1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IRIDIUM LLC
(Exact name of registrant as specified in its charter)
DELAWARE 4800 52-1984342
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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IRIDIUM CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 4800 52-2048739
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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IRIDIUM ROAMING LLC
(Exact name of registrant as specified in its charter)
DELAWARE 4800 52-2048734
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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IRIDIUM IP LLC
(Exact name of registrant as specified in its charter)
DELAWARE 4800 52-2048736
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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F. THOMAS TUTTLE, ESQ.
IRIDIUM LLC, 1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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with a copy to:
DENNIS C. SULLIVAN, ESQ.
SULLIVAN & CROMWELL
1701 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 15, 1997
PROSPECTUS LOGO
IRIDIUM LLC
IRIDIUM CAPITAL CORPORATION
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
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OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF 13% SENIOR NOTES DUE 2005, SERIES A/EN FOR EACH
$1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 13% SENIOR NOTES DUE 2005, SERIES A
AND
$1,000 IN PRINCIPAL AMOUNT OF 14% SENIOR NOTES DUE 2005, SERIES B/EN FOR EACH
$1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 14% SENIOR NOTES DUE 2005, SERIES B
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Iridium LLC, a Delaware limited liability company ("Iridium"), and Iridium
Capital Corporation, a Delaware corporation ("Capital," and together with
Iridium, the "Issuers"), as joint and several obligors, hereby offer, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer") to exchange (i) an aggregate principal amount of up to $300,000,000 of
13% Senior Notes due 2005, Series A/EN (the "Series A Exchange Notes") of the
Issuers, which will be registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which this
Prospectus constitutes a part, for a like principal amount of 13% Senior Notes
due 2005, Series A (the "Series A Original Notes" and, together with the Series
A Exchange Notes, the "Series A Notes") of the Issuers with the holders (the
"Series A Note Holders") thereof, and (ii) an aggregate principal amount of up
to $500,000,000 of 14% Senior Notes due 2005, Series B/EN (the "Series B
Exchange Notes" and, together with the Series A Exchange Notes, the "Exchange
Notes") of the Issuers, which will be registered under the Securities Act
pursuant to such Registration Statement, for a like principal amount of 14%
Senior Notes due 2005, Series B (the "Series B Original Notes" and, together
with the Series B Exchange Notes, the "Series B Notes") of the Issuers with the
holders (the "Series B Note Holders" and, together with the Series A Note
Holders, the "Holders") thereof. The Series A Original Notes and the Series B
Original Notes are referred to herein as the "Original Notes." The Original
Notes and the Exchange Notes are referred to herein as the "Notes." Each of the
Series A Original Notes, the Series A Exchange Notes, the Series B Original
Notes and the Series B Exchange Notes is referred to herein as a "Series" of
Notes.
Upon consummation of the Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all material respects (including principal
amount, interest rate, the date from which interest accrues, maturity and
ranking) to the terms of the Original Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the Exchange Notes will be freely
transferable by holders thereof (except as provided below). The Exchange Notes
will be issued without any covenant regarding exchange or registration under the
Securities Act. The Exchange Notes will be issued under the respective
indentures governing the Original Notes for which they may be exchanged.
Interest on the Series A Exchange Notes will, and interest on the Series A
Original Notes does, accrue at the rate of 13% per annum, and interest on the
Series B Exchange Notes will, and interest on the Series B Original Notes does,
accrue at a rate of 14% per annum. Interest on each Series of Notes will be
payable in cash semi-annually on January 15 and July 15 of each year, commencing
on January 15, 1998. The Exchange Notes will be, and the Original Notes are,
redeemable at the option of either Issuer, in whole or in part, at any time on
or after July 15, 2002 at the redemption prices set forth herein, together with,
as applicable, accrued and unpaid interest, if any, and Liquidated Damages (as
defined), if any, to the redemption date. At any time on or prior to July 15,
2000, either Issuer may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of each Series of Notes, with the cash proceeds to
Iridium of one or more Equity Offerings (as defined), at a redemption price
equal to 113.5% of the principal amount of any Series A Notes being redeemed, or
115.0% of the principal amount of any Series B Notes being redeemed, in each
case plus accrued and unpaid interest and Liquidated Damages (as defined), if
any, to the date of redemption; provided that at least 66 2/3% of the original
aggregate principal amount of the Series A Notes or the Series B Notes being
redeemed, as the case may be, must remain outstanding after each such
redemption. See "Description of Notes -- Optional Redemption."
(Continued on next page)
SEE "RISK FACTORS" ON PAGE 18 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Upon the occurrence of a Change of Control (as defined), each holder of the
Notes may require the Issuers to repurchase all or a portion of such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the purchase date. See
"Description of Notes -- Change of Control."
The Exchange Notes will be, and the Original Notes are, senior obligations
of the Issuers ranking pari passu in right of payment to all existing and future
senior Indebtedness (as defined) of the Issuers, other than Indebtedness that is
expressly subordinated to the Notes. However, subject to certain limitations set
forth in the Indentures (as defined), Iridium and its Subsidiaries (as defined)
may incur other senior Indebtedness, including Indebtedness that is secured by
the assets of Iridium and its Subsidiaries. The Notes will be effectively
subordinated to any Secured Indebtedness of the Issuers to the extent of the
value of the assets securing such Indebtedness. The Exchange Notes will be, and
the Original Notes are, fully and unconditionally guaranteed, on an unsecured
senior basis, by Iridium Roaming LLC ("Roaming") and by Iridium IP LLC ("IP"
and, together with Roaming, the "Initial Guarantors" and, together with the
Issuers, the "Iridium Parties"), each of which is a Delaware limited liability
company and a wholly owned subsidiary of Iridium. In addition, the Notes will be
fully and unconditionally guaranteed (the "Subsidiary Guarantees") on an
unsecured, senior basis by all future Guarantor Subsidiaries (as defined). As of
June 30, 1997, after giving pro forma effect to the issuance of the Original
Notes and the application of a portion of the net proceeds therefrom to the
permanent reduction of the Guaranteed Bank Facility (as defined), the Iridium
Parties had outstanding approximately $1,455 million of unsecured senior
Indebtedness (including the Original Notes) and approximately $253 million in
Indebtedness that is subordinated to the Original Notes. See "Use of Proceeds,"
"Risk Factors -- Significant Additional Funding Needs," "-- Ranking of the
Notes" and "Description of Notes."
