replacement launch vehicle and eight replacement satellites. In the
event that neither the Second Pegasus Launch nor the Third Pegasus Launch fails,
resulting in the loss of three or more satellites, ORBCOMM does not currently
have insurance that would cover the costs of obtaining a replacement launch
vehicle or eight replacement satellites; however, ORBCOMM expects to obtain
insurance for such circumstance prior to such launch assuming such insurance is
available on commercially reasonable terms.
ORBCOMM has no insurance against in-orbit satellite failure for the two
satellites that were launched in April 1995 or for the two satellites launched
in February 1998 on a Taurus launch vehicle. ORBCOMM has procured satellite
insurance against the in-orbit failure of satellites in each of the first three
planes of eight satellites it has launched or will launch using the Pegasus
launch vehicle (including the plane of eight satellites launched in December
1997). This in-orbit insurance covers all eight satellites in a single plane for
a period of five years after the successful placement in orbit of such plane,
but only in the event that three or more in-orbit satellites in such plane fail
after their successful placement in orbit, and only if three or more satellites
originally intended as ground spares have been used to replace satellites lost
in an unsuccessful launch or as a result of in-orbit failure. Furthermore,
ORBCOMM plans to procure in-orbit insurance for each plane of eight satellites
for the three years following the initial five years of service of each such
plane if such insurance is available on commercially reasonable terms. See "Risk
Factors -- Technology Risks -- Limited Insurance."
As is typically the case with satellite insurance policies, in the event
there is a covered loss under ORBCOMM's insurance policy for the ORBCOMM
constellation, prior to the occurrence of the next event that would be subject
to such policy, ORBCOMM will be required to satisfy the insurance underwriters
that it has addressed the technological and/or other issues associated with the
covered loss.
SYSTEM ARCHITECTURE
The ORBCOMM system comprises three operational segments: (i) a space
segment consisting of a constellation of 36 LEO satellites; (ii) a ground and
control segment consisting of the Network Control Center that serves as the
global control for the satellites and Gateways, the major elements of which
include Gateway Earth Stations that send signals to and receive signals from the
satellites, and a message switching system that processes the message traffic;
and (iii) a subscriber segment consisting of subscriber units used by customers
to transmit and receive messages to and from satellites.
Overview. To use the ORBCOMM system, an initial message or other data is
generated by a subscriber unit. From that source, the data is transmitted to the
nearest ORBCOMM satellite, which confirms receipt to the unit. The satellite
downlinks the data to the Gateway Earth Station portion of a Gateway, which then
transmits the data to the associated Gateway Control Center. Within the Gateway
Control Center, the data is processed using a combination of ORBCOMM-developed
and commercial email software, and transmitted to its ultimate destination which
may be to another subscriber unit or to a personal or business address using
public/private X.25 data networks, the Internet, text-to-fax conversion or
modems connected to a telephone network. If desired, an acknowledgment message
is returned to the sender. To mitigate design and
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implementation risks and to control costs, the ORBCOMM system architecture,
where possible, makes use of existing, mature technologies and conforms to
internationally accepted standards. The ORBCOMM system network architecture
comprises a multi-nodal packet network using X.400 messaging and Time Division
Multiple Access ("TDMA") as the enabling technologies.
The three operational segments of the ORBCOMM system are shown below:
[GRAPHIC ILLUSTRATING CERTAIN COMPONENTS OF THE ORBCOMM SYSTEM, INCLUDING TWO
SATELLITES, TWO GATEWAY EARTH STATIONS, THE NETWORK/SATELLITE CONTROL CENTER,
SEVERAL CUSTOMERS AND SEVERAL PIECES OF EQUIPMENT, EACH OF WHICH IS SUPERIMPOSED
ON A CROSS-SECTION OF THE EARTH, WITH ARROWS CONNECTING THE VARIOUS COMPONENTS
OF THE ORBCOMM SYSTEM, INDICATING THE PATH OF A MESSAGE THROUGH THE ORBCOMM
SYSTEM.]
Space Segment. The enhanced space segment will consist of a constellation
of 36 LEO satellites comprising: (i) four planes of eight satellites; and (ii)
two planes of two satellites each in highly inclined orbits between
approximately 740 and 825 kilometers above the Earth. Currently, two planes of
two satellites and one plane of eight satellites have been launched. The
satellites are produced by Orbital and generally have been or will be launched
in groups of eight using Orbital's Pegasus launch vehicle. One plane of two
satellites was placed in a high-inclination orbit using a Pegasus launch vehicle
and the other plane of two high-inclination satellites was launched using a
Taurus launch vehicle, in both cases sharing the launch vehicles with other
non-ORBCOMM satellites.
The most significant characteristics of the satellites that comprise the
space segment of the ORBCOMM system, including their design specifications,
coverage and design life, as well as licensing and launch information for the
satellites, are summarized in the following table.
NUMBER OF LAUNCH
SATELLITES(1) PLANE LAUNCH DATE VEHICLE DESIGN LIFE
------------- ----- --------------------- ------- -----------
FM 1-2-launched(2) 70
2 degrees April 1995 Pegasus 4 Years
FM 3-4-launched 108
2 degrees February 1998 Taurus 8 Years
FM 5-12-launched 45
8 degrees December 1997 Pegasus 8 Years
FM 13-20-licensed 45
8 degrees Mid-1998(3) Pegasus 8 Years
FM 21-28-licensed 45
8 degrees Mid-1998(3) Pegasus 8 Years
FM 29-36-licensed(4) 0
8 degrees Third Quarter 1999(3) Pegasus 8 Years
- ------------------------------
(1) Each of the satellites that comprise the ORBCOMM system is an Orbital
MicroStar(TM) satellite, weighing approximately 90 pounds (approximately 104
pounds in the case of the two satellites launched in April 1995) and
measuring approximately 41 inches in diameter, 6.5 inches in height, 170
inches in deployed length and 88 inches in deployed width at solar arrays.
(2) One of these satellites is experiencing an outage. See "Risk
Factors -- Technology Risks -- Design and Operation Risks."
(3) Each of the future launch dates identified represents the currently targeted
launch date.
(4) Pending FCC approval of its request to change the orbital plane of these
satellites.
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Orbital and ORBCOMM intend to incorporate information gathered from
operational satellites to improve, where possible, the performance of the
remaining satellites.
The satellites are equipped with a VHF communications infrastructure
capable of operation in the 137.0-150.05 MHz and the 400.075-400.125 MHz bands.
The use of the spectrum is managed by an on-board computer that employs an
ORBCOMM-developed Dynamic Channel Activity Assignment System (the "DCAAS"). The
DCAAS continuously scans the authorized spectrum, identifies frequencies in use
and assigns channels to minimize the possibility of interference. The DCAAS is
expected to change the frequency of the uplink random access channels every five
seconds. The ORBCOMM satellites can also transmit a UHF beacon that provides
subscriber unit manufacturers with the ability to supply enhanced,
cost-effective, Doppler positioning.
Since late December 1997, ORBCOMM has launched ten satellites. ORBCOMM has
begun to place these satellites in commercial service, with the first satellite
placed in service in mid-April 1998. Certain of these satellites experienced an
anomaly in their solar power system resulting in reduced power margins. ORBCOMM
expects that the power for these satellites will be sufficient to meet planned
service and lifetime requirements. In addition, two satellites have experienced
an anomaly in their subscriber transmitters that currently results in the
inability of such satellites to transmit data to subscriber units. Orbital and
ORBCOMM are developing software that is intended to bypass the anomaly so that
such satellites can perform substantially all of their functions, although, even
if successful, the coverage footprint of the affected satellites will be
reduced. Orbital and ORBCOMM are also taking similar action, with a similar
effect, to reduce the likelihood that such an anomaly will occur with respect to
the other in-orbit satellites launched since December 1997. Orbital and ORBCOMM
believe they have identified the reason for both of these anomalies and that
they are being addressed on future satellites. With respect to its initial two
satellites launched in April 1995, ORBCOMM has experienced certain technical
difficulties including outages of certain electronic systems and subsystems,
resulting in the inability during such outages to process customer
communications. Currently, one of the initial two satellites launched in April
1995 is experiencing such an outage.
There can be no assurance that Orbital and ORBCOMM will be successful in
resolving these anomalies or outages or that similar anomalies or outages will
not occur on any of the ORBCOMM satellites. The inability to resolve or prevent
such anomalies or outages could have a material adverse effect on ORBCOMM's
ability to provide service, financial condition and results of operations.
ORBCOMM has an option to procure a second generation of substantially
similar satellites from Orbital that would replace the system it is now
deploying at the end of the current system's expected life. The option, priced
at $166.1 million (subject to adjustment for inflation and excluding taxes, if
any, and the cost of launch and satellite insurance) can be exercised by ORBCOMM
at any time prior to December 31, 1999. However, such option would only be
exercised by ORBCOMM at the specified price if the satellites for the second
generation will be substantially similar to those of the current system.
The Procurement Agreement requires Orbital to demonstrate compliance with
the detailed technical satellite performance requirements defined in the ORBCOMM
system specifications, which specifications describe the end-to-end satellite
performance. Except for the communications software, which is the responsibility
of ORBCOMM, Orbital is responsible for the performance of the satellites and the
U.S. Ground Segment, including the satellite management functionality of the
Network Control Center. Orbital must comply with a verification and test plan,
which defines the detailed verification tests and acceptance criteria for each
of the ORBCOMM system elements.
The Procurement Agreement with Orbital currently provides for the launch of
34 satellites, of which ten satellites have been launched since December 1997.
Orbital's Pegasus vehicle is launched from beneath a modified Lockheed L-1011
owned by Orbital and is capable of deploying satellites weighing up to 1,000
pounds into LEO. To date, Orbital has conducted 21 Pegasus missions, with
approximately a 90% success rate.
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Gateway Earth Stations and the subscriber units comprising the ORBCOMM
system communicate with the satellites in the same band, thus eliminating the
design complexity, as well as the associated mass, power and cost of supporting
multiple radio payloads on a single satellite. The satellite also contains an
intelligent packet-routing capability, including a limited store-and-forward
capability.
Ground and Control Segment. The ground and control segment consists of
Gateways strategically located throughout the world and the facilities to
monitor and manage all network elements to ensure continuous, consistent
operations in the provision of quality service. The role of the Gateway is to
provide access to the space segment and interface to public and private data
networks. The major elements of a Gateway include:
- Gateway Earth Stations, each of which is composed of two radomes, with
enclosed VHF tracking antennae, one of which is redundant, and associated
pedestal, controller and radio equipment;
- a Gateway message switching system located within each Gateway Control
Center, which processes the message traffic and provides the
interconnection to the terrestrial networks; and
- a Gateway management system located within each Gateway Control Center,
which manages the Gateway elements.
To provide services using the ORBCOMM system in a particular region, an
appropriately located Gateway is required. Gateways cover a circular area with a
radius of approximately 3,300 miles. All elements of the U.S. Gateway are
operational, including four Gateway Earth Stations located in New York, Arizona,
Georgia and Washington and a Gateway Control Center located in Virginia. The
U.S. Gateway will be used to serve the United States, Canada and Mexico. In
March 1998, a Gateway, including one Gateway Earth Station, located in Italy
successfully completed acceptance testing. A Gateway Earth Station has been
constructed in each of South Korea and Japan, with each of the associated
Gateway Control Centers expected to be installed by mid-1998. ORBCOMM expects
that many International Licensees will enter into agreements to share Gateways.
The procurement of each of the existing Gateways located outside the United
States was funded by the relevant International Licensee. ORBCOMM has entered
into and will continue to enter into agreements with International Licensees for
the construction of additional Gateways outside the United States. The cost and
implementation of future Gateways is expected to be borne by existing and future
International Licensees.
Each Gateway Earth Station comprises two radomes and enclosed antennae,
each of which weighs approximately 3,300 pounds and is approximately 28 feet in
diameter. The total height of the structure, measured from the top of the radome
to the foot of the base, is approximately 33 feet. Each Gateway Earth Station is
unmanned, and contains a freestanding shelter and an optional fuel tank and
power generator. The Gateway satellite links have been designed to make use of
single uplink and downlink channels for all ORBCOMM satellites by using a TDMA
protocol. This protocol will permit several Gateways to communicate
simultaneously with a single satellite. The TDMA protocol has several
advantages, including the ability to provide a virtually seamless handover of a
satellite from Gateway Earth Station to Gateway Earth Station under the
centralized control of the Gateway Control Center.
The control segment of the ORBCOMM system is housed at the Network Control
Center. The control segment, includes a network management system, which
monitors the status of all network elements and a space vehicle management
system. Currently, there is no back-up Network Control Center, although the
existing Network Control Center is equipped with back-up hardware, and
associated software is backed up and stored off-site. In addition, the Network
Control Center is equipped with an automatic emergency generator to provide a
backup for normal building power. Requirements have been developed for a back-up
Network Control Center to be constructed in 1999. Through the U.S. Gateway,
managed from the Network Control Center, ORBCOMM has access to the space segment
for command and control purposes, although, consistent with the rules and
regulations of the FCC, OCC maintains ultimate control over the ORBCOMM system.
Subscriber Segment. The subscriber segment consists of various models of
subscriber units, some of which are intended for general use, and some of which
are designed to support specific applications, although
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even in the case of the general use subscriber units, the configuration of these
units may make them more or less suitable for certain applications. The
subscriber unit models will include: (i) externally powered subscriber units for
fixed applications such as pipeline monitoring, remote device control or
environmental monitoring; (ii) self-contained, battery- and/or solar-powered
subscriber units that would support applications where commercial or other
external power is not available, including messaging applications; and (iii)
vehicular-powered subscriber units that could be used in asset tracking, cargo
monitoring or vehicular operation monitoring.
To ensure the availability of subscriber units having different functional
capabilities in sufficient quantities to meet demand, ORBCOMM has provided
extensive design specifications and technical and engineering support to various
subscriber unit manufacturers. ORBCOMM has also entered into agreements with six
subscriber unit manufacturers. ORBCOMM has type approved ten subscriber unit
models for commercial use with the ORBCOMM system. Four subscriber unit
manufacturers have commenced production of subscriber units that can be used for
electric utility meter, oil and gas storage tank, well and pipeline and
environmental monitoring and commercial truck, trailer, container, rail car,
heavy equipment, fishing vessel and government asset tracking applications.
Hand-held messaging subscriber units are expected to be commercially available
from Magellan in mid-1998 and thereafter from one or more other manufacturers.
ORBCOMM recently committed to buy $6.2 million of subscriber units from certain
manufacturers to accelerate initial customer sales by VARs and International
Licensees. In addition, ORBCOMM recently agreed to pay Magellan a subsidy for
each Magellan subscriber unit sold through March 1999, up to an aggregate of
$2.4 million.
The subscriber units targeted for industrial or telemetric applications are
designed to interface with sensors or control devices through an
industry-standard serial interface using a proprietary communications protocol,
developed to take advantage of the packet nature of the ORBCOMM system. The
subscriber units targeted for the messaging market will incorporate interfaces
such as integrated keyboards or touch-sensitive screens. Additionally, while the
ORBCOMM satellites are designed to support Doppler position determination in the
subscriber units, certain subscriber unit models are also equipped with GPS
receivers, permitting more rapid and more accurate location determination.
COMPETITION
Competition in the communications industry is intense, fueled by rapid and
continuous technological advances and alliances between industry participants
seeking to use such advances on an international scale to capture significant
market share. At this time, the ORBCOMM system is the only commercially
operational Little LEO system.
ORBCOMM commenced limited commercial service in the United States on
February 1, 1996. ORBCOMM believes that commencement of commercial service
provides it with a substantial head-start in developing markets, distribution
systems, subscriber products and applications and a customer base globally.
ORBCOMM expects that potential competitors will include other Little LEO systems
that have been licensed by the FCC, certain GEO-based systems, certain
terrestrial-based data communications systems and various Big LEO and MEO
systems.
Other Little LEO Systems. In addition to OCC, four other entities have
been licensed by the FCC to provide Little LEO satellite services in the United
States. Leo One has been licensed for a 48-satellite system, which is expected
to provide a variety of commercial Little LEO services. Final Analysis has been
licensed for a 26-satellite system, which is expected to provide a variety of
Little LEO services, E-SAT has been licensed for a six-satellite system, which
is expected to provide remote meter reading services. VITA has been licensed for
two satellites to transmit health, research and scientific data on a delayed
basis between developing countries and the United States. See "Regulation --
U.S. FCC Regulation."
Based on published reports, ORBCOMM does not believe that any of the other
Little LEO constellations that were recently licensed in the second licensing
round by the FCC will have systems fully operational until after the year 2000.
ORBCOMM believes that it holds a substantial advantage over these potential
competitors by having already designed, constructed and launched a fully
functional system, by executing
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service license or similar agreements with International Licensees covering over
95 countries outside the United States and by achieving, in large part,
international coordination of its designated frequencies through the ITU. Over
the course of the next several years, ORBCOMM is expected to obtain further
advantages over these potential competitors by establishing certain standards in
the industry, developing operational expertise, launching the remaining
satellites in the ORBCOMM system, signing agreements with additional subscriber
unit manufacturers, signing reseller agreements, service license and similar
agreements with additional marketing entities and expanding its marketing
activities generally as the ORBCOMM system matures.
Plans for other Little LEO systems have been announced in Australia,
Belgium, Brazil, Canada, France, Mexico, Russia, South Korea, Tonga and Uganda,
although ORBCOMM believes that, without additional allocations of spectrum in
the United States, these systems will be unable to offer services in the United
States. The ORBCOMM system is protected from harmful interference from other
systems on a global basis, with the sole exception of the French candidate
system, which, as a result of its prior notification to the ITU may not be
interfered with by the ORBCOMM system anywhere in the world.
GEO Systems. In addition, ORBCOMM believes that it competes or will
compete in certain of its market segments with existing operators and users of
certain GEO-based systems such as AMSC, Qualcomm, GE LogistiCom and companies
providing services using the Inmarsat system. AMSC offers SKYCELL mobile data
services, both satellite only and "dual-mode," i.e., satellite and terrestrial,
through the public data network that can reach both densely populated urban
areas and sparsely populated rural areas. AMSC has recently announced that it is
acquiring Motorola's ARDIS two-way terrestrial-based wireless messaging network,
which will complement AMSC's existing satellite-based voice and data
communications services by allowing AMSC to offer a hybrid solution that will
have the ability, among other things, to serve urban areas and to penetrate
buildings, which AMSC's satellite-based system is currently unable to do
effectively or at all. Qualcomm designs, manufactures, distributes and operates
the OmniTRACS Communications System, a satellite-based, two-way mobile
communications and tracking system that provides messaging, position reporting
and other services for transportation companies and other mobile and fixed site
customers using certain GEO satellites. GE LogistiCom has announced plans to
offer a trailer tracking application in North America using capacity on the AMSC
satellite system. In addition, various companies using the Inmarsat system are
providing fishing vessel and other marine tracking applications. ORBCOMM
believes that the ORBCOMM system has certain advantages over these other systems
including worldwide coverage, lower equipment costs in most cases and
substantially reduced line-of-sight limitations.
Terrestrial-Based Data Communications Systems. While the ORBCOMM system is
not intended to compete in general with existing and planned terrestrial-based
data communications systems, in certain of its market segments ORBCOMM believes
it competes or may compete with certain of these systems including the systems
operated by HighwayMaster, ARDIS, BellSouth Mobile Data Systems (formerly RAM
Mobile Data) and Mtel. The architecture of these systems may provide certain
advantages relative to the ORBCOMM system, including in-building penetration.
HighwayMaster operates a wireless enhanced services network providing integrated
mobile voice, data, tracking and fleet management information services to
trucking fleets and other operators in the long-haul segment of the
transportation industry. The terrestrial-based wireless systems operated by
ARDIS and BellSouth Mobile Data Systems are capable of providing geographically
limited data communications services to a variety of end users. Mtel, through
its wholly owned subsidiary, SkyTel Corp. ("SkyTel"), provides messaging
services in cities in the United States. Mtel is using its messaging network to
provide fixed location services, specifically utility meter reading in urban
areas. Because of the inherent coverage limitations of a terrestrial-based data
communications systems, ORBCOMM believes that the ORBCOMM system will also
complement these systems, which provide cost-effective services primarily in
metropolitan areas where subscriber densities justify construction of radio
towers. Such systems generally do not have sufficient coverage outside
metropolitan areas, making them less attractive to certain market segments.
ORBCOMM believes that the ORBCOMM system presents an attractive complement to
terrestrial-based data communications systems because it can provide geographic
gap-filler service at affordable costs without the need for additional
infrastructure investment. The ORBCOMM system's ability to serve as a geographic
gap-filler may be reduced, however, as terrestrial-based communications systems
expand their coverage.
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Big LEO and MEO Systems. The Big LEO and MEO systems are designed primarily
to provide two-way voice services that require larger, more complex satellites
than the ORBCOMM satellites and larger constellations to provide global
coverage. As a result, the cost of the Big LEO and MEO systems is significantly
greater than those of the ORBCOMM system. However, the marginal cost on a
per-message basis of providing services similar to those expected to be offered
by ORBCOMM could be relatively low for a Big LEO or MEO system that is unable to
sell most of its capacity for voice or high-volume data services. Based on
publicly available information, Iridium LLC ("Iridium") anticipates an initial
service date in September 1998 for a proposed 66-satellite constellation to
provide voice and other communications services with usage charges of
approximately $3.00 per minute plus "tail charges" (land-line extension
charges). The total system cost is expected to be approximately $3.7 billion.
The Globalstar, L.P. ("Globalstar") system is expected to cost approximately
$2.2 billion and consists of a constellation of 48 satellites, with wholesale
usage charges of approximately $0.35 to $0.55 per minute. The initial service
date for the Globalstar system is anticipated to be in early 1999. Another
satellite system designed primarily to provide voice communications is the ICO
Global Communications System. The ICO system is expected to cost $4.5 billion
and consists of a constellation of MEO satellites. The ICO system is scheduled
to commence full commercial service in the year 2000.
ORBCOMM may also face competition in the future from companies using new
technologies and new satellite systems. ORBCOMM's business could be adversely
affected if competitors begin operations or existing or new communications
service providers penetrate ORBCOMM's target markets. A number of these new
technologies, even if they are not ultimately successful, could have an adverse
effect on ORBCOMM's financial condition and results of operations.
EMPLOYEES
As of March 31, 1998, ORBCOMM had 280 full-time employees, none of whom is
subject to any collective bargaining agreement. The Company has no full-time
employees. ORBCOMM's management considers its relations with employees to be
good.
PROPERTIES
ORBCOMM currently leases approximately 37,000 square feet of office space
in Herndon, Virginia, as well as approximately 25,000 square feet of office
space in Dulles, Virginia from Orbital. ORBCOMM also leases approximately 28,000
square feet of additional space at various sites in Virginia and Maryland for,
among other purposes, self-storage, space to assemble certain portions of the
Gateway and for use by employees and a contractor. ORBCOMM currently operates
four Gateway Earth Stations. ORBCOMM owns the properties on which the St. Johns,
Arizona and Arcade, New York Gateway Earth Stations are located and leases,
subject to long-term lease agreements, the properties on which the Ocilla,
Georgia and East Wenatchee, Washington Gateway Earth Stations are located.
LEGAL PROCEEDINGS
Neither ORBCOMM nor the Company is a party to any pending legal proceedings
material to their financial condition or results of operations. For a discussion
of regulatory issues affecting ORBCOMM, see "Regulation."
REGULATION
U.S. FCC REGULATION
Regulation of NVNG Systems. All commercial non-voice, non-geosynchronous
("NVNG") satellite systems, or Little LEO systems such as the ORBCOMM system, in
the United States are subject to the regulatory authority of the FCC, which is
the U.S. government agency with jurisdiction over commercial uses of the radio
spectrum. Little LEO operators must obtain authorization from the FCC to launch
and operate their satellites to provide services in assigned spectrum segments.
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In January 1993, the FCC allocated spectrum segments for NVNG MSS and
issued a Notice of Proposed Rulemaking to govern the NVNG application process.
In October 1993, the FCC formally adopted its licensing and service rules for
NVNG systems (the "NVNG Order"). The NVNG Order imposes duty limits on
subscriber units operating in the band 148.0-149.9 MHz. Subscriber units are
limited to transmitting no more than one percent of the time during any
15-minute period and no transmission may exceed 450 milliseconds. ORBCOMM
believes that its services can be provided within these limitations.
