10-Q 1 e10-q.txt FORM 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission file number: 333-11149 ORBCOMM GLOBAL, L.P. ORBCOMM GLOBAL CAPITAL CORP. (Exact Name of Registrants as Specified in their Charters) 54-1698039 DELAWARE 54-1841164 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization of Registrants) Identification Nos.) 21819 ATLANTIC BOULEVARD DULLES, VIRGINIA 20166 (Address of Registrants' Principal Executive Offices) (Zip Code) (703) 433-6300 (Registrants' Telephone Number, Including Area Code) Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports); and (2) have been subject to such filing requirements for the past 90 days. YES X NO --- --- 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ORBCOMM GLOBAL, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 2 3 ORBCOMM GLOBAL, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 ORBCOMM GLOBAL, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 ORBCOMM GLOBAL, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION In 1993, Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership established by affiliates of Teleglobe Inc. ("Teleglobe"), and Orbital Communications Corporation ("Orbital Communications"), a majority owned subsidiary of Orbital Sciences Corporation ("Orbital"), formed ORBCOMM Global, L.P. ("ORBCOMM" or the "Company"), a Delaware limited partnership. Orbital Communications and Teleglobe Mobile also formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM low-Earth orbit satellite-based data communication system (the "ORBCOMM System") in the United States and internationally, respectively. In 1995, the Company became a general and limited partner in ORBCOMM USA with a 98% participation interest and Orbital Communications' direct partnership interest was reduced to 2% and Teleglobe Mobile's direct partnership interest was eliminated entirely. Simultaneously, the Company became a general and limited partner in ORBCOMM International with a 98% participation interest and Teleglobe Mobile's direct partnership interest was reduced to 2% and Orbital Communications' direct partnership interest was eliminated entirely. On January 26, 2000, each of Orbital Communications and Teleglobe Mobile contributed to the Company its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively (the "Merger"). The participation interests contributed to ORBCOMM represented net liabilities of $353,000 and $63,000 for ORBCOMM USA and ORBCOMM International, respectively, which have been accounted for as distributions to Orbital Communications and Teleglobe Mobile. Effective as of January 1, 2000, ORBCOMM entered into an agreement with Teleglobe, Teleglobe Mobile, Orbital and Orbital Communications (the "Omnibus Agreement") pursuant to which Teleglobe Mobile became the Company's sole general partner and majority owner, with an interest of approximately 64% as of January 1, 2000 (approximately 67% as of June 30, 2000), and Orbital Communications remained a limited partner, with a minority ownership interest of approximately 36% as of January 1, 2000 (approximately 33% as of June 30, 2000). (2) RECENT DEVELOPMENTS Although it was not contractually obligated to do so, since January 2000, Teleglobe Mobile had been funding the Company's operations and other requirements through equity contributions. In August 2000, Teleglobe Mobile advised ORBCOMM that Teleglobe Mobile was no longer in a position to continue to provide equity capital to ORBCOMM. In August 2000, Teleglobe, Teleglobe Mobile, Orbital, Orbital Communications and ORBCOMM entered into a Memorandum of Understanding ("MOU"). The MOU provides, among other things, that: - ORBCOMM devote commercially reasonable efforts to implement a new business plan agreed to by the parties; - Orbital continue discussions with potential investors in ORBCOMM; - ORBCOMM work with its creditors to restructure its debt in a manner consistent with the business plan and take such other steps as may be appropriate in the event that ORBCOMM and its partners decide to pursue a filing under Chapter 11 of the United States Bankruptcy Code; and - an affiliate of Teleglobe provide an aggregate of $17,000,000 of interim debt financing to ORBCOMM, a portion of which will be provided in the form of a secured loan, and the remainder of which will be provided in a form to be determined by Teleglobe. In connection with the implementation of the new business plan, the Company wrote down approximately $10,200,000 of inventory and other assets as of June 30, 2000, and reclassified its long-term debt to a current liability. See note 6, Long-Term Debt; note 7, Related Party Transactions; and note 8, Commitments and Contingencies. 5 6 ORBCOMM GLOBAL, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (3) BASIS OF PRESENTATION Prior to the Merger, Orbital Communications and Teleglobe Mobile had effective control over ORBCOMM USA and ORBCOMM International, respectively. Accordingly, ORBCOMM previously accounted for each of ORBCOMM USA and ORBCOMM International using the equity method of accounting. Therefore, ORBCOMM's proportionate share of the net income and losses of each of ORBCOMM USA and ORBCOMM International was recorded under the caption "Equity in net losses of affiliates" in its condensed consolidated financial statements. ORBCOMM's investment in each of ORBCOMM USA and ORBCOMM International was carried at cost, and was subsequently adjusted for its proportionate share of the net income and losses, additional capital contributions and distributions under the caption "Investments in and advances to affiliates." As a result of the Merger, ORBCOMM USA and ORBCOMM International ceased doing business as separate entities and ORBCOMM assumed their business operations. Accordingly, ORBCOMM's condensed consolidated financial statements include ORBCOMM USA's and ORBCOMM International's assets, liabilities and operating revenues and expenses as of January 1, 2000. The Merger resulted in non-cash changes in balance sheet accounts as follows (in thousands): Increase in accounts receivable $ 7,281 Increase in deferred and prepaid contract costs 19,253 Increase in accounts payable and accrued liabilities 923 Increase in deferred revenue 23,677

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, including all normal recurring adjustments, necessary for a fair presentation of the financial position of the Company as of June 30, 2000, the results of its operations for the three- and six-month periods ended June 30, 2000 and 1999 and its cash flows for the six-month periods ended June 30, 2000 and 1999. These statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements are unaudited and do not include all related footnote disclosures and, therefore, should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the year ended December 31, 1999 filed with the Securities and Exchange Commission (the "SEC"). Operating results for the three- and six-month periods ended June 30, 2000 are not necessarily indicative of the results of operations expected in the future, although the Company anticipates a net loss for the year ending December 31, 2000. (4) RECENT ACCOUNTING PRONOUNCEMENTS On December 3, 1999, the SEC issued "Staff Accounting Bulletin" No. 101, "Revenue Recognition" ("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company is currently evaluating the impact of SAB No. 101 on the Company's consolidated results of operations and financial condition. (5) SERVICE LICENSE OR SIMILAR AGREEMENTS As of June 30, 2000, ORBCOMM had signed 17 agreements with international licensees, 12 of which had associated gateway procurement contracts and software license agreements. These agreements authorize the international licensees to use the ORBCOMM System to provide two-way data communication services in their designated territories. As of June 30, 2000, $22,329,000 was recorded as deferred revenue under these agreements 6 7 ORBCOMM GLOBAL, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (5) SERVICE LICENSE OR SIMILAR AGREEMENTS - (CONTINUED) and the associated gateway procurement agreements. Prior to January 1, 2000, the deferred revenue under these agreements was reported by ORBCOMM International on its balance sheet. As a result of the Merger, the deferred revenue under these agreements is now reflected on ORBCOMM's condensed consolidated balance sheet. (6) LONG-TERM DEBT In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued $170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with Revenue Participation Interest (the "Old Notes"). All of the Old Notes were exchanged for an equal principal amount of registered 14% Series B Senior Notes due 2004 with Revenue Participation Interest (the "Notes"). Revenue Participation Interest represents an aggregate amount equal to 5% of ORBCOMM System revenues generated from August 1996 and is payable on the Old Notes and the Notes on each interest payment date subject to certain covenant restrictions. The Notes are fully and unconditionally guaranteed on a joint and several basis by Teleglobe Mobile, Orbital Communications and ORBCOMM Holding Corporation, a subsidiary of ORBCOMM, and were guaranteed by ORBCOMM USA and ORBCOMM International prior to the Merger. The guarantees are non-recourse to the shareholders and/or partners of the guarantors, limited only to the extent necessary for each such guarantee not to constitute a fraudulent conveyance under applicable law. The Indenture governing the Notes contains certain financial covenants providing for, among other things, limitations on payments and cash transfers between the credit parties and Teleglobe and Orbital, limitations on transactions between certain affiliates, limitations on the incurrence of additional indebtedness and restrictions on the sale of certain assets. The Indenture also imposes limitations governing the conduct of ORBCOMM's business and creates restrictions relating to ORBCOMM's investment activities. Due to the limited amount of funds available to ORBCOMM, it is highly unlikely that the Company will make the interest payment scheduled to be paid on August 15, 2000 on the Notes. If the interest payment is not paid, this will be a violation of a covenant in the Indenture, for which there is a 30 day cure period. Accordingly, we have classified the Notes, and all associated accrued interest, as a current liability on ORBCOMM's condensed consolidated balance sheet. If the interest is not paid by September 14, 2000, or the Notes are not successfully restructured by that time, bondholders representing at least 25% of the total amount of the Notes will be able to declare the principal and all accrued interest currently due. On August 11, 2000, the Company retained Donaldson, Lufkin & Jenrette Securities Corporation to, among other things, assist the Company in exploring recapitalization alternatives. (7) RELATED PARTY TRANSACTIONS The Company had accrued liabilities to Orbital of $41,037,000 and $107,513,000 as of June 30, 2000 and December 31, 1999, respectively. These amounts were for work performed pursuant to the ORBCOMM System Procurement Agreement dated September 12, 1995, the ORBCOMM Procurement Agreement dated as of February 1, 1999 and the Administrative Services Agreement dated as of January 1, 1997 (for the provision of ongoing administrative support to the Company). As of December 31, 1999, Orbital had deferred invoicing $91,300,000 under the Company's 1995 and 1999 procurement agreements with Orbital. The Company had also accrued an additional $16,213,000 under the 1995 procurement agreement as well as under the Administrative Services Agreement, which amount is due in installments from 2000 through 2005. Pursuant to the Omnibus Agreement, the Company made arrangements to settle the $91,300,000 of deferred invoiced amounts as of December 31, 1999 and, during the six-month period ended June 30, 2000, the following transactions took place: - On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds for this payment came from an equity contribution to ORBCOMM made on that date by Teleglobe Mobile; 7 8 ORBCOMM GLOBAL, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (7) RELATED PARTY TRANSACTIONS - (CONTINUED) - On March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and simultaneously assigned such invoice to Orbital Communications. Orbital Communications subsequently requested that ORBCOMM convert, and ORBCOMM converted, the full amount of this invoice into an equity contribution to ORBCOMM; and - The parties agreed that the remaining $16,758,000, together with accrued interest, will be paid by ORBCOMM to Orbital 50% on each of March 31, 2001 and June 30, 2001. In addition, in January 2000, Orbital Communications requested that ORBCOMM convert, and ORBCOMM converted, into an equity contribution to ORBCOMM $2,962,000 of invoices due to Orbital pursuant to the Administrative Services Agreement and previously accrued by ORBCOMM as of December 31, 1999. As of May 19, 2000, pursuant to the Omnibus Agreement, Teleglobe sold to ORBCOMM the business of ORBCOMM Canada Inc., a majority owned subsidiary of Teleglobe and ORBCOMM's international licensee for Canada, and Orbital sold to ORBCOMM the net assets of Orbital's GEMtrak business, which ORBCOMM had operated since March 1999. As required for transactions between related parties, ORBCOMM recorded the assets and liabilities acquired in both transactions using their carryover basis. The basis of the net assets of Orbital's GEMtrak business was $591,000. In connection with the purchase of ORBCOMM Canada (which had $76,000 of net assets), the Company assumed ORBCOMM Canada's obligations under its CDN$11,100,000 (approximately $7,489,000) of preferred stock held by Teleglobe and Meder Communications Inc., a company owned by an officer of ORBCOMM. The preferred stock carries a CDN$0.0225 per share quarterly dividend. The preferred stock held by Teleglobe is puttable to the Company for cash of approximately CDN$10,100,000 plus accrued and unpaid dividends. If Teleglobe elects to exercise this right prior to May 19, 2003, Teleglobe is required to advance or contribute to ORBCOMM an amount adequate to fund the put. The preferred stock held by Meder Communications is puttable to the Company for cash if certain subscriber activation levels are achieved by ORBCOMM. Such preferred stock is reflected on ORBCOMM's balance sheet under the caption "Minority Interest." During 2000, Orbital has invoiced ORBCOMM approximately $13,000,000 for work performed or services rendered by Orbital that remained unpaid as of June 30, 2000. ORBCOMM's limited partnership agreement and resolutions adopted by the partners of ORBCOMM require ORBCOMM to reimburse Orbital Communications for Orbital Communications' repurchase of certain shares of Orbital Communications' common stock issued pursuant to the Orbital Communications' 1992 Stock Option Plan ("Stock Option Plan"). In June 2000, ORBCOMM reimbursed Orbital Communications $1,254,000 under the Stock Option Plan (none for the year ended December 31, 1999). 