The Original Notes were issued and sold on July 16, 1997 pursuant to an
offering (the "Original Offering") of (i) Units (the "Units"), comprised of the
Series A Original Notes and warrants (the "IWCL Warrants") to purchase Class A
Common Stock of Iridium World Communications Ltd. ("IWCL"), and (ii) the Series
B Original Notes. Such sales were not registered under the Securities Act in
reliance upon the exemptions provided by Section 4(2), Rule 144A and Regulation
S of the Securities Act. Accordingly, the Original Notes may not be reoffered,
resold or otherwise pledged, hypothecated or transferred in the United States
unless so registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. Based upon interpretations by
the Staff of the Securities and Exchange Commission (the "Commission") issued to
third parties, the Issuers believe that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of an Iridium Party within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who acquired Original Notes exchanged
for such Exchange Notes directly from an Issuer or (iii) a broker-dealer who
acquired Original Notes as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders are not
engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer, where such Original Notes were acquired by such
broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Iridium Parties have agreed that, for a period not to exceed 180
days after the Expiration Date (as defined), they will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Any Holder that cannot rely upon such interpretations
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction.
The Original Notes and the Exchange Notes constitute new issues of
securities with no established trading market. Any Original Notes not tendered
and accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Original Notes will continue to be subject to the existing restrictions on
transfer thereof and the Issuers will have no further obligation to such holders
to provide for the registration under the Securities Act of the Original Notes,
except under certain limited circumstances. See "Exchange and Registration
Rights Agreement." No assurance can be given as to the liquidity of the trading
market for either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on , 1997, unless extended
(the "Expiration Date"). The date of acceptance for exchange of the Original
Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of validly tendered Original Notes. Original
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date; otherwise such tenders are irrevocable.
The obligation of the Issuers to consummate the Exchange Offer is subject to
certain conditions. See "The Exchange Offer -- Conditions to the Exchange
Offer." The Issuers reserve the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the occurrence of any such
condition.
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The date of this Prospectus is , 1997
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AVAILABLE INFORMATION
The Iridium Parties have filed with the Commission a Registration Statement
on Form S-4 (the "Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of an initial public offering of the Class A Common Stock, par
value $.01 per share, of IWCL, the publicly held member of Iridium (the "IWCL
IPO"), and the use of the net proceeds thereof to purchase Class 1 Interests (as
defined), on June 13, 1997, Iridium became subject to the periodic reporting and
other informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Periodic reports, proxy statements and additional
information filed with the Commission may be inspected at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, or at its regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material also
can be obtained from the Public Reference Section of the Commission, Washington,
D.C. 20549 at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov. that contains information regarding registrants that file
electronically with the Commission.
The Iridium Parties have agreed that, notwithstanding that they may not be
required to be or remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, they will file with the Commission, and provide the
Trustees (as defined) and Holders and prospective investors in the Notes (upon
request) with the annual reports and the information, documents and other
reports which are specified in Section 13 and 15(d) of the Exchange Act. See
"Description of the Notes -- Certain Covenants -- SEC Reports."
FORWARD LOOKING INFORMATION
Iridium is a development stage enterprise. Accordingly, all statements in
this Prospectus that are not clearly historical in nature are forward looking.
Examples of such forward looking statements include the statements concerning
Iridium's operations, prospects, markets, size of addressable markets for mobile
satellite services, technical capabilities, funding needs, financing sources,
pricing, launch schedule, commercial operations schedule, the estimate of the
last year in which Iridium will have negative cash flow and a net increase in
year-end borrowings, and future regulatory approvals, as well as information
concerning expected characteristics of competing systems and expected actions of
third parties such as equipment suppliers, gateway operators, service providers
and roaming partners. These forward looking statements are inherently predictive
and speculative and no assurance can be given that any of such statements will
prove to be correct. Actual results and developments may be materially different
from those expressed or implied by such statements. See "Risk Factors" for a
discussion of various factors which, among others, could result in any of such
forward looking statements proving to be inaccurate.
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IRIDIUM and [IRIDIUM LOGO] are registered trademarks and servicemarks of
Iridium LLC.
On May 9, 1997, Iridium effected a 75 for 1 subdivision (the "Class 1
Interest Subdivision") of its Class 1 Membership Interests (the "Class 1
Interests"). Unless otherwise indicated, all information contained in this
Prospectus regarding the number of outstanding Class 1 Interests of Iridium and
the beneficial ownership thereof reflects the Class 1 Interest Subdivision and
does not give effect to the issuance of Class 1 Interests by Iridium upon the
exercise of outstanding warrants (including the LLC Interest Warrants (as
defined)).
In this Prospectus, references to "dollars" and "$" are United States
dollars.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE ISSUERS SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PAGE
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Available Information................................................................ ii
Forward Looking Information.......................................................... ii
Prospectus Summary................................................................... 1
Risk Factors......................................................................... 18
IRIDIUM's Ownership Structure and Strategic Investors................................ 47
Use of Proceeds...................................................................... 49
Capitalization....................................................................... 50
The Exchange Offer................................................................... 51
Selected Financial Data.............................................................. 60
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 61
Business............................................................................. 66
Regulation of IRIDIUM................................................................ 87
Principal Contracts for the Development of the IRIDIUM System........................ 96
Management........................................................................... 103
Interest Ownership of Certain Beneficial Owners and Management....................... 115
Certain Relationships and Related Transactions of IRIDIUM............................ 116
IRIDIUM's Investors, Number of Class 1 Interests Owned, Percentage Ownership and
Principal Gateway Service Territories.............................................. 120
Description of IRIDIUM LLC Limited Liability Company Agreement....................... 125
Certain Matters Regarding Relationship of IWCL and IRIDIUM........................... 132
Description of Other Indebtedness.................................................... 135
Description of Notes................................................................. 140
Exchange and Registration Rights Agreement........................................... 172
Tax Considerations................................................................... 175
Plan of Distribution................................................................. 180
Validity of the Securities........................................................... 180
Experts.............................................................................. 180
Glossary............................................................................. 181
Index to Financial Statements........................................................ F-1
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto included elsewhere in this Prospectus. Holders and
prospective Holders are urged to read this Prospectus in its entirety. See
"Glossary" for definitions of certain terms used in this Prospectus.
IRIDIUM
Iridium LLC ("Iridium") is developing and commercializing a global mobile
wireless communications system that will enable subscribers to send and receive
telephone calls virtually anywhere in the world -- all with one phone, one phone
number and one customer bill. The IRIDIUM communications system (the "IRIDIUM
System") will combine the convenience of terrestrial wireless systems with the
global reach of Iridium's satellite system. The IRIDIUM System encompasses four
components: the "space segment," which will include the low earth orbit
satellite constellation and the related control facilities; the ground stations
or "gateways," which will link the satellites to terrestrial communications
systems; the IRIDIUM subscriber equipment, which will provide mobile access to
the satellite system and terrestrial wireless systems; and the terrestrial
wireless interprotocol roaming infrastructure, which will facilitate roaming
among the IRIDIUM satellite system and multiple terrestrial wireless systems
that use different wireless protocols. The first launch of IRIDIUM satellites
occurred on May 5, 1997. Iridium expects to commence commercial operations in
September 1998. The satellite constellation is being designed, assembled and
delivered in orbit by Motorola, Inc. ("Motorola"), a leading international
provider of wireless communications systems, phones and pagers, semiconductors
and other electronic equipment. Motorola is also the principal investor in
Iridium, having provided direct investments and guarantees totaling over $1.1
billion. In addition, Motorola has conditionally agreed to guarantee up to an
additional $350 million of borrowings under the Guaranteed Bank Facility
described below. Iridium's other strategic investors include leading wireless
communications service providers from around the world, as well as experienced
satellite manufacturers and experienced launch providers.