First Processing Round. On February 28, 1990, OCC filed an application
with the FCC for a Little LEO system. See "-- International Regulation -- ITU
Spectrum Allocations." Starsys Global Positioning, Inc. ("Starsys") filed a
Little LEO system application with the FCC several months later, whereupon the
FCC established a cut-off date for the filing of applications to be considered
concurrently with these proposals. A third applicant, Volunteers in Technical
Assistance ("VITA"), also filed a Little LEO system application in this initial
processing round.
Original FCC License. On October 20, 1994, the FCC granted OCC the
Original FCC License to construct, launch and operate 36 satellites, in four
inclined and two near-polar orbital planes, for the purpose of providing two-way
data and messaging communications and position determination services. In 1995,
the FCC granted OCC licenses to operate four Gateway Earth Stations and to
deploy up to 200,000 subscriber units in the continental United States.
The frequency bands in which the ORBCOMM system is authorized to operate
are as follows:
Uplink: 148.0-149.9 MHz
Downlink: 137.0-138.0 MHz and 400.075- 400.125 MHz
The Original FCC License authorizes OCC to offer service as a private
carrier and extends ten years from the operational date of the first ORBCOMM
satellite, FM1, which was April 3, 1995. The milestone requirements of the
Original FCC License mandate that OCC launch its first two satellites by
December 1998 and its remaining 34 authorized satellites by December 2000. OCC
has already met the first milestone with the launch of its first two satellites,
FM1 and FM2, in April 1995, and the launch of ten additional satellites in 1997.
OCC has set an aggressive launch schedule for the remaining 24 authorized
satellites that, if successful, will result in OCC reaching the second milestone
by the third quarter of 1999. In addition, OCC is required to apply for a
license renewal three years prior to the expiration of the Original FCC License.
While, based on past experience, OCC believes that the FCC generally grants
license renewals to existing licensees where the licensee has satisfied the
requirements of the license, there can be no assurance that the Original FCC
License would be renewed should OCC apply. See "Risk Factors -- Regulatory
Risks -- Domestic Licensing Risks."
Under the terms of a coordination agreement between Starsys and OCC, which
was incorporated into the terms of the Original FCC License, OCC is required to
shut down its left-hand circular polarization ("LHCP") satellite-tosubscriber
downlink channels under certain circumstances when operation of such channels
would interfere with the Starsys system. To further lessen the possibility of
co-polarization interference, OCC also agreed to modify its frequency plan to
locate its LHCP channels in the lower portion of the 137.0-138.0 MHz band. The
FCC imposed these restrictions on OCC's domestic operations and reserved the
right to consider extending these restrictions to OCC's international operations
if notified of actual sharing difficulties between the ORBCOMM system and
Starsys. The Original FCC License also provides that the ORBCOMM system is
permitted to operate throughout the 148.0-149.9 MHz band only until such time as
Starsys is prepared to launch its first satellite. Once Starsys so notifies the
FCC, or earlier if required by the FCC, OCC agreed to limit its operations to
the upper half of this band, permitting Starsys to operate its spread spectrum
system in the lower half of the band. This latter requirement has since been
superseded by the FCC's October 1997 final order. See "-- Second Processing
Round."
Although Starsys has returned its license to the FCC, under the new rules
that took effect on January 2, 1998, the FCC authorized E-SAT, Inc. ("E-SAT") to
operate in the spectrum previously licensed to Starsys consistent with the
provisions of Starsys' first processing round authorization.
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Second Processing Round. On November 16, 1994, the FCC closed the
application filing period for a second processing round for NVNG applications.
As a result of consolidation in the satellite services industry, the total
number of applicants that participated in the second-round (including OCC) was
reduced from eight to five. The FCC's International Bureau, acting on delegated
authority, granted Leo One USA Corporation's ("Leo One") application for a
48-satellite Little LEO system on February 13, 1998 and granted OCC's
second-round application as well as the applications of the other second-round
applicants, Final Analysis Communications Services, Inc. ("Final Analysis"),
E-SAT and VITA, on March 31, 1998. See "Business -- Competition -- Other Little
LEO Systems."
In connection with the second processing round for Little LEO applications,
the FCC issued an order in October 1997 (the "Final Order") allowing each of the
three commercial narrowband second-round applicants to have permanent access to
approximately 355 kHz of spectrum in the lower portion of the 148.0-149.9 MHz
band. The Final Order made additional spectrum available for second-round
applicants while at the same time superseding the requirement in the Original
FCC License that ORBCOMM discontinue its use of the lower half of this band once
Starsys launches its system.
Supplemental FCC License. The Supplemental FCC License, among other
things, increases the total number of authorized satellites from 36 to 48. The
term of the authorization for the additional 12 satellites is ten years from the
operational date of the first ORBCOMM satellite, which was April 1995. The
Supplemental FCC License also requires that OCC begin construction of the first
two of the additional 12 satellites by March 1999 and of the remaining ten
satellites no later than March 2001. The Supplemental FCC License also requires
that the first two satellites be launched by September 2002 and the remaining
ten satellites be launched by March 2004, respectively. Failure to meet these
milestones will render the Supplemental FCC License null and void, unless the
FCC grants an extension of these milestones. In addition, OCC is required to
apply for a license renewal three years prior to the expiration of the
Supplemental FCC License. While, based on past experience, OCC believes that the
FCC generally grants license renewals to existing licensees where the licensee
has satisfied the requirements of the license, there can be no assurance that
the Supplemental FCC License would be renewed should OCC apply. See "Risk
Factors -- Regulatory Risks -- Domestic Licensing Risks."
The Supplemental FCC License also: (i) permits the ORBCOMM system to use
fewer, potentially higher data rate customer downlink channel; (ii) allows for a
change in the orbital altitude of the ORBCOMM satellites in the non
high-inclination planes from 775 kilometers to approximately 825 kilometers
above Earth; and (iii) permits the launch of eight of the high-inclination
satellites to 108 degrees instead of 70 degrees. The additional 12 satellites
authorized by the Supplemental FCC License will also improve the ORBCOMM
system's high-latitude coverage over Alaska, Canada and Europe as well as
provide additional capacity and greater in-orbit redundancy. In addition,
ORBCOMM believes that the grant of the Supplemental FCC License will facilitate
coordination of the ORBCOMM system with Russia and France. See "-- International
Regulation -- ITU Coordination."
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Finally, the Supplemental FCC License provided OCC a secondary right to use
a portion of the 149.9-150.05 MHz for its feeder links, which right is
contingent on Final Analysis moving its feeder link to another location, which
it has indicated it desires to do. However, before Final Analysis can move its
feeder link, additional spectrum needs to be made available by the ITU for MSS,
which is not likely to happen until at least 1999, if at all. See
"-- International Regulation -- ITU Spectrum Allocation."
Additional Domestic Regulatory Activities. On April 15, 1998, OCC filed
the Modification Request with the FCC to permit it to launch eight of its
authorized satellites in an equatorial orbit (rather than a 45 degree orbit) and
to increase the spacing between the other three planes of satellites. OCC
believes that the FCC will grant the Modification Request on a timely basis
because there would be no adverse effect on any other Little LEO licensee or
other service.
INTERNATIONAL REGULATION
Summary. The ORBCOMM system operates in frequencies that were allocated on
an international basis for use by Little LEO systems at the World Administrative
Radio Conference held in 1992 ("WARC-92"). The United States, on behalf of
various Little LEO service providers, including OCC, pursued international
allocations of additional frequencies for use of Little LEOs at WRC-95 with
limited success, as noted above. The United States also requested additional
frequencies for use by the Little LEOs at WRC-97, which resulted in the
allocation, on a footnote basis, of additional spectrum in the 454-455 MHz band,
which is adjacent to certain additional spectrum that was allocated for use
during WRC-95. In addition to cooperating with these efforts by the United
States to secure additional spectrum for Little LEO systems, OCC was required to
and has in fact, through the FCC, engaged in international coordination
procedures with other countries with respect to other satellite systems under
the aegis of the ITU. OCC has completed these international coordination
procedures, with the exception of those efforts involving France and Russia. OCC
was also required, by the FCC and the U.S. Department of State, to engage in
economic and/or technical coordination with two international satellite systems,
Intelsat and Inmarsat. These coordinations were completed successfully with
respect to the planned 36-satellite enhanced constellation as of 1995. Finally,
the ORBCOMM system must receive operational authority from each of the foreign
countries in which it proposes to provide service. It will be the responsibility
of the International Licensee in each country to obtain such authority.
ITU Spectrum Allocations. The ORBCOMM system operates both in the United
States and internationally using frequencies allocated for Little LEO systems in
the International Table of Frequency Allocations (the "International Table").
The International Table identifies radio frequency segments that have been
designated for specific radio services by the member nations of the ITU. The
International Table is revised periodically at WRCs. Between WRCs, the member
nations of the ITU, in connection with private industry, prepare and propose
recommendations for international allocations to be considered at the next WRC.
Preparatory analyses and recommendations are considered in appropriate technical
study groups for specific topics.
Little LEO systems require use of radio spectrum on a global basis to reach
their full commercial potential. At WARC-92, with the sponsorship of the U.S.
government and a number of other key administrations, major portions of the 137
to 150 MHz band and a narrow portion of the spectrum band at 400 MHz were
allocated on a global basis to Little LEO systems. The specific frequency
allocations for uplink and downlink operations included the following:
Uplink: 148.0 -- 149.9 MHz (1.9 MHz on a primary basis)
Downlink: 137.0 -- 138.0 (675 kHz on a primary basis; 325 kHz on a
secondary basis)
400.15 -- 401.00 MHz (850 kHz on a primary basis)
In addition, 3 MHz of uplink and 3 MHz of downlink frequencies were
allocated on a secondary basis. The band 400.075-400.125 MHz licensed for use by
the ORBCOMM system already was allocated previously on a global basis to Time
and Frequency Standard service and, therefore, was not subject to consideration
at WARC-92. ORBCOMM's planned use of this bandwidth complies with the
regulations governing its use. At
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WARC-92, a footnote to the Table of Allocations was adopted providing that MSS
uplinks in the band 148-149.9 MHz would be secondary in more than 100 countries.
Earth stations in these countries would neither be protected from interference,
nor permitted to cause interference to terrestrial services.
A designation of "primary" places the Little LEO systems on an equal
footing with existing users of these frequencies, subject to the provision that
the Little LEO systems not interfere with existing users or constrain their
growth and, with respect to certain countries and certain frequency bands, that
the Little LEO systems not claim protection from existing users. A "secondary"
designation means that the other users of the same frequencies have priority
over the Little LEO systems and are not required to accommodate or avoid
interference with them. The procedures for "coordinating" Little LEO services
with other registered users of the band were established at WARC-92.
At WRC-95, the U.S. government and other administrations sought an
additional allocation of 6.65 MHz of spectrum for Little LEO systems. This
proposal was largely unsuccessful due to the late identification of candidate
bands. At WRC-97, the U.S. government and other administrations again sought an
additional allocation of spectrum for Little LEO systems, which requests were
again met with only limited success. Consideration of additional bandwidth
allocations is currently scheduled to be on the agenda for the next WRC
scheduled for 1999. There can be no assurance that such additional allocations
will be approved.
Finally, a portion of the Transit band between 149.9-150.05 MHz and
399.9-400.05 MHz was allocated to Little LEOs effective on January 1, 1997. OCC
has determined, however, that the upper portion of the transit band is not
particularly useful to the ORBCOMM system.
ITU Coordination. The United States, on behalf of OCC, is required to
coordinate the frequencies used by the ORBCOMM system through the ITU. ITU
frequency coordination is a necessary prerequisite to obtaining interference
protection from other NVNG satellite systems. There is no penalty for launching
a satellite system prior to completion of the ITU coordination process, although
protection from interference through this process is afforded only as of the
date of successful completion of the process and notification of the satellite
by the ITU.
The FCC, on behalf of OCC, has notified the ITU that the ORBCOMM system was
placed in service on April 3, 1995 and that it has operated without complaint of
interference since that time. The FCC also informed the ITU that OCC has
successfully completed its coordination with all other administrations except
Russia and France. ORBCOMM believes that grant of the Supplemental FCC License
will facilitate its coordination efforts with Russia and could facilitate its
coordination efforts with France. OCC expects that it will successfully complete
the ITU coordination process with Russia and France by December 1998, at which
time ORBCOMM's 36-satellite enhanced constellation will be fully registered with
the ITU. The FCC must modify ORBCOMM's ITU registration documentation and
proceed with a supplementary coordination process with respect to the 12
satellites authorized under the Supplemental FCC License. This process is not
expected to affect coordination of ORBCOMM's 36-satellite system. Satellite
systems subsequent to the ORBCOMM system must coordinate with OCC to protect the
ORBCOMM system from interference.
ITU coordination is also required for the uplink ground segment of the
ORBCOMM system, but is the responsibility of individual administrations.
Depending on the location of particular ground stations, the applicable
coordination distance specified in the ITU procedures may extend across
international boundaries and require coordination by more than one governmental
authority. For example, two of the four U.S. Earth Stations have a coordination
distance that extends into Canada, and thus require coordination with Canada
prior to ITU notification or registration.
At WRC-95, France proposed a reduction in the threshold for coordination
with terrestrial services, which would require additional coordination of MSS
systems. France raised this proposal again at WRC-97. This proposed change was
not adopted at either WRC-95 or WRC-97, but there can be no assurance that it
will not be proposed and adopted at the next WRC scheduled for 1999, or that, if
adopted, additional coordination requirements would not be imposed on the
ORBCOMM system, to the extent that OCC may not have completed the ITU
coordination process.
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Coordination with Intelsat and Inmarsat. Pursuant to the Intelsat treaty,
international satellite operators are required to demonstrate that they will not
cause economic or technical harm to Intelsat. OCC was notified in March 1995
that this coordination with Intelsat had been completed successfully with
respect to the planned 36-satellite enhanced constellation. Further coordination
will be required as to the 12 satellites licensed under the Supplemental FCC
License. ORBCOMM anticipates that it will successfully complete such
coordination with Intelsat.
The Inmarsat treaty similarly requires both technical and economic harm
coordination. OCC was notified in October 1995 that it had successfully
completed both technical and economic coordination with Inmarsat with respect to
the planned 36-satellite enhanced constellation. Further coordination will be
required as to the 12 satellites licensed under the Supplemental FCC License. As
with the Intelsat coordination, ORBCOMM anticipates that it will successfully
complete such coordination with Inmarsat.
Regulation of Service Providers. Primary responsibility for obtaining
local regulatory approval to offer ORBCOMM system services in countries outside
the United States will reside with the various International Licensees. In all
cases, the proposed International Licensees are private companies, reflecting
the expectation that the ORBCOMM system will be licensed as a value-added
service rather than as a regulated basic service. International Licensees and
proposed International Licensees have had discussions with regulators in certain
major target countries and have advised ORBCOMM that such discussions indicate
that favorable regulatory treatment can be anticipated.
The process for obtaining regulatory approval in foreign countries
generally conforms to the following process. The International Licensee requests
regulatory approval from the appropriate national regulatory body, which has the
sole authority to grant an operating license. Obtaining such local regulatory
approvals normally requires, among other things, that the International Licensee
demonstrate the absence of interference to other authorized uses of the spectrum
in each country. In some countries, this process may take longer due to heavier
shared use of the applicable frequencies and, in certain other countries, may
require reassignment of some existing users. The national regulatory authority
will be required to associate with the ORBCOMM ITU submission. The national
regulatory authority also will be required to submit so-called Appendix 3
information to the ITU to coordinate and protect ORBCOMM Gateway Earth Stations
in the territory or region from interference by other ground systems in
neighboring countries.
To date, ORBCOMM has executed 13 agreements with International Licensees
covering over 95 countries within North and South America, Europe, Asia, the
Middle East and Africa. Full regulatory approvals to provide ORBCOMM services
have been received in Canada and Malaysia and preliminary, experimental or
limited regulatory approvals have been received in Germany, Italy, Japan, South
Korea, Spain, Sweden, Argentina, Chile, South Africa and Iceland.
ORBCOMM provides technical and regulatory assistance to its International
Licensees in pursuing operating authority. The assistance provided by ORBCOMM
includes actual in-country demonstrations that the ORBCOMM system can share use
of the allocated spectrum with existing users while neither causing harmful
interference nor constraining operations and growth of those systems. While
International Licensees have been selected, in part, based upon their perceived
qualifications to obtain the requisite foreign regulatory approvals, there can
be no assurance that they will be successful in doing so, and if they are not
successful, ORBCOMM services will not be available in such countries. In
addition, the continued operations of the International Licensees may be subject
to other regulatory requirements or regulatory or other changes in each foreign
jurisdiction.
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MANAGEMENT
BOARD OF DIRECTORS, MEMBERS AND EXECUTIVE OFFICERS
The Company
The following table sets forth information concerning the executive
officers and directors of the Company as of the date of this Prospectus. The
current members of the Company's Board of Directors (the "Company Board") have
been selected by ORBCOMM and will hereafter be elected at the annual meeting of
stockholders. Prior to the consummation of the Offering, the Company plans to
elect two additional directors who will be independent directors ("Company
Independent Directors"). Unless otherwise indicated, each executive officer
holds office until a successor is duly elected and qualified. There are no
family relationships among the executive officers or directors of the Company.
See "Risk Factors -- Structural and Market Risks -- Risk of Loss of Management
Rights on a Change of Control or Reduction in Interest."
NAME AGE POSITION
- --------------------- --- --------------------------------------
Scott L. Webster..... 45 President, Chief Executive Officer and
Director
W. Bartlett Snell.... 46 Chief Financial Officer and Treasurer
Mary Ellen
Seravalli.......... 39 Secretary
Marc Leroux.......... 47 Director
William J. Meder..... 55 Director
Jeffrey V. Pirone.... 37 Director
Claude Seguin........ 48 Director
David W. Thompson.... 44 Director
ORBCOMM
The following table sets forth information concerning the executive
officers of ORBCOMM and Members of the ORBCOMM Committee as of the date of this
Prospectus.
NAME AGE POSITION
- --------------------- --- --------------------------------------
Scott L. Webster..... 45 Chairman, Chief Executive Officer and
Member (designated by OCC)
Alan L. Parker....... 59 President, Global Development
Robert F. Latham..... 55 President and Chief Operating Officer
W. Bartlett Snell.... 46 Senior Vice President Finance and
Administration, Chief Financial
Officer and Treasurer
Andre Halley......... 51 Senior Vice President, International
Market Development and General Manager
Abdul H. Rana........ 47 Senior Vice President Engineering and
Product Management
Brian L. Williams.... 48 Senior Vice President Marketing,
Strategy and Communications
Mary Ellen
Seravalli.......... 39 Senior Vice President, General Counsel
and Secretary
Marc Leroux.......... 47 Member (designated by Teleglobe
Mobile)
William J. Meder..... 55 Vice Chairman and Member (designated
by Teleglobe Mobile)
Jeffrey V. Pirone.... 37 Member (designated by OCC)
Claude Seguin........ 48 Member (designated by Teleglobe
Mobile)
David W. Thompson.... 44 Member (designated by OCC)
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Scott L. Webster has been Chairman and Chief Executive Officer of ORBCOMM
since February 1998. Mr. Webster also has been the President of OCC since 1997
and was Senior Vice President of Orbital during 1997. He is a co-founder of
Orbital, and served in various consulting capacities with Orbital from 1993 to
1996. He served as President of Orbital's Space Data Division from 1990 to 1993
and was Executive Vice President of that organization from 1989 to 1990. Mr.
Webster served as Orbital's Vice President and Senior Vice President of
Marketing and Business Development from Orbital's inception in 1982 until 1989.
Previously, he held technical and management positions at Advanced Technology
Laboratories and Litton Industries. Mr. Webster is currently a director of
Orbital.
Alan L. Parker has been President, Global Development of ORBCOMM since
February 1998 and was the President from June 1993 to February 1998 and Chief
Executive Officer from February 1996 to February 1998. Mr. Parker is also
Executive Vice President of OCC and was the President of OCC from its inception
in 1990 until 1997. As a consultant to Orbital during 1989, Mr. Parker developed
the ORBCOMM strategy and business plan. Mr. Parker was a member of the United
States delegation to WARC-92, the WRC held in 1993 and WRC-95. Mr. Parker's
experience includes 25 years with Ford Aerospace Corporation (now part of
Lockheed Martin Aerospace) and Ford Motor Company. Mr. Parker served as Chairman
and Chief Executive Officer of Ford Aerospace Satellite Services Corporation
from 1982 to 1986 and was Vice President of Marketing and Business Planning of
Ford Aerospace from 1976 to 1986. Prior to 1976, Mr. Parker held several
marketing and product planning positions at Ford, including Car Product
Development, Ford of Europe and Corporate Product Planning and Research.
Robert F. Latham has been President and Chief Operating Officer of ORBCOMM
since February 1998 and was Executive Vice President and Chief Operating Officer
from May 1997 to February 1998. From April 1997 to May 1997, Mr. Latham was an
independent consultant to ORBCOMM. From February 1996 to February 1997, Mr.
Latham was Managing Director, Telecom for Bell Canada International Management
Ltd., UK ("BCIM"). From April 1996 until November 1996, Mr. Latham was secunded
to Mercury Communications, Limited in London, England as the Managing Director,
Commercial Services. Prior to joining BCIM, Mr. Latham spent 28 years with Bell
Canada, most recently as Group Vice President ("GVP"), Gateways and Public
Telephony. From July 1992 to February 1995, Mr. Latham held the positions of
GVP, Business Sales and Services and GVP, Signature Service, with responsibility
for Bell Canada's business accounts. From 1986 to 1991, Mr. Latham led the
development of Bell Cellular as President and Chief Executive Officer. Prior to
1986, Mr. Latham held a variety of positions with Bell Canada, including in the
areas of Business Development, Customer Services, Regulatory Matters, Cost and
Performance and Forecasting and Planning.
W. Bartlett Snell has been Senior Vice President Finance and
Administration, Chief Financial Officer and Treasurer of ORBCOMM since February
1996. From 1993 to 1996, Mr. Snell was President and Chief Executive Officer of
PowerSource Solutions, Inc., a company specializing in assisting organizations
undertaking strategic corporate change. From 1992 to 1993, Mr. Snell was Senior
Vice President and General Manager of People Karch International, an
international provider of work-site health promotion services, health and
fitness software and corporate child care programs. Prior to 1992, Mr. Snell
worked for IBM Corporation for approximately 16 years. Mr. Snell is a member of
both the Northern Virginia Business RoundTable and the Northern Virginia
Technology Council.
Andre Halley has been Senior Vice President, International Market
Development and General Manager since April 1998. From April 1996 to April 1998,
Mr. Halley was employed by both Teleglobe Canada Inc. ("Teleglobe Canada") and
Teleglobe GmbH and was secunded to ORBCOMM to provide it with management
consulting services for international market development projects as Managing
Director International of ORBCOMM. From 1994 to 1996, Mr. Halley was Vice
President, Europe, Middle East and Africa for Teleglobe Canada. From 1992 to
1994, Mr. Halley was President of Optinet Communications, a value-added carrier
involved in the design, engineering and operation of multimedia networks and
from 1990 to 1992, he was President of Cellular Canada, a national supplier of
cellular equipment and related services. From 1986 to 1989, Mr. Halley was Vice
President, Operations, Eastern Region for Bell Cellular, where he was
responsible for, among other things, the expansion of Bell Cellular's client
base and deployment of its system infrastructure. From 1988 to 1989, he was also
President of Cellnet Canada, a Canadian association of
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cellular operators. Prior to 1987, Mr. Halley held various positions with Bell
Canada, including Division Sales Manager, National Accounts, Sales and Marketing
and Account Representative.
Abdul H. Rana has been Senior Vice President Engineering and Product
Management of ORBCOMM since April 1998 and was Senior Vice President Product
Management and Development of ORBCOMM from December 1997 to April 1998. From
January 1997 to December 1997, Dr. Rana was Vice President of Engineering and
Technology Services for GE LogistiCom, where he provided technical leadership
for development and launch of a satellite communications product for asset
management. From 1984 to 1996, Dr. Rana held several positions at GTE in the
areas of product development and program management, where, among other
achievements, he managed the launch of several successful commercial data and
video products, was three times the recipient of the GTE Leslie Warner Award,
GTE's highest technical honor, and twice the recipient of President's Awards for
personal technical and professional achievements. Prior to 1984, Dr. Rana held
technical and management positions at COMSAT Labs and ENSCO Incorporated in the
areas of satellite communications and signal processing. Dr. Rana received his
Ph.D. in engineering in 1977 and has 20 years of engineering and product
development experience in telecommunications, satellite and cellular
communications and wireless data networks. Dr. Rana has published over 30
articles in professional journals and currently is a member of the Institute of
Electrical and Electronics Engineers Inc.