8 9 ORBCOMM GLOBAL, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (8) COMMITMENTS AND CONTINGENCIES Construction of Gateways ORBCOMM has entered into agreements with certain manufacturers for the purchase of 24 gateway Earth stations and one gateway antenna that have been or will be installed around the world. As of June 30, 2000, ORBCOMM had $20,943,000 of deferred and prepaid contract costs, of which $11,153,000 represents advance payments to such manufacturers for gateway Earth stations that have not yet been completed. Total commitments under the gateway Earth station manufacturing agreements approximated $22,000,000, of which approximately $5,100,000 was outstanding as of June 30, 2000. Prior to January 1, 2000, deferred and prepaid contract costs under these agreements were reported by ORBCOMM International on its balance sheet. As a result of the Merger, deferred and prepaid contract costs under these agreements are now reflected on ORBCOMM's condensed consolidated balance sheet. Contingencies From time to time, the Company is involved in claims by licensees or potential licensees. In management's opinion, there will be no material adverse impact on the financial condition or results of operations of the Company as a result of such claims made to date. Risks and Uncertainties The Company's operations are subject to certain risks and uncertainties that are inherent in satellite communication companies. The Company expects to have continuing losses for at least the next several quarters and is dependent upon additional financing to fund operations. Due to a slower than expected subscriber ramp-up, and the accompanying lower than expected revenues, the Company adopted a revised sales and marketing strategy subsequent to June 30, 2000. In connection with the implementation of this new strategy, ORBCOMM reduced its overall workforce by approximately 37% in August 2000. While an affiliate of Teleglobe has agreed to provide interim debt financing (see note 2), ORBCOMM is continuing to seek additional third party equity investors to join ORBCOMM's existing partners. In addition, ORBCOMM is continuing to explore a variety of financing alternatives, including selling various assets and restructuring or reorganizing its outstanding debt (see note 6) and/or its business. The Company cannot assure you, however, that other equity investors or other financing alternatives will be available, and if available, that they will be available on terms acceptable to the Company. The Company has been advised by its independent public accountants that, if the Company's future funding situation is not resolved prior to the completion of their audit of ORBCOMM's financial statements for the year ending December 31, 2000, their auditors' report on those financial statements will be modified for that contingency and will include a going-concern qualification. In addition, a further write-down of assets due to impairment may be required. 9 10 TELEGLOBE MOBILE PARTNERS CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 10 11 TELEGLOBE MOBILE PARTNERS CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 11 12 TELEGLOBE MOBILE PARTNERS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 12 13 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION Teleglobe Mobile Partners, a Delaware general partnership ("Teleglobe Mobile"), was formed in 1993 for the purpose of acting as a general and a limited partner in ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited partnership, which provides data communication services using a low-Earth orbit satellite-based data communication system (the "ORBCOMM System"). Teleglobe Mobile and Orbital Communications Corporation ("Orbital Communications"), a majority owned subsidiary of Orbital Sciences Corporation ("Orbital"), also formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"), to market services using the ORBCOMM System in the United States and internationally, respectively. In 1995, ORBCOMM became a general and limited partner in ORBCOMM USA with a 98% participation interest and Orbital Communications' direct partnership interest was reduced to 2% and Teleglobe Mobile's direct partnership interest was eliminated entirely. Simultaneously, ORBCOMM became a general and limited partner in ORBCOMM International with a 98% participation interest and Teleglobe Mobile's direct partnership interest was reduced to 2% and Orbital Communications' direct partnership interest was eliminated entirely. On January 26, 2000, each of Orbital Communications and Teleglobe Mobile contributed to ORBCOMM its 2% direct participation interest in ORBCOMM USA and ORBCOMM International, respectively (the "Merger"). The participation interests contributed to ORBCOMM represented net liabilities of $353,000 and $63,000 for ORBCOMM USA and ORBCOMM International, respectively, which have been accounted for as distributions to Orbital Communications and Teleglobe Mobile. As a result of the Merger, ORBCOMM USA and ORBCOMM International ceased doing business as separate entities and ORBCOMM assumed their business operations. Effective as of January 1, 2000, Teleglobe Mobile entered into an agreement with ORBCOMM, Teleglobe Inc. ("Teleglobe"), Orbital and Orbital Communications (the "Omnibus Agreement") pursuant to which Teleglobe Mobile became ORBCOMM's sole general partner and majority owner, with an interest of approximately 64% as of January 1, 2000 (approximately 67% as of June 30, 2000), and Orbital Communications remained a limited partner, with a minority ownership interest of approximately 36% as of January 1, 2000 (approximately 33% as of June 30, 2000). (2) RECENT DEVELOPMENTS Although it was not contractually obligated to do so, since January 2000, Teleglobe Mobile had been funding ORBCOMM's operations through equity contributions. In August 2000, Teleglobe Mobile advised ORBCOMM that Teleglobe Mobile was no longer in a position to continue to provide equity capital to ORBCOMM. In August 2000, Teleglobe, Teleglobe Mobile, Orbital, Orbital Communications and ORBCOMM entered into a Memorandum of Understanding ("MOU"). The MOU provides, among other things, that: - ORBCOMM devote commercially reasonable efforts to implement a new business plan agreed to by the parties; - Orbital continue discussions with potential investors in ORBCOMM; - ORBCOMM work with its creditors to restructure its debt in a manner consistent with the business plan and take such other steps as may be appropriate in the event that ORBCOMM and its partners decide to pursue a filing under Chapter 11 of the United States Bankruptcy Code; and - an affiliate of Teleglobe provide an aggregate of $17,000,000 of interim debt financing to ORBCOMM, a portion of which will be provided in the form of a secured loan, and the remainder of which will be provided in a form to be determined by Teleglobe. In connection with the implementation of the new business plan, ORBCOMM wrote down approximately $10,200,000 of inventory and other assets as of June 30, 2000, and reclassified its long-term debt to a current liability. See note 7, Long-Term Debt; note 8, Related Party Transactions; and note 9, Commitments and Contingencies. 13 14 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (3) BASIS OF PRESENTATION Prior to the Merger and pursuant to the terms of the relevant partnership agreements: (i) Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM International; and (ii) Orbital Communications controlled the operational and financial affairs of ORBCOMM USA. Since Teleglobe Mobile was unable to control, but was able to exercise significant influence over, ORBCOMM's operating and financial policies, Teleglobe Mobile accounted for its investment in ORBCOMM using the equity method of accounting. Accordingly, historically Teleglobe Mobile did not consolidate ORBCOMM and therefore did not report in its condensed consolidated financial statements ORBCOMM's assets, liabilities and operating revenues and expenses. Instead, Teleglobe Mobile's proportionate share of the net losses of ORBCOMM was recorded under the caption "Equity in net losses of ORBCOMM Global, L.P." in its condensed consolidated financial statements. Correspondingly, its investment of ORBCOMM was carried at cost, and was subsequently adjusted for its proportionate share of the net losses, additional capital contributions and distributions under the caption "Investments in affiliates." Pursuant to the Omnibus Agreement, Teleglobe Mobile has had effective control over ORBCOMM and, consequently, Teleglobe Mobile consolidates the financial results of ORBCOMM, as of January 1, 2000. As a result of ORBCOMM's results being consolidated with the financial results of Teleglobe Mobile, non-cash changes in the condensed consolidated statements of cash flows consist primarily of the activities of ORBCOMM. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, including all normal recurring adjustments, necessary for a fair presentation of the financial position of Teleglobe Mobile as of June 30, 2000, the results of its operations for the three- and six-month periods ended June 30, 2000 and 1999 and its cash flows for the six-month periods ended June 30, 2000 and 1999. These statements include the accounts of Teleglobe Mobile and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements are unaudited and do not include all related footnote disclosures and, therefore, should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the year ended December 31, 1999 filed with the Securities and Exchange Commission (the "SEC"). Operating results for the three- and six-month periods ended June 30, 2000 are not necessarily indicative of the results of operations expected in the future. (4) RECENT ACCOUNTING PRONOUNCEMENTS On December 3, 1999, the SEC issued "Staff Accounting Bulletin" No. 101, "Revenue Recognition" ("SAB No. 101"). SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ORBCOMM is currently evaluating the impact of SAB No. 101 on its consolidated results of operations and financial condition. (5) GOODWILL Included in goodwill of $19,292,000 is $16,707,000 that was recorded during the six-month period ended June 30, 2000 in Teleglobe Mobile's condensed consolidated financial statements as a result of the equity contributions made by Teleglobe Mobile and its increased participation interest in ORBCOMM. The goodwill represents the 14 15 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (5) GOODWILL - (CONTINUED) excess of costs over the fair value of identifiable assets acquired and is being amortized on a straight-line basis over eight years. Teleglobe Mobile's policy is to review its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company recognizes impairment losses when the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. Based on the outcome of the actions referred to in note 2, Teleglobe Mobile expects to treat ORBCOMM as a discontinued operation in the third quarter of 2000 and to record a significant write-down of this investment. (6) SERVICE LICENSE OR SIMILAR AGREEMENTS As of June 30, 2000, ORBCOMM had signed 17 agreements with international licensees, 12 of which had associated gateway procurement contracts and software license agreements. These agreements authorize the international licensees to use the ORBCOMM System to provide two-way data communication services in their designated territories. As of June 30, 2000, $22,329,000 was recorded as deferred revenue under these agreements and the associated gateway procurement agreements. (7) LONG-TERM DEBT In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued $170,000,000 aggregate principal amount of 14% Senior Notes due 2004 with Revenue Participation Interest (the "Old Notes"). All of the Old Notes were exchanged for an equal principal amount of registered 14% Series B Senior Notes due 2004 with Revenue Participation Interest (the "Notes"). Revenue Participation Interest represents an aggregate amount equal to 5% of ORBCOMM System revenues generated from August 1996 and is payable on the Old Notes and the Notes on each interest payment date subject to certain covenant restrictions. The Notes are fully and unconditionally guaranteed on a joint and several basis by Teleglobe Mobile, Orbital Communications and ORBCOMM Holding Corporation, a subsidiary of ORBCOMM, and were guaranteed by ORBCOMM USA and ORBCOMM International prior to the Merger. The guarantees are non-recourse to the shareholders and/or partners of the guarantors, limited only to the extent necessary for each such guarantee not to constitute a fraudulent conveyance under applicable law. The Indenture governing the Notes contains certain financial covenants providing for, among other things, limitations on payments and cash transfers between the credit parties and Teleglobe and Orbital, limitations on transactions between certain affiliates, limitations on the incurrence of additional indebtedness and restrictions on the sale of certain assets. The Indenture also imposes limitations governing the conduct of ORBCOMM's business and creates restrictions relating to ORBCOMM's investment activities. Due to the limited amount of funds available to ORBCOMM, it is highly unlikely that ORBCOMM will make the interest payment scheduled to be paid on August 15, 2000 on the Notes. If the interest payment is not paid, this will be a violation of a covenant in the Indenture, for which there is a 30 day cure period. Accordingly, the Notes, and all associated accrued interest, have been classified as a current liability on ORBCOMM's condensed consolidated balance sheet. If the interest is not paid by September 14, 2000, or the Notes are not successfully restructured by that time, bondholders representing at least 25% of the total amount of the Notes will be able to declare the principal and all accrued interest currently due. 15 16 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (8) RELATED PARTY TRANSACTIONS ORBCOMM had accrued liabilities to Orbital of $41,037,000 and $107,513,000 as of June 30, 2000 and December 31, 1999, respectively. These amounts were for work performed pursuant to the ORBCOMM System Procurement Agreement dated September 12, 1995, the ORBCOMM Procurement Agreement dated as of February 1, 1999 and the Administrative Services Agreement dated as of January 1, 1997 (for the provision of ongoing administrative support to ORBCOMM). As of December 31, 1999, Orbital had deferred invoicing $91,300,000 under ORBCOMM's 1995 and 1999 procurement agreements with Orbital. ORBCOMM had also accrued an additional $16,213,000 under the 1995 procurement agreement as well as under the Administrative Services Agreement, which amount is due in installments from 2000 through 2005. Pursuant to the Omnibus Agreement, ORBCOMM made arrangements to settle the $91,300,000 of deferred invoiced amounts as of December 31, 1999 and, during the six-month period ended June 30, 2000, the following transactions took place: - On January 26, 2000, ORBCOMM paid $41,460,000 to Orbital. The funds for this payment came from an equity contribution to ORBCOMM made on that date by Teleglobe Mobile; - On March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and simultaneously assigned such invoice to Orbital Communications. Orbital Communications subsequently requested that ORBCOMM convert, and ORBCOMM converted, the full amount of this invoice into an equity contribution to ORBCOMM; and - The parties agreed that the remaining $16,758,000, together with accrued interest, will be paid by ORBCOMM to Orbital 50% on each of March 31, 2001 and June 30, 2001. In addition, in January 2000, Orbital Communications requested that ORBCOMM convert, and ORBCOMM converted, into an equity contribution to ORBCOMM $2,962,000 of invoices due to Orbital pursuant to the Administrative Services Agreement and previously accrued by ORBCOMM as of December 31, 1999. As of May 19, 2000, pursuant to the Omnibus Agreement, Teleglobe sold to ORBCOMM the business of ORBCOMM Canada Inc., a majority owned subsidiary of Teleglobe and ORBCOMM's international licensee for Canada, and Orbital sold to ORBCOMM the net assets of Orbital's GEMtrak business, which ORBCOMM had operated since March 1999. As required for transactions between related parties, ORBCOMM recorded the assets and liabilities acquired in both transactions using their carryover basis. The basis of the net assets of Orbital's GEMtrak business was $591,000. In connection with the purchase of ORBCOMM Canada (which had $76,000 of net assets), ORBCOMM assumed ORBCOMM Canada's obligations under its CDN$11,100,000 (approximately $7,489,000) of preferred stock held by Teleglobe and Meder Communications Inc., a company owned by an officer of ORBCOMM. The preferred stock carries a CDN$0.0225 per share quarterly dividend. The preferred stock held by Teleglobe is puttable to ORBCOMM for cash of approximately CDN$10,100,000 plus accrued and unpaid dividends. If Teleglobe elects to exercise this right prior to May 19, 2003, Teleglobe is required to advance or contribute to ORBCOMM an amount adequate to fund the put. The preferred stock held by Meder Communications is puttable to ORBCOMM for cash if certain subscriber activation levels are achieved by ORBCOMM. Such preferred stock is reflected on ORBCOMM's balance sheet under the caption "Minority Interest." During 2000, Orbital has invoiced ORBCOMM approximately $13,000,000 for work performed or services rendered by Orbital that remained unpaid as of June 30, 2000. 