Iridium Capital Corporation ("Capital"), a Delaware corporation, is a
wholly owned subsidiary of Iridium. The Original Notes are, and the Exchange
Notes will be, the joint and several obligations of Iridium and Capital,
although Iridium received all of the net proceeds from the Original Offering.
Capital has no assets and does not conduct any operations. Iridium IP LLC and
Iridium Roaming LLC (the "Initial Guarantors" and, together with Capital and
Iridium, the "Iridium Parties"), each a Delaware limited liability company and a
wholly owned subsidiary of Iridium, have guaranteed the Original Notes and will
guarantee the Exchange Notes.
The principal executive office for each of the Iridium Parties is located
at 1575 Eye Street, N.W., Washington, DC 20005, telephone (202) 408-3800.
IRIDIUM SERVICES AND MARKET
Global mobile satellite service ("MSS") systems such as the IRIDIUM System
are designed to address two broad trends in the communications market: (i) the
worldwide growth in the demand for portable wireless communications -- according
to industry sources, the worldwide wireless communications market had
approximately 135 million subscribers at year-end 1996 and is estimated to grow
to over 400 million subscribers by year-end 2000; and (ii) the growing demand
for communications services to and from areas where landline or terrestrial
wireless service is not available or accessible. The IRIDIUM System architecture
and IRIDIUM voice, data, facsimile and paging services ("IRIDIUM Services") are
primarily designed to serve customers who place the greatest value on global
mobile communications services.
Iridium believes there is a significant market comprised of individuals and
businesses who need global communications capability and are willing to pay for
the convenience of a hand-held wireless
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phone or belt-worn pager. The availability of terrestrial wireless
communications service is often constrained by the limited geographic coverage
of terrestrial systems, the incompatibility of differing wireless protocols or
the absence of roaming agreements among wireless operators. The combination of
IRIDIUM Cellular Roaming Service ("ICRS"), IRIDIUM Satellite Services and
IRIDIUM paging will extend wireless access globally and allow customers of
Iridium to be reached by phone or pager, and to place phone calls from or to,
virtually anywhere in the world with one phone and one phone number. ICRS is
expected to enable customers to roam on an international basis among terrestrial
wireless networks, including those using different protocols, that have roaming
agreements with Iridium. IRIDIUM Satellite Services will extend voice services
to the regions of the world not served by terrestrial systems. Iridium intends
to offer global paging both in combination with IRIDIUM voice services and as a
stand-alone service. Iridium believes that the signaling capabilities of the
IRIDIUM System will enable Iridium to track the location of a voice customer
effectively and with minimal customer cooperation, thereby allowing Iridium to
direct pages and calls as customers travel globally. Iridium also expects to
offer, commencing in 1999, a broad range of in-flight passenger communications
services with participating airlines, including global incoming and outgoing
voice, data and facsimile services. In addition, Iridium expects to market
IRIDIUM Services to governmental, industrial and rural users of wireless
communications systems. Iridium believes it will be the only wireless
communications system in operation prior to 2000 that will be able to offer this
array of global communications services. See "Risk Factors -- Consequences of
Satellite Service Limitations on Customer Acceptance" and "-- Consequences of
IRIDIUM Phone and Pager Characteristics on Customer Acceptance."
To estimate potential demand for its services, Iridium has engaged in
extensive market analysis, including primary market research which involved
screening over 200,000 persons and interviewing more than 23,300 individuals
from 42 countries and 3,000 corporations with remote operations. Based on this
market analysis, Iridium has identified five target markets for IRIDIUM
Services: traveling professionals; corporate/industrial; government; rural; and
aeronautical. Iridium expects the traveling professional and
corporate/industrial markets will provide most of the demand for IRIDIUM
Services. Iridium believes that individuals in these markets are more likely to
need and have the ability to afford hand-held, global mobile communications
capability than, for example, individuals who live in remote areas outside
existing distribution channels for wireless communications services.
Iridium estimates that the addressable traveling professional market, which
it defines as all employed adults living in urban areas who own a wireless phone
and travel at least four times per year beyond the coverage of their current
wireless phone, will include approximately 42 million individuals by 2002. The
global corporate/industrial addressable market, which consists of companies with
more than 1,000 employees in industries with operations that are likely to need
mobile satellite services, is estimated by Iridium to include over 8,800
companies by 2002. Iridium believes that its unique service package is well
tailored to meet the demands of, and will give Iridium an advantage over
competing MSS systems in, these target markets. For a more detailed description
of Iridium's target markets see "Business -- The IRIDIUM Market," and for a
discussion of the forward looking nature of Iridium's estimates, and various of
the factors which could cause actual addressable markets to differ materially
from these estimates, see "Risk Factors -- Risk of Error in Forward Looking
Statements."
THE IRIDIUM SYSTEM
The satellite constellation of the IRIDIUM System, which will consist of 66
operational satellites arranged in six polar orbital planes, is being assembled
and delivered in orbit by Motorola pursuant to a fixed price contract, subject
to certain adjustments. Motorola also will operate and maintain the satellite
constellation for five years (extendible to seven years at Iridium's option)
under a fixed price contract, subject to certain adjustments. Iridium believes
the IRIDIUM System will have greater signal strength than other proposed MSS
systems, thereby allowing it to better serve hand-held
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phones and providing a higher degree of in-building penetration for paging
services. The IRIDIUM System utilizes adaptations of proven technologies,
including GSM cellular call processing technology, intersatellite links,
FDMA/TDMA radio transmission technology, a 2,400 bps vocoder and business
support software. The IRIDIUM satellites will feature cross-link antennas
allowing telephone calls and signaling information to be passed globally from
satellite to satellite. These intersatellite links, which enable the satellites
to function as switches in the sky, will allow the IRIDIUM System to (i) select
the optimal space-to-ground path of each call, thereby enhancing system
reliability and capacity while reducing the costs associated with the use of
terrestrial phone systems, (ii) communicate with subscribers in all regions of
the world (including mid-ocean and remote areas) regardless of their proximity
to a gateway, (iii) provide full global coverage with a relatively small number
of gateways, thereby lowering total ground segment build-out and operating costs
and (iv) provide enhanced ability to track the location of a voice customer,
allowing Iridium to direct calls and pages as customers travel globally. In
addition, the communications, station keeping and control systems of the IRIDIUM
satellites can be upgraded, maintained and reconfigured in orbit through the
remote loading of software. Iridium believes that its primary technological
challenge in implementing the IRIDIUM System is the integration of these proven
technologies into a single system.