Brian L. Williams has been Senior Vice President Marketing, Strategy and
Communications of ORBCOMM since December 1997. Between May 1997 and December
1997, Mr. Williams was Senior Vice President, Marketing and Product Development
at ORBCOMM, and from January 1997 to May 1997, Mr. Williams was Vice President,
Marketing, Strategy and Communications at ORBCOMM. From March 1995 to January
1997, Mr. Williams was Senior Vice President of Marketing and Business
Development for Optex Communications Corporation, a development stage company
creating high-speed, high-capacity data storage and imaging technologies. From
December 1992 to March 1995, he was a director with Bell Atlantic Video Services
Company, where he was instrumental in the formation of Bell Atlantic's
multimedia strategy and many of Bell Atlantic's strategic partner alliances.
From 1986 to 1992, Mr. Williams held several marketing and product development
positions at NEC Technologies, Inc., including the position of Assistant Vice
President of Marketing. Mr. Williams has served on the Board of Directors for
the Electronic Industries Association-Consumer Electronics Group.
Mary Ellen Seravalli has been Senior Vice President, General Counsel and
Secretary of ORBCOMM since January 1997 and was Vice President and General
Counsel from January 1996 to December 1996. From 1991 to 1995, Ms. Seravalli was
Assistant General Counsel of Orbital and from January 1995 to December 1995 she
was also a Vice President of Orbital. Prior to 1991, Ms. Seravalli was an
associate in the law firm of Jones, Day, Reavis & Pogue, where she worked on
mergers and acquisitions, with an emphasis on the telecommunications industry,
and where she gained significant experience representing both lenders and
borrowers in connection with the establishment of various types of credit
facilities.
Marc Leroux has been President and Chief Operating Officer of Teleglobe
World Mobility, a division of Teleglobe, since 1994. Since 1992, Mr. Leroux has
also served as Vice President, Technology of Teleglobe. Prior to 1992, Mr.
Leroux was Senior Manager, Services Development with Bell-Northern Research
Ltd., a telecommunications research and development company.
William J. Meder has been President of ORBCOMM Canada Inc., a
majority-owned subsidiary of Teleglobe, since August 1994 and is also a
part-owner of ORBCOMM Canada Inc. Mr. Meder has also been Vice President,
Special Projects of ORBCOMM since July 1997 and Vice Chairman of the ORBCOMM
general partners committee since February 1998. From 1993 to 1994, Mr. Meder was
a business consultant and, from 1990 to 1993, Chief Operating Officer of Henry
Birks and Sons Ltd. From 1982 to 1989, Mr. Meder was the Chief Executive Officer
of Comp-u-Card Canada, Inc. and, from 1978 to 1982, Chief Executive Officer of
Imperial Manufacturing Inc. Prior to that, Mr. Meder spent 13 years with IBM in
various senior management positions. Mr. Meder was formerly a chairman of
Syscor, an information services company serving hospitals in the Montreal area,
and President of the Young Presidents Association.
Jeffrey V. Pirone has been Executive Vice President and Chief Financial
Officer of Orbital since January 1998. Prior to January 1998, Mr. Pirone held a
number of positions at Orbital, including Senior Vice
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President and Chief Financial Officer and Vice President and Controller. Prior
to joining Orbital in 1991, Mr. Pirone was a Senior Manager at KPMG Peat Marwick
LLP.
Claude Seguin is Chairman of the Board and Chief Executive Officer of
Teleglobe Mobile Investment Inc., the managing partner of Teleglobe Mobile. He
is also the Executive Vice-President, Finance and Chief Financial Officer of
Teleglobe. Mr. Seguin served the Quebec Finance Ministry as Deputy Minister from
1987 to 1992. Mr. Seguin sits on the boards of Telesystem International Wireless
Corporation, Levesque Beaubien Geoffrion Inc. and La Societe generale de
financement du Quebec. He is also a former governor of the Montreal Exchange and
director of Caisse de depot et placement du Quebec.
David W. Thompson is a co-founder of Orbital and has been Chairman of the
Board, President and Chief Executive Officer of Orbital since 1982. Prior to
founding Orbital, Mr. Thompson was employed by Hughes Electronics Corporation as
special assistant to the President of its Missile Systems Group and by NASA at
the Marshall Space Flight Center as a project manager and engineer, and also
worked at the Charles Stark Draper Laboratory on the Space Shuttle's autopilot
design. Mr. Thompson also serves as Chairman of the Board and Chief Executive
Officer of Orbital Imaging Corporation and as Chairman of Magellan Corporation,
affiliates of Orbital.
COMPENSATION OF THE COMPANY'S DIRECTORS
Directors of the Company who are officers of the Company, ORBCOMM, OCC,
Teleglobe or an affiliate thereof are not paid any fees or additional
compensation for services as members of the Company Board or any committee
thereof. Directors who are not officers of the Company, ORBCOMM, OCC, Teleglobe
Mobile or an affiliate thereof will receive an annual retainer of $-- and a fee
of $-- for each meeting of the Company Board or any committee thereof attended.
In addition, all directors will be reimbursed any expenses incurred, where
appropriate.
COMMITTEES OF THE COMPANY'S BOARD OF DIRECTORS
Following consummation of the Offering, the Company Board will establish an
Audit Committee and a Compensation Committee. The Company intends to appoint to
such committees only persons who qualify as "independent" directors for purposes
of the rules and regulations of the Nasdaq National Market, or as "non-employee
directors" for purposes of Rule 16b-3 under the Exchange Act. The Audit
Committee will select and engage, on behalf of the Company, the independent
public accountants to audit the Company's annual financial statements, and will
review and approve the planned scope of the annual audit. The Compensation
Committee will perform such functions as provided under the Company's employee
benefit plans.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Currently, all executive officers of the Company are compensated by ORBCOMM
and receive no compensation by the Company. The following table sets forth a
summary of all compensation earned, awarded or paid in the fiscal years ended
December 31, 1997, 1996 and 1995, as applicable, to those persons who were at
December 31, 1997, the Chief Executive Officer and the four other most highly
compensated executive officers of ORBCOMM (collectively, the "Named Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ----------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS (1) COMPENSATION (2)
--------------------------- ---- -------- -------- ---------------- ----------------
Alan L. Parker...................... 1997 $210,000 $ 73,500 -- $14,404
President and Chief Executive 1996 200,000 60,000 -- 16,655
Officer(3) 1995 167,846 33,512 -- 7,905
Robert F. Latham.................... 1997(5) 108,692 157,800 70,000 32,250
Executive Vice President and 1996(6) -- -- -- --
Chief 1995(6) -- -- -- --
Operating Officer(4)
W. Bartlett Snell................... 1997 160,000 53,965 -- 10,189
Senior Vice President Finance 1996 127,769 44,000 25,000 10,480
and 1995(6) -- -- -- --
Administrations Chief Financial
Officer and Treasurer
Brian L. Williams................... 1997(7) 147,692 68,867 30,000 6,518
Senior Vice President 1996(6) -- -- -- --
Marketing, 1995(6) -- -- -- --
Strategy and Communications
Mary Ellen Seravalli................ 1997 150,000 52,531 -- 7,645
Senior Vice President, General 1996 130,000 33,000 20,000 9,324
Counsel and Secretary 1995(6) -- -- -- --
- ------------------------------
(1) Shares of common stock of OCC subject to options granted under the OCC Stock
Option Plan. On consummation of the Offering, all of such options will be
exchanged for options to purchase Common Stock of the Company pursuant to
the Equity Plan. See "-- Equity Plan."
(2) The 1997 amounts include ORBCOMM matching and profit sharing contributions
made under ORBCOMM's 401(k) plan and Group Term Life Insurance premiums paid
by ORBCOMM, respectively, in the following amounts: Alan L. Parker, $11,178
and $3,226; Robert F. Latham, $4,638 and $1,218; W. Bartlett Snell, $9,301
and $888; Brian L. Williams, $5,908 and $610; and Mary Ellen Seravalli,
$7,328 and $317. The 1997 amount for Robert F. Latham also reflects payments
by ORBCOMM of $10,385 in consulting fees prior to his employment by ORBCOMM,
$14,008 in moving expenses and $2,000 in legal fees paid by ORBCOMM. The
1996 and 1995 amounts equal, in each case, ORBCOMM matching and profit
sharing contributions made under ORBCOMM's 401(k) plan.
(3) In February 1998, Mr. Parker ceased being President and Chief Executive
Officer of ORBCOMM and became President, Global Development of ORBCOMM.
(4) In February 1998, Mr. Latham became President and Chief Operating Officer of
ORBCOMM.
(5) Represents compensation beginning in May 1997 when Mr. Latham started his
employment at ORBCOMM.
(6) No compensation is reported where the individual person did not serve as an
executive officer of ORBCOMM during a given fiscal year.
(7) Represents compensation from the end of January 1997 when Mr. Williams
started his employment at ORBCOMM.
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OCC OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information on grants of stock options to the Named Officers
pursuant to the OCC Stock Option Plan during the fiscal year ended December 31,
1997, which options are reflected in the Summary Compensation Table.
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZED VALUE
NUMBER OF AT ASSUMED RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ----------- ------------ --------- ---------- --------- -----------
Robert F. Latham................. 55,000 19.33 $26.50 5/15/07 $916,614 $2,322,800
15,000 5.27 26.50 7/18/07 249,986 633,513
Brian L. Williams................ 30,000 10.54 26.50 2/05/07 499,971 1,267,025
- ------------------------------
(1) On consummation of the Offering all of such options will be exchanged for
options to purchase Common Stock of the Company pursuant to the Equity Plan
and the number of securities underlying the options and the exercise price
will be adjusted on such exchange. See "-- Equity Plan."
EMPLOYMENT AND OTHER COMPENSATION ARRANGEMENTS
Scott L. Webster was appointed Chairman and Chief Executive Officer of
ORBCOMM in February 1998. In January 1998, Mr. Webster was granted options to
purchase 100,000 shares of Common Stock of OCC at an exercise price of $26.50
per share, with one-third of such options vested on the date of grant, and
one-third of such options to vest on each of the first and second anniversaries
of the date of grant. In July 1997, Mr. Webster was granted options to purchase
30,000 shares of Common Stock of OCC at an exercise price of $26.50 per share,
with one quarter of such options to vest on each of the first four anniversaries
of the date of grant. In addition, in 1992 Mr. Webster was granted options to
purchase 7,500 shares of Common Stock of OCC at exercise prices ranging from
$1.50 to $4.00.
On May 15, 1997, ORBCOMM and Robert F. Latham entered into an employment
agreement that sets forth the terms and conditions of Mr. Latham's employment
with ORBCOMM. The employment agreement is for a term of three years commencing
on May 15, 1997, and is automatically extended from year to year thereafter
unless terminated either by ORBCOMM or Mr. Latham. Pursuant to the terms of the
employment agreement, Mr. Latham received a $75,000 signing bonus and is
entitled to a base salary of $180,000 per year. In addition to the signing bonus
and base salary, under the employment agreement Mr. Latham is eligible to
receive from ORBCOMM, among other things, an annual bonus of up to 50% of his
base salary, relocation expenses of up to $50,000 and a loan of up to $50,000.
Mr. Latham was also awarded options to purchase 55,000 shares of OCC common
stock at a price of $26.50 per share. The options vest, pro rata, over a period
of four years with one-fourth vested on the date of the grant, and are generally
governed by the terms of the OCC Stock Option Plan. In the event of a
termination of Mr. Latham's employment, either: (i) by the Company without cause
(as defined in the agreement); or (ii) by Mr. Latham within three months
following a change of control (as defined in the agreement), Mr. Latham will be
entitled to receive from ORBCOMM: (x) a lump sum severance payment of twelve
months annual base salary (in the case of a termination without cause) or a lump
sum severance payment of the remaining balance of Mr. Latham's base salary
through the end of the term of the agreement plus 50% of Mr. Latham's then
current annual base salary (in the case of a change in control); (y) accelerated
vesting of OCC stock options; and (z) relocation expenses of up to $50,000.
Pursuant to the terms of the employment agreement, Mr. Latham has an obligation
not to solicit any employees of ORBCOMM for a period of one year following
termination of his employment with ORBCOMM.
EQUITY PLAN
Prior to consummation of the Offering, the Company intends to adopt the
1998 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P. (the "Equity
Plan"). The Equity Plan is intended to assist the Company and ORBCOMM and each
of their affiliates in attracting and retaining key employees
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(including the Named Officers), directors and independent consultants of
outstanding ability and to promote the identification of their interests with
those of the stockholders of the Company. The Equity Plan permits the grant of
non-qualified stock options and incentive stock options ("ISOs") (to Company
employees only) to purchase shares of Common Stock of the Company covering --
authorized but unissued or reacquired shares of Common Stock of the Company,
subject to adjustment to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by the Company. No
individual may be granted options under the Equity Plan covering more than --
shares in any calendar year. In addition, as of the effective date of the
Offering, current and former employees of ORBCOMM, Orbital and other affiliates
of the Company will be granted non-qualified stock options (the "Exchange
Options") in exchange for the cancellation of outstanding options to purchase
shares of OCC common stock, which were granted pursuant to the OCC Stock Option
Plan.
The Equity Plan will be administered by the Compensation Committee of the
Company Board (the "Compensation Committee") and options granted under the
Equity Plan will be eligible to satisfy the requirements of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section
162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code"). Subject to the terms and conditions of the Equity Plan, the
Compensation Committee has the authority to select the persons to whom grants
are to be made, to designate the number of shares of Common Stock of the Company
to be covered by such grants, to determine the exercise price of options, to
establish the period of exercisability of options, and to make all other
determinations and to take all other actions necessary or advisable for the
administration of the Equity Plan. The Compensation Committee may, in its
discretion, provide by the terms of an option that such option will expire at
specified times following, or become exercisable in full upon, the occurrence of
certain specified events including a merger, consolidation or dissolution of the
Company or a sale of substantially all of the Company's assets.
The Compensation Committee also retains the discretion to determine that
outstanding options under the Equity Plan will expire on certain specified
"extraordinary corporate events," but in such event the Compensation Committee
may also give optionees the right to exercise their outstanding options in full
during some period prior to such event, even though the rights have not yet
otherwise become fully exercisable.
The Equity Plan may be amended by the Compensation Committee, subject to
stockholder approval if such approval is then required by applicable law or for
options granted under the Equity Plan to continue to satisfy the requirements of
Rule 16b-3 under the Exchange Act or Section 162(m) of the Code.
The Equity Plan permits the payment of the option exercise price to be made
in cash (which, with the consent of the Compensation Committee, may include
(except with respect to incentive stock options) an assignment of the right to
receive the cash proceeds from the sale of Common Stock of the Company subject
to the option pursuant to a "cashless exercise" procedure) or, with the consent
of the Compensation Committee, by delivery of shares of Common Stock of the
Company valued at their fair market value on the date of exercise or by delivery
of other property, or by a recourse promissory note payable to the Company, or
by a combination of the foregoing.
Options granted under the Equity Plan are not transferable otherwise than
by will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order (as defined in the Code), and may be exercised during
the optionee's lifetime only by the optionee or, in the event of the optionee's
legal disability, by the optionee's legal representative.
General Federal Income Tax Consequences. The federal income tax
consequences, in general, of the grant and exercise of Options under the Equity
Plan are as follows:
--Incentive Stock Option. In general, a recipient will not recognize
taxable income upon the grant or exercise of an ISO, and the Company will not be
entitled to any business expense deduction with respect to the grant or exercise
of an ISO. (However, upon the exercise of an ISO, the excess of the fair market
value on the date of exercise of the shares received over the exercise price of
the option will be treated as an adjustment to alternative minimum taxable
income.) In order for the exercise of an ISO to qualify as an ISO, a recipient
generally must be an employee of the Company or a subsidiary (within the meaning
of Section 422 of the
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Code) from the date the ISO is granted through the date three months before the
date of exercise (one year preceding the date of exercise in the case of a
recipient whose employment is terminated due to disability). The employment
requirement does not apply where a recipient's employment is terminated due to
his or her death.
If a recipient has held the shares acquired upon exercise of an ISO for at
least two years after the date of grant and for at least one year after the date
of exercise, when the recipient disposes of the shares, the difference, if any,
between the sales price of the shares and the exercise price of the option will
be treated as long-term capital gain or loss subject to reduced rates of tax,
provided that any gain will be subject to further reduced rates of tax if shares
are held for more than eighteen months after the date of exercise. If a
recipient disposes of the shares prior to satisfying these holding period
requirements (a "Disqualifying Disposition"), the recipient will recognize
ordinary income (treated as compensation) at the time of the Disqualifying
Disposition, generally in an amount equal to the excess of the fair market value
of the shares at the time the option was exercised over the exercise price of
the option. The balance of the gain realized, if any, will be short-term or
long-term capital gain, depending upon whether the shares have been held for at
least twelve months after the date of exercise, with the lowest capital gain
rates available if shares are held for more than eighteen months after the date
of exercise. If the optionee sells the shares in a Disqualifying Disposition at
a price below the fair market value of the shares at the time the option was
exercised, the amount of ordinary income (treated as compensation) will be
limited to the amount realized on the sale over the exercise price of the
option. In general, if the Company and its subsidiaries comply with applicable
income reporting requirements, the Company and its subsidiaries will be allowed
a business expense deduction to the extent a recipient recognizes ordinary
income.
--Nonqualified Stock Option. In general, a recipient who receives a
nonqualified stock option will recognize no income at the time of the grant of
the option. Upon exercise of a nonqualified stock option, a recipient will
recognize ordinary income (treated as compensation) in an amount equal to the
excess of the fair market value of the shares on the date of exercise over the
exercise price of the option. The basis in shares acquired upon exercise of a
nonqualified stock option will equal the fair market value of such shares at the
time of exercise, and the holding period of the shares (for capital gain
purposes) will begin on the date of exercise. In general, if the Company,
ORBCOMM and/or their subsidiaries comply with applicable income reporting
requirements, they will be entitled to a business expense deduction in the same
amount and at the same time as the recipient recognizes ordinary income. In the
event of a sale of the shares received upon the exercise of a nonqualified stock
option, any appreciation or depreciation after the exercise date generally will
be taxed as capital gain or loss, provided that any gain will be subject to
reduced rates of tax if the shares were held for more than twelve months and
will be subject to further reduced rates if the shares were held for more than
eighteen months.
The foregoing discussion assumes that at the time of exercise, the sale of
the shares of a profit would not subject a recipient to liability under Section
16(b) of the Exchange Act. Special rules may apply with respect to persons who
may be subject to Section 16(b) of the Exchange Act.
Generally, if a recipient delivers previously owned shares to pay the
exercise price, no gain or loss will be recognized in respect of the shares
delivered, and there will be a carryover basis and holding period for a like
number of shares acquired. If the option being exercised is an ISO and the
shares delivered were acquired upon exercise of an ISO and are delivered prior
to satisfaction of the ISO holding period requirements described above, the
delivery of shares will constitute a Disqualifying Disposition as to which the
rules described above will apply. If the option being exercised is a
nonqualified stock option, ordinary income (treated as compensation) will be
recognized only on the additional shares acquired and will be equal to the fair
market value of the shares on the date of exercise less any addition cash paid.
Special rules apply in computing the amount and character of an optionee's
income (or loss) upon the subsequent sale of shares acquired upon the exercise
of an ISO where the exercise price is paid by the delivery of previously owned
shares.
-- Excise Taxes. Under certain circumstances, the accelerated vesting or
exercise of options in connection with a change in control might be deemed an
"excess parachute payment" for purposes of the
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golden parachute tax provisions of Section 280G of the Code. To the extent it is
so considered, a recipient may be subject to a 20% excise tax and the Company
may be denied a tax deduction.
Section 162(m) Limitation. In general, under Section 162(m), income tax
deductions of publicly held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction limit
does not apply to certain "performance-based compensation" established by an
independent compensation committee that is adequately disclosed to, and approved
by, stockholders. Under a Section 162(m) transition rule for compensation plans
of corporations that are privately held and that become publicly held in an
initial public offering, the Equity Plan will not be subject to Section 162(m)
until the "Transition Date" which is defined as the earliest of: (i) the
material modification of the plan; (ii) the issuance of all Common Stock and
other compensation that has been allocated under the plan; or (iii) the first
meeting of stockholders at which directors are to be elected that occurs after
December 31, 2001. The Company has attempted to structure the Equity Plan in
such a manner that, after the Transition Date, subject to obtaining stockholder
approval for the Equity Plan, the remuneration attributable to stock options
that meet the other requirements of Section 162(m) will not be subject to the $1
million limitation. The Company has not, however, requested a ruling from the
Internal Revenue Service or an opinion of counsel regarding this issue.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
THE COMPANY
As of the date of this Prospectus, 100 shares of Common Stock of the
Company were outstanding, all of which are owned beneficially and of record by
ORBCOMM. These shares will be redeemed at their original cost by the Company on
consummation of the Offering. The following table sets forth certain information
regarding the beneficial ownership of the Common Stock after the Offering: (i)
by each person known by ORBCOMM to beneficially own more than five percent of
the Common Stock; (ii) by each Named Officer and each Member of the ORBCOMM
Committee; and (iii) by all of ORBCOMM's executive officers and Members as a
group.
COMMON STOCK BENEFICIALLY
OWNED AFTER THE OFFERING (2)(3)
--------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) NUMBER PERCENT
---------------------------------------- ------- --------
NAMED OFFICERS
Alan L. Parker.............................................. -- *
Robert F. Latham............................................ -- *
W. Bartlett Snell........................................... -- *
Brian L. Williams........................................... -- *
Mary Ellen Seravalli........................................ -- *
MEMBERS
Scott L. Webster............................................ -- *
Claude Seguin (4)........................................... -- *
William J. Meder (4)........................................ -- *
Marc Leroux (4)............................................. -- *
David W. Thompson (5)....................................... -- *
Jeffrey V. Pirone (5)....................................... -- *
All Members and Executive Officers as a Group............... -- --
ORBCOMM
The following table sets forth certain information regarding the beneficial
ownership of partnership interests of ORBCOMM as of March 31, 1998 prior to the
Offering and beneficial ownership of Partnership Units after the Offering.
PARTNERSHIP INTEREST
PRIOR TO THE PARTNERSHIP UNITS
OFFERING AFTER THE OFFERING
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER (1) PERCENT NUMBER PERCENT
---------------------------------------- ------- ------ -------
Orbital Communications Corporation (5)(6)............ 50% -- --
Telegloble Mobile Partners (4)(7).................... 50% -- --
ORBCOMM Corporation.................................. -- -- --
- ------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o ORBCOMM, 2455 Horse Pen Road, Suite 100, Herndon, Virginia
20171.
(2) Based on -- shares of Common Stock outstanding immediately after the
Offering. Beneficial ownership is determined in accordance with the rules of
the Commission and includes voting and investment power with respect to the
Common Stock. Common Stock subject to options currently exercisable or
exercisable within 60 days of the date of this Prospectus are deemed
outstanding for computing the percentage ownership of the person holding
such options, but are not deemed outstanding for computing the percentage of
any other person.
(3) Common Stock ownership represents options to purchase common stock of OCC
granted pursuant to the OCC Stock Option Plan, that will be converted on
consummation of the Offering into options to purchase Common Stock.
(4) The address of such beneficial owner is c/o Teleglobe Inc., 1000, rue de la
Gauchetiere ouest, Montreal, Quebec H3B 4X5.
(5) The address of such beneficial owner is c/o Orbital Sciences Corporation,
21700 Atlantic Boulevard, Dulles, VA 20166.
(6) OCC is a majority owned subsidiary of Orbital. As a result, the partnership
interest and Partnership Units beneficially owned by OCC, is deemed to be
beneficially owned by Orbital.
(7) Teleglobe Mobile is owned indirectly 70% by Teleglobe and 30% by TRI, each
of which is a general partner of Teleglobe Mobile. As a result of
Teleglobe's indirect 70% general partnership interest in Teleglobe Mobile,
the partnership interest and Partnership Units beneficially owned by
Teleglobe Mobile is deemed to be beneficially owned by Teleglobe.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of ORBCOMM, the Company, OCC, Teleglobe Mobile and Orbital have
entered into a series of agreements or arrangements for the development,
construction, operation and marketing of the ORBCOMM system. The following
paragraphs are a summary of the material provisions of certain of these
agreements and are qualified in their entirety by reference to the actual
agreements, which are filed as exhibits to or incorporated by reference in the
registration statement (the "Registration Statement") filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act") of which
this Prospectus is a part.