16 17 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (8) RELATED PARTY TRANSACTIONS - (CONTINUED) ORBCOMM's limited partnership agreement and resolutions adopted by the partners of ORBCOMM require ORBCOMM to reimburse Orbital Communications for Orbital Communications' repurchase of certain shares of Orbital Communications' common stock issued pursuant to the Orbital Communications' 1992 Stock Option Plan ("Stock Option Plan"). In June 2000, ORBCOMM reimbursed Orbital Communications $1,254,000 under the Stock Option Plan (none for the year ended December 31, 1999). In 1996, Teleglobe Mobile entered into an administrative services agreement with Teleglobe. Under this agreement, Teleglobe provides management services to Teleglobe Mobile. As of June 30, 2000 and December 31, 1999, Teleglobe Mobile owed Teleglobe $235,000 and $153,000, respectively, under this agreement. (9) COMMITMENTS AND CONTINGENCIES Construction of Gateways ORBCOMM has entered into agreements with certain manufacturers for the purchase of 24 gateway Earth stations and one gateway antenna that have been or will be installed around the world. As of June 30, 2000, ORBCOMM had $20,943,000 of deferred and prepaid contract costs, of which $11,153,000 represents advance payments to manufacturers for gateway Earth stations that have not yet been completed. Total commitments under the gateway Earth station manufacturing agreements approximated $22,000,000, of which approximately $5,100,000 was outstanding as of June 30, 2000. Contingencies From time to time, ORBCOMM is involved in claims by licensees or potential licensees. In management's opinion, there will be no material adverse impact on the financial condition or results of operations of ORBCOMM as a result of such claims made to date. Risks and Uncertainties ORBCOMM's operations are subject to certain risks and uncertainties that are inherent in satellite communication companies. ORBCOMM expects to have continuing losses for at least the next several quarters and is dependent upon additional financing to fund operations. Due to a slower than expected subscriber ramp-up, and the accompanying lower than expected revenues, ORBCOMM adopted a revised sales and marketing strategy subsequent to June 30, 2000. In connection with the implementation of this new strategy, ORBCOMM reduced its overall workforce by approximately 37% in August 2000. While an affiliate of Teleglobe has agreed to provide interim debt financing (see note 2), ORBCOMM is continuing to seek additional third party equity investors to join ORBCOMM's existing partners. In addition, ORBCOMM is continuing to explore a variety of financing alternatives, including selling various assets and restructuring or reorganizing its outstanding debt (see note 7) and/or its business. We cannot assure you, however, that other equity investors or other financing alternatives will be available, and if available, that they will be available on terms acceptable to ORBCOMM and its partners. ORBCOMM has been advised by its independent public accountants that, if ORBCOMM's future funding situation 17 18 TELEGLOBE MOBILE PARTNERS NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (9) COMMITMENTS AND CONTINGENCIES - (CONTINUED) is not resolved prior to the completion of their audit of ORBCOMM's financial statements for the year ending December 31, 2000, their auditors' report on those financial statements will be modified for that contingency and will include a going-concern qualification. In addition, a further write-down of assets due to impairment may be required. 18 19 ORBITAL COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 19 20 ORBITAL COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 20 21 ORBITAL COMMUNICATIONS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS; UNAUDITED)

The accompanying notes are an integral part of these condensed consolidated financial statements. 21 22 ORBITAL COMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION Orbital Communications Corporation ("Orbital Communications") is a majority owned and controlled subsidiary of Orbital Sciences Corporation ("Orbital") and is included in Orbital's consolidated financial statements. In 1993, Orbital Communications and Teleglobe Mobile Partners ("Teleglobe Mobile"), a partnership established by affiliates of Teleglobe Inc. ("Teleglobe"), formed ORBCOMM Global, L.P. ("ORBCOMM"), a Delaware limited partnership, and two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. ("ORBCOMM International"). As of December 31, 1999, each of Orbital Communications and Teleglobe Mobile was a 50% general partner in ORBCOMM, and ORBCOMM was a 98% general partner in each of the two marketing partnerships. Additionally, Orbital Communications was a 2% general partner in ORBCOMM USA, and Teleglobe Mobile was a 2% general partner in ORBCOMM International. Directly and indirectly, as of December 31, 1999, Orbital Communications held and controlled 51% and 49% of ORBCOMM USA and ORBCOMM International, respectively. On January 26, 2000, Orbital Communications and Teleglobe Mobile contributed their respective direct participation interest in ORBCOMM USA and ORBCOMM International to ORBCOMM (the "Merger"). As a result of the Merger, these companies ceased doing business as separate entities and ORBCOMM assumed their business operations. Effective January 1, 2000, Orbital Communications entered into an agreement with ORBCOMM, Teleglobe, Orbital, and Teleglobe Mobile (the "Omnibus Agreement") pursuant to which Teleglobe Mobile became ORBCOMM's sole general partner and majority owner, with an interest of approximately 64% as of January 1, 2000, and Orbital Communications remained a limited partner, with a minority ownership interest of approximately 36% as of January 1, 2000. (2) BASIS OF PRESENTATION Pursuant to the terms of the relevant partnership agreements, as of December 31, 1999: (i) Orbital Communications and Teleglobe Mobile shared equal responsibility for the operational and financial affairs of ORBCOMM; (ii) Orbital Communications controlled and consolidated the operational and financial affairs of ORBCOMM USA; and (iii) Teleglobe Mobile controlled the operational and financial affairs of ORBCOMM International. Since Orbital Communications was unable to control, but was able to exercise significant influence over ORBCOMM's operating and financial policies, Orbital Communications accounted for its investments in ORBCOMM using the equity method of accounting. As discussed in note 1, in January 2000, Orbital Communications contributed its ownership interest in ORBCOMM USA to ORBCOMM. Consequently, Orbital Communications no longer consolidates ORBCOMM USA's financial statements. The contribution of ORBCOMM USA to ORBCOMM resulted in a decrease in Orbital Communication's investments in affiliates of $9,008,000 and non-cash changes to balance sheet accounts as follows (in thousands): Decrease in accounts receivable and other current assets $ (742) Decrease in accounts payable and other accrued liabilities 414 Decrease in due to affiliates 17,992 Increase in non controlling interest in net assets of consolidated subsidiary (8,656) -------- Net $ (9,008) ========

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, including all normal recurring accruals, necessary for a fair presentation of the financial position of Orbital Communications as of June 30, 2000, and the results of its operations for the three- and six-month periods ended June 30, 2000 and 1999, and its cash flows for the six-month periods ended June 30, 2000 and 1999. These condensed consolidated financial statements are unaudited and do not include all related footnote disclosures and, therefore, should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the year ended December 31, 1999 filed with the Securities and Exchange Commission (the "SEC"). 22 23 ORBITAL COMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (2) BASIS OF PRESENTATION - (CONTINUED) The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results of operations expected in the future. (3) RELATED PARTY TRANSACTIONS Orbital Communications obtains virtually all of its funding for its operations and for its capital investments in ORBCOMM from Orbital via a non-interest bearing intercompany borrowing arrangement. As of June 30, 2000 and December 31, 1999, Orbital Communications owed Orbital $191,879,000 and $154,973,000, respectively, none of which is currently payable. As of December 31, 1999, Orbital Communications and ORBCOMM USA owed ORBCOMM $18,385,000. This balance was eliminated as a result of the Merger. (4) INVESTMENT IN AFFILIATES As explained in note 1, Orbital Communications is currently a limited partner and Teleglobe Mobile is currently the sole general partner of ORBCOMM. As of June 30, 2000, Orbital Communications' balance sheet reflected a carrying amount of $45,304,000 for its investment in ORBCOMM. ORBCOMM has incurred, and expects to continue to incur, operating losses. During 2000, Teleglobe had been funding the majority of ORBCOMM's cash requirements through capital contributions. In August 2000, Teleglobe Mobile advised ORBCOMM that Teleglobe Mobile was no longer in a position to continue to provide equity capital to ORBCOMM. At that time, Orbital, Teleglobe, ORBCOMM and the partners agreed on limited interim debt financing that is expected to provide ORBCOMM with $17,000,000 in additional cash from an affiliate of Teleglobe to support near term operations (see note 7). ORBCOMM has recently reduced its short-term cash needs while it seeks additional third party investors to join the existing partners. There is no assurance that other equity investors or other financing alternatives will be available, and if available, that they will be available at terms acceptable to ORBCOMM and the partners. If ORBCOMM is unsuccessful at raising additional capital, a portion, or all of Orbital Communications' investment in ORBCOMM may become impaired. In addition, ORBCOMM has been advised by its independent public accountants that if ORBCOMM's funding situation is not resolved prior to the completion of their audit of ORBCOMM's financial statements for the year ending December 31, 2000, the auditors' report on those financial statements will be modified for that contingency and will include a going-concern qualification. Pursuant to the Omnibus Agreement, on March 3, 2000, Orbital invoiced ORBCOMM $33,082,000 and simultaneously assigned such invoice to Orbital Communications. Orbital Communications subsequently converted the full amount of this invoice into an equity contribution to ORBCOMM. In addition, in January 2000, Orbital Communications converted $2,962,000 of invoices due to Orbital from ORBCOMM pursuant to an administrative services agreement into an equity contribution to ORBCOMM. During the second quarter of 2000, Orbital Communications contributed certain assets to ORBCOMM in exchange for $591,000 in additional partners' capital. As a result of the realignment of ownership interest pursuant to the Omnibus Agreement and of subsequent capital contributions by ORBCOMM's partners, Orbital Communication's ownership interest in ORBCOMM decreased to approximately 33% as of June 30, 2000. Consequently Orbital Communication's share of ORBCOMM's total capital exceeded the book value of Orbital Communication's investment in ORBCOMM. Accordingly, Orbital Communications for the three and six months ended June 30, 2000 recognized a gain of $4,338,000 and $20,555,000, respectively in accordance with SEC rules, as an increase in additional paid-in capital. In connection with this gain, a deferred tax obligation of $1,644,000 and $7,790,000, respectively, was established, with a corresponding reduction in the deferred tax valuation allowance, for the three and six months ended June 30, 2000. 23 24 ORBITAL COMMUNICATIONS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) (5) FCC LICENSES In January 2000, Orbital Communications agreed to file an application with the FCC to transfer to ORBCOMM the FCC licenses held by Orbital Communications with respect to the ORBCOMM low-Earth orbit satellite system if ORBCOMM has paid all amounts invoiced under the 1995 and 1999 procurement agreements between Orbital and ORBCOMM, and if an aggregate of $75,000,000 of additional capital contributions or similar equity investments is made to ORBCOMM by any entity after January 1, 2000. For purposes of this agreement, the $33,000,000 of capital contributed by Teleglobe Mobile in January 2000 and $33,082,000 of capital contributed in March 2000 by Orbital Communications (see note 4) are excluded. As of June 30, 2000, $75,000,000 of additional capital contributions or similar equity investments had been made to ORBCOMM, but ORBCOMM had not paid all amounts invoiced by Orbital under the procurement agreements. Consequently, the FCC licenses have not been transferred to ORBCOMM. (6) COMMITMENTS AND CONTINGENCIES In August 1996, ORBCOMM and ORBCOMM Global Capital Corp. issued $170,000,000 senior unsecured notes due in 2004 (the "Notes") to institutional investors. The Notes bear interest at a fixed rate of 14% and provide for noteholder participation in future ORBCOMM revenues. The Notes are fully and unconditionally guaranteed on a joint and several basis by Orbital Communications and Teleglobe Mobile, and were additionally guaranteed by ORBCOMM USA and ORBCOMM International prior to the Merger (see note 1). The guarantees are non-recourse to Orbital Communications' shareholders (including Orbital) and Teleglobe Mobile's partners (including Teleglobe). Due to the limited amount of funds currently available to ORBCOMM, it is highly unlikely that ORBCOMM will make its interest payment on the Notes due August 15, 2000. If the interest is not paid by September 14, 2000, or if the Notes are not successfully restructured by that time, ORBCOMM would be in default. The bondholders could seek some type of legal recourse against Orbital Communications, as Orbital Communications is a guarantor of the Notes. (7) SUBSEQUENT EVENT In August 2000, Teleglobe, Teleglobe Mobile, Orbital, ORBCOMM and Orbital Communications entered into a Memorandum of Understanding ("MOU"). The MOU provides for, among other things, that: - ORBCOMM devote commercially reasonable efforts to implement a new business plan agreed to by the parties, - Orbital continue discussions with potential investors in ORBCOMM, - ORBCOMM work with its creditors to restructure its debt in a manner consistent with the business plan and take such other steps as may be appropriate in the event that ORBCOMM and its partners decide to pursue a filing under Chapter 11 of the United States Bankruptcy Code, and, - an affiliate of Teleglobe provide an aggregate of $17,000,000 of interim debt financing to ORBCOMM, a portion of which will be provided in the form of a secured loan and the remainder of which will be provided in a form to be determined by Teleglobe. 