Iridium expects to provide virtually global service initially through 11
gateways, although it will be able to provide such global service with fewer
gateways. Each of these 11 gateways will be owned, operated and financed by one
or more investors in Iridium or their affiliates.
IRIDIUM subscriber equipment will support voice, data and paging services.
Iridium expects that portable, hand-held IRIDIUM phones will be manufactured by
at least two experienced suppliers, Motorola and Kyocera Corporation
("Kyocera"), both of which have hand-held IRIDIUM phones under development. The
phones are expected to be available in satellite-only and "multi-mode" models.
The multi-mode phone being developed by Motorola uses changeable terrestrial
radio cassettes ("TRCs") which can be inserted into the phone. TRCs will be
developed for most major terrestrial wireless protocols so that with a single
multi-mode phone and the appropriate TRCs, a subscriber will be able to access
the IRIDIUM System and most terrestrial wireless systems. Kyocera's multi-mode
phone is expected to be configured as a satellite phone casing into which
terrestrial wireless phones using different protocols can be inserted. The
IRIDIUM belt-worn pager, to be manufactured by Motorola, will have the
capability to receive alphanumeric messages virtually anywhere in the world.
ICRS will support roaming among the two principal types of terrestrial
wireless protocols -- IS-41 (AMPS, NAMPS and CDMA) and GSM (GSM900, DCS1900 and
DCS1800). Roaming between these protocols requires cross protocol translation
which will be accomplished for ICRS through the IRIDIUM Interoperability Unit
("IIU"), being developed under the direction of Motorola. The IIU will permit
system management information, including customer authentication and location,
to be relayed between systems that use different technologies.
PRICING STRATEGY, DISTRIBUTION AND MARKETING
Iridium intends to implement a pricing strategy for its voice services
similar to the prevailing pricing structure for terrestrial wireless calls.
Prices for terrestrial wireless calls generally reflect two components -- a
charge based on the landline "dial-up" rate for a comparable call (primarily the
long distance charges) and a mobility premium for the convenience of wireless
service (including any roaming charges). Pricing for both IRIDIUM Satellite
Services and ICRS is expected to be based on this structure.
For international IRIDIUM Satellite Services calls, which Iridium expects
will constitute the majority of calls over the IRIDIUM satellite system, the
"dial-up" rate component will be designed to approximate the rates for
comparable landline point-to-point international long distance calls. Iridium
has analyzed and will continue to analyze published international direct dial
rates around the
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world as well as published international calling card rates of many of the
largest international telecommunications carriers in establishing the "dial-up"
rate component. Iridium intends to set the global mobility premium with
reference to the premium charged by other wireless services, including
cross-protocol international terrestrial wireless roaming services and competing
MSS systems.
Iridium will set the wholesale prices for its services to allow for a
suggested retail price that will approximate the "dial-up" plus mobility premium
price. Iridium's wholesale price will be designed to compensate Iridium, as the
network provider, and the originating and terminating gateways, as well as to
cover the PSTN tail charges. The home gateway will mark up the wholesale price
and the service provider will establish the final retail price. Iridium expects
that for international wireless calls, Iridium's suggested retail prices will be
competitive with other global MSS systems. In addition, from a regulatory
approval perspective in markets where the monopoly telecommunications provider
and the licensing authority are the same entity, a pricing strategy that takes
into account the "dial-up" alternatives allows Iridium to respond to concerns
that Iridium will capture the local monopoly provider's long-distance revenues
by undercutting terrestrial "dial-up" rates.
For ICRS pricing, the "dial-up" rate component is primarily the long
distance charge, if any, which will be passed through to the customer. The
mobility premium will be set to compensate the parties involved, primarily the
serving network for its airtime charges, the visited gateway for customer
authentication and Iridium for protocol translation services. The retail price
will include the markup of the home gateway and service provider. Iridium
believes that its ICRS suggested retail prices will be comparable to prices
charged by other cross-protocol roaming services.
In addition to airtime charges, IRIDIUM subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer IRIDIUM Services as additional features to their existing
wireless services, permitting their customers to remain customers of the
wireless network and to roam onto the IRIDIUM System. These customers will pay a
feature charge to Iridium for the roaming privilege that will be significantly
below the IRIDIUM monthly subscription fee, but they will pay an additional
roaming premium for calls made over the IRIDIUM System.
Initially, Iridium paging subscribers will pay a fixed monthly subscription
fee for unlimited paging. Iridium expects to implement per page pricing after
commencement of commercial operations, with the cost per page based, in part, on
the size of the geographic area covered by the page. The monthly paging
subscription fees will be reduced for persons who are also subscribers to
IRIDIUM voice services.
Iridium's distribution strategy reflects its role as a wholesaler of
IRIDIUM Services and is primarily designed to leverage off established retail
distribution channels by using existing distributors of wireless services as
IRIDIUM service providers and marketing IRIDIUM Services to their customers.
Iridium will implement the distribution of IRIDIUM Services through its gateway
operators, all of which have agreed to become or to engage IRIDIUM service
providers within their exclusive gateway territories. IRIDIUM service providers
will generally have primary responsibility for marketing IRIDIUM Services within
their territories in accordance with marketing policies and programs established
by Iridium. They will also be responsible for customer service, billing and
collection. Iridium anticipates its gateway operators will generally seek to
utilize more than one method of distribution in their markets. Iridium expects
that its service providers also will include affinity partners (e.g., airlines,
hotels and car rental companies).
Iridium's marketing strategy is to position IRIDIUM as the premier brand in
global wireless communications services. Iridium believes that its principal
target markets -- traveling professional and corporate/industrial -- can be
accessed through established marketing channels, which will permit more
effective marketing compared to MSS systems targeting individuals in remote
areas where marketing opportunities and distribution channels are limited.
Iridium is coordinating with its gateway partners to determine the optimum
allocation of marketing expenditures based on the market analysis that Iridium
has conducted. Iridium plans to engage in direct marketing to certain
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markets, such as the utility, oil and gas, mining and maritime industries.
Iridium believes that a coordinated and comprehensive global marketing strategy,
supported by its market research, will promote a consistent message and permit
Iridium to establish a global brand identity.