MASTER AGREEMENT
As of June 30, 1993, Orbital, OCC, Teleglobe and Teleglobe Mobile entered
into the Master Agreement that sets forth the principles upon which the parties
have agreed to develop, construct and operate the ORBCOMM system. The Master
Agreement subsequently has been amended and restated and on consummation of the
Offering will provide the following:
Covenants Relating to OCC. Orbital and OCC have agreed: (i) to preserve
OCC's corporate existence; (ii) to use all commercially reasonable efforts to
obtain and maintain all material U.S. operating licenses and permits necessary
for the construction, operation and marketing of the ORBCOMM system; (iii) to
ensure that so long as OCC holds any FCC licenses, OCC will (a) remain a
subsidiary of Orbital, other than as a result of options exercised under the OCC
Stock Option Plan; (b) carry on no business other than the construction,
operation and marketing of the ORBCOMM system or businesses that are in
furtherance of, or in connection with, the expansion of the ORBCOMM system; (c)
remain the sole holder of all FCC licenses required for the construction, launch
and operation of the ORBCOMM system (other than FCC licenses for individual user
transceivers and FCC licenses held by ORBCOMM); (iv) subject to certain
exceptions, that OCC will not grant, create, assume, incur or suffer to exist
any lien affecting OCC or any of its property, rights, revenues or assets and
that in no circumstances will OCC grant, create, assume, incur or suffer to
exist any lien on any FCC licenses held by OCC; (v) subject to certain
exceptions, that Orbital will not dispose of any debt interest in OCC and that
OCC will not sell, transfer, convey, lease or otherwise dispose of any assets;
(vi) that OCC will not consolidate, merge or amalgamate with any other person;
(vii) subject to certain exceptions in accordance with the Definitive Agreements
(as defined in the Master Agreement), that Orbital and OCC will not create,
amend or repeal any by-laws or modify the OCC certificate of incorporation;
(viii) subject to certain exceptions in accordance with the Definitive
Agreements, that OCC will not make any loans or give any financial guarantees
for the obligations of any other party; and (ix) that Orbital and OCC will not
make any assignment for the benefit of creditors or subject OCC to any
proceedings under any bankruptcy or insolvency law or take steps to wind up or
terminate OCC's corporate existence or engage in any financial restructuring.
Covenant Relating to Teleglobe Mobile. Teleglobe and Teleglobe Mobile have
agreed to preserve Teleglobe Mobile's corporate existence.
Guarantees. Teleglobe has unconditionally and absolutely guaranteed the
full and punctual payment of all of Teleglobe Mobile's payment obligations under
the Definitive Agreements to which Teleglobe Mobile is a party. Orbital has
unconditionally and absolutely guaranteed the full and punctual payment of all
of OCC's payment obligations under the Definitive Agreements to which OCC is a
party.
Change of Control. In the event of a Change of Control (as defined in the
Master Agreement) of Orbital or Teleglobe (the "Change of Control Party"),
Teleglobe Mobile or OCC, as the case may be (the "Non-Change of Control Party"),
has the option for a period of 180 days from such Change of Control (the "Option
Period") to require the Change of Control Party to purchase the Non-Change of
Control Party's interest in ORBCOMM at an aggregate price equal to the greater
of (i) the Non-Change of Control Party's aggregate Unrecouped Capital
Preferences (as defined in the Master Agreement) in such partnerships and (ii)
the Non-Change of Control Party's direct and indirect Participation Percentage
(as defined in the Master Agreement) in each such partnership multiplied by the
fair market value (as defined in the Master Agreement) of each such partnership
Subject to the receipt of all necessary government approvals, upon a
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Change of Control of Orbital, Orbital agrees to cause OCC to transfer to ORBCOMM
all FCC licenses then held by OCC relating to the construction, launch or
operation of the ORBCOMM system.
AMENDED AND RESTATED ORBCOMM SYSTEM CONSTRUCTION AND OPERATIONS AGREEMENT
On consummation of the Offering, OCC and ORBCOMM will enter into the
Amended and Restated ORBCOMM System Construction and Operations Agreement (the
"System Construction Agreement"), which will provide for the following:
OCC has agreed to grant to ORBCOMM the right: (i) to market, sell, lease
and franchise all ORBCOMM system output capacity worldwide and to use the System
Assets (as defined in the Master Agreement) located in the United States; and
(ii) to use, and to authorize third parties to use, in the course of ORBCOMM's
business, all service marks, trademarks and trade names of OCC relating to the
ORBCOMM system for advertising, promotional or sales literature. Pursuant to the
System Construction Agreement, ORBCOMM is granted the right to manage and
operate the ORBCOMM system on behalf of OCC and will provide to OCC management
and operational services including tracking, telemetry and control services.
Notwithstanding any provision in the System Construction Agreement to the
contrary, OCC, as holder of the FCC licenses relating to the ORBCOMM system,
retains full authority to control the ORBCOMM system.
In consideration of the grant to ORBCOMM of the right to market, sell,
lease and franchise the ORBCOMM system output capacity and to use the System
Assets, ORBCOMM has agreed to: (i) develop, construct, launch and operate the
satellites comprising the ORBCOMM system; (ii) develop, construct and operate
the other assets located in the United States that constitute the ORBCOMM
system; and (iii) pay to OCC $100,000 in calendar year 1998, and, for the
periods following December 31, 1998, to pay such fee as is mutually agreeable to
OCC and ORBCOMM.
ORBCOMM has agreed to indemnify and hold harmless OCC from and against any
claim with respect to an infringement or other violation of any copyright,
trademark or patent or other validly registered enforceable intellectual
property right of any third party for any items constructed by ORBCOMM pursuant
to the authority granted in the System Construction Agreement, but only to the
same extent as the indemnification received by ORBCOMM from Orbital, if any,
pursuant to the Procurement Agreement.
OCC CONSULTING AGREEMENT
On consummation of the Offering, OCC and ORBCOMM will enter into the OCC
Consulting Agreement, which will provide for the following:
ORBCOMM will agree to furnish to OCC regulatory, technical, legal and
administrative support before the FCC and other appropriate regulatory bodies.
Such support includes but is not limited to: (i) assisting in the coordination
of any and all interference matters in connection with the grant of OCC's second
round Little LEO licensing application with other Little LEO system licensees;
(ii) assisting in the prosecution of a proposed modification request by OCC for
(a) the launch of three planes of eight satellites each to 45 degrees, with a
120 degree relative right ascension; and (b) the launch of one plane of eight
satellites in an equatorial orbit; and (iii) assisting generally in the defense
of claims against any regulatory authority granted to OCC and in the opposition
of any application by a competing system using frequencies below 1 GHz, which
may include participation in discussions and negotiations with other existing or
proposed Little LEO licensees, reviewing filings with the FCC and providing
technical analysis of other Little LEO or other systems. In consideration for
these services, OCC has agreed to pay ORBCOMM $80,000 in calendar year 1998,
and, for the periods following December 31, 1998, such fee as is mutually
agreeable to OCC and ORBCOMM. Either party may terminate the OCC Consulting
Agreement upon giving ten days written notice to the other party.
PROCUREMENT AGREEMENT
As of September 12, 1995, ORBCOMM and Orbital entered into the Procurement
Agreement pursuant to which Orbital has undertaken the overall design,
development, construction, integration, test and operation of the ORBCOMM
system. The Procurement Agreement was the result of arm's-length negotiations
between
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Orbital and Teleglobe Mobile that took place prior to Teleglobe Mobile's
decision to exercise an option to invest an approximately $75 million in
additional equity in ORBCOMM. The Procurement Agreement has subsequently been
amended and currently provides for the following:
Under the Procurement Agreement, Orbital will develop, construct and
deliver and launch 34 ORBCOMM satellites (ten of which have been launched) and
complete the construction and design of the U.S. Ground Segment. Under the
Procurement Agreement Orbital will launch the satellites using four Pegasus
launch vehicles and the Taurus launch vehicle. To date, Orbital has successfully
launched eight satellites on a Pegasus launch vehicle and two satellites on a
Taurus launch vehicle. Orbital will also provide in-orbit check-out support for
up to 120 days after each of the satellite launches.
ORBCOMM has agreed to pay Orbital approximately $196.4 million for
satellite construction, launch services and other work specified in the
Procurement Agreement, not including certain incentive fees. This amount
includes $3.5 million that ORBCOMM recently agreed to pay for out-of-scope work
performed by Orbital under the Procurement Agreement. On execution of the
Procurement Agreement, ORBCOMM paid to Orbital approximately $17 million
representing reimbursement for certain costs incurred through the date thereof.
Under the Procurement Agreement, Orbital is entitled to invoice ORBCOMM monthly
for a maximum of 90% of certain costs incurred during each month. The remaining
ten percent of such costs incurred in any month may be invoiced only on
completion of certain specified project milestones referred to in the
Procurement Agreement as Category B Milestones.
The remaining balance of the fixed price contract amount is generally
allocated to Category A Milestones as defined in the Procurement Agreement. In
the event that Orbital fails to achieve any Category A Milestone on or before
the scheduled completion date, ORBCOMM is relieved of its obligation to pay the
applicable amounts specified for such Category A Milestone until such time as
Orbital achieves such Category A Milestone or obtains a waiver in writing from
ORBCOMM for such achievement; provided, however, that Orbital's failure to
timely complete any milestone shall not relieve ORBCOMM of its obligation to pay
for other achieved milestones.
Incentive Payments. In addition to the above prices for work and service,
Orbital is entitled to receive certain in-orbit performance incentive payments.
Payments are to be made on a per-plane basis with the incentive to be earned
monthly for each complete month that there are a specified minimum number of
working satellites in the plane. The minimum number of working satellites in a
plane is seven during the first 30 months of the in-orbit performance incentive
period and six during the second 30 months of the in-orbit performance period.
Optional Work. The Procurement Agreement provides for additional work and
services to be performed on an optional basis, including: (i) an option to
purchase on or prior to December 31, 1999 a replacement constellation of 32
satellites substantially similar to those of the current system (including
launch services using four Pegasus launch vehicles) in accordance with the
specifications contained in the Procurement Agreement at a cost of $166.1
million (subject to adjustment for inflation and excluding taxes, if any, and
the cost of launch and satellite insurance); and (ii) a one-time option to
request Orbital to provide a standard Taurus launch vehicle rather than a
Pegasus launch vehicle for any launch procured pursuant to the Procurement
Agreement, which option may be exercised by ORBCOMM on or prior to September 12,
1998 at a price to be negotiated, provided that the price will not exceed $21
million.
Regulatory Matters. On consummation of Offering, the terms of the
Procurement Agreement will be amended to provide that Orbital is required to use
all commercially reasonable efforts directly or through OCC: (i) to obtain and
maintain the required U.S. regulatory authority needed to construct, launch and
operate the satellites and operate the ORBCOMM system; (ii) to obtain and
maintain FCC regulatory authority for the operation of subscriber units for use
in connection with the ORBCOMM system; and (iii) to take reasonable actions in
any regulatory proceedings to defend any claims against any regulatory authority
granted to Orbital or OCC in connection with the ORBCOMM system or to oppose any
application by competing systems that use frequencies below 1 GHz; provided that
Orbital, directly or indirectly through OCC, may in its reasonable discretion
contract with third parties, including ORBCOMM, for the provision of such
consulting or other services as Orbital may deem necessary or desirable to
enable it to fulfill such
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obligations. ORBCOMM has agreed to pay or reimburse Orbital or OCC for all
out-of-pocket expenses and internal costs incurred in connection with Orbital's
or OCC's efforts.
Delivery; Title and Risk of Loss. Under the Procurement Agreement, with
respect to a satellite launch using the Pegasus launch vehicle, delivery of the
launch vehicle and satellites occurs on separation of the launch vehicle from
Orbital's L-1011 aircraft. With respect to a satellite launch using a Taurus
launch vehicle, delivery of the satellites occurs on intentional ignition of the
Taurus launch vehicle. At such time, title to and risk of loss or damage passes
to ORBCOMM and ORBCOMM's sole remedy for launch failure, defects, failures to
conform to applicable specifications or any other requirements is limited to:
(i) non-payment to Orbital of the specified milestone payment and any satellite
performance incentive payment; and (ii) termination of the Procurement
Agreement.
Limitation of Liability. Under no circumstances, regardless of fault,
shall Orbital be liable for any damage greater than $10 million excluding: (i)
any unpaid portion of Category A Milestone payments; and (ii) any unpaid portion
of the in-orbit performance incentive payment.
Stop Work. ORBCOMM may at any time by written order to Orbital require
Orbital to stop all or any part of the work called for by the Procurement
Agreement for a period of 60 days or for any further period to which the parties
may agree. Within a period of 60 days after a stop-work is delivered to Orbital,
or within any extension of that period to which the parties agree, ORBCOMM will
either cancel the stop-work order and make an equitable adjustment to the
Procurement Agreement for the delay or terminate the work as provided in the
Procurement Agreement or if Orbital otherwise agrees to terminate.
Intellectual Property. In general, all designs, inventions, processes,
technical data, drawings and/or confidential information related to the
satellites, launch vehicle launch services, the Network Control Center and U.S.
Gateway Earth Stations are the exclusive property of Orbital and its
subcontractors. All rights, title and interest in and to all underlying
intellectual property relating to the work to be performed pursuant to the
Procurement Agreement will remain exclusively in Orbital and its subcontractors,
notwithstanding Orbital's disclosure of any information or delivery of any data
items to ORBCOMM or ORBCOMM's payment to Orbital for engineering or
non-recurring charges. ORBCOMM will not use or disclose such information or
property to any third party without the prior written consent of Orbital.
Termination. ORBCOMM may, by written notice of termination to Orbital,
terminate the Procurement Agreement upon the failure of Orbital: (i) to achieve
any of the Category A Milestones within 56 weeks after the scheduled completion
date set forth in the Milestone Payment Schedule (as defined in the Procurement
Agreement) provided that scheduled completion dates can be extended by any
excusable delays as a result of a force majeure event; or (ii) to comply in any
material respect with any of the provisions of the Procurement Agreement and to
correct such failure, within 60 days from the date of Orbital's receipt of
written notice thereof from ORBCOMM, setting forth in detail ORBCOMM's basis for
termination of the Procurement Agreement.
PROPRIETARY INFORMATION AGREEMENT
ORBCOMM, Orbital, OCC, Teleglobe and Teleglobe Mobile previously entered
into the Proprietary Information Agreement to protect any confidential and
proprietary information that may be disclosed to one another in connection with
the development, construction, operation and marketing of the ORBCOMM system.
This agreement will be amended on consummation of the Offering to provide that
the parties to the agreement that are in receipt of proprietary information
agree that they will not, during and for a period of five years after the term
of the agreement, use, disclose or otherwise disseminate such proprietary
information to any person or make any use of the proprietary information for
their own benefit or for the benefit of any other person.
Indemnification. Orbital and Teleglobe agree to indemnify and save
harmless one another and their respective affiliates and representatives (an
"indemnified party") from and against any claims, demands, actions, causes of
action, judgments, damages, losses, liabilities, costs or expenses that may be
made against
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any of them as a result of, arising out of or relating to any violation,
contravention or breach of the Proprietary Information and Non-Competition
Agreement by a party who is not an indemnified party.
Termination. The Proprietary Information Agreement will terminate on the
earlier of OCC or Teleglobe Mobile ceasing to be both a General Partner and a
limited partner of ORBCOMM.
AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT
As of January 1, 1997, ORBCOMM and Orbital entered into the Amended and
Restated Administrative Services Agreement (the "Administrative Services
Agreement") that sets forth the terms on which Orbital has agreed to provide
office space and certain administrative and other services to ORBCOMM. The
Administrative Services Agreement currently provides for the following:
Under the terms of the Administrative Services Agreement, Orbital has
agreed to provide to ORBCOMM defined office space for a total price per month
that is based on ORBCOMM's occupied useable square footage as a percentage of
total useable square footage in any Orbital facility occupied by ORBCOMM, and is
equal to ORBCOMM's pro rata portion of all Orbital's monthly costs and expenses
relating to the applicable facility, including but not limited to rent, mortgage
(including interest), operating expenses, taxes, building maintenance,
utilities, janitorial services, landscaping, management fees and leasehold
improvement amortization for interior buildout. Orbital also has agreed to
provide ORBCOMM with certain use and occupancy services on a cost reimbursable
basis (as specified therein). The use and occupancy services to be provided by
Orbital include management information systems services, security and facilities
support, telephone switchboard and communication services, employee training
services and other support services. Finally, Orbital has agreed to provide
various administrative and executive management services to ORBCOMM on a cost
reimbursable basis (as specified therein). The administrative and executive
management services to be provided by Orbital include accounting support,
payroll processing, miscellaneous purchasing services, personnel services and
other administrative services.
Orbital also has agreed to provide to ORBCOMM certain insurance on a cost
reimbursable basis, including health insurance, property and casualty insurance,
workers compensation insurance, auto liability insurance, general liability
insurance, fiduciary liability insurance, employee dishonesty insurance, transit
insurance and aviation products insurance. Orbital shall be required to provide
such insurance to ORBCOMM until such time as ORBCOMM can commercially procure
its own insurance at a rate comparable to Orbital's, or until such time as the
partners of ORBCOMM determine that ORBCOMM should procure its own insurance.
ORBCOMM has agreed to indemnify Orbital, its directors, officers or
employees against any liability in connection with any actions arising out of
the performance of the services except to the extent that such liability arises
from Orbital's gross negligence or willful misconduct.
The Administrative Services Agreement continues in effect so long as any of
the categories of office space or administrative services are being provided by
Orbital, provided that ORBCOMM has the right to terminate any or all of the
administrative services being provided by Orbital on 90 days prior written
notice to Orbital, and provided further that ORBCOMM shall have the right to
terminate the provision by Orbital of any office space occupied by ORBCOMM only
upon the expiration of the lease relating to such office space.
COMPANY ADMINISTRATIVE SERVICES AGREEMENT
On consummation of the Offering, the Company and ORBCOMM will enter into an
administrative services agreement (the "Services Agreement") pursuant to which
ORBCOMM will furnish to the Company certain administrative services on a cost
reimbursable basis. The services to be provided by ORBCOMM shall include but not
be limited to tax, audit, legal, employee benefits, investor relations and
public affairs.
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ORBCOMM CANADA CONSULTING AGREEMENT
As of March 18, 1998, ORBCOMM and ORBCOMM Canada entered into a Consulting
Agreement, which currently provides for the following:
ORBCOMM Canada has agreed to furnish to ORBCOMM certain business and
industry consultancy services including: (i) arranging meetings with senior
executives of Fortune 100 companies with the objective of developing business
relationships for ORBCOMM services; (ii) providing advice and counsel to ORBCOMM
marketing executives to build and extend ORBCOMM business partner relationships;
(iii) acting as the executive contact for certain application developers,
manufacturers and related vendors; (iv) providing advice and counsel to ORBCOMM
management as it develops and improves business processes, with a particular
focus on sales and pricing policies and practices; and (v) establishing
strategic relationships with key partners on a global basis.
In consideration for these consultancy services, ORBCOMM has agreed to pay
ORBCOMM Canada $1,000 per day, not to exceed $4,000 in any calendar week. Either
party may terminate the Consulting Agreement by giving ten days written notice
to the other party.
U.S. GATEWAY EARTH STATION MAINTENANCE SERVICE AGREEMENT
As of October 1, 1997, Orbital and ORBCOMM entered into the U.S. Gateway
Earth Station Maintenance Service Agreement, pursuant to which Orbital provides
to ORBCOMM pursuant to a detailed Statement of Work, among other things, routine
quarterly maintenance services, spare equipment, site representatives, repair
services, ORBCOMM satellite launch support services and other services for each
U.S. Gateway Earth Station. Specifically, Orbital has agreed to: (i) provide
routine quarterly maintenance services, including quarterly visits to each
Gateway Earth Station site by a qualified engineer or senior technician, as well
as certain testing and inspection services; (ii) manufacture, procure and
maintain spare equipment, including receiving, inspecting, testing and storing
such spare equipment; (iii) provide a local site representative and provide
maintenance of the grounds for each U.S. Gateway Earth Station site; (iv)
provide repair services; (v) develop drawings for certain shelters installed at
the U.S. Gateway Earth Station sites and conduct related surveys; and (vi)
provide satellite launch support consisting of the provision of one
knowledgeable person at each U.S. Gateway Earth Station site for the six day
period following each of the next two satellite launches scheduled after the
date of execution of the agreement. ORBCOMM has agreed to pay to Orbital
approximately $1.0 million on a firm fixed price basis (exclusive of certain
incidental expenses) for the services specified in the agreement, not including
repair service, which will be provided by Orbital on a time and materials basis.
The term of the agreement is one year, although ORBCOMM may terminate the
agreement in whole or in part at any time by providing written notice to
Orbital. ORBCOMM sites can be enhanced. ORBCOMM may terminate the agreement in
whole or in part, at any time by providing written notice to Orbital.
SERVICE LICENSE AGREEMENTS WITH ORBCOMM CANADA AND CELCOM
On December 19, 1995 and October 10, 1996, ORBCOMM entered into Service
License Agreements with two International Licensees, ORBCOMM Canada, a
majority-owned subsidiary of Teleglobe, and Cellular Communications Network
(Malaysia) Sdn. Bhd., a wholly owned subsidiary of TRI, respectively. Each
agreement is for an initial ten year term and is renewable for up to an
additional ten years. Pursuant to each agreement, ORBCOMM has granted to each
International Licensee an exclusive license to market ORBCOMM services
throughout its territory and a nonexclusive license to market ORBCOMM services
in international waters.
Each agreement provides that each International Licensee will obtain the
necessary regulatory approvals, procure the necessary ground infrastructure and
use commercially reasonable efforts to advertise, promote and market the ORBCOMM
system throughout its territory. In addition, each International Licensee has
agreed to pay certain license fees according to the provisions of each
agreement. Finally, each International Licensee pays to ORBCOMM a monthly
satellite usage fee based on the greater of a percentage of gross operating
revenues and a data throughput fee.
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SUBSCRIBER UNIT MANUFACTURE AGREEMENT WITH MAGELLAN
As of July 31, 1996, and for a ten-year term, ORBCOMM entered into a
Subscriber Unit Manufacture Agreement with Magellan, a majority-owned subsidiary
of Orbital. Under the terms of the agreement, Magellan agrees to manufacture,
distribute and service subscriber units to be used with the ORBCOMM system
according to specifications and technical requirements established by ORBCOMM.
Under the terms of the agreement, ORBCOMM authorizes Magellan to use the
ORBCOMM-developed subscriber unit software in subscriber units Magellan offers
for sale to ORBCOMM or to any other buyer. ORBCOMM also authorizes Magellan to
manufacture and sell each subscriber unit that has been type approved by
ORBCOMM. Under the terms of the agreement, ORBCOMM does not remit any payments
to Magellan for the development, manufacture or delivery of any subscriber units
not specifically purchased by ORBCOMM. Moreover, the agreement provides that
Magellan shall pay to ORBCOMM per-subscriber unit royalty for each unit that
Magellan sells. Under a letter agreement dated March 12, 1998 between ORBCOMM
and Magellan, ORBCOMM has agreed to pay Magellan a subsidy for each Magellan
subscriber unit sold through March 1999 up to an aggregate of $2.4 million.
ORBCOMM RESELLER AGREEMENT WITH ORBITAL
On March 3, 1997, ORBCOMM entered into a Reseller Agreement with Orbital.
The agreement has subsequently been amended and currently provides that, subject
to certain exclusions, ORBCOMM grants to Orbital the non-exclusive right to
market and resell ORBCOMM products and services for Intelligent Transportation
System monitoring, tracking and messaging applications to Federal, state and
local government and commercial accounts. The agreement provides that Orbital
will pay to ORBCOMM an activation fee for each new subscriber and monthly access
and usage fees for each new and current subscriber solicited by Orbital to use
the ORBCOMM system.
The term of the agreement is for one year renewable automatically for
additional terms of one year each unless either party gives 60 days' written
notice to the other party.