24 25 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW In 1993, Teleglobe Inc. ("Teleglobe"), acting through Teleglobe Mobile Partners ("Teleglobe Mobile"), and Orbital Sciences Corporation ("Orbital"), acting through Orbital Communications Corporation ("Orbital Communications"), formed ORBCOMM Global, L.P. ("ORBCOMM"). At that time, Teleglobe Mobile and Orbital Communications each acquired general and limited partnership interests with a 50% participation interest in us. Effective as of January 1, 2000, Teleglobe Mobile became our sole general partner and, as of June 30, 2000, Teleglobe Mobile and Orbital Communications owned approximately a 67% and a 33% partnership interest in us, respectively. Concurrently with our formation, Orbital Communications and Teleglobe Mobile formed two marketing partnerships, ORBCOMM USA, L.P. ("ORBCOMM USA") and ORBCOMM International Partners, L.P. (ORBCOMM International"), each of which had the exclusive right to market our services in the United States and internationally, respectively. As of December 31, 1999, we held general and limited partnership interests with a 98% participation interest in each of ORBCOMM USA and ORBCOMM International, while each of Orbital Communications and Teleglobe Mobile held the remaining 2% participation interest in ORBCOMM USA and ORBCOMM International, respectively. On January 26, 2000, each of Orbital Communications and Teleglobe Mobile contributed to us its 2% interest in ORBCOMM USA and ORBCOMM International, respectively (the "Merger"). As a result of the Merger, these companies ceased doing business as separate entities and we assumed their business operations. Orbital Communications retains control over the licenses granted to it by the U.S. Federal Communications Commission (the "FCC"). In January 2000, Orbital Communications agreed to file an application with the FCC to transfer the FCC licenses for the ORBCOMM system to us if we have paid all amounts invoiced under the 1995 and 1999 procurement agreements with Orbital and an aggregate of $75.0 million in capital contributions or similar equity investments has been made to us by any entity after January 1, 2000, excluding certain specified capital contributions made to us by Teleglobe Mobile and Orbital Communications. As of June 30, 2000, an aggregate of $75.0 million in capital contributions or similar equity investments had been made to us, but we had not paid all amounts invoiced by Orbital under the procurement agreements. Consequently, the FCC licenses have not been transferred to us. On February 15, 2000, BCE Inc. ("BCE"), which currently owns approximately 23% of Teleglobe indirectly through Bell Canada, announced that it had executed a definitive agreement to acquire the remaining 77% of Teleglobe, which agreement was modified on June 18, 2000. This transaction is currently expected to close by the end of the third quarter of 2000. BCE, Canada's largest communications company, provides residential and business customers in Canada with wireline and wireless communications products and applications, satellite communications and direct-to-home television services and directories. On May 19, 2000, Teleglobe sold to us the business of ORBCOMM Canada Inc., a majority owned subsidiary of Teleglobe and our international licensee for Canada, and Orbital sold to us the net assets of Orbital's GEMtrak business, which we had operated since March 1999. Due to a slower than expected subscriber ramp-up, and the accompanying lower than expected revenues, we adopted a revised sales and marketing strategy subsequent to June 30, 2000. In connection with the implementation of this new strategy, we reduced our overall workforce by approximately 37% in August 2000 and wrote down approximately $10.2 million of inventory and other assets as of June 30, 2000. Although it was not contractually obligated to do so, since January 2000, Teleglobe, through Teleglobe Mobile, had been funding our operations and other requirements through equity contributions. In August 2000, Teleglobe advised us that it was no longer in a position to continue to provide equity capital to us. In August 2000, Teleglobe, Teleglobe Mobile, Orbital, Orbital Communications and ORBCOMM entered into a Memorandum of Understanding (the "MOU"). The MOU provides, among other things, that an affiliate of Teleglobe provide us with an aggregate of $17.0 million of interim debt financing to us. Notwithstanding the foregoing, we are continuing to seek additional third party equity investors to join our existing partners. In addition, we are continuing to explore a variety of financing alternatives, including selling various assets and restructuring or reorganizing our outstanding debt and/or our business. We have been advised by our independent public accountants that, if our future funding situation is not resolved prior to the completion of the accountants' audit of our financial statements for the year ending December 31, 2000, their auditors' report on those financial statements will be modified for that contingency and will include a going concern 25 26 qualification. In addition, a further write-down of assets due to impairment may be required. See "Capital Requirements and Financing Plan." Due to the limited amount of funds available to us, it is highly unlikely that we will make the interest payment scheduled to be paid on August 15, 2000 on our 14% Senior Notes due 2004 with Revenue Participation Interest (the "Notes"). If the interest is not paid by September 14, 2000, or the Notes are not successfully restructured by that time, we would be in default under the terms of the Amended and Restated Indenture governing the Notes (the "Indenture"). At that time, bondholders representing at least 25% of the total amount of the Notes will be able to declare the principal and all accrued interest currently due. On August 11, 2000, we retained Donaldson, Lufkin & Jenrette Securities Corporation to, among other things, assist us in exploring recapitalization alternatives. OUR ORGANIZATIONAL STRUCTURE; BASIS OF OUR FINANCIAL REPORTING Our condensed consolidated financial statements include our accounts and the accounts of our direct and indirect wholly owned subsidiaries, including ORBCOMM Global Capital Corp. ("ORBCOMM Global Capital"). ORBCOMM Global Capital was formed in July 1996 to act as a co-issuer of the Notes. ORBCOMM Global Capital has nominal assets and does not conduct any operations. Since, through December 31, 1999, Orbital Communications and Teleglobe Mobile had effective control over ORBCOMM USA and ORBCOMM International, respectively, we previously accounted for each of ORBCOMM USA and ORBCOMM International using the equity method of accounting. Accordingly, we did not consolidate either ORBCOMM USA or ORBCOMM International and therefore did not report in our condensed consolidated financial statements either of ORBCOMM USA's or ORBCOMM International's assets, liabilities and operating revenues and expenses. Instead, our proportionate share of the net income and losses of each of ORBCOMM USA and ORBCOMM International was recorded under the caption "Equity in net losses of affiliates" in our condensed consolidated financial statements. As a result of the Merger, our condensed consolidated financial statements include ORBCOMM USA's and ORBCOMM International's assets, liabilities and operating revenues and expenses as of January 1, 2000. Previous reports by us included the separate financial statements of ORBCOMM USA and ORBCOMM International because they were guarantors of the Notes. As these companies no longer exist, separate financial statements are no longer provided. The audited financial statements of ORBCOMM USA and ORBCOMM International for the year ended December 31, 1999 can be found in our annual report on Form 10-K for the year ended December 31, 1999 filed with the Securities and Exchange Commission. We own minority interests in several international licensees and a third party. For those investments in which we own at least a 20% interest, we account for our investment using the equity method of accounting. For those investments in which we own less than a 20% interest, we account for our investment using the cost method of accounting. ROLL-OUT OF OUR SERVICES We offer our commercial customers turnkey solutions, enabling them to monitor and control via the Internet their fixed and mobile assets located around the world. In November 1998, we commenced full commercial service in the United States and Canada and we have since launched commercial service in Europe, Japan, Mexico, South America, Morocco and Malaysia. REVENUES Through June 30, 2000, we generated revenues through three principal sources: (1) value-added resellers ("VARs"); (2) international licensees and (3) internal value-added resellers ("internal VARs"). Subsequent to June 30, 2000, we announced a new sales and marketing strategy whereby we will focus on our top-tier customers in a number of key industries and distribute our services through VARs and other distribution partners, including our international licensees, rather than through both direct (internal VARs) and indirect sales channels. 26 27 Through our domestic VARs, we generate service revenues from the direct sale of satellite access and usage to the VARs, which sales are primarily for resale to customers. In the United States, pricing to our VARs for satellite access and usage is based on many variables, including the availability and cost of substitute services, the cost of providing service and the nature of the customer application. Pricing to our VARs generally is based on a structure that incorporates, among other things, an initial activation charge and a recurring monthly charge for access to, and use of, our system. During 2000, we intend to implement usage fees based on designated "bands" or levels of use. It is likely that multiple pricing alternatives will eventually be offered in the United States including usage-sensitive billing, peak/off-peak, priority messaging, volume discounts and annual contract commitment options. The prices charged by the VARs to their customers are set by the VARs and are largely outside our control. Internationally, we generate revenues through license fees paid by, and the sale of gateways to, international licensees. In addition, all international licensees in commercial service pay a monthly satellite usage fee based on a percentage of gross revenues. In the future, we expect to be able to charge the international licensees a monthly satellite usage fee based on the greater of a percentage of gross revenues and a data throughput fee. International licensees' gross revenues are based on a pricing structure similar to the prices charged to VARs, which includes an activation charge and a recurring monthly charge based on access to, and use of, our system. On execution of a service license or similar agreement with us, international licensees purchase a gateway or gateway components from us under a gateway procurement contract or arrange to share a gateway with an international licensee that is in close proximity. Cash received under gateway procurement contracts is generally accounted for as deferred revenues and recognized when the gateway has successfully completed acceptance testing. License fees from service licenses or similar agreements are accounted for as deferred revenues and recognized over the term of the agreements. In addition to service revenues, we also generate revenues from the sale of subscriber units. We have type-approved 15 subscriber unit models from five manufacturers for use with our system, all of which are commercially available. Our customers may order units directly from the manufacturers. In addition, we have entered into agreements to purchase subscriber units for resale. Due to a slower than expected subscriber ramp-up, and the adoption of our new sales and marketing strategy, we evaluated the subscriber units in inventory and recorded a write-down as of June 30, 2000 of approximately $9.0 million to reduce the carrying value of our inventory to its estimated net realizable value. OPERATING EXPENSES Satellite-based communication systems are characterized by high initial capital expenditures and relatively low marginal costs for providing service. In November 1998, we commenced full commercial service in the United States and Canada and we commenced depreciation of our satellite system. Additionally, we continually incur: - engineering expenses related to the development and operation of our system; - marketing expenses related to the marketing of our services; and - administrative and other expenses related to the operation of our system. We have also incurred significant expenses related to the development of internal VARs, which are included in our marketing, administrative and other expenses. As a result of our decision to focus on our top-tier customers and distribute our services through VARs and other distribution partners, we expect that expenses related to the development and operation of internal VARs will decrease substantially beginning in the third quarter of 2000. RESULTS OF OPERATIONS We have generated substantial negative cash flows to date. Our activities through June 30, 2000 have focused primarily on the: - design, construction and launch of satellites; - design and construction of associated ground network and operating systems (including associated software); 27 28 - establishment of contractual agreements with VARs and international licensees; - acquisition of U.S. regulatory approvals for the operation of the ORBCOMM system; - development of subscriber unit manufacturing sources; - development of internal VARs; - development of customer software and hardware applications; and - marketing and sales activities associated with our commercial operations. As a result of the Merger, ORBCOMM USA's and ORBCOMM International's results are included in our condensed consolidated financial statements for the three and six months ended June 30, 2000, while ORBCOMM's reported results for the three and six months ended June 30, 1999 reflect ORBCOMM USA's and ORBCOMM International's results as reported using the equity method of accounting. The information provided below includes a comparison of the three and six months ended June 30, 2000 with the three and six months ended June 30, 1999 on an as reported basis, and also with ORBCOMM's results for the same periods of 1999 as if the Merger had occurred as of January 1, 1999 (the "Combined Basis" presentation). Revenues. During the second quarter of 2000 and 