IRIDIUM'S INVESTOR GROUP
The IRIDIUM investor team includes enterprises from around the world with
skills and experience in developing, manufacturing, licensing and distributing
satellite and telecommunications products and services. IWCL, the publicly held
member of Iridium, and Iridium's strategic investors have collectively invested,
or committed to invest, approximately $3.46 billion in Iridium, including
equity, debt, guarantees and the Reserve Capital Call (as defined). These
investments represent approximately 79% of Iridium's projected total funding
needs through the end of September 1998, the month Iridium expects to commence
commercial operations, and approximately 68% of Iridium's projected total
funding needs through December 31, 1999, the last year in which Iridium projects
negative cash flow and a net increase in year-end borrowings. By partnering with
strategic investors, Iridium benefits from the development, manufacturing and
launch expertise of leading worldwide satellite development and launch
organizations and from the wireless telecommunications distribution and
regulatory expertise of leading telecommunications companies. The Iridium
investor team includes leading telecommunications companies in North America
(Motorola, Sprint and BCE Mobile Communications Inc.), Europe (STET and o.tel.o
communications GmbH & Co.) and Asia (DDI in Japan, UCOM in Thailand, P.T. Bakrie
Communications Corporation in Indonesia and SK Telecom in South Korea). Iridium
expects that these investors will use their wireless communications sales and
services organizations to market IRIDIUM Services and equipment in their
territories, which include their existing base of approximately 14 million
wireless subscribers. In addition, because of the prominence of many of these
investors, Iridium believes that their efforts to obtain necessary regulatory
approvals have been, and will continue to be, of great importance. The investor
team also includes organizations with significant satellite communications
development, manufacturing and launch expertise including Raytheon, Lockheed
Martin, Nuova Telespazio ("Telespazio"), Khrunichev and China Aerospace. Iridium
expects subscriber equipment for use with the IRIDIUM System will be
manufactured and sold by Motorola and Kyocera, two of the world's leading
manufacturers of wireless phones.
IWCL was formed to act as a publicly held member of Iridium and to have no
other business. On June 13, 1997, the IWCL IPO was consummated, whereby IWCL
issued 12,000,000 shares of its Class A Common Stock and applied the net
proceeds of approximately $225 million to purchase 12,000,000 Class 1 Interests
in Iridium. In connection with the IWCL IPO, IWCL was admitted as a member of
Iridium and IWCL owns approximately 8.5% of the outstanding Class 1 Interests.
See "Certain Matters Regarding Relationship of IWCL and Iridium."
PROGRESS TO DATE
Iridium, Motorola and the various gateway owners have made substantial
progress in the development and implementation of the IRIDIUM System and related
activities and expect to commence global commercial service on schedule in
September 1998. Satellite hardware development is substantially complete. As of
August 1, 1997, twenty-four satellites had been produced, and six additional
satellites were in final assembly and testing. The first five IRIDIUM satellites
were launched on May 5, 1997, the next seven IRIDIUM satellites were launched on
June 18, 1997 and an additional five IRIDIUM satellites were launched on July 9,
1997. An additional five satellites are scheduled to be launched by late August
1997. In early July, the IRIDIUM System logged its first test paging message
from orbiting satellites. The initial satellite launch had been scheduled to
occur in January 1997, but was postponed until May 1997 following the failure of
a Delta II launch vehicle, the same type of launch vehicle McDonnell Douglas is
using for Iridium satellite launches. Motorola has informed Iridium that it is
in the process of reworking the original launch schedule and currently believes
that the new planned launch schedule should permit Iridium to meet its planned
September
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1998 commencement of commercial operations for the IRIDIUM System and that there
will be no price adjustment under the Space System Contract, the Operations and
Maintenance Contract or the Terrestrial Network Development Contract as a result
of the initial launch delay. See "Risk Factors -- Potential for Delay and Cost
Overruns -- Deployment of Satellites" and "-- Satellite Launch Risks -- Number
of Launches; Compressed Launch Schedule."
On July 18, 1997, Iridium was informed by Motorola that Motorola has lost
communications with one of the IRIDIUM satellites launched on July 9, 1997.
Iridium was advised by Motorola that should loss of the satellite be confirmed,
Iridium will not bear the financial risk of loss, nor will it affect the
scheduled date for commercial service in September 1998. The other 16 satellites
orbiting the Earth continue to function within normal parameters. See "Risk
Factors -- Potential for Delay and Cost Overruns -- Deployment of Satellites,"
"-- Limited Life of Satellites; Cost of Maintaining the Space Segment; Risk of
Satellite Failure or Damage" and "-- Satellite Launch Risks -- Number of
Launches; Compressed Launch Schedule."
Motorola has completed construction of most of the terrestrial facilities
necessary to command the in-space movements of the IRIDIUM System's satellites,
including the Master Control Facility and the associated tracking, telemetry and
command ("TT&C") facilities. The construction of seven of the eleven gateway
facilities is substantially complete and the telecommunications equipment has
been installed at one location and is in the process of being installed at the
other six locations. Equipment procurement has commenced for three other
gateways pursuant to gateway equipment purchase agreements with Motorola.
Motorola has produced a functional, unminiaturized prototype of the IRIDIUM
phone, and Motorola has produced a functional prototype of the IRIDIUM belt-worn
pager. Iridium has also made substantial progress in the development of its
IRIDIUM business support systems, which will be used for the provision of its
billing and customer support functions. See "Risk Factors" for a description of
the risks that could impair the ability of Iridium to commence commercial
operations on schedule in September 1998.
Iridium has made significant progress to date in securing the worldwide
regulatory approvals necessary to build and operate the IRIDIUM System. At the
1992 World Administrative Radiocommunications Conference ("WARC-92"), the
International Telecommunications Union (the "ITU") allocated 16.5 MHZ of
spectrum in the 1610-1626.5 MHZ band to MSS systems. The U.S. Federal
Communications Commission (the "FCC") conditionally assigned the IRIDIUM System
exclusive use of 5.15 MHZ of the 16.5 MHZ for use in the United States. The
space segment of the IRIDIUM System has been licensed in the United States.
Iridium believes that coordination through the ITU has been completed
successfully between the IRIDIUM System and all existing or planned systems that
have been identified under the ITU's coordination process. No other action is
required from any other country to license the space segment. Three final and
five experimental licenses to build and operate gateways have been received,
including a final license with respect to the Iridium North America gateway in
Tempe, Arizona. Each country in which Iridium intends to operate must authorize
use of IRIDIUM subscriber equipment, including allocation of subscriber link
frequencies. The FCC has issued a license covering IRIDIUM Satellite Services in
the United States and 13 additional countries have granted conditional licenses
for IRIDIUM Satellite Services in their respective countries. Iridium's gateway
owners are dedicating substantial effort to obtaining licensing for IRIDIUM
Satellite Services in the countries in their service territories with particular
focus on obtaining licenses by the commencement of commercial operations in
those countries which are expected to account for most of the demand for and
usage of IRIDIUM Services. See "Risk Factors -- Risks Associated with Licensing
and Spectrum Allocation -- Significant Regulatory Approvals Required for
Operation of the IRIDIUM System," "-- Significant Remaining Regulatory
Approvals" and "Regulation of Iridium" for a discussion of the conditions to
these licenses and the additional regulatory approvals outside the United States
that remain to be obtained.