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GOVERNANCE OF THE COMPANY AND RELATIONSHIP WITH ORBCOMM
The power and authority to conduct and manage the business of the Company
is vested in the Company Board. On consummation of the Offering, the Company
Board will be composed of eight members. The initial Company Board will be
appointed by ORBCOMM and thereafter will be elected at the annual meeting of
stockholders. At least two members of the Company Board, the Company Independent
Directors, will at all times be persons not employed by or affiliated with
ORBCOMM, OCC or Teleglobe Mobile. See "Management" and "Description of the
Capital Stock."
PARTICIPATION IN THE GOVERNANCE OF ORBCOMM
On consummation of the Offering, ORBCOMM will be managed by the General
Partners through the ORBCOMM Committee, which initially will consist of eight
Members. The ORBCOMM Committee will be responsible for managing the affairs of
ORBCOMM. The ORBCOMM Committee will have complete and exclusive discretion in
the management and control of the affairs and business of ORBCOMM and will
possess all powers necessary, convenient or appropriate to carrying out the
purposes and business of ORBCOMM. The day-to-day activities of ORBCOMM will be
managed by its officers, subject to the supervision of the ORBCOMM Committee.
See "Description of the Partnership Agreement."
EXCHANGE RIGHTS OF ORBCOMM PARTNERS
Pursuant to a Unit Exchange Agreement, the Company has agreed with
ORBCOMM's current Partners to permit holders of the Partnership Units of ORBCOMM
to exchange those interests for shares of Common Stock at a ratio of one share
of Common Stock for each Partnership Unit (subject to anti-dilution adjustments
in the event of certain capital changes and issuances of Partnership Units under
certain circumstances) subject to certain limitations based on the attainment of
certain milestones. If a holder of Partnership Units (a "Unit Holder") desires
to effect an exchange of all or a portion of its Partnership Units it must
provide written notice to the Company and ORBCOMM. To exercise its rights under
the Unit Exchange Agreement, a Unit Holder and its affiliates must be in full
compliance with the Partnership Agreement. ORBCOMM and the Company have the
right to defer exchanges under the Unit Exchange Agreement if doing so is in the
best interests of ORBCOMM or the Company in light of possible or pending
financing or other transactions.
Generally, the Company will be required to effect, or take any action to
effect, any exchange of Partnership Units for Common Stock only to the extent
that the sum of the number of Partnership Units requested to be exchanged
pursuant to the Unit Exchange Agreement (the "Exchange Units") does not exceed:
(i) following the first fiscal quarter in which ORBCOMM has achieved positive
earnings before interest, taxes, depreciation and amortization ("EBITDA"), 25%
of the outstanding Partnership Units; (ii) following the date on which ORBCOMM
has launched a total of 28 satellites, 25% of the outstanding Partnership Units;
and (iii) following the earlier of (A) the date on which ORBCOMM has launched a
total of 36 satellites provided that ORBCOMM has achieved at least one full
quarter of positive EBITDA and (B) December 31, 2000, 100% of the outstanding
Partnership Units. In addition, a holder of Partnership Units may at any time
request the exchange of all or a portion of its Partnership Units prior to the
attainment of the foregoing milestones, provided that transfers of the shares of
Common Stock received in such exchange will be limited in accordance with the
foregoing milestones.
Under the Unit Exchange Agreement, the Company and ORBCOMM have agreed that
at any time after the attainment of certain milestones, the Company and ORBCOMM
will, at the request of Unit Holders and holders of Common Stock acquired under
the Unit Exchange Agreement, representing not less than five percent of the
Deemed Outstanding Shares (defined below), file with the Commission a
registration statement and use their best efforts to have that registration
statement remain effective for a period of up to six months, permitting such
holders to sell shares of Common Stock in the manner specified by those holders.
The Company and ORBCOMM have certain rights to defer the filing of a
registration statement or to cause holders to cease distributing securities
under an effective registration statement. Registering holders are required to
pay their pro rata portion of the costs of registration. "Deemed Outstanding
Shares" means all shares of Common Stock actually outstanding and the aggregate
number of shares of Common Stock issuable
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under the Unit Exchange Agreement in exchange for Partnership Units at the then
applicable exchange rate, whether or not the Partnership Units are then
exchangeable.
SHARE ISSUANCE AGREEMENT
The Company and ORBCOMM will enter into a Share Issuance Agreement (the
"Share Issuance Agreement") governing primary offerings of securities by the
Company in the future. The Share Issuance Agreement will provide that all net
proceeds from the sale of securities by the Company will be invested by the
Company in Partnership Units in ORBCOMM. Following consummation the Offering,
the Company will not issue any securities except pursuant to the Share Issuance
Agreement and the Unit Exchange Agreement. The Company has agreed that if
requested by ORBCOMM it will use its best efforts to sell securities of the
Company in compliance with all applicable laws and will cease to do so if
requested by ORBCOMM.
If the Company sells Common Stock pursuant to the Share Issuance Agreement,
ORBCOMM will issue to the Company, in exchange for the net proceeds of such
offering, one Partnership Unit for each share of Common Stock sold by the
Company (subject to anti-dilution adjustments in the event of certain capital
changes and issuances of Partnership Units under certain circumstances). If
ORBCOMM directs the Company to issue securities other than Common Stock, ORBCOMM
will issue to the Company interests in or securities of ORBCOMM, in exchange for
the net proceeds of such offering that replicate as nearly as possible the
economic attributes of the securities sold by the Company. ORBCOMM has agreed to
pay all expenses incurred by the Company in connection with any issuance of
securities under the Share Issuance Agreement and to indemnify the Company and
its officers, directors and employees against certain losses, claims, damages or
liabilities, including liabilities under the Securities Act. The Company also
has agreed to issue Common Stock pursuant to the Share Issuance Agreement in
connection with the Equity Plan. ORBCOMM will issue to the Company one
Partnership Unit for each share of Common Stock issued by the Company in
connection with the Equity Plan (subject to anti-dilution adjustments in the
event of certain capital changes and issuances of Partnership Units under
certain circumstances).
SUBSCRIPTION AGREEMENT
The Company and ORBCOMM will enter into a Subscription Agreement (the
"Subscription Agreement") pursuant to which the Company will use the net
proceeds of the Offering to purchase Partnership Units. The Subscription
Agreement will provide that the Company will use the net proceeds of the
Offering to acquire -- Partnership Units (-- Partnership Units if the
Underwriters' over-allotment option is exercised in full) from ORBCOMM at an
aggregate purchase price equal to the proceeds (net of underwriting discounts,
commissions and other Offering expenses) of the Offering. Expenses of the
Offering are payable by the Company. ORBCOMM has also agreed to indemnify the
Company and each of its officers, directors and employees against any losses,
claims, damages or liabilities to which the Company or such officer, director or
employee may become subject except to the extent that any such loss, damage or
liability arises out of or is based on an intentional act or omission of an
indemnified party that was contrary to any written instruction or request of
ORBCOMM or that amounted to willful misconduct on the part of the indemnified
party.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENT
The following summary of certain provisions of the Partnership Agreement is
qualified in its entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the registration statement of which this Prospectus is a
part.
GOVERNING COMMITTEE
ORBCOMM will be managed by the General Partners through the ORBCOMM
Committee, which initially will consist of eight Members. From the date of
consummation of the Offering until the earlier of (i) the date on which ORBCOMM
has launched a total of 36 satellites, provided that ORBCOMM has achieved
positive EBITDA for a full fiscal quarter and (ii) December 31, 2000 (the
"Release Date"), the Company shall have the right to appoint two Members to the
ORBCOMM Committee, and each of OCC and Teleglobe Mobile shall have the right to
appoint three Members to the ORBCOMM Committee. The Members will serve on the
ORBCOMM Committee at the discretion of the General Partner appointing them to
the ORBCOMM Committee and may be removed and replaced at any time by such
General Partner, provided that in the case of the Company's Members to the
ORBCOMM Committee, the Company must at all times appoint as Members to the
ORBCOMM Committee, the Independent Company Members. After the Release Date, each
General Partner of ORBCOMM shall have the right to appoint (i) three Members to
the ORBCOMM Committee if such Partners' Percentage Interest (as defined) is
equal to or greater than 30% but less than 50% or (ii) two Members to the
ORBCOMM Committee if such Partners' Percentage Interest is equal to or greater
than 10% but less than 30%. Notwithstanding the foregoing, the Company shall
have the right to appoint two Members to the Committee. In the event a General
Partner's Percentage Interest exceeds 50%, such Partner shall have the right to
appoint a majority of the Members of the Committee.
The ORBCOMM Committee will be responsible for managing the affairs of
ORBCOMM. The ORBCOMM Committee shall have complete and exclusive discretion in
the management and control of the affairs and business of ORBCOMM and shall
possess all powers necessary, convenient or appropriate to carrying out the
purposes and business of ORBCOMM. The day-to-day activities of ORBCOMM will be
managed by its officers, subject to the oversight of the ORBCOMM Committee.
Regular meetings of the ORBCOMM Committee will be held quarterly. Generally,
action by the ORBCOMM Committee may be taken only with the affirmative vote of a
majority of the Members present (the "Consent of the Committee"). Written notice
of any proposed action by the ORBCOMM Committee shall be given to all Members
prior to the taking of any such action, unless waived by any such Member.
CERTAIN ACTIONS
The ORBCOMM Committee will not take any action that would result in ORBCOMM
being engaged in a business other than the development and operation of the
ORBCOMM system without the prior written consent of all the General Partners of
ORBCOMM. The ORBCOMM Committee shall not undertake any of the following actions
unless it shall have first received the consent of Members comprising two-thirds
of the ORBCOMM Committee (the "Special Consent of the Committee"), and in the
case of clause (i) below, the consent of at least one Independent Company
Member: (i) appoint (including interim appointments as a result of vacancies)
and remove the senior executive officers, including the President, Chief
Executive Officer, Chief Financial Officer, Chief Operational Officer and Chief
Technical Officer; (ii) approve compensation, bonuses and benefit health and
welfare plans of senior executive officers; (iii) make and enter into contracts
or agreements involving consideration payable by ORBCOMM in excess of $5
million; (iv) enter into any material business asset or equity acquisition,
equity investment, joint venture or other strategic alliances that involve any
investment by ORBCOMM (including entering into any loan or financing
arrangement); (v) enter into any debt financing arrangement (including
capitalized leases) or borrow money on behalf of ORBCOMM, make, accept, endorse
and execute promissory notes, drafts, bills of exchange and other instruments
and evidences of indebtedness in connection therewith in excess of $5 million
outstanding at any one time and secure the payment of any such ORBCOMM
indebtedness by mortgage, pledge or assignment of or security interest in all or
any part of the property then owned or thereafter acquired by ORBCOMM; (vi)
approve the annual financial plan, including among others, the capital and
operating budgets for
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ORBCOMM, as well any material variances from a previously approved budget; (vii)
dispose of, transfer or lease material assets having a fair market value in
excess of $5 million; (viii) initiate any litigation that is in excess of $1
million or arrange for the settlement of any pending or threatened litigation
that is in excess of $1 million, by or against ORBCOMM, through compromise,
arbitration or otherwise; (ix) select or remove the independent certified public
accountant of ORBCOMM or adopt, or modify in any material respect, any
significant accounting policy or tax policy; or (x) admit any person to ORBCOMM
as a Limited Partner.
The following actions may not be taken by the ORBCOMM Committee unless it
shall have first received the consent of General Partners holding two-thirds of
the Partnership Units outstanding (the "Special Consent of the Partners") and,
in the case of the items described in clauses (i)-(viii), will not be put to a
vote of the General Partners without the consent of at least one of the
Independent Company Members: (i) make any material amendments or modifications
to the Partnership Agreement; (ii) approve any plan that would result in any
material change in the purpose of ORBCOMM as set forth in the Partnership
Agreement or otherwise change ORBCOMM's business so that it varies materially
from the business set forth in the Partnership Agreement; (iii) take any action
for the (a) commencement of a voluntary case under applicable bankruptcy,
insolvency or similar law now or hereinafter in effect, (b) consent to the entry
of any order for relief in an involuntary case under any such law to the extent
that the giving or withholding of such consent is within ORBCOMM's discretion,
(c) consent to the appointment or taking possession on a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of ORBCOMM or
of any substantial part of ORBCOMM's property or (d) making by ORBCOMM of a
general assignment for the benefit of creditors; (iv) cause the dissolution
and/or liquidation of ORBCOMM; (v) sell, lease, transfer, or otherwise dispose
of all or substantially all the assets of ORBCOMM or contract to do so (other
than to a person controlled by ORBCOMM); (vi) acquire (a) a controlling interest
in, or a majority of the voting stock or equity of, any corporation or other
entity or (b) any other assets not in the ordinary course of business of
ORBCOMM, in either case if the aggregate fair market value thereof is greater
than $-- million; (vii) merge or consolidate ORBCOMM with any other entity;
(viii) increase or decrease the authorized Partnership Units or to reclassify
the same, by changing the number, preferences, qualifications or limitations;
(ix) permit the entry by ORBCOMM into any additional lines of business other
than those set forth in the Partnership Agreement; (x) cancel or otherwise
affect the right of the holders of Partnership Units to receive any
distributions that have accrued but have not been paid; or (xi) create a new
class of Partnership Units having rights and preferences either prior and
superior or subordinate and inferior to the Partnership Units then authorized.
ORBCOMM will have related party contract subcommittee of the ORBCOMM
Committee (the "Contract Subcommittee") which will consist, as applicable, of
all Members other than any officer, employee of, or person designated as a
Member by the General Partner where such party or any affiliate thereof is a
party to the contract in question. The Contract Subcommittee shall have the
authority on behalf of ORBCOMM to review and monitor any contract between
ORBCOMM and any General Partner or its affiliates and, as it deems appropriate,
cause ORBCOMM to enforce its rights thereunder and propose amendments, waivers
and/or modifications thereto (it being understood that any such contract can be
amended only in accordance with the terms thereof or by mutual consent of the
parties thereto). A resolution adopted by a majority of the Members of the
Contract Subcommittee including the affirmative vote of at least one Independent
Company Member except where a party to the contract in question is the Company,
in which case the majority of the Members of the Contract Subcommittee shall be
sufficient ("Consent of the Contract Subcommittee"), if within the
above-described authority of the Contract Subcommittee, shall be deemed to be a
resolution approved by the Consent of the Contract Subcommittee.
The quorum for a meeting of the Partners shall be as follows: (i) with
respect to a matter requiring the Special Consent of the Partners,
representatives of the Partners (the "Representatives") present in person, by
proxy or written consent, representing a majority of the Partnership Units
outstanding; and (ii) with respect to a matter requiring Consent of the Contract
Subcommittee, Representatives present in person, or by proxy or written consent,
representing a majority of the Partnership Units outstanding held by the
Contract Subcommittee. Each General Partner (in the case of a matter requiring
the Special Consent of the Partners) or each disinterested General Partner (in
the case of a matter requiring the Consent of the Contract Subcommittee), shall
have the right to designate one Representative to attend such meeting, who will
have the right to cast at
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any such meeting a number of votes equal to the number of Partnership Units held
by such General Partner. Each General Partner has the right to cast one vote for
each Partnership Unit held by such Representatives with respect to the matters
set forth above and for which it is qualified to vote.
COMPANY CHANGE OF CONTROL AND REDUCTION IN INTEREST
A Company Change of Control is defined in the Partnership Agreement as an
event or series of events by which: (i) any "person" or "group" (as such terms
are defined in Section 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act)
directly or indirectly, of more than 30% of the Common Stock of the Company then
outstanding; (ii) the Company consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
assets, including all or substantially all of its Partnership Units in ORBCOMM,
to any person, or any corporation consolidates with or merges into the Company,
in either event pursuant to a transaction in which the Company's outstanding
Common Stock is changed into or exchanged for cash, securities or other
property, other than any transaction after which the stockholders who
beneficially owned Common Stock immediately before such transaction beneficially
own at least 50% of the outstanding voting stock of the surviving entity and no
other person beneficially owns more than 30% of the outstanding voting stock of
the surviving entity; (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Company Board
(together with any new directors whose election by the Company Board or whose
nomination for election was approved by a vote of two-thirds of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office; or (iv)
the Company makes on any day any distribution or distributions of cash, property
or securities (other than regular dividends, Common Stock or rights to acquire
Common Stock) to its stockholders, or purchases or otherwise acquires its Common
Stock, and the sum of the fair market value of such distribution or purchase,
plus the fair market value of all other such distributions and purchases that
have occurred during the preceding 12 months, exceeds 30% of the fair market
value of the Company's outstanding Common Stock.
The Company will lose its rights as a General Partner of ORBCOMM and will
automatically revert to the status of a limited partner (i) on a Company Change
of Control that has not been approved by OCC and Teleglobe Mobile if at such
time the Company owns less than 50% of the outstanding Partnership Units or (ii)
in the event of a reduction in the Company's interest in ORBCOMM as a result of
a sale of Partnership Units by the Company following which the Company owns less
than 5% of the then outstanding Partnership Units. In either of such events, the
special governance rights granted to the Company and described in this
Prospectus will automatically terminate and the Company may be deemed to be an
investment company, subject to regulation under the 1940 Act. See "Risk
Factors -- Structural and Market Risks -- Risk of Loss of Management Rights on a
Change of Control or Reduction in Interest" and "-- Risks Related to the
Investment Company Act of 1940."
INDEMNIFICATION AND FIDUCIARY STANDARDS
ORBCOMM has agreed to indemnify its Partners, their respective affiliates
and all of their respective officers, directors, partners, controlling
stockholders, employees and agents (each an "Indemnitee") from and against any
and all losses and liabilities arising out of or incidental to the business of
ORBCOMM so long as such Indemnitee's conduct did not constitute actual fraud,
gross negligence, knowing breach of specific provisions of the Partnership
Agreement or willful or wanton misconduct. The Partnership Agreement further
provides that OCC, Teleglobe Mobile and the Company and their respective
affiliates, officers, directors, partners, controlling stockholders, employees
and agents (each a "General Partner Person") will not be liable to ORBCOMM or
the limited partners for any losses sustained or liabilities incurred as a
result of any act or omission of a General Partner Person, if such person or
entity acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interest of ORBCOMM and the conduct did not
constitute gross negligence or non-performance (as defined). OCC, Teleglobe
Mobile and the Company, as applicable, will indemnify the limited partners for
losses and liabilities resulting from conduct of their
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respective General Partner Person that is found to have constituted bad faith,
gross negligence or non-performance.
The Partnership Agreement also provides that, except as otherwise
specifically provided in the Partnership Agreement, the duties and obligations
owed to ORBCOMM and to the partners by the Members and officers of ORBCOMM, and
any such duties that may be owed by any Member or by any affiliates of any
Member, shall be the same as the respective duties and obligations owed to a
corporation organized under the Delaware General Corporation Law by its
directors and officers and any such duties that may be owed to such corporation
by any similarly situated stockholder or affiliate thereof, respectively.
Notwithstanding the foregoing, a Member shall not be liable as a Member if such
Member would not have had liability if ORBCOMM were a corporation subject to the
Delaware General Corporation Law as the same exists or may hereafter be amended
and had in its certificate of incorporation the same provision as Article Ninth
of the Certificate of Incorporation of the Company (which limits the liability
of directors and officers). A Member shall not be liable to ORBCOMM or its
Partners for monetary damages for a breach of fiduciary duty as a Member and any
repeal or modification of this provision of the Partnership Agreement shall not
adversely affect any right or protection of a Member existing at the time of
such repeal or modification.
ALLOCATIONS AND DISTRIBUTIONS
Allocations. Net Income and Net Loss (as defined in the Partnership
Agreement) will generally be allocated to the Partners in proportion to their
Partnership Units.
Distributions. The Partnership Agreement requires the ORBCOMM Committee,
to the extent of legally available funds, to declare and pay a pro rata
distribution at the end of each fiscal quarter in an amount sufficient to ensure
that each Partner shall have received at least an amount equal to the product of
(i) forty percent multiplied by (ii) the lesser of (a) such Partner's
distributive share of ORBCOMM's estimated taxable income for the preceding
fiscal quarter or (b) the excess of cumulative net income over cumulative net
loss allocated to such Partner. All distributions shall be made to the Partners
in proportion to their Partnership Units.
DISSOLUTION
ORBCOMM will continue until 2048, unless sooner dissolved on the occurrence
of any of the following: (i) the withdrawal of a General Partner, or any other
event that results in its ceasing to be a General Partner (i.e., removal,
bankruptcy or dissolution) unless at the time OCC or Teleglobe Mobile or a
successor to OCC or Teleglobe Mobile remains a General Partner; (ii) a sale of
all or substantially all of the assets of ORBCOMM; (iii) the bankruptcy or the
dissolution of OCC or Teleglobe Mobile; (iv) on the Special Consent of the
Partners with the affirmative vote of at least one Company Independent Director;
or (v) any other event under the Delaware General Corporation Law that would
cause its dissolution. ORBCOMM will be reconstituted if -- % in interest of the
Partners vote to form a new partnership and, in the case of a dissolution
resulting from the withdrawal, bankruptcy or dissolution of a General Partner,
to appoint a successor General Partner.
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DESCRIPTION OF THE SENIOR NOTES
General. On August 7, 1996, ORBCOMM and ORBCOMM Global Capital Corp. (the
"Issuers") issued $170 million of 14% Senior Notes Due 2004 pursuant to
exemptions from registration under the Securities Act (the "Old Notes"). In
January 1997, all of the Old Notes were exchanged for the Notes. The Notes are
subject to the terms and conditions of the Indenture, a copy of which is
incorporated by reference into the Registration Statement of which this
Prospectus is a part. The following summary of the material provisions of the
Indenture does not purport to be complete, and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Indenture and those
terms made a part of the Indenture by the Trust Indenture Act of 1939, as
amended. All terms defined in the Indenture and not otherwise defined herein are
used in this section with the meanings set forth in the Indenture.
Principal, Maturity and Interest. The Notes are limited in an aggregate
principal amount equal to $170 million. The Notes will mature on August 15, 2004
and bear interest at 14% per annum, payable semi-annually in arrears on February
15 and August 15 of each year. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months. The Notes bear Revenue Participation
Interest from the Issue Date to the date of payment of the Notes. With respect
to any month and any Note, the monthly Revenue Participation Interest is
calculated using the following formula: 5% of System Revenue for such month
multiplied by a fraction, the numerator of which is the principal amount
outstanding on such Note and the denominator of which is $170 million. The
Issuers, at their option, may defer payment of all or a portion of Revenue
Participation Interest then otherwise due if, and only to the extent that, the
payment of such portion of Revenue Participation Interest will cause the Credit
Parties' Fixed Charge Coverage Ratio for the four consecutive fiscal quarters
last completed prior to such interest payment date to be less than 2:1 on a pro
forma basis after giving effect to the assumed payment of such Revenue
Participation Interest. Installments of accrued or deferred Revenue
Participation Interest accrued through the Accrual Period last ended become due
and payable semi-annually on each February 15 and August 15. All installments of
accrued or deferred Revenue Participation Interest become due and payable (and
may not be further deferred) with respect to any principal amount of the Notes
that matures upon such maturity of such principal amount of the Notes.
Seniority. The Notes are senior obligations of the Issuers, rank senior in
right and priority of payment to all subordinated indebtedness of the Issuers
and rank pari passu in right and priority of payment with all other indebtedness
of the Issuers that is not expressly so subordinated, including indebtedness
under the MetLife Note (approximately $2.3 million as of December 31, 1997),
except to the extent of the collateral securing such MetLife Note.
Optional Redemption. The Issuers may not redeem the Notes prior to August
15, 2001. Thereafter, the Notes are subject to redemption at the option of the
Issuers, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest (including Revenue
Participation Interest, if any) and Liquidated Damages (if any) thereon to the
applicable redemption date, if redeemed during the 12-month period beginning on
August 15 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2001........................................................ 115.00%
2002........................................................ 107.50%
2003 and thereafter......................................... 100.00%
Notwithstanding the foregoing, prior to August 15, 1999, the Issuers may
redeem outstanding Notes with the net proceeds of one or more sales of Capital
Stock (other than Disqualified Stock) of OCC, Teleglobe Mobile or ORBCOMM to one
or more Persons at a redemption price equal to 115% of the principal amount
thereof, plus accrued and unpaid interest (including Revenue Participation
Interest, if any) and Liquidated Damages (if any) thereon to the redemption
date; provided, however, that: (i) not less than $127.5 million aggregate
principal amount of Notes remains outstanding immediately after any such
redemption; and (ii) such redemption occurs within 30 days after the date of
closing of such sale of Capital Stock.