1999, we recognized $1.3 million and $550,000 ($7.4 million on a Combined Basis) of revenues, respectively. For the six months ended June 30, 2000 and 1999, these revenues were $3.0 million and $1.1 million ($13.8 million on a Combined Basis), respectively. Total revenues were higher on a Combined Basis during the three and six months ended June 30, 1999 versus the same periods of 2000 primarily because certain gateways were installed and accepted during the three and six months ended June 30, 1999, resulting in the recognition of gateway revenues, whereas no gateways were installed and accepted during the same periods of 2000. Our revenues consist primarily of: Service revenues and other. - ORBCOMM services. During the second quarter of 2000 and 1999, we recognized $756,000 and $107,000 ($269,000 on a Combined Basis), respectively, of revenues relating to ORBCOMM services. For the six months ended June 30, 2000 and 1999, these revenues were $1.6 million and $131,000 ($407,000 on a Combined Basis), respectively. These revenues consist primarily of revenues from the direct sale of satellite access and usage. Our service revenues were higher period-over-period primarily due to an increase in the number of activated subscriber units. - Service license or similar agreements ("SLAs"). During the second quarter of 2000 and 1999, we recognized $261,000 and $0 ($250,000 on a Combined Basis), respectively, as amortization of license fees associated with SLAs. For the six months ended June 30, 2000 and 1999, these revenues were $514,000 and $0 ($475,000 on a Combined Basis), respectively. These SLAs authorize the international licensees to use the ORBCOMM system to provide two-way data communication services in their respective territories. License fees from SLAs are accounted for as deferred revenues and recognized over the term of the SLAs. - Other. During the second quarter of 1999, we recognized $0 ($3.1 million on a Combined Basis) in revenue reflecting payments previously made by our former international licensees SEC ORBCOMM (Middle East) Ltd. ("SEC ORBCOMM") and CEC Bosphorus Communications Ltd. ("CEC Bosphorus") under their respective SLAs and associated agreements with us. We had terminated these licensees for non-performance and had deferred recognizing this revenue pending the outcome of a motion for a preliminary injunction filed by SATCOM International Group PLC, the alleged successor-in-interest to each of SEC ORBCOMM and CEC Bosphorus. SATCOM's motion for a preliminary injunction was denied by the district court on March 18, 1999. See "Other Information." Product sales. - Construction of gateways and message distribution centers ("MDCs"). During the second quarter of 2000 and 1999, we recognized $146,000 and $0 ($3.5 million on a Combined Basis), respectively, of revenues from the installation and final acceptance of an MDC (in 2000) and of a gateway (in 1999). During the second quarter of 2000, installation and final 28 29 acceptance of an MDC in Venezuela occurred, whereas, during the second quarter of 1999, installation and final acceptance of a gateway in Malaysia occurred. For the six months ended June 30, 2000 and 1999, we recognized $296,000 and $0 ($9.2 on a Combined Basis), respectively, of revenues from the installation and final acceptance of MDCs and of gateways. During the six months ended June 30, 2000, installation and final acceptance of MDCs in Mexico and Venezuela occurred, whereas, during the six months ended June 30, 1999, installation and final acceptance of gateways in Brazil, Argentina and Malaysia occurred. - Sale of subscriber units. During the second quarter of 2000 and 1999, we recognized $138,000 and $443,000 ($277,000 on a Combined Basis), respectively, of revenues relating to the sale of subscriber units. For the six months ended June 30, 2000 and 1999, these revenues were $549,000 and $933,000 ($610,000 on a Combined Basis), respectively. Cost of sales. During the second quarter of 2000 and 1999, we incurred $10.4 million and $657,000 ($3.0 million on a Combined Basis), respectively, of cost of sales. For the six months ended June 30, 2000 and 1999, these costs were $13.7 million and $1.1 million ($8.1 million on a Combined Basis), respectively. During the three and six months ended June 30, 2000, we recorded $9.5 million and $11.8 million, respectively (none during the same periods of 1999), of expense to provide a valuation reserve for subscriber units currently in inventory that may be sold at prices below cost. We believe these subscriber units in inventory may be sold at prices below cost based on our slower than expected subscriber ramp-up and the new sales and marketing strategy that we adopted in August 2000 as a result thereof, and our belief that prices for subscriber units will decline as a result of competition among manufacturers. In addition, we recorded costs associated with the construction and delivery of MDCs and gateways of $129,000 and $2.6 million on a Combined Basis for the second quarter of 2000 and 1999, respectively, and of $243,000 and $7.2 million on a Combined Basis for the six months ended June 30, 2000 and 1999, respectively. Cost of sales also includes $298,000 and $502,000 for the three and six months ended June 30, 2000, respectively (none during the same periods of 1999) related to costs incurred for the installation of subscriber units. The remaining cost of sales consists primarily of the cost of subscriber units sold to customers. Engineering expenses. During the second quarter of 2000 and 1999, we incurred $8.7 million and $6.4 million (the same on a Combined Basis), respectively, in ORBCOMM system engineering expenses. For the six months ended June 30, 2000 and 1999, these expenses were $16.6 million and $11.7 million (the same on a Combined Basis), respectively. We are capitalizing a portion of engineering direct labor costs that relates to hardware and system design and development and coding of the software products that enhance the operation of the ORBCOMM system. Engineering expenses, which consist primarily of salaries, consultant fees and employee-related expenses, were higher period-over-period due in substantial part to a lower capitalization of engineering expenses and consultant fees, as well as a greater number of employees. Marketing, administrative and other expenses. During the second quarter of 2000 and 1999, we incurred $16.3 million and $11.2 million ($13.0 million on a Combined Basis), respectively, of marketing, administrative and other expenses. For the six months ended June 30, 2000 and 1999, these expenses were $29.6 million and $19.0 million ($25.0 million on a Combined Basis), respectively. Marketing, administrative and other expenses were higher period-over-period due in substantial part to increased costs relating to a greater number of employees. Depreciation. During the second quarter of 2000 and 1999, we incurred $13.6 million and $12.3 million (the same on a Combined Basis), respectively, in depreciation expense. For the six months ended June 30, 2000 and 1999, these expenses were $26.1 million and $23.8 million (the same on a Combined Basis), respectively. Depreciation expense increased period-over-period due to an increase in depreciable assets. Interest expense and other financial charges. During the second quarter of 2000 and 1999, we incurred $6.3 million and $6.7 million (the same on a Combined Basis), respectively, of interest expense and other financial charges. For the six months ended June 30, 2000 and 1999, these expenses were $12.6 29 30 million and $13.2 million (the same on a Combined Basis), respectively. Interest expense primarily consists of interest on the Notes. Equity in net losses of affiliates. During the second quarter of 2000 and 1999, we recognized $327,000 of equity in net losses of affiliates and $2.4 million of equity in net income of affiliates ($248,000 of equity in net losses of affiliates on a Combined Basis), respectively. For the six months ended June 30, 2000 and 1999, $822,000 and $509,000 ($348,000 on a Combined Basis), respectively, were recognized as equity in net losses of affiliates. On a Combined Basis, the equity in net losses of affiliates represents our proportionate share of net losses of ORBCOMM Japan Limited, our international licensee for Japan, and ORBCOMM Middle East & Central Asia Ltd. ("OMECA"), our international licensee for the Middle East and central Asia. On a Combined Basis, equity in net losses increased period-over-period primarily because we acquired our initial 20% interest in OMECA in September 1999. SUPPLEMENTAL DATA As of June 30, 2000, there were 30,976 subscriber units activated on the ORBCOMM system, 21,916 of which were revenue generating. For the three and six months ended June 30, 2000, we recognized $1.3 million and $3.0 million of revenues, respectively, of which $574,000 and $1.3 million, respectively, came from our international operations. LIQUIDITY AND CAPITAL RESOURCES We have incurred cumulative net losses from inception and have financed our operations to date primarily with capital contributions from our partners and through financing activities. For the six months ended June 30, 2000 and 1999, net cash used in operating activities was $86.5 million and $53.9 million ($54.6 million on a Combined Basis), respectively, primarily as a result of a net loss (excluding items not affecting cash for depreciation, amortization, write down of assets and equity in net losses of affiliates) of $58.7 million and $43.2 million ($43.4 million on a Combined Basis), respectively, as well as a net decrease in Orbital's accrued liabilities of $29.8 million for the six months ended June 30, 2000. The increased net loss period-over-period, excluding items not affecting cash, is primarily attributable to higher operating expenses due in substantial part to a greater number of employees. For the six months ended June 30, 2000 and 1999, cash used in investing activities was $31.4 million and $6.0 million ($5.4 million on a Combined Basis), respectively, primarily for capital expenditures and investments in and advances to affiliates. During the six months ended June 30, 2000, we spent $29.2 million on capital expenditures, whereas we spent $2.4 million for the same period of 1999, excluding $21.5 million of accrued milestone obligations under the 1995 and 1999 procurement agreements with Orbital. In January 2000, we invested $1.9 million through ORBOMM Investment Corporation, a wholly owned unrestricted subsidiary of ours, in European Datacomm Holding NV, the holding company for our international licensee for sub-Saharan Africa. During the six months ended June 30, 2000 and 1999, cash flows from financing activities provided cash of $113.2 million and $64.7 million (the same on a Combined Basis), respectively. The increase period-over-period is primarily attributable to an increase in the amount of capital contributions made to us by our partners. CAPITAL REQUIREMENTS AND FINANCING PLAN Through June 30, 2000, Teleglobe Mobile and Orbital Communications had made capital contributions to us totaling approximately $510 million. We also received net proceeds of $164.5 million from the sale of the Notes. Although it was not contractually obligated to do so, since January 2000, Teleglobe, through Teleglobe Mobile, had been funding our operations and other requirements through equity contributions. In August 2000, Teleglobe advised us that it was no longer in a position to continue to provide equity capital to us. On August 3, 2000, we entered into a MOU with Teleglobe, Teleglobe Mobile, Orbital and Orbital Communications. The MOU provides, among other things, that: 30 31 - we devote commercially reasonable efforts to implement a new business plan agreed to by the parties; - Orbital continue discussions with potential investors in us; - we work with our creditors to restructure our debt in a manner consistent with the business plan and take such other steps as may be appropriate in the event that we and our partners decide to pursue a filing under Chapter 11 of the United States Bankruptcy Code; and - an affiliate of Teleglobe provide an aggregate of $17.0 million of interim debt financing to us. A portion of the interim debt financing from an affiliate of Teleglobe, totaling $4.95 million, has been provided to us in the form of a secured loan pursuant to the terms of the Bridge Credit Agreement (the "Credit Agreement") dated as of August 8, 2000 between us and Teleglobe Holding Corp., an affiliate of Teleglobe ("Teleglobe Holding"). An additional $3.05 million of such financing will be provided to us in the form of a secured loan once we have obtained an opinion that the transaction is fair to us from a financial perspective from an independent financial advisor as provided in the Indenture. The remainder of the $17.0 million will be provided in a form to be determined by Teleglobe, which may, at Teleglobe's discretion, take the form of debtor-in-possession financing. Over the next 12 months, our cash requirements will continue to be substantial and we do not expect to be able to satisfy these requirements with cash from operations. Due to the limited amount of funds available to ORBCOMM, it is highly unlikely that we will make the interest payment scheduled to be paid on August 15, 2000 on the Notes. If the interest is not paid by September 14, 2000, or the Notes are not successfully restructured by that time, bondholders representing at least 25% of the total amount of the Notes will be able to declare the principal and all accrued interest currently due. We anticipate that the $17.0 million of interim debt financing to be provided by an affiliate of Teleglobe will satisfy our funding requirements into the fourth quarter of 2000, based on the new business plan and assuming that we do not make the next scheduled interest payment on the Notes. We are continuing to seek additional third party equity investors to join our existing partners. In addition, we are continuing to explore a variety of financing alternatives, including selling various assets and restructuring or reorganizing our outstanding debt and/or our business. We cannot assure you, however, that other equity investors or other financing alternatives will be available, and if available, that they will be available on terms acceptable to us and our partners. RISK FACTORS Many statements contained in this report are not historical and are forward-looking in nature. Examples of such forward-looking statements include statements concerning: - our operations, funding needs and financing sources; - our cash flows and profitability; - our launch and commercial service schedules; - future regulatory approvals; - expected characteristics of competing systems; and - expected actions of third parties such as equipment suppliers, VARs and international licensees. These forward-looking statements are inherently predictive and speculative, and are based on our current views and assumptions regarding future events and operating performance. The following are some of the risks that could cause actual results to differ significantly from those expressed or implied by such statements. LIMITED HISTORY OF OPERATIONS AND NET LOSSES We expect to continue to incur net losses. We incurred cumulative net losses of approximately $361 million through June 30, 2000 and expect losses to continue for at least the next several quarters. Our 31 32 continued business development will require substantial expenditures, most of which we will incur before we realize significant revenues from the ORBCOMM system. Together with our operating expenses, these expenditures will result in negative cash flows unless or until we establish an adequate revenue-generating customer base. We have a limited operating and financial history. We have conducted full commercial operations for only a limited period of time. Our ability to provide commercial service globally or in key markets and to generate positive operating cash flows will depend on our ability to, directly or indirectly, among other things: - successfully operate and maintain the satellites in the constellation; - successfully and timely develop and distribute applications that enable customers to use the ORBCOMM system; - develop distribution capabilities within the United States and licensing and distribution arrangements outside the United States sufficient to capture and retain an adequate customer base; - successfully and timely launch replacement satellites as needed; - install the necessary ground infrastructure and obtain the necessary regulatory and other approvals outside the United States; and - provide for the timely design, manufacture and distribution of subscriber units to customers in sufficient quantities, with appropriate functional characteristics and at competitive prices for various applications. 