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BUSINESS STRATEGY
Iridium's strategy is to launch and operate the premier global mobile
wireless network. The key components of this strategy are set forth below:
Provide a unique service package to traveling professionals enabling them
to be reached and make calls virtually anywhere in the world. IRIDIUM Satellite
Services will complement terrestrial wireless services and provide the traveling
professional with communications capability in areas where terrestrial wireless
service is unavailable, inconvenient, of poor quality or unreliable. Iridium
intends to offer ICRS and global paging as complements to IRIDIUM Satellite
Services and as stand-alone services. Iridium believes that it will be the only
wireless communications system in operation prior to 2000 that will be able to
offer virtually global mobile voice and paging services, including:
- Global coverage. An IRIDIUM subscriber will generally have worldwide
wireless coverage wherever IRIDIUM Services are authorized, including
mid-ocean and remote areas. The availability of the IRIDIUM Satellite
Service will not be limited by the customer's proximity to a gateway.
Iridium believes this feature will make its Satellite Services
particularly well suited for aeronautical and shipping communications and
for service in land areas where LEO MSS systems using "bent pipe"
technology are not expected to have the more extensive gateway
infrastructure needed by such systems to provide global coverage.
- Convenient roaming onto terrestrial wireless networks. Iridium will
offer subscribers a combination of IRIDIUM Satellite Services and ICRS.
With the addition of ICRS, customers will be able to overcome (i) the
incompatibility of differing wireless protocols and (ii) the service
limitations of satellite-only voice services in buildings and urban
canyons. Iridium expects to be able to deliver all of its voice services
with one phone, one phone number and one customer bill.
- Global paging with belt-worn pagers. The IRIDIUM belt-worn pager will
have the capability of receiving alphanumeric messages of up to 63
characters and numeric messages of up to 20 digits virtually anywhere in
the world. With Iridium's global paging, users of IRIDIUM Satellite
Services or ICRS will generally be able to update their location on the
IRIDIUM System by briefly turning on their phone, thereby allowing the
IRIDIUM System to send a targeted page. Iridium believes that it will be
the first company, and the only company prior to 2000, which will offer
global paging to a belt-worn pager.
- Greater signal strength. The IRIDIUM System is designed to provide
greater signal strength than proposed competing MSS systems. Iridium
believes this greater signal strength will allow it to better serve
hand-held phones, and provide a higher degree of in-building signal
penetration for pagers, than competing MSS systems.
Be the first to market with a global wireless communications
system. Iridium plans to capitalize on the substantial design, development,
fabrication and testing efforts and financial investment to date of its
strategic investors to bring IRIDIUM Services to market at the earliest
practicable date, which is currently expected to be September 1998. Iridium
believes that it will be the only wireless communications system in operation
prior to 2000 that will be able to offer global mobile voice and paging services
in each country in which IRIDIUM Services are authorized.
Adapt proven technologies through an industrial team led by Motorola. The
IRIDIUM System adapts proven technology, including GSM cellular call processing
technology, intersatellite links, FDMA/TDMA radio transmission technology, a
2,400 bps vocoder and business support software. Iridium believes that the
primary technological challenge is the integration of these proven technologies
into a single system. Motorola, the principal investor in Iridium, is a leading
international provider of wireless communications systems, cellular phones,
pagers, semiconductors and other electronic equipment. The industrial team
assembled by Motorola to build and deliver in orbit the IRIDIUM System consists
of major companies experienced in aerospace and telecommunications,
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including Nuova Telespazio, Lockheed Martin, Raytheon, McDonnell Douglas,
Khrunichev and China Aerospace.
Capitalize on the strengths of its strategic investors. A number of
Iridium's strategic investors provide telecommunications services in various
parts of the world and have significant operating, regulatory and marketing
experience in their service territories. Iridium expects that its investors with
existing wireless communications sales and service organizations will use these
organizations to market and distribute IRIDIUM Services and equipment to
potential subscribers. Because of the prominence of many of these investors,
Iridium believes that their efforts to obtain the necessary regulatory approvals
have been, and will continue to be, of great importance.
Utilize existing wireless distribution channels. Iridium's strategy is to
target primarily traveling professionals, who are generally wireless phone
users. Iridium's strategy is to provide customers with an enhancement to their
existing terrestrial wireless service through existing marketing and
distribution channels rather than to focus on individuals who have no or limited
landline or wireless communications experience and live in areas where no
marketing and distribution channels currently exist.
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SOURCES AND USES OF FUNDS BY IRIDIUM
The following table describes the estimated sources and uses of funds by
Iridium from its inception through the end of September 1998 (the month Iridium
expects to commence commercial operations). Significant additional funds will be
needed to cover Iridium's cash needs prior to its expected generation of
positive cash flow from operations. The projection of total sources and total
uses of funds is forward looking and could vary, perhaps substantially, from
actual results, due to events outside Iridium's control, including unexpected
costs and unforeseen delays. See "Risk Factors -- Risk of Error in Forward
Looking Statements."