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ORBCOMM is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
Change of Control. Upon the occurrence of a Change of Control, each holder
of the Notes may require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes at an offer price
in cash equal to 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest (including Revenue Participation Interest, if any) and
Liquidated Damages (if any) thereon to the date of purchase.
Covenants. The Indenture restricts, among other things, the Credit
Parties' ability to incur additional indebtedness, pay dividends or make certain
other restricted payments, incur liens, sell assets, merge or consolidate with
any other person (other than another Credit Party or Guarantor), sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of such Credit Party (other than to any other Credit Party of Guarantor, enter
into certain transactions with affiliates, or incur additional indebtedness. The
Indenture permits, under certain circumstances, the Credit Parties' subsidiaries
to be deemed unrestricted subsidiaries and thus not subject to the restrictions
of the Indenture.
Events of Default. Events of Default under the Indenture include the
following: (i) a default for 30 days in the payment when due of interest
(including Revenue Participation Interest, if any) on, or Liquidated Damages (if
any) with respect to, the Notes; (ii) default in payment when due (whether at
maturity, upon redemption or repurchase, or otherwise) of the principal of or
premium (if any) on the Notes; (iii) default in the payment of principal and
interest (including Revenue Participation Interest, if any) on Notes required to
be purchased pursuant to certain provisions of the Indenture; (iv) failure by
the Credit Parties or any of their Restricted Subsidiaries for 30 days after
notice to comply with any of their other covenants in the Indenture or the
Notes; (v) default under certain items of Indebtedness for money borrowed by the
Credit Parties or any of their Restricted Subsidiaries (as defined in the
Indenture); (vi) failure by the Credit Parties any of their Restricted
Subsidiaries to pay final judgments aggregating in excess of $5 million, which
judgments are not paid, discharged or stayed for a period of 60 days; (vii)
breach by the Issuers of any representation or warranty set forth in the Pledge
Agreement, or default by the Issuers in the performance of any covenant set
forth in the Pledge Agreement, or repudiation by the Issuers of any of their
obligations under the Pledge Agreement or the unenforceability of the Pledge
Agreement against the Issuers for any reason which in any one case or in the
aggregate results in a material impairment of the rights intended to be afforded
thereby; (viii) termination or loss, for any reason, of the Original FCC
License; (ix) certain events of bankruptcy or insolvency with respect to the
Credit Parties or any of their Restricted Subsidiaries; and (x) any Guarantee of
the Notes shall be held in any judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny or
disaffirm its obligations under its Guarantee of the Notes.
Upon the occurrence of an Event of Default, with certain exceptions, the
Trustee or the holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
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DESCRIPTION OF THE CAPITAL STOCK
On consummation of the Offering, the authorized capital stock of the
Company will consist of -- shares of Common Stock, par value $.01 per share, of
which -- shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the stockholders of the Company and do not have cumulative
voting rights. Accordingly, holders of a majority of the outstanding shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Company Board out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. There are no redemption or sinking fund
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the shares offered of Common Stock by the Company in the
Offering will be, when issued and paid for, fully paid and non-assessable.
At present, there is no established trading market for the Common Stock.
Application will be made for the listing of the Common Stock on the Nasdaq
National Market.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Certificate of Incorporation (the "Certificate") and Bylaws
(the "Bylaws") limit the liability of directors and officers to the maximum
extent permitted by the Delaware General Corporation Law. The Delaware General
Corporation Law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
including gross negligence, except liability for: (i) breach of the directors'
and officers' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director or officer derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's or an officer's duty of care, and this provision of the Certificate
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care. The Company does
not believe that these provisions will limit liability under state or federal
securities laws. However, the Company believes that these provisions will assist
the Company in attracting and retaining qualified individuals to serve as
directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless: (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election); (ii) the business
combination was approved by the Company Board before the other party to the
business combination became an interested stockholder; (iii) upon consummation
of the transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan); or (iv) the business combination was approved by the Company Board
and ratified by two-thirds of the voting stock that the interested stockholder
did not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder
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during the previous three years or who became an interested stockholder with the
approval of the majority of the corporation's directors. The term "business
combination" is defined generally to include mergers or consolidations between a
Delaware corporation and an "interested stockholder," transactions with an
"interested stockholder" involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions that increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who, together with affiliates and
associates, owns (or, within three years prior, did own) 15% or more of a
Delaware corporation's voting stock. Section 203 could prohibit or delay a
merger, takeover or other change of control of the Company and therefore could
discourage attempts to acquire the Company.
REMOVAL OF DIRECTORS
Under the Certificate of Incorporation of the Company, a director may be
removed only for cause at a special meeting of the shareholders specifically
called for that purpose by the Chairman, the Chief Executive Officer, the
President or upon the request of a majority of the Company Board, only by vote
of the holders of at least 80% of the voting power of the then outstanding
voting stock, voting together as a class. Any vacancy created by the removal of
a director at a special meeting may be filled by the Board of Directors until
such director's successor has been elected and has qualified.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is --.
SHARES ELIGIBLE FOR FUTURE SALE
Following consummation of the Offering, the only shares of Common Stock of
the Company that will be outstanding will be the -- shares issued in the
Offering (-- shares if the Underwriters' over-allotment option is exercised in
full). These shares may be freely transferred if held by persons who are not
affiliates of the Company.
Subject to certain limitations, the Company has agreed in the Unit Exchange
Agreement that it will exchange shares of Common Stock for Partnership Units at
the rate of one share of Common Stock for each Partnership Unit (the "Exchange
Right"), subject to anti-dilution adjustments. Based upon the number of
Partnership Units expected to be outstanding at the time of consummation of the
Offering, -- shares of Common Stock would be issuable upon such exchange.
Pursuant to the Unit Exchange Agreement, the Unit Holders may not exchange their
Partnership Units for shares of Common Stock prior to the occurrence of certain
events. See "Governance of the Company and Relationship with ORBCOMM -- Exchange
Rights of ORBCOMM Partners."
Under the Unit Exchange Agreement, the Company and ORBCOMM agreed that
following the occurrence of certain events, the Company and ORBCOMM will, at the
request of Unit Holders and holders of Common Stock acquired under the Unit
Exchange Agreement representing not less than five percent of the Fully Diluted
Shares (as defined in the Unit Exchange Agreement), file with the Commission a
registration statement and use their reasonable best efforts to have that
registration statement remain effective for a period of up to six months,
permitting such holders to sell shares of Common Stock in the manner specified
by those holders. If the shares of Common Stock issuable upon exchange are so
registered, the shares will be freely transferable. See "Governance of the
Company and Relationship with ORBCOMM -- Exchange Rights of ORBCOMM Partners."
The Common Stock acquired upon exchange of Partnership Units will
constitute "restricted securities" within the meaning of Rule 144 under the
Securities Act ("Rule 144A") and, unless registered under the Securities Act,
may only be sold if an exemption from registration is available. Pursuant to
Rule 144 under the Securities Act, a person, including an "affiliate" (as that
term is defined in Rule 144) of the issuer, may sell restricted securities if a
minimum of one year has elapsed between the later of the date of acquisition of
the restricted securities from the issuer or from an affiliate of the issuer.
Such a person will be entitled to sell,
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within any three-month period, a number of shares that does not exceed the
greater of: (i) the average weekly trading volume of the class of stock being
sold during the four calendar weeks preceding the filing of a notice of sale
with the Commission or, if no such notice is required, the sale date; or (ii)
one percent of the then outstanding shares of the class of stock being sold.
Sales pursuant to Rule 144 are also subject to certain requirements as to notice
filing and availability of current public information about the Company. A
person who is deemed not to have been an affiliate of the Company at any time
during the 90 days preceding a sale by such person and who has beneficially
owned the restricted securities for at least two years is entitled to sell those
shares under Rule 144 without regard to the volume limitation, manner of sale
restrictions or notice filing requirements of Rule 144. In certain
circumstances, a holder may "tack" the holding period for the restricted
securities converted into or exchanged for the restricted securities for
purposes of computing the one year and two year holding periods. Shares of
Common Stock may also be sold pursuant to any exemption from registration that
might be available without compliance with the requirements of Rule 144.
As of --, 1998, options to purchase a total of -- shares of Common Stock
granted under the Equity Plan were outstanding. Of these shares, -- shares are
subject to agreements pursuant to which, with certain exceptions, the optionees
agree not to sell or otherwise transfer their shares of Common Stock for a
period of 180 days following the consummation of the Offering. See
"Underwriting." An additional -- shares are available for future grants under
the Equity Plan. Pursuant to Rule 701 under the Securities Act, persons who
purchase shares upon exercise of options granted prior to the Company becoming
subject to the provisions of the Exchange Act and which were otherwise granted
pursuant to Rule 701 are entitled to sell such shares in reliance upon Rule 144
commencing 90 days after the date of the Offering without regard to the holding
period, volume limitations or other restrictions of Rule 144, if such persons
are not Affiliates, and without regard to the holding period requirements of
Rule 144, if such persons are Affiliates. Additionally, the Company intends to
file one or more registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock subject to then outstanding options under
and Common Stock issuable pursuant to the Equity Plan. The Company expects to
file these registration statements promptly following the consummation of the
Offering, and such registration statements are expected to become effective upon
filing. Shares covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the agreements with
Underwriters regarding restrictions on sale, to the extent applicable.
Eligible employees of ORBCOMM and certain of its affiliates who are
purchasing directed shares of Common Stock in the Offering have agreed, with
certain exceptions, not to sell, offer to sell or otherwise dispose of any
shares of Common Stock without the prior written consent of Bear, Stearns & Co.
Inc. and J.P. Morgan Securities Inc. for a period of 180 days after the date of
this Prospectus.
Issuances of substantial amounts of Common Stock, or the expectation of
such issuances, could adversely affect the market price of the Common Stock. See
"Risk Factors -- Structural and Market Risks -- Shares Eligible for Future
Sale."
Prior to the Offering, there has been no public market for the Common Stock
and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Bear, Stearns & Co.
Inc. and J.P. Morgan Securities Inc., have severally agreed to purchase from the
Company the following respective number of shares of Common Stock.
NAME NUMBER OF SHARES
---- ----------------
Bear, Stearns & Co. Inc. ...................................
J.P. Morgan Securities Inc. ................................
-------
Total..................................................
=======
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus, and at such price less a
concession not in excess of $-- per share of Common Stock to certain other
dealers who are members of the National Association of Securities Dealers, Inc.
The Underwriters may allow, and such dealers may reallow, concessions not in
excess of $-- per share to certain other dealers. After the Offering, the
offering price, concessions and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance by
the Underwriters and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted a 30-day over-allotment option to the Underwriters
to purchase up to an aggregate of -- additional shares of Common Stock of the
Company exercisable at the public offering price less the underwriting discount.
If the Underwriters exercise such over-allotment option, then each of the
Underwriters will be committed, subject to certain conditions, to purchase such
additional shares in approximately the same proportion as set forth in the above
table. The Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of the shares of Common Stock offered hereby.
The Underwriting Agreement provides that the Company and ORBCOMM will
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act or will contribute to payments that the Underwriters
may be required to make in respect thereof.
The Underwriters have reserved for sale at the initial public offering
price up to -- shares of Common Stock for sale to eligible employees of ORBCOMM
and certain of its affiliates. The number of shares available for sale to the
general public will be reduced to the extent any reserved shares are purchased.
Any reserved shares not so purchased will be offered by the Underwriters to the
public on the same basis as the other shares offered hereby. Any employee of
ORBCOMM or its affiliates who purchases reserved shares will be required to
agree not to dispose of such shares, subject to certain de minimis exceptions,
for a period of 180 days following the date of this Prospectus without the prior
written consent of Bear, Stearns & Co. Inc. and J.P. Morgan Securities Inc.
The executive officers and directors of the Company, the executive officers
of ORBCOMM, the Members of the ORBCOMM Committee, the executive officers and
directors of Orbital, Teleglobe, TRI, OCC and Teleglobe Mobile, holding an
aggregate of -- shares of Common Stock on the date of the Offering, have agreed
pursuant to lock-up agreements not to, directly or indirectly, offer or agree to
sell, grant any option for the sale of or otherwise dispose of any shares of
Common Stock held by them (or any securities convertible into, exercisable for
or exchangeable for shares of Common Stock), subject to certain de minimus
exceptions,
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for a period of 180 days after the date of this Prospectus without the prior
written consent of Bear, Stearns & Co. Inc. and J.P. Morgan Securities Inc.
In addition, each of the Company, ORBCOMM, OCC and Teleglobe Mobile has
agreed that for a period of 180 days after the date of this Prospectus it will
not, without the prior written consent of Bear, Stearns & Co. Inc. and J.P.
Morgan Securities Inc., directly or indirectly, issue, sell, offer or agree to
sell, grant any option for the sale of or otherwise dispose of any shares of
Common Stock, Partnership Units, shares of capital stock of OCC or partnership
interests of Teleglobe Mobile, respectively (or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock, Partnership Units,
shares of capital stock of OCC or partnership interests of Teleglobe Mobile,
respectively), except for the shares of Common Stock offered hereby and the
Underwriters' over-allotment option and shares of Common Stock issuable upon the
exercise of stock options that will be outstanding under the Equity Plan on
consummation of the Offering.
In addition, each of Orbital, Teleglobe and TRI has agreed that for a
period of 180 days after the date of this Prospectus it will not, without the
prior written consent of Bear, Stearns & Co. Inc. and J.P. Morgan Securities
Inc., directly or indirectly, issue, sell, offer or agree to sell, grant any
option for the sale of or otherwise dispose of any shares of capital stock of
OCC or any partnership interests of Teleglobe Mobile.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial offering price for the Common Stock
will be determined by negotiations between the Company and the representatives
of the Underwriters. Among the factors to be considered in such negotiations are
the results of operations of ORBCOMM in recent periods, estimates of the
prospects of the Company and ORBCOMM and the industry in which ORBCOMM competes,
an assessment of the Company's and ORBCOMM's management, the present state of
ORBCOMM's development, the general state of the securities markets at the time
of the offering and the prices of similar securities of generally comparable
companies. The Company has submitted an application for approval of its Common
Stock for quotation on the Nasdaq National Market under the symbol "ORBC." There
can be no assurance, however, that an active or orderly trading market will
develop for the Common Stock or that the Common Stock will trade in the public
markets subsequent to the Offering at or above the initial offering price.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock during and after the Offering. Specifically, the Underwriters may
over-allot or otherwise create a short position in the Common Stock for their
own account by selling more shares of Common Stock than have been sold to them
by the Company. The Underwriters may elect to cover any such short position by
purchasing shares of Common Stock in the open market or by exercising the over-
allotment option granted to the Underwriters. In addition, the Underwriters may
stabilize or maintain the price of the Common Stock by bidding for or purchasing
shares of Common Stock in the open market and may impose penalty bids, under
which selling concessions allowed to syndicate members or other broker-dealers
participating in the Offering are reclaimed if shares of Common Stock previously
distributed in the Offering are repurchased in connection with stabilization
transactions or otherwise. The effect of these transactions may be to stabilize
or maintain the market price at a level above that which might otherwise prevail
in the open market. The imposition of a penalty bid may also affect the price of
the Common Stock to the extent that it discourages resales thereof. No
representation is made as to the magnitude or effect of any such stabilization
or other transactions. Such transactions may be effected on the Nasdaq National
Market or otherwise and, if commenced, may be discontinued at any time.
Certain of the Underwriters and their affiliates have from time to time
provided, and may continue to provide, investment banking services to the
Company, ORBCOMM and their affiliates for which such Underwriters or affiliates
have received and will receive fees and commissions. In addition, Bear, Stearns
& Co. Inc. and J.P. Morgan Securities Inc. acted as initial purchasers in the
placement of the Notes in August 1996.
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LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other matters
will be passed on for the Company by Latham & Watkins, Washington, D.C. Certain
legal matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson, New York, New York, a partnership including professional
corporations.
EXPERTS
The balance sheet of the Company as of March 31, 1998 and the combined
financial statements of ORBCOMM as of December 31, 1996 and 1997, and for each
of the years in the three-year period ended December 31, 1997, and for the
period from June 30, 1993 (date of inception) to December 31, 1997, have been
included herein and in the Registration Statement, of which this Prospectus
forms a part, in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company, ORBCOMM and the Common Stock offered hereby, reference is hereby made
to such Registration Statement and the exhibits thereto. Statements contained in
this Prospectus regarding the contents of any contract or other documents are
not necessarily complete; with respect to each such contract or document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits thereto, may be inspected without
charge at the principal office of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549; at its Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and at its New York Regional Office, 7
World Trade Center, New York, New York, 10048. Copies of such material may be
obtained from the public reference section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission. Additionally, the Company will be subject to the public reporting
requirements of the Exchange Act, and thus will file with the Commission
periodic reports pursuant to Section 13(d) and proxy statements pursuant to
Section 14 of the Exchange Act. These filings may also be inspected at or
obtained from the Commission. In addition, the Commission maintains a World Wide
Web site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission through the Electronic Data Gathering,
Analysis and Retrieval System.
ORBCOMM is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission, which may be inspected at or obtained from the
Commission.
The Company intends to furnish its stockholders annual reports containing
audited financial statements of the Company and ORBCOMM and quarterly reports
containing unaudited interim financial information for the Company and ORBCOMM
for the first three fiscal quarters of each fiscal year.
95
100
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ORBCOMM CORPORATION
Independent Auditors' Report.............................. F-2
Balance Sheet as of March 31, 1998........................ F-3
Note to Financial Statement............................... F-4
ORBCOMM GLOBAL, L.P.
Independent Auditors' Report.............................. F-5
Combined Balance Sheets as of December 31, 1996 and
1997................................................... F-6
Combined Statements of Operations for the Years Ended
December 31, 1995, 1996, and 1997 and Total Accumulated
During Development Stage to December 31, 1997.......... F-7
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1996, and 1997 and Total Cash Flows
During Development Stage to December 31, 1997.......... F-8
Combined Statements of Partners' Capital for the period
June 30, 1993 (date of inception) to December 31,
1997................................................... F-9
Notes to Combined Financial Statements.................... F-10
F-1
101
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ORBCOMM Corporation:
We have audited the accompanying balance sheet of ORBCOMM Corporation (the
Company, a development stage enterprise) as of March 31, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of the Company (a development stage
enterprise) as of March 31, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, DC
April 2, 1998
F-2
102
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
AS OF MARCH 31, 1998
ASSET
Cash........................................................ $100.00
-------
TOTAL ASSET............................................ $100.00
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities................................................. $ --
Stockholder's equity
Common Stock, par value $0.01; 1,000 shares authorized;
100 shares issued and outstanding...................... 1.00
Additional paid-in capital.................................. 99.00
Retained earnings........................................... --
Total stockholder's equity................................ 100.00
-------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $100.00
=======
See accompanying note to the financial statement
F-3
103
ORBCOMM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTE TO FINANCIAL STATEMENT
ORGANIZATION AND BUSINESS
ORBCOMM Corporation (the "Company") was incorporated under the laws of the
State of Delaware on March 23, 1998. The Company was formed for the sole purpose
of investing in, and acting as a general partner of ORBCOMM Global, L.P.
("ORBCOMM"), a limited partnership. The Company is authorized to issue 1,000
shares of common stock of $.01 par value, of which 100 shares are issued and
outstanding. The Company's sole asset will be its investment in Partnership
Units in ORBCOMM, and the Company's results of operations will reflect its
proportionate share of ORBCOMM's net income or loss using the equity method of
accounting.
The Company plans to file a registration statement with the Securities and
Exchange Commission in order to register its Common Stock for sale in an initial
public offering (the "Offering"). The net proceeds of the Offering will be used
by the Company to purchase Partnership Units from ORBCOMM. ORBCOMM will use the
net proceeds of the sale of Partnership Units to the Company primarily for: (i)
the design, construction and launch of the planned 36-satellite enhanced
constellation, including amounts payable to Orbital under the Procurement
Agreement as of consummation of the Offering; (ii) related development,
operating and marketing expenses, including expenses incurred in connection with
Internal VARs; (iii) the payment of interest on the Notes and scheduled payments
of principal and interest on the MetLife Note; and (iv) other general corporate
purposes related to commercial deployment of the ORBCOMM system.
ORBCOMM is in its development stage, devoting substantially all of its
efforts to establishing a new data and messaging communications business using
the ORBCOMM low-Earth orbit satellite communications system (the "ORBCOMM
System").
F-4
104
INDEPENDENT AUDITORS' REPORT
The Partners
ORBCOMM Global, L.P.:
We have audited the accompanying combined balance sheets of ORBCOMM Global,
L.P. ("ORBCOMM") (a development stage enterprise) as of December 31, 1997 and
1996, and the related combined statements of operations, partners' capital, and
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 30, 1993 (date of inception) to December 31, 1997.
These combined financial statements are the responsibility of ORBCOMM's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of ORBCOMM (a
development stage enterprise) as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, and for the period June 30, 1993 (date of
inception) to December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, DC
February 11, 1998
F-5
105
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
----------------------
1996 1997
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 56,870 $ 16,106
Investments............................................... 54,769 22,756
Other receivables......................................... 822 1,996
Inventory:
Subscriber units....................................... 1,751 1,827
Gateway Earth stations................................. 3,871 19,580
Prepaid contract costs.................................... 0 457
-------- --------
Total Current Assets................................... 118,083 62,722
Investments................................................. 41,843 0
Other receivables........................................... 517 0
ORBCOMM System, net......................................... 170,034 263,379
Other assets, net........................................... 6,138 5,527
Investment in ORBCOMM Japan................................. 0 333
-------- --------
TOTAL ASSETS........................................... $336,615 $331,961
======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Current portion of long-term debt......................... $ 991 $ 1,087
Accounts payable -- Orbital Sciences Corporation.......... 5,459 21,100
Other accounts payable and accrued liabilities............ 13,890 19,159
Deferred revenue.......................................... 6,147 13,270
-------- --------
Total Current Liabilities.............................. 26,487 54,616
Long-term debt.............................................. 172,278 171,190
-------- --------
Total Liabilities...................................... 198,765 225,806
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Teleglobe Mobile Partners................................. 73,544 57,696
Orbital Communications Corporation........................ 64,306 48,459
-------- --------
Total Partners' capital................................ 137,850 106,155
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $336,615 $331,961
======== ========
See accompanying notes to the combined financial statements
F-6
106
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
TOTAL
ACCUMULATED
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
---------------------------------- DECEMBER 31,
1995 1996 1997 1997
------ -------- -------- -----------------
REVENUES:
Product sales.............................. $ 0 $ 237 $ 213 $ 450
Distribution fees.......................... 900 100 0 1,000
Other...................................... 1,360 63 55 4,320
------ -------- -------- --------
Total revenues.......................... 2,260 400 268 5,770
EXPENSES:
Costs of product sales..................... 0 268 517 785
Depreciation............................... 0 6,198 7,348 13,546
Engineering expenses....................... 0 5,453 8,160 13,613
Marketing expenses......................... 2,232 6,832 10,673 22,579
General, administrative and other
expenses................................ 50 4,777 9,722 14,558
------ -------- -------- --------
Total expenses.......................... 2,282 23,528 36,420 65,081
------ -------- -------- --------
Loss from operations.................... (22) (23,128) (36,152) (59,311)
OTHER INCOME AND EXPENSES:
Interest income, net of interest expense of
$0, $307, and $833, respectively........ 59 3,554 4,545 8,158
------ -------- -------- --------
NET INCOME (LOSS)............................ $ 37 $(19,574) $(31,607) $(51,153)
====== ======== ======== ========
See accompanying notes to the combined financial statements
F-7
107
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TOTAL
CASH FLOWS
DURING
DEVELOPMENT
YEARS ENDED STAGE
DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
1995 1996 1997 1997
-------- --------- --------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 37 $ (19,574) $ (31,607) $ (51,153)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
Depreciation................................. 0 6,198 7,348 13,546
Amortization of financing fees............... 0 307 833 1,140
Increase in other receivables................ 0 (1,339) (657) (1,996)
Increase in inventory........................ (447) (5,175) (15,785) (21,407)
Increase in deferred charges and other
prepaid contract costs.................... 0 0 (457) (457)
Increase in accounts payable and accrued
liabilities............................... 226 8,985 20,910 40,259
Increase in deferred revenue................. 100 6,047 7,123 13,270
-------- --------- --------- ---------
NET CASH USED IN OPERATING
ACTIVITIES......................... (84) (4,551) (12,292) (6,798)
-------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................... (38,343) (69,242) (100,693) (276,925)
Investment in ORBCOMM Japan.................. 0 0 (333) (333)
Purchase of investments...................... 0 (136,532) (47,125) (183,657)
Proceeds from sale of investments............ 0 40,007 120,893 160,900
-------- --------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES......................... (38,343) (165,767) (27,258) (300,015)
-------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
debt...................................... 0 164,475 0 169,475
Repayment of long-term debt.................. (825) (906) (992) (2,723)
Partners' contributions...................... 38,065 62,733 0 159,820
Financing fees paid.......................... (2,028) (919) (222) (3,653)
-------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............... 35,212 225,383 (1,214) 322,919
-------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (3,215) 55,065 (40,764) 16,106
CASH AND CASH EQUIVALENTS:
Beginning of period.......................... 5,020 1,805 56,870 0
-------- --------- --------- ---------
CASH AND CASH EQUIVALENTS:
End of period................................ $ 1,805 $ 56,870 $ 16,106 $ 16,106
======== ========= ========= =========
See accompanying notes to the combined financial statements
F-8
108
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
COMBINED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
TELEGLOBE ORBITAL
MOBILE COMMUNICATIONS
PARTNERS CORPORATION TOTAL
--------- -------------- --------
Capital contributions................................. $ 10,004 $ 38,165 $ 48,169
Net income (loss)..................................... 0 0 0
Financing fees........................................ (242) (242) (484)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1993.................... 9,762 37,923 47,685
Capital contributions................................. 0 10,853 10,853
Net loss.............................................. (4) (5) (9)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1994.................... 9,758 48,771 58,529
Capital contributions................................. 24,750 13,315 38,065
Net income............................................ 18 19 37
Financing fees........................................ (1,014) (1,014) (2,028)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1995.................... 33,512 61,091 94,603
Capital contributions................................. 49,775 12,958 62,733
Net loss.............................................. (9,787) (9,787) (19,574)
Unrealized gains on investments, net.................. 44 44 88
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1996.................... 73,544 64,306 137,850
Net loss.............................................. (15,804) (15,803) (31,607)
Unrealized losses on investments, net................. (44) (44) (88)
-------- -------- --------
PARTNERS' CAPITAL, DECEMBER 31, 1997.................... $ 57,696 $ 48,459 $106,155
======== ======== ========
See accompanying notes to the combined financial statements
F-9
109
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
Organization and Basis of Presentation
In 1993, Orbital Communications Corporation ("OCC"), a majority-owned
subsidiary of Orbital Sciences Corporation ("Orbital"), and Teleglobe Mobile
Partners ("Teleglobe Mobile"), a partnership established by affiliates of
Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM"), a
Delaware limited partnership. OCC and Teleglobe Mobile each holds a 50%
partnership interest in ORBCOMM, with the result that the approval of both OCC
and Teleglobe Mobile is generally necessary for ORBCOMM to act.