32 33 SIGNIFICANT SHORT-TERM AND OTHER CAPITAL REQUIREMENTS; LIMITED FINANCIAL RESOURCES Additional funding requirements may be significant and we currently have limited resources available to meet these requirements. Over the next 12 months, our cash requirements will continue to be substantial and we do not expect that funding currently available from our partners, including through the interim debt financing to be provided by an affiliate of Teleglobe pursuant to the terms of the MOU, will be sufficient to satisfy all of our future funding requirements. We are continuing to seek additional third party investors to join our existing partners. In addition, we are exploring a variety of financing alternatives, including selling various assets and restructuring or reorganizing our outstanding debt and/or our business. We cannot assure you, however, that other equity investors or other financing alternatives will be available, and, if available, that they will be available on terms acceptable to us and our partners. Interest expense on the Notes represents a significant cash requirement for us. Due to the limited amount of funds available to us, it is highly unlikely that we will make the interest payment schedule to be paid on August 15, 2000 on the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Requirements and Financing Plan" and "-- Substantial Leverage; Acceleration of Outstanding Notes." The costs of maintaining the space segment may exceed funds generated from operations. To maintain our satellite constellation, we will require significant additional capital expenditures. We anticipate using funds from operations to maintain our current satellite constellation. As we believe sufficient funds from operations will not be available and if we are unable to obtain financing, we may not be able to effectively maintain our current satellite constellation or develop a second generation of satellites to replenish satellites in or expand the constellation. Under the 1999 procurement agreement with Orbital, as amended, we have agreed to procure, at a minimum, among other things, 14 additional satellites, two satellite propulsion rings and two separate Pegasus(R) launch vehicles, at a total cost not to exceed approximately $107 million. As of June 30, 2000, we had incurred approximately $38 million under the 1999 procurement agreement. Additional expenses or cost increases related to launch failures, satellite failures and other causes could negatively affect our financial condition. We could incur additional costs arising, for example, from launch or uninsured satellite failures and modifications made to all or part of the ORBCOMM system design to work out technical difficulties or to accommodate changes in market conditions, customer needs, system requirements or regulatory requirements. Significant increases over our current estimated costs that relate to such events, if applicable, could negatively affect our financial condition and results of operations. SUBSTANTIAL LEVERAGE; ACCELERATION OF OUTSTANDING NOTES We currently have a significant amount of indebtedness and, therefore, are highly leveraged. As of June 30, 2000, our total liabilities were approximately $259 million, $181 million of which relates to the Notes. Due to the limited amount of funds available to us, it is highly unlikely that we will make the interest payment scheduled to be paid on August 15, 2000 on the Notes. If the interest is not paid by September 14, 2000, or the Notes are not successfully restructured by that time, we would be in default under the terms of the Indenture and, at that time, bondholders representing at least 25% of the total amount of the Notes will be able to declare the principal and all accrued interest currently due. In addition, our substantial leverage could negatively affect us because it may: - require us to dedicate a substantial portion of our cash flow from operations to repaying indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic investments and other requirements; - limit our ability to borrow additional funds; - increase our vulnerability to general adverse economic and industry conditions; and - limit our flexibility in planning for, or reacting to, changes in our business and in the communication industry generally. 33 34 In August 2000, we executed the Credit Agreement pursuant to which Teleglobe Holding, an affiliate of Teleglobe, lent to us on a secured basis $4.95 million (representing a portion of the $17.0 million interim debt financing to be provided pursuant to the MOU) to support our near-term operations. Any additional borrowings would further increase the amount of our leverage and the associated risks. RESTRICTIVE COVENANTS IN THE INDENTURE The Indenture contains certain restrictive covenants. The restrictions in the Indenture affect, and in some cases significantly limit or prohibit, our ability to, among other things: - sell assets; - incur additional indebtedness; - engage in transactions with affiliates; - create liens; - issue capital stock; - make prepayments of certain indebtedness; - engage in mergers and consolidations; - make distributions on the partnership interests; and - make certain investments. If we fail to comply with the restrictive covenants in the Indenture, our obligation to repay the Notes may be accelerated. MARKET DEMAND FOR OUR PRODUCTS AND SERVICES IS NOT CERTAIN Customer acceptance depends on several factors. The success of the ORBCOMM system will depend on customer acceptance of our services, which is contingent on a number of factors, including: - the number of satellites that are operational at any time; - completion and performance of the necessary ground infrastructure; - receipt of the necessary regulatory and other approvals to operate in a particular country; - the availability of subscriber units that are compatible with the ORBCOMM system and that meet the varying needs of customers; - the price of our services and related subscriber units; and - the extent, availability and price of alternative data communication services. In addition, we believe that market acceptance of certain of our services depends on the design, development and commercial availability of integrated hardware and software applications that support the specific needs of our target customers. Our VARs and international licensees are responsible for developing and/or marketing such applications. If there is a lack of, or a delay in the availability of, the components necessary to fulfill our customers' business requirements or if the products our VARs develop fail to meet key customer requirements, market acceptance of ORBCOMM services could be adversely affected. As with any new communication service, we cannot assure you that the market will accept our services. Our business plan further assumes that our potential customers will accept certain limitations inherent in satellite communication services. For example, the ORBCOMM system's line-of-sight limitation, particularly in "urban canyons," and its limited ability to penetrate buildings and other objects, could limit customers' use of the ORBCOMM system and services. In addition to the limitations that the ORBCOMM system architecture imposes, our services will not be available in those countries where we or our international licensees have not obtained the necessary regulatory and other approvals. Certain potential customers may find these limitations on the availability of our services to be unacceptable. DEPENDENCE ON THIRD PARTY DISTRIBUTORS We rely heavily on VARs within the United States. In the United States, we rely heavily on VARs to market and distribute many of our services to customers. Our success depends, in part, on our ability to attract and retain qualified VARs. We cannot assure you that we will be able to enter into VAR agreements for additional markets at the times or on the terms we expect or that we will be able to retain our existing VARs when the terms of their respective agreements end. We believe that for the VARs to successfully market our services, they will need to design, develop and make commercially available data applications that support the specific needs of our target customers. This will require the VARs to commit substantial financial and technological resources. Certain VARs are or are likely to be newly formed ventures with limited financial resources, and these entities may not be successful in designing data applications or marketing our services effectively. The inability of VARs to provide data applications to customers could negatively affect market acceptance of our services. Furthermore, while our reseller agreements with the VARs provide that VARs will use all reasonable commercial efforts to market and distribute our services, generally the VARs are not required to meet established sales objectives. We currently act primarily as a wholesaler to VARs. Thus, the cost to customers for our services purchased through VARs is largely beyond our control. Furthermore, we will have no rights independently to offer particular data applications developed by VARs or to use the associated software unless we enter into appropriate licensing agreements. By having previously developed internal VARs, we may have created actual or apparent conflicts with certain VARs, which could adversely affect such VARs' continued willingness to invest resources in developing and distributing data applications for the ORBCOMM system. We rely heavily on international licensees outside the United States. Outside the United States, we enter into service license or similar agreements with international licensees. The international licensees are responsible in their territories for procuring and installing the necessary gateways, obtaining the necessary regulatory and other approvals to provide services using the ORBCOMM system and marketing and distributing our services. We select the international licensees primarily by evaluating their ability to market and distribute our services successfully. Although we consider many elements in evaluating 34 35 potential international licensees, an individual international licensee may not satisfy any one or more of these elements. Our success depends, in part, on our ability to attract and retain qualified international licensees. In addition, each agreement we have executed with an international licensee provides that the international licensee may terminate the agreement upon one year's written notice, and any international licensee may decide to do so. Also, we have the right under the terms of these agreements to terminate such agreements based on the non-performance of the licensee as described therein. Certain of the agreements grant international licensees the right to terminate their agreements if they are unable to obtain the necessary regulatory and other approvals within certain time parameters. Our international licensees may not be successful in obtaining the necessary regulatory and other approvals, and, even if successful, the international licensees may not develop a market and/or a distribution network for our services. Certain international licensees are or are likely to be newly formed ventures with limited financial resources. These entities may not be successful in procuring and installing the necessary gateways, obtaining the necessary regulatory approvals or successfully marketing and distributing our services. The general form of our service license agreement does not obligate us or give us the contractual right to construct the necessary gateway if an international licensee is unable or unwilling to construct one. In the future, and if an international licensee is unable or unwilling to do so, we may desire to construct, or finance the construction of, the necessary gateway. However, the international licensee or the relevant governmental authority may not permit us to construct the gateway, or we may not be able to bear the cost of constructing the gateway, which cost may be significant. DEPENDENCE ON ORBITAL We do not independently have, and do not intend to acquire, except by contracting with other parties, the ability to design, construct or launch our satellites. Under the 1999 procurement agreement with Orbital, as amended, we agreed to procure, at a minimum, among other things, 14 additional satellites, two satellite propulsion rings and two separate Pegasus launch vehicles, at a total cost not to exceed approximately $107 million. In addition, we have an option to procure additional launch services using the Pegasus launch vehicle, if necessary. Depending on the product or service being purchased, we are required to pay Orbital a fixed amount, subject to certain incentive payments and other adjustments, or on a time and materials basis. Under the 1999 procurement agreement, we are entitled to withhold payments from Orbital based on Orbital's failure to achieve certain milestones, until such time as such milestones are achieved or we have waived in writing the requirement to achieve such milestones. An adverse effect on Orbital and its business for whatever reason may adversely affect Orbital's ability to perform under the 1999 procurement agreement. We have not identified any alternate provider of the services Orbital currently provides. An alternate service provider may not be available or, if available, may not be available at a cost or on terms acceptable to us. DEPENDENCE ON AND ABILITY TO PROTECT PROPRIETARY INFORMATION Our success and ability to compete depend to a certain degree on our proprietary technology, and we depend on Orbital's intellectual property rights relating to the ORBCOMM system. Under the 1995 35 36 procurement agreement and the 1999 procurement agreement, Orbital or its subcontractors generally own the intellectual property relating to the work performed by Orbital under the procurement agreements, including the U.S. ground segment and our satellites, other than certain communication software. We rely primarily on copyright and trade secret law to protect our technology. While we have applied for six patents, none of our patent applications has yet been granted. We have