PRE-OPERATIONAL PERIOD(1)
(DOLLARS IN MILLIONS)
SOURCES OF FUNDS
- ------------------------------------
Secured Bank Facility(2)............ $ 750
The Original Notes Offering(3)...... 745
Guaranteed Bank Facility(4)......... 650
14 1/2% Senior Subordinated Notes
due to Members in 2006(5)......... 238
Series A Class 2 Interests(6)....... 31
Class 1 Interests(7)................ 1,951
------
Total Pre-operational
Sources...................... $4,365
======
USE OF FUNDS
- ------------------------------------
Space System Contract(8)............ $3,450
Terrestrial Network Development
Contract(9)....................... 176
Business Support Systems and other
Expenditures(10).................. 114
Net Interest and Financing
Costs(11)......................... 246
Net Expenses and Working
Capital(11)(12)................... 379
------
Total Pre-operational Net
Uses......................... $4,365
======
- ---------------
(1) Assumes that the IRIDIUM System will commence commercial operations in
September 1998. Iridium anticipates total cash needs of $5.1 billion (net
of assumed revenues following commencement of commercial operations)
through year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. Many factors,
including Iridium's ability to generate significant revenues, could affect
this estimate. See "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Iridium currently
expects to satisfy its additional funding requirements through the
incurrence of debt. Iridium is seeking bank financing in addition to the
Guaranteed Bank Facility and the Secured Bank Facility (as defined) in
order to meet its expected funding requirements following the commencement
of commercial operations. Such additional bank financing likely will
require credit support from Iridium's investors, vendors or others for
which Iridium will be required to pay compensation. There can be no
assurance that such additional bank financing will be obtained by Iridium
on terms and conditions that are acceptable to it, and if such additional
bank financing is unavailable, there can be no assurance that Iridium will
be able to obtain alternative financing on terms and conditions acceptable
to it. Among other things, the availability of any financing is subject to
market conditions at the time of any proposed financing. See "Risk
Factors -- Significant Additional Funding Needs," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2) Iridium has received a commitment letter from Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and BZW, the investment banking
division of Barclays Bank PLC, with respect to a senior bank facility in a
principal amount up to $750 million (the "Secured Bank Facility"), to be
secured by substantially all of Iridium's assets and the Reserve Capital
Call. Seventeen of Iridium's investors have made varying reserve capital
call commitments to purchase an aggregate of 18,206,550 Class 1 Interests
at $13.33 per Class 1 Interest for an aggregate purchase price of
approximately $243 million (the "Reserve Capital Call"). See "Description
of Iridium LLC Limited Liability Company Agreement -- Capital
Contributions; Reserve Capital Call." The availability of the Secured Bank
Facility is subject to significant
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conditions, including the execution of satisfactory definitive
documentation, technical conditions relating to the IRIDIUM System,
conditions relating to regulatory approvals and conditions relating to
other financing sources. Borrowings under the Secured Bank Facility would
mature on December 31, 1998, subject to Iridium's right to extend such
maturity until June 30, 1999 if it can demonstrate by October 31, 1998 that
it has sufficient available or committed funding for the projected capital
and operating expenses under Iridium's business plan through such extended
maturity. See "Description of Other Indebtedness." There can be no
assurance that the Secured Bank Facility will be available to Iridium.
(3) Reflects the net proceeds of the Original Offering received directly or
indirectly by Iridium, after deducting discounts and commissions and
expenses of the Original Offering. See "Use of Proceeds."
(4) As of June 30, 1997, Iridium had drawn $660 million under a $750 million
unsecured borrowing facility with a syndicate of banks (the "Guaranteed
Bank Facility"). Borrowings under the Guaranteed Bank Facility are
guaranteed by Motorola (the "Motorola Guarantee"). Pursuant to a Memorandum
of Understanding, dated July 11, 1997, between Iridium and Motorola (the
"Motorola MOU"), on July 21, 1997 Iridium permanently reduced the
commitment of the bank lenders in the Guaranteed Bank Facility and the
corresponding Motorola Guarantee by approximately $95 million (to $655
million) with the proceeds of the Original Offering. See "Use of Proceeds."
The Guaranteed Bank Facility matures in August 1998. Pursuant to the
Motorola MOU, Motorola agreed to extend the Motorola Guarantee until after
the Stated Maturity (as defined) of the Notes if the Guaranteed Bank
Facility is so extended. Iridium believes that it will be able to extend
this facility at least through expected commercial activation. There can be
no assurance, however, that the bank lenders would agree to extend the term
of the Guaranteed Bank Facility if requested by Iridium. Pursuant to the
Motorola MOU, Motorola has conditionally agreed that, after giving effect
to the permanent reduction of the Guaranteed Bank Facility to approximately
$655 million as described above in this note (4), Motorola will guarantee
up to $350 million of additional Indebtedness (including principal and
interest) of Iridium under the Guaranteed Bank Facility or another credit
agreement with the same terms (the "Motorola Additional Guarantee"). For a
description of the Motorola MOU and the Motorola Additional Guarantee see
"Certain Relationships and Related Transactions of Iridium -- Motorola
Related Matters -- MOU and Agreement Regarding Guarantee." There can be no
assurance that the bank lenders would agree to increase the amount of their
commitments under the Guaranteed Bank Facility in respect of the Motorola
Additional Guarantee. See "Description of Other Indebtedness."
(5) These notes were issued with warrants to purchase 4,997,292 Class 1
Interests at a price of $.01 per Interest. See "Description of Other
Indebtedness."
(6) The Series A Class 2 Interests pay a 14 1/2% dividend which, at the option
of Iridium, may be paid in-kind until 2001 and paid in cash thereafter. The
Series A Class 2 Interests are convertible at any time into Class 1
Interests. If all dividends permitted to be paid in-kind are paid in-kind,
at the time when the Series A Class 2 Interests convert to a cash dividend,
there will be 62,668 Series A Class 2 Interests outstanding convertible
into 1,159,985 Class 1 Interests, subject to anti-dilution adjustments.
(7) Includes approximately $224 million net proceeds to Iridium from the
issuance of Class 1 Interests in connection with the IWCL IPO consummated
on June 13, 1997. Includes $60 million due from South Pacific Iridium
Holdings Limited ("SPI"), an affiliate of P.T. Bakrie Communications
Corporation, pursuant to a definitive purchase agreement under which SPI
purchased 7,500,000 Class 1 Interests at $13.33 per Class 1 Interest on May
30, 1997. SPI paid $40 million on May 30, 1997 and elected its right to
defer 60% of the total purchase price. Under the terms of the purchase
agreement, 10% of the total purchase price must be paid by November 15,
1997 and the remaining 50% by May 15, 1998. The outstanding amount due will
increase to approximately $70 million in the event SPI elects in full its
right to defer a portion of the
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purchase price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(8) As of June 30, 1997, Iridium had incurred $2,541 million of this amount.
See "Risk Factors -- Potential for Delay and Cost Overruns," "-- Risks
Associated with Principal Supply Contracts" and "-- Satellite Launch
Risks -- Impact of Excusable Delays."
(9) As of June 30, 1997, Iridium had incurred $96 million of this amount. The
total cost of the Terrestrial Network Development Contract is estimated to
be approximately $270 million, with approximately $94 million of such total
due at or after September 23, 1998, the expected date of the commencement
of commercial operations. See "Risk Factors -- Risks Associated with
Principal Supply Contracts."
(10) As of June 30, 1997, Iridium had incurred $38 million of this amount. See
"Risk Factors -- Risks Associated with Principal Supply Contracts."
(11) Based on interest payment obligations (using the interest rates applicable
to the Notes and assumed interest rates and borrowing levels in the case of
other borrowings) and Iridium's estimates of associated costs, including
the expenses of the Original Offering and the Exchange Offer. Actual
interest and financing costs will depend upon applicable interest rates and
the amount and timing of actual borrowings.
(12) Comprised of operating expenses of $607 million and net of interest income
of $18 million and working capital of $210 million.