OCC and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM
USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM
International"), to market services using the ORBCOMM low-Earth orbit satellite
communications system (the "ORBCOMM System") in the United States and
internationally, respectively. In 1995, ORBCOMM became a 98% general partner in
ORBCOMM USA, reducing OCC's direct partnership interest to 2% and eliminating
Teleglobe Mobile's direct partnership interest entirely. Simultaneously, ORBCOMM
became a 98% general partner in ORBCOMM International, reducing Teleglobe
Mobile's direct partnership interest to 2% and eliminating OCC's direct
partnership interest entirely. The combination of ORBCOMM USA and ORBCOMM
International with ORBCOMM will occur upon consummation of the Offering.
ORBCOMM is in its development stage, devoting substantially all of its
efforts to establishing a new data and messaging communications business. The
accompanying combined financial statements have been prepared for purposes of
depicting the combined financial position and results of operations of ORBCOMM,
ORBCOMM USA, and ORBCOMM International on a historical basis. All significant
inter-company transactions, balances and profits have been eliminated in
combination. The accompanying combined financial statements have been prepared
on the accrual basis of accounting in conformity with generally accepted
accounting principles in the United States. ORBCOMM, ORBCOMM USA and ORBCOMM
International are collectively hereafter referred to as ORBCOMM ("ORBCOMM").
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
The ORBCOMM System Description
ORBCOMM was created for the design, development, construction, integration,
testing and operation of the ORBCOMM System. The space segment will consist of a
constellation of up to 36 satellites. At December 31, 1997, one plane of two
satellites and one plane of eight satellites were in orbit. The ground and
control segment consists of gateways strategically located throughout the world
and the facilities to monitor and manage all network elements to ensure
continuous, consistent operations in the provision of quality service. In
addition, ORBCOMM operates a network control center, which is designed to
support the full constellation of ORBCOMM System satellites. The subscriber
segment consists of various models of subscriber units, some of which are
intended for general use, and some of which are designed to support specific
applications.
F-10
110
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(1) NATURE OF OPERATIONS -- (CONTINUED)
Regulatory Status
Construction and operation of communications satellites in the United
States requires licenses from the Federal Communications Commission (the "FCC").
OCC has been granted full operational authority for the ORBCOMM System by the
FCC. Similar licenses are required from foreign regulatory authorities to permit
ORBCOMM System services to be offered outside the United States. Primary
responsibility for obtaining licenses outside the United States will reside with
entities who become international licensees.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Depreciation and Recoverability of Long-Lived Assets
ORBCOMM depreciates its operational assets over the estimated economic
useful life using the straight-line method as follows:
Space Segment Assets: estimated life of the constellation
Ground Segment Assets: 10 years
Furniture and Equipment: 3 to 10 years
The ORBCOMM System, which includes the worldwide network control center
(including the satellite management system), the U.S. Gateway and two
satellites, was placed into service at the beginning of 1996, at which time
ORBCOMM began depreciating those assets.
ORBCOMM's policy is to review its long-lived assets, including its
satellite systems, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. ORBCOMM
recognizes impairment losses when the sum of the expected future cash flows is
less than the carrying amount of the assets. Given the inherent technical and
commercial risks within the space communications industry, it is possible that
ORBCOMM's current estimate for recovery of the carrying amount of its assets may
change.
Income Taxes
As a partnership, Federal and state income taxes are the direct
responsibility of each partner. Accordingly, no income taxes have been recorded
within the accompanying combined financial statements.
Cash and Cash Equivalents
ORBCOMM considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Investments
ORBCOMM maintains two investment portfolios characterized by management's
intentions as to future investment activity. Investments classified as
"held-to-maturity" are not intended to be sold prior to maturity and are carried
at cost. Investments not intended to be held until maturity or traded to
capitalized on market gains are classified as "available-for-sale" and are
carried at fair value with temporary unrealized gains (losses) charged directly
to partners' capital. Investments maturing after one year are classified as
long-term investments. ORBCOMM uses the average cost method in determining the
basis of investments sold when computing realized gains (losses).
F-11
111
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Inventory
Inventory is stated at the lower of cost, determined on the specific
identification basis, or market and represents subscriber communicators
available for sale to customers. Also included in inventory is work-in-process
for the construction of gateway Earth stations for sale to international
licensees.
Fair Value of Financial Instruments
The carrying value of ORBCOMM's cash and cash equivalents, receivables, and
accounts payables approximates fair value since all such instruments are
short-term in nature. The fair value of ORBCOMM's long-term debt is determined
based on quoted market rates. At December 31, 1996 and 1997, the fair value of
the long-term debt approximated market value.
ORBCOMM System Under Construction
During the construction of the ORBCOMM System, ORBCOMM is capitalizing
substantially all construction costs. ORBCOMM also is capitalizing a portion of
the engineering direct labor costs that relate to hardware and system design
development and coding of the software products that enhance the operation of
the ORBCOMM System. As of December 31, 1996 and 1997, $1,244,000 and $4,641,000,
respectively, of such costs have been capitalized, (none as of December 31,
1995). Interest expenses of $426,000, $10,030,000 and $24,060,000 have been
capitalized as a part of the historical cost of the ORBCOMM System for the years
ended December 31, 1995, 1996 and 1997, respectively.
Partners' Capital
In accordance with the Partnership Agreement, Teleglobe Mobile and OCC are
both general and limited partners in ORBCOMM. Therefore, limited and general
partner accounts are combined into one single capital account and presented as
such in the combined balance sheets and combined statements of partners'
capital.
Revenue Recognition
Revenues are generally recognized when products are shipped or when
customers have accepted the products, depending on contractual terms. Service
revenues are generally recognized as such services are rendered. Distribution
fees and license fees from service license or similar agreements are recognized
ratably over the term of the agreements, or when ORBCOMM's obligations under the
agreements are substantially completed.
Reclassification of Prior Years Balances
Certain amounts in the prior years combined financial statements have been
reclassified to conform with the current year presentation.
(3) INVESTMENTS
Included in cash and cash equivalents is $54,527,000 and $5,420,000 of
commercial paper as of December 31, 1996 and 1997, respectively. The fair value
of the commercial paper approximates carrying value.
F-12
112
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENTS -- (CONTINUED)
The following table sets forth the aggregate costs and fair values and
gross unrealized gains (losses) of available-for-sale investments as of December
31, 1996 and 1997:
DECEMBER 31, 1996 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
--------------------------------- --------------------------------
UNREALIZED UNREALIZED
GAINS GAINS
COST (LOSSES) FAIR VALUE COST (LOSSES) FAIR VALUE
------- ---------- ---------- ------ ---------- ----------
SHORT-TERM
- ---------------------------------------------
U.S. Treasury Notes.......................... $21,152 $54 $21,206 $ 0 $0 $ 0
Commercial Paper............................. 10,229 (2) 10,227 1,278 0 1,278
------- --- ------- ------ -- ------
Total short-term investments............... 31,381 52 31,433 1,278 0 1,278
------- --- ------- ------ -- ------
LONG-TERM
- ---------------------------------------------
U.S. Treasury Notes, maturing 2-5 years...... 20,329 36 20,365 0 0 0
------- --- ------- ------ -- ------
Total available-for-sale investments....... $51,710 $88 $51,798 $1,278 $0 $1,278
======= === ======= ====== == ======
The following table sets forth aggregate cost and fair values of
held-to-maturity investments as of December 31, 1996 and 1997:
DECEMBER 31, 1996 DECEMBER 31, 1997
(IN THOUSANDS) (IN THOUSANDS)
--------------------------------- ---------------------------------
UNREALIZED UNREALIZED
COST GAINS FAIR VALUE COST GAINS FAIR VALUE
------- ---------- ---------- ------- ---------- ----------
SHORT-TERM
- --------------------------------------------
U.S. Treasury Notes......................... $23,336 $ 525 $23,861 $21,478 $1,841 $23,319
LONG-TERM
- --------------------------------------------
U.S. Treasury Notes, maturing 2-5 years..... 21,478 542 22,020 0 0 0
------- ------ ------- ------- ------ -------
Total held-to-maturity investments........ $44,814 $1,067 $45,881 $21,478 $1,841 $23,319
======= ====== ======= ======= ====== =======
Unrealized gains on held-to-maturity investments represent accrued interest
income as of December 31, 1996 and 1997, respectively.
(4) RELATED PARTY TRANSACTIONS
ORBCOMM paid Orbital approximately $38,000,000, $56,177,000 and $41,843,000
for the periods ended December 31, 1995, 1996 and 1997, respectively. Payments
were made for work performed pursuant to the ORBCOMM System Design, Development,
and Operations Agreement, the ORBCOMM System Procurement Agreement and the
Administrative Services Agreement (for provision of ongoing support to ORBCOMM).
In 1995, pursuant to the terms of the ORBCOMM System Design, Development
and Operations Agreement, ORBCOMM reimbursed OCC $1,375,000 for costs previously
incurred in obtaining the FCC License and other related costs. ORBCOMM
capitalized such costs as part of the ORBCOMM System.
Certain provisions of the Partnership Agreement require ORBCOMM to
reimburse OCC for OCC's repurchase of shares of OCC common stock acquired
pursuant to the OCC 1992 Stock Option Plan ("Stock Option Plan"). During 1996
and 1997, ORBCOMM reimbursed OCC approximately $1,100,000 and $598,000,
respectively, under the Stock Option Plan (none in 1995). In 1996, Orbital
contributed approximately $100,000 to OCC to repurchase such shares (none in
1995 and 1997).
F-13
113
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(5) ORBCOMM SYSTEM
ORBCOMM System is composed of the following assets:
DECEMBER 31,
(IN THOUSANDS)
--------------------
1996 1997
-------- --------
Space segment.......................................... $142,678 $234,110
Ground segment......................................... 33,554 42,815
-------- --------
Total.................................................. 176,232 276,925
Less accumulated depreciation.......................... (6,198) (13,546)
-------- --------
Total, net of depreciation............................. $170,034 $263,379
======== ========
(6) COMMITMENTS AND CONTINGENCIES
Long-Term Debt
In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued
$170,000,000 of Senior Notes due 2004 with Revenue Participation Interest (the
"Old Notes"). All the Old Notes were exchanged for an equal principal amount of
registered 14% Series B Senior Notes due 2004 with Revenue Participation
Interest (the "Notes"). The Notes are fully and unconditionally guaranteed on a
joint and several basis by OCC, Teleglobe Mobile, ORBCOMM USA and ORBCOMM
International, except that the guarantees are non-recourse to the shareholders
and/or partners of the guarantors, limited only to the extent necessary for each
such guarantee not to constitute a fraudulent conveyance under applicable law.
On the closing of the offering of the Old Notes, ORBCOMM used $44,800,000
of the net proceeds from the sale of the Old Notes to purchase a portfolio of
U.S. Government securities to provide for payment in full of interest on the Old
Notes and Notes through August 15, 1998. Of this investment portfolio,
$23,300,000 was used to pay interest that was due on the Notes on February 15,
and August 15, 1997.
ORBCOMM also has a $5,000,000 secured note with a financial institution of
which $2,277,000 is outstanding. The note bears interest at 9.2% per annum and
is due in monthly principal and interest installments of $104,000 through
December 1999. The note is secured by equipment located at certain of the U.S.
gateway Earth stations and the network control center, and is guaranteed by
Orbital. A portion of the net proceeds from the offering of the Old Notes,
sufficient to pay when due all remaining interest and principal payments on this
note, was deposited into a segregated account.
System Procurement Agreement
Pursuant to the System Procurement Agreement with Orbital, ORBCOMM's
remaining obligations to purchase satellites, launch services and ground system,
is approximately $49,600,000 over the next two years.
Construction of Gateway Earth Stations
In October 1996, ORBCOMM entered into agreements with certain manufacturers
for the construction of twenty gateway Earth stations scheduled for delivery
over the next two years, with the first installations occurring during the first
quarter 1998. As of December 31, 1996 and 1997, ORBCOMM had $3,871,000 and
$19,580,000, respectively, of prepaid contract costs of which $3,547,000 and
$11,016,000, respectively, represent advance payments to those manufacturers.
Total commitments under these manufacturing agreements approximate $18,000,000.
Included in inventory-gateway Earth stations is a portion of the engineering
direct labor costs that are specifically related to the construction of gateway
Earth stations. At December 31,
F-14
114
ORBCOMM GLOBAL, L.P.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
1997, $1,609,000 of such costs had been included in inventory-gateway Earth
stations (none at December 31, 1996).
Lease Commitments
In November 1997, ORBCOMM entered into a five-year operating lease
agreement for approximately 46,000 square feet of additional office space.
ORBCOMM has an option to renew the lease for another five-year period
immediately upon the expiration of the original operating lease. Rental expense
for 1995, 1996 and 1997 amounted to $48,000, $393,000 and $825,000,
respectively, which was paid to Orbital as part of the Administrative Services
Agreement. Rental expense to third parties amounted to $126,000 in 1997. The
future minimum rental payments under non-cancelable operating leases are as
follows:
PERIODS IN THOUSANDS
------- ------------
1998........................................................ $ 978
1999........................................................ 1,007
2000........................................................ 1,038
2001........................................................ 1,062
2002........................................................ 1,094
Thereafter.................................................. 0
------
Total minimum lease commitments........................... $5,179
======
(7) SERVICE LICENSE OR SIMILAR AGREEMENTS
ORBCOMM has signed twelve service license or similar agreements with
international licensees, ten of which have associated gateway procurement
contracts and software license agreements. The service license or similar
agreements authorize the international licensees to use the ORBCOMM System to
provide two-way data and message communications services. As of December 31,
1996 and 1997, $6,147,000 and $13,270,000, respectively, had been received under
these agreements and recorded as deferred revenue. ORBCOMM is obligated to ship
ten gateways under certain of these agreements (see note 6).
(8) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF THE INDEPENDENT
AUDITOR
ORBCOMM USA and ORBCOMM International are to be dissolved on consummation
of the Offering as a result of the contribution by OCC of its 2% direct
partnership interest in ORBCOMM USA, and the contribution by Teleglobe Mobile of
its 2% direct partnership interest in ORBCOMM International to ORBCOMM. Such
contributions will result in ORBCOMM becoming the sole general and limited
partner of each ORBCOMM USA and ORBCOMM International, causing the dissolution
of such partnerships.
In February 1998, two additional satellites for the ORBCOMM constellation
were successfully launched and have been placed in a high inclination orbit
using Orbital's Taurus(R) launch vehicle.
As of March 31, 1998, OCC and Teleglobe Mobile each paid to the Company an
additional $10,000,000 in capital contributions as required under the Indenture
governing the Notes.
In March 1998, ORBCOMM agreed to pay Magellan, a subsidiary of Orbital, a
subsidy for each Magellan subscriber unit sold, through March 1999, which
potentially could amount to $2,400,000. In addition, ORBCOMM recently committed
to purchase $6,200,000 of subscriber units from certain manufacturers to
accelerate initial customer sales by VARs and International Licensees.
F-15
115
GLOSSARY OF TERMS
BAND -- a range of frequencies in the radio spectrum.
BANDWIDTH -- the range of frequencies, expressed in Hertz (Hz), that can pass
over a given transmission channel. The bandwidth determines the rate at which
information can be transmitted through the circuit. The greater the bandwidth,
the more information can be sent through the circuit in a given amount of time
at a given accuracy level.
BIG LEO -- a network of LEO satellites operating above 1 GHz, such as the
Iridium or Globalstar systems, which are designed to provide voice and data
services to portable or fixed receivers globally.
DCAAS (DYNAMIC CHANNEL ACTIVITY ASSIGNMENT SYSTEM) -- an interference avoidance
technique system developed by OCC and enhanced by ORBCOMM to avoid interfering
with other users in the band in which the ORBCOMM system is designed to operate.
EARTH STATION -- the antennae, receivers, transmitters and other equipment
needed on the ground to transmit and receive and process satellite
communications signals.
FCC LICENSES -- the Original FCC License and the Supplemental FCC License
together.
GATEWAY -- the facilities consisting of Gateway Earth Stations and a Gateway
Control Center, which includes computers, displays, control consoles,
communications equipment and other hardware that transport and control the flow
of data and messaging communications and other information for the ORBCOMM
system.
GATEWAY CONTROL CENTER -- the facilities consisting of a Gateway message
switching system, which processes the message traffic and provides the
interconnection to the terrestrial networks and a Gateway management system
which manages the Gateway elements.
GATEWAY EARTH STATION -- the facilities composed of two radomes, with enclosed
VHF tracking antennae, one of which is redundant, and associated pedestal,
controller and radio equipment.
GDP -- Gross Domestic Product.
GENERAL PARTNER -- each of the Company, OCC and Teleglobe Mobile Partners.
GEO (GEOSYNCHRONOUS OR GEOSTATIONARY ORBIT) -- an orbit directly over the
equator, approximately 22,300 nautical miles above the Earth.
GEO SATELLITE (GEOSYNCHRONOUS OR GEOSTATIONARY SATELLITE) -- a satellite in an
orbit located directly over the equator, approximately 22,300 nautical miles
above the Earth. When positioned in this orbit above the equator, a satellite
appears to hover over the same spot on the Earth because it is moving at a rate
that matches the speed of the Earth's rotation on its axis.
GEO SYSTEM -- a constellation of multiple GEO satellites.
GHZ (GIGAHERTZ) -- a measure of radio frequency equal to one billion cycles per
second.
GPS (GLOBAL POSITIONING SYSTEM) -- a network of satellites that provides precise
location determination to receivers. Portable or vehicle-mounted GPS devices
receive signals from the satellites and calculate the user's position to within
100 yards for civilian purposes and more precisely for the military.
INTERNATIONAL LICENSEES -- third-party entities that have executed agreements
pursuant to which they are responsible for, among other things, procuring and
installing or sharing the necessary ground infrastructure, obtaining the
necessary regulatory approvals and marketing and distributing ORBCOMM services
in their designated regions.
INTERNATIONAL TABLE OF FREQUENCY ALLOCATIONS (INTERNATIONAL TABLE)
-- identifies radio frequency segments that have been designated for specific
radio services by the member nations of the ITU.
G-1
116
ITU (INTERNATIONAL TELECOMMUNICATION UNION) -- the telecommunications agency of
the United Nations, established to provide standardized communications
procedures and practices including frequency allocation and radio regulations on
a worldwide basis.
KBPS -- thousands of bits per second. The rate at which digital data are
transmitted over a communications path.
KHZ (KILOHERTZ) -- a measure of radio frequency equal to one thousand cycles per
second.
LEO (LOW-EARTH ORBIT) -- an orbit located approximately 800 kilometers above the
Earth.
LEO SATELLITE -- a satellite in an orbit located approximately 800 kilometers
above the Earth.
LEO SYSTEM -- a constellation of multiple LEO satellites. LEO systems may be of
two types, Little LEOs and Big LEOs.
LHCP (LEFT-HAND CIRCULAR POLARIZATION) -- an elliptically or circularly
polarized wave in which the electric field vector, observed in the fixed plane,
normal to the direction of propagation, while looking in the direction of
propagation, rotates with time in a left-hand or counter clockwise direction.
LITTLE LEO -- a network of LEO satellites operating below 1 GHz, such as the
ORBCOMM system, which are designed to provide non-voice, data and messaging
services globally.
MEO (MEDIUM-EARTH ORBIT) -- an orbit located between 2,000 and 18,000 miles
above the Earth.
MHZ (MEGAHERTZ) -- a measure of radio frequency equal to one million cycles per
second.
MICROSTAR(TM) -- a satellite designed and manufactured by Orbital for use in
the ORBCOMM system and for a variety of small space science and satellite
imagery projects.
MSS (MOBILE SATELLITE SERVICES) -- a generic term meaning an ITU-defined service
that uses satellites to deliver communications services (voice or data, one- or
two-way) to mobile users such as cars, trucks, ships and planes.
NETWORK CONTROL CENTER -- the facility that houses the control segments of the
ORBCOMM system. ORBCOMM's Network Control Center is located at Orbital's Dulles,
Virginia headquarters.
NVNG (NON-VOICE, NON-GEOSTATIONARY) -- LEO satellites operating below 1 GHz,
such as the ORBCOMM system, providing non-voice services and designed to provide
global data and messaging communications services.
OCC -- Orbital Communications Corporation, a Delaware corporation and majority
owned subsidiary of Orbital that is a General Partner and, which, prior to the
Restructuring, was a 50% general and limited partner of ORBCOMM.
ORBITAL -- Orbital Sciences Corporation, a Delaware corporation and parent of
OCC. Orbital is a publicly traded space and information systems company
providing space-related technologies, products, systems and services.
ORIGINAL FCC LICENSE -- the FCC authorization granted to OCC on October 20, 1994
to construct, launch and operate 36 LEO satellites for the purpose of providing
two-way data and messaging communications and position determination services in
the United States.
PARTNER -- each of the Company, OCC, Teleglobe Mobile and any persons
subsequently admitted as partners of ORBCOMM.
PARTNERSHIP UNIT -- an interest in ORBCOMM. The General Partners' respective
interests in allocations of income and loss of ORBCOMM, and distributions of
available cash of ORBCOMM, are represented by the number of Partnership Units
they hold, as set forth on Schedule A of the Partnership Agreement, which
schedule may be modified from time to time in accordance with the terms of the
Partnership Agreement when Additional Partnership Interests (as defined in the
Partnership Agreement) are issued or transferred.
G-2
117
SATELLITE CONTROL CENTER -- the facilities that process and display the
telemetry data for the ORBCOMM satellites, monitor the operational status of
such satellites and control the operation of the satellites power subsystems,
altitude control subsystems and all other subsystems.
SATELLITE USAGE FEE -- a fee paid by an International Licensee for use of the
satellites in the ORBCOMM system as described in the service license or similar
agreement between the International Licensees and ORBCOMM.