entered into confidentiality agreements with each of our employees, consultants and vendors, which agreements, where appropriate, obligate the signatory to assign to us proprietary technology developed during performance under the agreements and generally to control access to and distribution of our software, documentation and other proprietary information. Notwithstanding these precautions, it may be possible for a third party to copy or otherwise obtain and use our software or other proprietary information without authorization or to develop similar software independently. In addition, absent the appropriate licensing agreements, we have no rights independently to offer particular applications developed by VARs or to use the software included in these applications. Enforcing intellectual property rights to these applications will be the responsibility of the VARs. Furthermore, the laws of countries outside the United States may afford us and our VARs little or no effective protection of our intellectual property. Losing protection of these intellectual property rights could negatively affect our financial condition and results of operations. The steps we have taken may not prevent misappropriation of our technology, and agreements entered into for that purpose may not be enforceable. In addition, we may have to resort to litigation in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. This litigation, whether or not successful, could result in substantial costs and diverted resources, each of which could negatively affect our financial condition and results of operations. SCHEDULE DELAYS In view of our financial condition and our efforts to secure additional funding for our operations and to meet other requirements, we previously announced that Orbital has delayed production of our satellites. Although the procurement of additional satellites at this time is neither time- nor operationally-critical to the distribution of ORBCOMM service, the revised production schedule could result in delays in future planned satellite launches, including the launch of eight statellites scheduled for mid-2001. A delay in or failure of the launch of such satellites, or a delay or failure in placing such satellites into commercial operation, could result in a gradual degradation of service in the affected regions, which could negatively affect our financial condition and results of operations. LIMITED LIFE OF SATELLITE CONSTELLATION A significant portion of our tangible assets are our LEO satellites and the related ground infrastructure. The loss or failure of satellites in the constellation could negatively affect us. There are many factors that contribute to and may affect the useful life of any satellites, including our satellites, such as the quality of the satellites' design and construction and the durability and expected gradual environmental degradation of their electrical and other components. We expect our current satellite constellation to be in commercial service through at least 2006. We expect to launch replacement satellites periodically. One of our satellites placed in service in 1995 is no longer operational. DAMAGE TO OR LOSS OF SATELLITES Damage to or loss of our satellites may result from a variety of causes, including: - electrostatic storms; - collisions with other objects, including space debris, man-made objects or certain space phenomena such as comets, meteors or meteor showers; 36 37 - random failure of satellite components; or - high levels of radiation. Also, damage to or loss of our satellites may result from the failure of the launch vehicle that was to place the satellites in orbit. The ORBCOMM system was designed to provide for redundancy in the event of the loss or failure of one or more satellites in the constellation, whether due to a satellite reaching the end of its life or some other cause. However, the loss or failure of satellites in the constellation may cause: - gaps in service availability; - significantly degraded service quality; - increased costs; or - loss of revenue for the period that service is interrupted or impaired. In addition to the factors discussed above, there are a number of factors that may cause anomalies with respect to the operation or performance of satellites in orbit. In connection with the deployment of our current satellite constellation, we experienced certain anomalies with respect to several of our satellites. These anomalies include, but are not limited to, reduced power levels on certain satellites and the failure of certain satellites to transmit data to subscriber units. While we have bypassed certain of the data transmission anomalies, the coverage footprint of each affected satellite has been reduced. Moreover, implementation of the bypass requires that certain manufacturers modify certain subscriber communicator models to enable them to work with the modified satellites. Similarly, we have demonstrated that the reduced power levels experienced by some of our satellites do not result in the inability of those satellites to offer commercial service. You should also note that: - anomalies such as those described above, or other anomalies that have comparable effects, could occur in the future with respect to the in-orbit satellites or additional satellites launched by us; and - if we are unable to correct such anomalies, if applicable, or should additional anomalies occur in the future with respect to the other in-orbit satellites or additional satellites that we launch, such events could negatively affect our business. LAUNCH FAILURES Satellite launches are subject to significant risks, including: - failure of the launch vehicle due to a crash or explosion, which could cause disabling damage to or loss of the satellites; - damage to the satellites during loading into the launch vehicle, during the launch itself or as the satellites are deployed by the launch vehicle; - failure of the satellites to achieve their proper orbits; - unreasonable delays related to poor weather conditions or prior launch failures; and - delays or failures in the development or deployment of satellite propulsion rings. We bear the risk of loss of a launch vehicle and satellites upon release of the Pegasus launch vehicle from Orbital's L-1011 aircraft. Our insurance against the loss of a launch vehicle and its satellite payload may be limited. If our next satellite launch fails, or if we should need to procure launch services from an alternate provider for any reason, the resulting delays would increase the costs to deploy our enhanced satellite constellation. LIMITED INSURANCE Our insurance may not adequately mitigate the adverse effects of a launch failure or of a loss of satellites in-orbit. For the December 1999 launch (the "Fourth Pegasus Launch"), we procured insurance 37 38 against launch failure and in-orbit failure of the seven satellites launched. This insurance provides that if there is an in-orbit failure of two or more of the seven satellites launched in the Fourth Pegasus Launch, our insurance will cover the cost of the launch vehicle and the satellites at the rate of 20% of the aggregate amount of such costs based on a failure of two of such satellites, 40% of such costs based on a failure of three of such satellites, 60% of such costs based on a failure of four of such satellites, and 100% of such costs based on a failure of five or more of such satellites. We have not yet procured insurance for our planned launch of eight satellites scheduled for mid-2001 (the "Fifth Pegasus Launch"). See "--Schedule Delays." We have procured insurance against the in-orbit failure of satellites in each of the first three planes of eight satellites launched using the Pegasus launch vehicle. If there is a failure of any of the three planes of eight satellites currently in orbit, where "failure" is defined as the loss of three or more satellites in any such plane, our insurance program would cover a portion of the cost of a replacement launch vehicle and thereafter would cover the cost of the launch vehicle and the satellites, as well as the increased insurance premium thereon, for subsequent launches. In the event such a failure occurs prior to the Fifth Pegasus Launch, and we decided to launch the satellites currently intended to be launched in the Fifth Pegasus Launch as replacement satellites, our insurance would cover a portion of the cost to procure the launch vehicle used in the Fifth Pegasus Launch, and thereafter, the launch vehicle and the satellites launched in connection with the Fifth Pegasus Launch. We have no insurance against in-orbit satellite failure for the two satellites that were launched in April 1995 or for the two satellites launched in February 1998. COMPETITION Competition in the communication industry is intense, fueled by rapid and continuous technological advances and alliances among industry participants seeking to use such advances to capture significant market share. We anticipate that the ORBCOMM system will face competition from numerous existing and potential alternative communication services. We expect that potential competitors may include: - operators and users of terrestrial-based data communication systems; - operators or users of geostationary or geosynchronous satellite systems that use satellites with orbits located approximately 22,300 nautical miles directly above the equator; - operators or users of other little low-Earth orbit ("LEO") satellite systems similar to the ORBCOMM system; - operators or users of networks of big LEO satellite systems; and - operators or users of medium-Earth orbit satellite systems that use satellites with orbits located between 2,000 and 18,000 miles above the Earth. If any of our competitors succeeds in marketing and deploying systems with services having functions and prices similar to those we offer or expect to offer, our ability to compete in markets served by such competitors may be adversely affected. Some of our actual or potential competitors have financial, personnel and other resources that are substantially greater than our resources. In addition, a continuing trend toward consolidation and strategic alliances in the communication industry could give rise to significant new competitors. Furthermore, any foreign competitor may benefit from subsidies from, or other protective measures taken by, its home country. Some of these competitors could develop more technologically advanced systems than the ORBCOMM system or could provide more efficient or less expensive services than those that we provide or expect to provide. We may also face competition in the future from companies using new technologies including new satellite systems. A number of these new technologies, even if they are not ultimately successful, could negatively affect us. Additionally, our business could be adversely affected if competitors begin or expand their operations or if existing or new communication service providers are able to penetrate our target markets. 38 39 DEPENDENCE ON MANUFACTURERS Our success depends in part on manufacturers developing, on a timely basis, relatively inexpensive subscriber units. While we have type-approved 15 different subscriber unit models from five manufacturers for use with our system, a sufficient supply of these subscriber units may not be available to customers at prices or with functional characteristics that meet customers' needs. If subscriber unit manufacturers are unable to develop and manufacture subscriber units successfully at cost-effective prices that both meet the needs of customers and are available in sufficient numbers, market acceptance of the ORBCOMM system and the quality of our services could be affected, which, in turn, could negatively affect our financial condition and results of operations. IMPLEMENTATION AND INTEGRATION RISKS To be able to offer turnkey solutions to our customers, we will be required to develop and implement successfully applications and application platforms that create a link between our communication system and our customers' IT systems. Our Dolphin Software Services ULC subsidiary has developed an application service platform that processes, integrates and displays the data collected from the ORBCOMM system. Other competing products may be commercially available or may be developed for commercial distributionthat could offer more efficient, cost-effective and/or user-friendly applications, which. could reduce, perhaps substantially, the size of the market for our application service platform. In addition, our VARs and international licensees are responsible for developing customer applications for use with the ORBCOMM system. If our VARs or international licensees fail to develop applications that are technically viable and competitively priced and that meet our customers' specific needs, such failure could negatively effect our ability to obtain or maintain customers. While the ORBCOMM system has successfully transmitted over 31 million messages to date, our system is exposed to the risks inherent in any large-scale complex communication system using new or advanced technologies. Despite extensive testing of the different segments of our system, the nature and complexity of our system, including the design and integration of communication technologies and devices ranging from satellites operating in space to ground infrastructure, including subscriber units, located around the world, is such that we cannot assure you that our system will function in its intended manner. Even if built to specifications, any or all of the segments of the ORBCOMM system may not function as expected. If any of the diverse and dispersed elements of our system fails to function or to be integrated successfully as required, that failure could render our system unable to perform at the quality and capacity levels required for us to operate our business successfully. SECURITY ON THE INTERNET Like many other modern communication networks, we currently deliver a substantial portion of data to our customers over the Internet and expect to continue to use the Internet as a primary delivery method for data collected from our satellite system. While we currently take certain measures to ensure the security of customer data, persons who are able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our data delivery operations. Concerns over the security of our delivery of information over the Internet may also inhibit the growth of our customer base. If any compromise of our security measures were to occur, or if customers were to perceive that such unauthorized access was likely, it could have a material adverse effect on our reputation, business, prospects, financial condition or results of operations. We may be required to expend capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches, which expenditures may be significant. GOVERNMENT REGULATION The failure to maintain the necessary U.S. licenses could negatively affect us. Our business may be affected by the regulatory activities of various U.S. government agencies, primarily the FCC. Although each of the FCC licenses is currently valid, the FCC could revoke these licenses if Orbital Communications fails to satisfy certain conditions or to meet certain prescribed milestones, including: - the September 2002 milestone by which Orbital Communications must launch two of the 12 additional satellites licensed in March 1998; and - the March 2004 milestone by which Orbital Communications must launch the remaining ten of these satellites, unless the FCC grants extensions or modifications for accomplishing the required milestones. Orbital Communications is required to apply for a license renewal three years before each FCC license expires. While, based on past experience, Orbital Communications believes the FCC generally grants the renewal applications of existing licensees where the licensee has satisfied the requirements of the license, it is possible that the FCC will not, in fact, renew the FCC licenses. Should the FCC revoke or fail to renew the 39 40 FCC licenses, or if Orbital Communications fails to satisfy any of the conditions of the FCC licenses, such event would negatively affect our financial condition and results of operations. The FCC has licensed Orbital Communications to operate as a private carrier. Because of our method of distributing services, we believe that Orbital Communications currently is not subject to the restrictions that apply to common carriers or to providers of Commercial Mobile Radio Services ("CMRS"). In the United States, we distribute our services to customers primarily through VARs. In most cases, we will provide our customers with enhanced services and will not be interconnected with the public switched telephone network. Therefore, we do not believe that the FCC will regard these services as common carrier or CMRS. In the future, however, we may provide services that the FCC deems common carrier or CMRS, or the FCC may exercise its discretionary authority to apply the common carrier or CMRS rules to our operations. Applying these rules to us could negatively affect our financial condition and results of operations by, for instance, subjecting us to rate regulation and certain tariff filing requirements and limiting some foreign ownership in us. Our financial condition and results of operations could be adversely affected if the United States adopts new laws, policies or changes in the interpretation or application of existing laws, policies and regulations that modify the present regulatory environment. The failure to obtain regulatory approvals in other countries could hinder global service offerings. Our business is affected by the regulatory authorities of the countries in which we or our international licensees will operate and in which we plan to offer our services. Our international licensees will be required to obtain local regulatory approvals to offer our services, to operate gateways and to sell subscriber units within their territories. Thus, our international licensees must obtain numerous approvals before we can offer full global coverage. Our business plan is based on our receiving regulatory approvals in several foreign jurisdictions within specified time periods. As of August 14, 2000, our licensees had secured licenses in over 40 countries, over 35 of which grant full commercial authority to provide ORBCOMM services in such country including Mexico, Canada, Japan, Germany, the United Kingdom, Brazil, Venezuela, Argentina, Colombia, Chile, Morocco and Malaysia. Certain of these licenses permit a range of activities including the right to test and demonstrate or operate the ORBCOMM system on a temporary or otherwise limited basis. While each international licensee is responsible for obtaining regulatory approvals in its territory, each international licensee may not be successful in doing so. If any international licensee is not successful, we will not be able to offer services in the affected territory. Although many countries have moved to privatize communication services and permit competition in providing these services, some countries continue to require that a government-owned entity provide all communication services. While we anticipate that substantially all of the international licensees will be private entities, we may be required to offer our services through a government-owned or -controlled entity in those territories where government monopolies prevail. Our inability to offer service in a foreign country or countries could negatively affect our financial condition and results of operations. Regulatory provisions in countries in which we or our international licensees seek to operate may impose impediments on our or the international licensees' operations, and such restrictions could be unduly burdensome. Our business may also be adversely affected by regulatory changes resulting from judicial decisions and/or the adoption of treaties, legislation or regulations by the national authorities of countries or territories where we plan to operate the ORBCOMM system. Coordination with the International Telecommunications Union ("ITU") poses risks of delays. Frequency coordination through the ITU is a necessary prerequisite to obtaining interference protection from other satellite systems. There is no penalty for launching a satellite system before completing the ITU coordination process, although protection from interference through this process is only afforded as of the date that the ITU notifies Orbital Communications that the coordination process has been successfully completed. Orbital Communications has completed the ITU coordination process with respect to our satellite constellation with all administrations except France and, with respect to two downlink channels only, Russia. Orbital Communications expects that it will successfully complete the ITU coordination process with France later this year and is continuing to pursue coordination of the two downlink channels 40 41 with Russia. The fact that the coordination of the two downlink channels with Russia is not complete has not had and is not expected to have a material adverse effect on our financial condition and results of operations. The FCC has modified Orbital Communications' ITU documentation to include the proposed launch of the 12 additional satellites for which Orbital Communications has been licensed. We do not expect this modification to affect coordination of our satellite constellation. Moreover, supplemental coordination of these 12 satellites is not required for countries for which the U.S. previously completed coordination. Any delay in or failure to complete the ITU coordination process successfully may result in interference to the ORBCOMM system by other mobile satellite systems operating internationally, and this interference could negatively affect our financial condition and results of operations. Furthermore, international licensees working with their respective governments are required to complete ITU coordination of subscriber units and gateways located in their territories with countries located within distances determined by ITU recommendations. These coordinations may not be completed successfully or in a timely manner, which could result in delayed availability of ORBCOMM services in the affected territories. RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS Since we expect to derive substantial revenues by providing communication services globally, we are subject to certain multinational operating risks, such as: - changes in domestic and foreign government regulations and communication standards; - licensing requirements; - tariffs or taxes and other trade barriers; - price, wage and exchange controls; - political, social and economic instability; - inflation; - interest rate and currency fluctuations; and - U.S. law prohibitions from operating in certain countries. Many of these risks may be greater in developing countries or regions. In addition, although we anticipate that the international licensees will make all payments in U.S. dollars, currency control restrictions may prevent the international licensees in those countries from being able to do so. Because we expect to receive most payments in U.S. dollars, we do not intend to hedge against exchange rate fluctuations. RISKS ASSOCIATED WITH AGREEMENTS BETWEEN AND INVESTMENTS BY OUR PARTNERS Deadlock Between Our Partners. Pursuant to the Omnibus Agreement, in January 2000, Teleglobe Mobile became our sole general partner with sole authority to manage us. Although, at that same time, Orbital Communications became a limited partner in us, certain significant transactions require Orbital Communications' approval. Any potential deadlock between our partners could negatively affect our results of operations. BCE Ownership of TMI Communications. BCE, which currently owns approximately 23% of Teleglobe and has announced that it has executed a definitive agreement to acquire the remaining 77% of Teleglobe, owns 100% of TMI Communications. TMI Communications provides geostationary satellite-based communication services, including wireless digital data, voice, fax and dispatch radio services, in North, Central and South America. Some of the services offered by TMI Communications may compete with the services offered by ORBCOMM. 41 42 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have issued $170,000,000 in Notes that mature in August 2004. The Notes earn interest at a fixed rate of 14% as well as a 5% revenue participation interest on service and certain other revenues. The market price for the Notes may fluctuate as a function of market interest rate changes, investors' perceptions of the risks faced by us and our revenue growth. See "Capital Requirements and Financing Plan." 42 43 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Not applicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. On December 18, 1998, we terminated for non-performance our service license agreements with SEC ORBCOMM (Middle East) Ltd. and CEC Bosphorus Communications Ltd., which agreements together covered 20 countries. On December 23, 1998, SATCOM International Group PLC, the alleged successor-in-interest to SEC ORBCOMM's and CEC Bosphorus' interests in these agreements, filed an action claiming that the termination of these agreements was unjustified. The suit sought damages and a preliminary and permanent injunction effectively awarding the licenses to SATCOM. The district court denied SATCOM's application for a temporary restraining order on December 28, 1998. Following an evidentiary hearing, on March 18, 1999, the district court denied SATCOM's request for a preliminary injunction. SATCOM appealed the district court's denial of its request for a preliminary injunction; however, SATCOM subsequently withdrew this appeal. On March 29, 1999, SATCOM moved for an order staying the district court action pending arbitration before the American Arbitration Association. On May 27, 1999, the district court denied SATCOM's motion for a stay of the district court action and granted a cross-motion filed by us, staying the arbitration SATCOM had initiated and enjoining SATCOM from proceeding with such arbitration. On December 15, 1999, the Second Circuit summarily affirmed the district court's May 27, 1999 ruling. On January 28, 2000, we filed a motion for summary judgment, which motion was granted on June 6, 2000. SATCOM has appealed the district court's decision granting our motion for summary judgment, which appeal is pending. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A complete list of the exhibits required to be filed with this report on Form 10-Q is provided in the Exhibit Index that precedes the exhibits filed with this report. On June 19, 2000, we filed a report on Form 8-K attaching a press release issued by us on June 16, 2000. On July 5, 2000, we filed a report on Form 8-K attaching a press release issued by us on June 29, 2000. On August 8, 2000, we filed a report on Form 8-K attaching a press release issued by us on August 4, 2000. 43 44 EXHIBIT INDEX The following exhibits are filed as part of this report:

44 45 ORBCOMM International and MCS. 10.16(f) Orbital Communications Corporation 1992 Stock Option Plan. 10.16.1(h) The 1999 Equity Plan of ORBCOMM Corporation and ORBCOMM Global, L.P. 10.16.2(h) Dolphin Information Services, Inc. 1998 Stock Option Plan. 10.19(f) Subscriber Communicator Manufacture Agreement dated as of July 31, 1996 by and between ORBCOMM and Magellan Corporation. 10.20(f) Reseller Agreement dated as of March 3, 1997 by and between ORBCOMM USA and Orbital (the "Reseller Agreement"). 10.20.1(f) Amendment No. 1 to the Reseller Agreement dated as of September 2, 1997. 10.22(f) Consulting Agreement dated as of March 18, 1998 by and between ORBCOMM and ORBCOMM Canada. 10.23(j) ORBCOMM System Construction and Operations Agreement, dated as of January 26, 2000, by and between ORBCOMM and Orbital Communications. 10.24(j) Consulting Agreement, dated as of January 26, 2000, by and between ORBCOMM and Orbital Communications. 10.25(j) Services Agreement, dated as of December 9, 1998, by and between ORBCOMM and ORBCOMM Canada. 10.26* Memorandum of Understanding dated as of August 3, 2000 by and among Teleglobe, Teleglobe Mobile, Orbital, Orbital Communications and ORBCOMM. 10.27* Bridge Credit Agreement dated as of August 8, 2000 between ORBCOMM and Teleglobe Holding Corp. 10.28* Security Agreement dated as of August 8, 2000 between ORBCOMM and Teleglobe Holding Corp. 10.29* Sublease Agreement, dated as of May 19, 2000, between ORBCOMM and Orbital. 21(j) Subsidiaries of the Registrants. 27* Financial Data Schedule.

---------- * Filed herewith. (a) Incorporated by reference to the identically numbered exhibit to our Registration Statement on Form S-4, as amended (Reg. No. 333-11149). (b) Incorporated by reference to the identically numbered exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 filed by us on May 14, 1997. (c) Incorporated by reference to the identically numbered exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed by us on March 28, 1997. (d) Incorporated by reference to Exhibit 10.16.1 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "Orbital 1996 Form 10-K") of Orbital, filed by Orbital on March 27, 1997. (e) Incorporated by reference to the identically numbered exhibit to Amendment No. 1 to our Registration Statement on Form S-1, as amended (Reg. 333-50599). (f) Incorporated by reference to the identically numbered exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed by us on March 31, 1998. (g) Incorporated by reference to the identically numbered exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed by us on March 31, 1999. (h) Incorporated by reference to the identically numbered exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, filed by us on August 16, 1999. (i) Incorporated by reference to the identically numbered exhibit to our Report on Form 8-K, filed by us on February 4, 2000. (j) Incorporated by reference to the identically numbered exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed by us on March 30, 2000. (k) Incorporated by reference to the identically numbered exhibit to our Report on Form 8-K, filed by us on February 16, 1999. 45 46 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. ORBCOMM GLOBAL, L.P. Date: August 14, 2000 By: /s/ SCOTT L. WEBSTER ---------------------------------- Scott L. Webster Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: August 14, 2000 By: /s/ CAROL P. HANNA ---------------------------------- Carol P. Hanna Vice President, Finance (Principal Accounting Officer) ORBCOMM GLOBAL CAPITAL CORP. Date: August 14, 2000 By: /s/ SCOTT L. WEBSTER ---------------------------------- Scott L. Webster President (Principal Executive Officer) Date: August 14, 2000 By: /s/ CAROL P. HANNA ---------------------------------- Carol P. Hanna Vice President, Finance (Principal Accounting Officer) 46

ORBCOMM GLOBAL L P 10-Q