SERVICE LICENSE OR SIMILAR AGREEMENT -- an agreement between ORBCOMM and an
International Licensee granting to the International Licensee the exclusive
right to market and distribute services using the ORBCOMM system in a particular
region and, for such purposes, to access the satellites in the ORBCOMM system.
SPECTRUM -- consists of all the radio frequencies that are used for radio
communications.
SUPPLEMENTAL FCC LICENSE -- the FCC authorization granted to OCC on March 31,
1998 to, among other things, construct, launch and operate an additional 12 LEO
satellites for the purpose of providing two-way data and messaging
communications and position determination services in the United States.
TDMA (TIME DIVISION MULTIPLE ACCESS) -- a digital method of multiplexing that
combines a number of signals through a common point by organizing them
sequentially and transmitting each in bursts at different instants of time.
Communicating devices at different geographical locations share a multipoint or
broadcast channel by means of a technique that allocates different time slots to
different users.
TELEGLOBE -- Teleglobe Inc., a North American-based overseas telecommunications
carrier whose network and service capabilities (including voice, data, Internet
and value-added services) can be accessed in virtually all countries.
TELEGLOBE MOBILE -- Teleglobe Mobile Partners, a Delaware general partnership
indirectly owned by Teleglobe and TRI that is a General Partner and which, prior
to the Restructuring, was a 50% general and limited partner of ORBCOMM.
TRANSIT BAND -- that portion of the radio spectrum between 149.9-150.05 MHz and
399.9-400.050 MHz allocated for radio-navigation satellite service downlink
transmissions. The Transit Band currently is occupied by the U.S. Navy Transit
System and a similar Russian system.
TRI -- Technology Resources Industries Bhd., a Malaysian holding company that
controls the largest cellular operator in Malaysia and has established cellular
operations in Bangladesh, Cambodia and Tanzania.
UHF -- ultra high frequency. The portion of the electromagnetic spectrum with
frequencies between 300 MHz and 3 GHz.
U.S. GATEWAY EARTH STATION -- any or one of the four Earth stations constructed
pursuant to the System Agreement or the Procurement Agreement located in St.
Johns, Arizona; Ocilla, Georgia; Arcade, New York and East Wenatchee,
Washington.
VAR (VALUE-ADDED RESELLERS) -- entities authorized to market and distribute
ORBCOMM services within specific regions and to targeted industries or markets.
VHF -- very high frequency. The portion of the electromagnetic spectrum with
frequencies between 30 and 300 MHz.
WARC-92 (WORLD ADMINISTRATIVE RADIO CONFERENCE) -- an ITU conference held in
1992 for adopting international allocations for radio frequencies and satellite
orbit locations, which has been succeeded by the World Radiocommunication
Conference.
WRC (WORLD RADIOCOMMUNICATION CONFERENCE) -- the successor to the WARC-92.
WRC-95 -- the WRC held in 1995.
WRC-97 -- the WRC held in 1997.
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118
Other Little LEO constellations are not expected to be
fully operational until after the year 2000.
"ORBCOMM is the first Little LEO system to market."
[The above text is superimposed over a picture that appears in the upper half of
the page of an individual, with an image of an ORBCOMM satellite appearing in
the sky over his head. The individual is shown speaking the line appearing in
quotation marks above.]
- --------------------------------------------------------------------------------
logo:
CATERPILLAR Caterpillar is testing a heavy equipment tracking
and engine monitoring system. [Text is follwed by a
picture of a tractor.]
- --------------------------------------------------------------------------------
logo:
SCIENTIFIC- Scientific-Atlanta is working with Florida Power to
ATLANTA develop automatic meter reading systems for
commercial and residential customers. [Text is
followed by a picture of electric utility lines.]
- --------------------------------------------------------------------------------
logo:
ARINC [Text is preceded by a picture of a tractor trailer.]
Arinc is working with various U.S. trucking firms to
test trailer tracking systems.
- --------------------------------------------------------------------------------
logo:
INTREX Intrex is testing monitoring systems for oil and gas
pipelines. [Text is followed by a picture of an oil
drilling device.]
- --------------------------------------------------------------------------------
logo:
MAGELLAN [Text is preceded by a picture of a backpacker
standing on a mountain.] Magellan plans to introduce
a messaging subscriber unit in mid-1998.
- --------------------------------------------------------------------------------
logo:
ORBCOMM(R)
GLOBAL DATA & MESSAGING
119
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ORBCOMM OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY OR ORBCOMM SINCE THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 1
Risk Factors............................ 11
The Company and Relationships Among the
ORBCOMM Parties....................... 27
Use of Proceeds......................... 28
Dividend Policy......................... 28
Dilution................................ 29
Capitalization.......................... 30
Selected Historical Financial Data...... 31
Management's Discussion and Analysis
of Financial Condition and Results of
Operations............................ 33
Business................................ 38
Regulation.............................. 59
Management.............................. 65
Security Ownership of Certain Beneficial
Owners................................ 74
Certain Relationships and Related
Transactions.......................... 75
Governance of the Company and
Relationship with ORBCOMM............. 82
Description of the Partnership
Agreement............................. 84
Description of the Senior Notes......... 88
Description of the Capital Stock........ 90
Shares Eligible for Future Sale......... 91
Underwriting............................ 93
Legal Matters........................... 95
Experts................................. 95
Available Information................... 95
Index to Financial Statements........... F-1
Glossary of Terms....................... G-1
======================================================
======================================================
-- SHARES
ORBCOMM(SM) LOGO W/TEXT LINE BELOW
ORBCOMM CORPORATION
COMMON STOCK
Joint Lead Managers
and Joint Book Runners
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
, 1998
------------------
PROSPECTUS
------------------
======================================================
120
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, which will be paid
solely by ORBCOMM. All amounts shown are estimates, except the Commission
registration fee and the NASD filing fee:
Commission Registration Fee................................. $ 42,406
Nasdaq National Market Entry Fee............................ 25,000
Transfer agent and registrar fees and expenses.............. 50,000
Printing and engraving expenses............................. 500,000
Legal fees and expenses..................................... 1,000,000
Accounting fees and expenses................................ 200,000
Blue sky fees and expenses.................................. 15,000
Miscellaneous expenses...................................... 667,594
----------
Total............................................. $2,500,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding in which such person is made a party by reason of such person
being or having been a director, officer, employee or agent of the Company. The
statute provides that indemnification pursuant to its provisions is not
exclusive of other rights of indemnification to which a person may be entitled
under any by-law, agreement, vote of stockholders or disinterested directors, or
otherwise.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or its stockholders for monetary damages
for the breach of fiduciary duty as a director, except for liability: (i) for
any breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law; (iii) under Section 174 of the
Delaware General Corporation Law; or (iv) for any transactions from which the
director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall indemnify every person
who is or was a party or is or was threatened to be made a party to any action,
suit, or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she is or was a director or officer of the
Company or, while a director or officer or employee of the Company, is or was
serving at the request of the Company as a director, officer, employee, agent or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding, to the full
extent permitted by applicable law.
If the Delaware General Corporation Law is amended after the date hereof to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Company shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
The Company intends to procure insurance providing for indemnification of
its officers, directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions. In addition, the Company intends to enter into
indemnification agreements
II-1
121
with each of its officers and directors, each of which provides that if during
and after the term of such officers' employment the executive is made a party or
compelled to participate in any action by reason of the fact that he is or was a
director or officer of the Company, the executive will be indemnified by the
Company to the fullest extent permitted by Delaware General Corporation Law or
authorized by the Company's Certificate of Incorporation or Bylaws or
resolutions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
1.1** Form of Underwriting Agreement.
2.1** Contribution Agreement dated as of , 1998 by and among
ORBCOMM, OCC and Teleglobe Mobile.
2.2** Certificate of Cancellation of Certificate of Limited
Partnership of ORBCOMM USA dated as of , 1998.
2.3** Certificate of Cancellation of Certificate of Limited
Partnership of ORBCOMM International dated as of , 1998.
3.1* Certificate of Incorporation of the Company.
3.2** Bylaws of the Company.
4 Indenture, dated as of August 7, 1996, by and among ORBCOMM,
ORBCOMM Global Capital Corp., ORBCOMM USA, ORBCOMM
International, OCC, Teleglobe Mobile and Marine Midland Bank
as trustee, relating to $170,000,000 principal amount of 14%
Senior B Notes due 2004 (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)).
4.1** Specimen of the Company's Common Stock Certificate.
4.2** Subscription Agreement dated as of , 1998 by and between the
Company and ORBCOMM.
4.3** Unit Exchange and Registration Rights Agreement dated as of
, 1998 by and between the Company and ORBCOMM.
4.4** Share Issuance Agreement dated as of , 1998 by and between
the Company and ORBCOMM.
5** Form of Opinion of Latham & Watkins re validity of Common
Stock.
10.1 Amended and Restated Administrative Services Agreement,
dated as of January 1, 1997 by and between ORBCOMM and
Orbital (incorporated by reference to Exhibit 10.17 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998).
10.2** Amended and Restated ORBCOMM System Construction and
Operations Agreement, dated as of , 1998, by and between
ORBCOMM and OCC.
10.3** Form of The 1998 Equity Plan of the Company and ORBCOMM
dated as of , 1998.
10.4 Master Agreement, restated as of September 12, 1995, by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile
(incorporated by reference to the identically numbered
exhibit to the Registration Statement on Form S-4 of ORBCOMM
dated as of December 10, 1996 (Reg. No. 333-11149)).
10.4.1 Amendment No. 1 to Master Agreement, dated as of February 5,
1997 by and among OCC, Orbital, Teleglobe and Teleglobe
Mobile (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997).
10.4.2** Amendment No. 2 to Master Agreement, dated as of 1998 by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile.
10.5 ORBCOMM System Procurement Agreement, dated as of September
12, 1995, by and between ORBCOMM and Orbital (incorporated
by reference to the identically numbered exhibit to
Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of
December 10, 1996 (Reg. No. 333-11149), provided that
Appendix I is incorporated by reference to Exhibit 10.24.6
to the Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1993 filed by Orbital on August 13, 1993).
II-2
122
10.5.1 Amendment No. 1 to ORBCOMM System Procurement Agreement,
dated as of December 9, 1996, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996 filed by ORBCOMM on
March 28, 1997).
10.5.2 Amendment No. 2 to ORBCOMM System Procurement Agreement,
dated as of March 24, 1997, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997).
10.5.3** Amendment No. 3 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital.
10.5.4** Amendment No. 4 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital.
10.6 Proprietary Information and Non-Competition Agreement,
restated as of September 12, 1995, by and among ORBCOMM,
Orbital, OCC, Teleglobe, Teleglobe Mobile, ORBCOMM USA and
ORBCOMM International (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)).
10.6.1** Amendment No. 1 to Proprietary Information Agreement, dated
as of , 1998 by and among ORBCOMM, Orbital, OCC, Teleglobe
and Teleglobe Mobile.
10.7 U.S. Gateway Earth Station Maintenance Service Agreement
dated as of October 1, 1997 by and between Orbital and
ORBCOMM (incorporated by reference to Exhibit 10.18 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998).
10.8 Subscriber Communicator Manufacture Agreement dated as of
July 31, 1996 by and between ORBCOMM and Magellan
Corporation (incorporated by reference to Exhibit 10.19 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998).
10.9 Reseller Agreement dated as of March 3, 1997 by and between
ORBCOMM USA and Orbital Sciences Corporation (the "Reseller
Agreement") (incorporated by reference to Exhibit 10.20 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998).
10.9.1 Amendment No. 1 to the Reseller Agreement dated as of
September 2, 1997 (incorporated by reference to Exhibit
10.20.1 of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on
March 31, 1998).
10.10 Service License Agreement dated as of December 19, 1995 by
and between ORBCOMM International and ORBCOMM Canada Inc.
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)).
10.11 Service License Agreement dated as of October 10, 1996 by
and between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd. (incorporated by
reference to the identically numbered exhibit to Amendment
No. 1, dated as of October 21, 1996, to the Registration
Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)).
10.12 Service License Agreement dated as of October 15, 1996 by
and between ORBCOMM International and European Company for
Mobile Communicator Services, B.V., ORBCOMM Europe
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)).
II-3
123
10.13 Ground Segment Procurement Contract, dated as of October 10, 1996, by and between ORBCOMM
International and Cellular Communications Network (Malaysia) Sdn. Bhd. (incorporated by reference to
the identically numbered exhibit to Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
10.14 Ground Segment Facilities Use Agreement, dated as of December 19, 1995, by and between ORBCOMM
International and ORBCOMM Canada Inc. (incorporated by reference to the identically numbered exhibit
to Amendment No. 1, dated as of October 21, 1996, to the Registration Statement on Form S-4 of
ORBCOMM, dated as of December 10, 1996 (Reg. No. 333-11149)).
10.15 Ground Segment Procurement Contract, dated as of October 15, 1996, by and between ORBCOMM
International and European Company for Mobile Communicator Services, B.V., ORBCOMM Europe
(incorporated by reference to the identically numbered exhibit to Amendment No. 1, dated as of
October 21, 1996, to the Registration Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)).
10.16** OCC Consulting Agreement dated as of , 1998 by and between OCC and ORBCOMM.
10.17 Employment Agreement dated as of May 15, 1997 by and between ORBCOMM and Robert F. Latham (the
"Employment Agreement") (incorporated by reference to Exhibit 10.21 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.18 Consulting Agreement dated as of March 18, 1998 by and between ORBCOMM and ORBCOMM Canada Inc.
(incorporated by reference to Exhibit 10.22 of the Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998).
10.19** Company Administrative Services Agreement dated as of , 1998 by and between the Company and ORBCOMM.
23 Consents of Experts
23.1* Consent of KPMG Peat Marwick LLP, independent auditors.
23.2** Consent of Latham & Watkins (included in their opinion filed as Exhibit 5).
24.1* Power of Attorney of the Company (included on the signature page to the Registration Statement).
27.1* Company Financial Data Schedule.
27.2* ORBCOMM Financial Data Schedule.
- ------------------------------
* Filed herewith.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions, described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
II-4
124
in connection with the securities being registered, the Registrant will, unless
in the option of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
125
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HERNDON,
COMMONWEALTH OF VIRGINIA, ON APRIL 21, 1998.
ORBCOMM CORPORATION
By: /s/ SCOTT L. WEBSTER
------------------------------------
Scott L. Webster
President and Chief Executive Officer
------------------------
POWER OF ATTORNEY
We, the undersigned directors and officers of ORBCOMM Corporation, do
hereby severally constitute and appoint W. Bartlett Snell and Mary Ellen
Seravalli, and each of them, our true and lawful attorneys and agents, to do any
and all acts and things in our name and behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our names in
the capacities indicated below, which said attorneys and agents, or any of them,
may deem necessary or advisable to enable said Corporation to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement on Form S-1, including specifically, but without limitation, power and
authority to sign for us or any of us, in our names in the capacities indicated
below, any and all amendments (including post-effective amendments and including
any subsequent registration statement for the same offering which may be filed
under Rule 462(b) pursuant to the Securities Act of 1933, as amended) hereto;
and we do each hereby ratify and confirm all that said attorneys and agents, or
any one of them, shall do or cause to be done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ SCOTT L. WEBSTER President, Chief Executive April 21, 1998
- ----------------------------------------------------- Officer and Director
(Scott L. Webster) (Principal Executive Officer)
/s/ W. BARTLETT SNELL Chief Financial Officer April 21, 1998
- ----------------------------------------------------- and Treasurer
(W. Bartlett Snell) (Principal Financial Officer and
Principal Accounting Officer)
/s/ MARC LEROUX Director April 21, 1998
- -----------------------------------------------------
(Marc Leroux)
/s/ WILLIAM J. MEDER Director April 21, 1998
- -----------------------------------------------------
(William J. Meder)
/s/ JEFFREY V. PIRONE Director April 21, 1998
- -----------------------------------------------------
(Jeffrey V. Pirone)
/s/ CLAUDE SEGUIN Director April 21, 1998
- -----------------------------------------------------
(Claude Seguin)
/s/ DAVID W. THOMPSON Director April 21, 1998
- -----------------------------------------------------
(David W. Thompson)
II-6
126
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
1.1** Form of Underwriting Agreement..............................
2.1** Contribution Agreement dated as of , 1998 by and among
ORBCOMM, OCC and Teleglobe Mobile. .........................
2.2** Certificate of Cancellation of Certificate of Limited
Partnership of ORBCOMM USA dated as of , 1998. .............
2.3** Certificate of Cancellation of Certificate of Limited
Partnership of ORBCOMM International dated as of , 1998. ...
3.1* Certificate of Incorporation of the Company. ...............
3.2** Bylaws of the Company. .....................................
4 Indenture, dated as of August 7, 1996, by and among ORBCOMM,
ORBCOMM Global Capital Corp., ORBCOMM USA, ORBCOMM
International, OCC, Teleglobe Mobile and Marine Midland Bank
as trustee, relating to $170,000,000 principal amount of 14%
Senior B Notes due 2004 (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)). ...........................................
4.1** Specimen of the Company's Common Stock Certificate. ........
4.2** Subscription Agreement dated as of , 1998 by and between the
Company and ORBCOMM. .......................................
4.3** Unit Exchange and Registration Rights Agreement dated as of
, 1998 by and between the Company and ORBCOMM. .............
4.4** Share Issuance Agreement dated as of , 1998 by and between
the Company and ORBCOMM. ...................................
5** Form of Opinion of Latham & Watkins re validity of Common
Stock.......................................................
10.1 Amended and Restated Administrative Services Agreement,
dated as of January 1, 1997 by and between ORBCOMM and
Orbital (incorporated by reference to Exhibit 10.17 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.2** Amended and Restated ORBCOMM System Construction and
Operations Agreement, dated as of , 1998, by and between
ORBCOMM and OCC. ...........................................
10.3** Form of The 1998 Equity Plan of the Company and ORBCOMM
dated as of , 1998. ........................................
10.4 Master Agreement, restated as of September 12, 1995, by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile
(incorporated by reference to the identically numbered
exhibit to the Registration Statement on Form S-4 of ORBCOMM
dated as of December 10, 1996 (Reg. No. 333-11149)). .......
10.4.1 Amendment No. 1 to Master Agreement, dated as of February 5,
1997 by and among OCC, Orbital, Teleglobe and Teleglobe
Mobile (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997). .....................................................
10.4.2** Amendment No. 2 to Master Agreement, dated as of 1998 by and
among OCC, Orbital, Teleglobe and Teleglobe Mobile. ........
10.5 ORBCOMM System Procurement Agreement, dated as of September
12, 1995, by and between ORBCOMM and Orbital (incorporated
by reference to the identically numbered exhibit to
Amendment No. 1, dated as of October 21, 1996, to the
Registration Statement on Form S-4 of ORBCOMM, dated as of
December 10, 1996 (Reg. No. 333-11149), provided that
Appendix I is incorporated by reference to Exhibit 10.24.6
to the Quarterly Report on Form 10-Q for the Quarter Ended
June 30, 1993 filed by Orbital on August 13, 1993). ........
127
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
10.5.1 Amendment No. 1 to ORBCOMM System Procurement Agreement,
dated as of December 9, 1996, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1996 filed by ORBCOMM on
March 28, 1997). ...........................................
10.5.2 Amendment No. 2 to ORBCOMM System Procurement Agreement,
dated as of March 24, 1997, by and between ORBCOMM and
Orbital (incorporated by reference to the identically
numbered exhibit to the Quarterly Report on Form 10-Q for
the Quarter Ended March 31, 1997 filed by ORBCOMM on May 14,
1997). .....................................................
10.5.3** Amendment No. 3 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital. ...................................................
10.5.4** Amendment No. 4 to ORBCOMM System Procurement Agreement,
dated as of March 31, 1998, by and between ORBCOMM and
Orbital. ...................................................
10.6 Proprietary Information and Non-Competition Agreement,
restated as of September 12, 1995, by and among ORBCOMM,
Orbital, OCC, Teleglobe, Teleglobe Mobile, ORBCOMM USA and
ORBCOMM International (incorporated by reference to the
identically numbered exhibit to the Registration Statement
on Form S-4 of ORBCOMM dated as of December 10, 1996 (Reg.
No. 333-11149)). ...........................................
10.6.1** Amendment No. 1 to Proprietary Information Agreement, dated
as of , 1998 by and among ORBCOMM, Orbital, OCC, Teleglobe
and Teleglobe Mobile.
10.7 U.S. Gateway Earth Station Maintenance Service Agreement
dated as of October 1, 1997 by and between Orbital and
ORBCOMM (incorporated by reference to Exhibit 10.18 of the
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.8 Subscriber Communicator Manufacture Agreement dated as of
July 31, 1996 by and between ORBCOMM and Magellan
Corporation (incorporated by reference to Exhibit 10.19 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.9 Reseller Agreement dated as of March 3, 1997 by and between
ORBCOMM USA and Orbital Sciences Corporation (the "Reseller
Agreement") (incorporated by reference to Exhibit 10.20 of
the Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 of ORBCOMM, filed by ORBCOMM on March 31,
1998). .....................................................
10.9.1 Amendment No. 1 to the Reseller Agreement dated as of
September 2, 1997 (incorporated by reference to Exhibit
10.20.1 of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 of ORBCOMM, filed by ORBCOMM on
March 31, 1998). ...........................................
10.10 Service License Agreement dated as of December 19, 1995 by
and between ORBCOMM International and ORBCOMM Canada Inc.
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)). ................
10.11 Service License Agreement dated as of October 10, 1996 by
and between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd. (incorporated by
reference to the identically numbered exhibit to Amendment
No. 1, dated as of October 21, 1996, to the Registration
Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)). ................................
128
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
10.12 Service License Agreement dated as of October 15, 1996 by
and between ORBCOMM International and European Company for
Mobile Communicator Services, B.V., ORBCOMM Europe
(incorporated by reference to the identically numbered
exhibit to Amendment No. 1, dated as of October 21, 1996, to
the Registration Statement on Form S-4 of ORBCOMM, dated as
of December 10, 1996 (Reg. No. 333-11149)). ................
10.13 Ground Segment Procurement Contract, dated as of October 10,
1996, by and between ORBCOMM International and Cellular
Communications Network (Malaysia) Sdn. Bhd. (incorporated by
reference to the identically numbered exhibit to Amendment
No. 1, dated as of October 21, 1996, to the Registration
Statement on Form S-4 of ORBCOMM, dated as of December 10,
1996 (Reg. No. 333-11149)). ................................
10.14 Ground Segment Facilities Use Agreement, dated as of
December 19, 1995, by and between ORBCOMM International and
ORBCOMM Canada Inc. (incorporated by reference to the
identically numbered exhibit to Amendment No. 1, dated as of
October 21, 1996, to the Registration Statement on Form S-4
of ORBCOMM, dated as of December 10, 1996 (Reg. No.
333-11149)). ...............................................
10.15 Ground Segment Procurement Contract, dated as of October 15,
1996, by and between ORBCOMM International and European
Company for Mobile Communicator Services, B.V., ORBCOMM
Europe (incorporated by reference to the identically
numbered exhibit to Amendment No. 1, dated as of October 21,
1996, to the Registration Statement on Form S-4 of ORBCOMM,
dated as of December 10, 1996 (Reg. No. 333-11149)). .......
10.16** OCC Consulting Agreement dated as of , 1998 by and between
OCC and ORBCOMM. ...........................................
10.17 Employment Agreement dated as of May 15, 1997 by and between
ORBCOMM and Robert F. Latham (the "Employment Agreement")
(incorporated by reference to Exhibit 10.21 of the Annual
Report on Form 10-K for the fiscal year ended December 31,
1997 of ORBCOMM, filed by ORBCOMM on March 31, 1998). ......
10.18 Consulting Agreement dated as of March 18, 1998 by and
between ORBCOMM and ORBCOMM Canada Inc. (incorporated by
reference to Exhibit 10.22 of the Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 of ORBCOMM,
filed by ORBCOMM on March 31, 1998). .......................
10.19** Company Administrative Services Agreement dated as of , 1998
by and between the Company and ORBCOMM. ....................
23 Consents of Experts
23.1* Consent of KPMG Peat Marwick LLP, independent auditors.
23.2** Consent of Latham & Watkins (included in their opinion filed
as Exhibit 5). .............................................
24.1* Power of Attorney of the Company (included on the signature
page to the Registration Statement). .......................
27.1* Company Financial Data Schedule. ...........................
27.2* ORBCOMM Financial Data Schedule. ...........................
- ------------------------------
* Filed herewith.
** To be filed by amendment.