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THE EXCHANGE OFFER
The Exchange Offer......... The Issuers are offering to exchange (the "Exchange
Offer") (i) up to $300,000,000 aggregate principal
amount of 13% Senior Notes due 2005, Series A/EN
(the "Series A Exchange Notes"), which have been
registered under the Securities Act, for up to
$300,000,000 aggregate principal amount of
outstanding 13% Senior Notes due 2005, Series A
(the "Series A Original Notes") and (ii) up to
$500,000,000 aggregate principal amount of 14%
Senior Notes due 2005, Series B/EN (the "Series B
Exchange Notes" and, together with the Series A
Exchange Notes, the "Exchange Notes"), which have
been registered under the Securities Act, for up to
$500,000,000 aggregate principal amount of
outstanding 14% Senior Notes due 2005, Series B
(the "Series B Original Notes" and, together with
the Series A Original Notes, the "Original Notes").
Upon consummation of the Exchange Offer, the terms
of each Series of Exchange Notes will be
substantially identical in all material respects
(including principal amount, interest rate,
maturity and ranking) to the terms of the related
Series of Original Notes for which they may be
exchanged pursuant to the Exchange Offer, except
that the Exchange Notes will be freely transferable
by holders thereof except as provided herein (see
"The Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal"). The Exchange Notes will be issued
without any covenant regarding exchange or
registration under the Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of an Iridium
Party within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired
Original Notes exchanged for such Exchange Notes
directly from an Iridium Party or (iii)
broker-dealers who acquired Original Notes
exchanged for such Exchange Notes as a result of
market making or other trading activities) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding
with any person to participate in, a distribution
of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Original Notes,
where such Original Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
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Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1997 unless extended
(the "Expiration Date").
Exchange Date.............. The first date of acceptance for exchange for the
Original Notes will be the first business day
following the Expiration Date upon surrender of
validly tendered Original Notes.
Conditions to the Exchange
Offer.................... The obligation of the Issuers to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Issuers reserve the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering
Original Notes........... To participate in the Exchange Offer, holders of
Original Notes must tender by (a) book-entry
transfer pursuant to the procedures set forth under
"The Exchange Offer -- How to Tender" or (b)
forwarding certificates representing such Original
Notes with the Letter of Transmittal. Holders who
are participants in DTC (as defined) tendering by
book-entry transfer must execute such tender
through the DTC's ATOP (as defined) procedures. A
holder using ATOP should transmit its acceptance to
DTC on or prior to the Expiration Date. DTC will
verify such acceptance, execute a book-entry
transfer of the tendered Original Notes into the
Exchange Agent's account at DTC and then send to
the Exchange Agent confirmation of such book-entry
transfer, including an Agent's Message (as defined)
confirming that DTC has received an express
acknowledgment from such holder that such holder
has received and agrees to be bound by the Letter
of Transmittal and that the Iridium Parties may
enforce the Letter of Transmittal against such
holder. The book-entry confirmation (as defined)
must be received by the Exchange Agent in order for
the tender relating thereto to be effective.
If the tender is not made through ATOP,
certificates for such Original Notes, as well as
the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any
required signature guarantees, and any other
documents required by the Letter of Transmittal,
must be received by the Exchange Agent at its
address set forth in the Letter of Transmittal on
or prior to the Expiration Date in order for such
tender to be effective. See "The Exchange
Offer -- How to Tender."
Letters of Transmittal and certificates
representing Original Notes should not be sent to
any of the Iridium Parties. Such documents should
only be sent to the Exchange Agent. Questions
regarding how to tender and requests for
information should be directed to the Exchange
Agent. See "The Exchange Offer -- Exchange Agent."
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Federal Income Tax
Consequences............. The exchange of Original Notes for Exchange Notes
by Holders should not constitute a taxable exchange
for federal income tax purposes, and holders should
not recognize any taxable gain or loss or any
interest income as a result of such exchange. For a
discussion of the tax treatment of the Notes,
generally, see "Tax Considerations."
Effect on Holders of
Original Notes............. As a result of the making of this Exchange Offer,
and upon acceptance for exchange of validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, the Iridium Parties will have
fulfilled a covenant contained in the Exchange and
Registration Rights Agreement (the "Exchange and
Registration Rights Agreement"), dated as of July
16, 1997, among the Iridium Parties, Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner
and Smith Incorporated (the "Initial Purchasers")
and, accordingly, the holders of the Original Notes
will have no further registration or other rights
under the Exchange and Registration Rights
Agreement, except under certain limited
circumstances. See "Exchange and Registration
Rights Agreement." Holders of the Original Notes
who do not tender their Original Notes in the
Exchange Offer will continue to hold such Original
Notes and will be entitled to all the rights and
limitations applicable thereto under the indenture,
dated as of July 16, 1997, among the Iridium
Parties and State Street Bank and Trust Company, as
Trustee (the "Series A Trustee"), relating to the
Series A Original Notes and the Series A Exchange
Notes (the "Series A Indenture"), or the indenture,
dated as of July 16, 1997, among the Iridium
Parties and State Street Bank and Trust Company, as
Trustee (the "Series B Trustee" and, together with
the Series A Trustee, the "Trustees") relating to
the Series B Original Notes and the Series B
Exchange Notes (the "Series B Indenture" and,
together with the Series A Indenture, the
"Indentures"), as applicable. All untendered, and
tendered but unaccepted, Original Notes will
continue to be subject to the restrictions on
transfer provided for in such Original Notes and
the related Indenture. To the extent that Original
Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Original
Notes could be adversely affected. See "Risk
Factors -- Consequences of Failure to Exchange."
TERMS OF THE NOTES
The Exchange Offer applies to (i) $300,000,000 aggregate principal amount
of the Series A Original Notes and (ii) $500,000,000 aggregate principal amount
of the Series B Original Notes. The form and terms of the Exchange Notes are the
same as the form and terms of the Original Notes for which they may be exchanged
except that the Exchange Notes will be registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof. The Exchange
Notes will be issued without any covenant regarding exchange or registration
under the Securities Act. The Exchange Notes will evidence the same debt as the
respective Original Notes and will be entitled to the benefits of the respective
Indenture. See "Description of Notes."
Issuers.................... Iridium LLC, a Delaware limited liability company,
and Iridium Capital Corporation, a Delaware
corporation.
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Maturity Date.............. July 15, 2005.
Principal Amount of Series
A Notes.................... $300,000,000.
Principal Amount of Series
B Notes.................... $500,000,000.
Interest Payment Dates..... Interest will accrue on the Series A Exchange
Notes, and does accrue on the Series A Original
Notes, at an annual rate of 13%, and interest will
accrue on the Series B Exchange Notes, and does
accrue on the Series B Original Notes, at an annual
rate of 14%, in each case from the date of issuance
of the Original Notes (the "Issue Date"). Interest
on each Note will be payable semi-annually in
arrears on January 15 and July 15 of each year,
commencing January 15, 1998.
Security................... None.
Optional Redemption........ Except as described below, the Issuers may not
redeem the Notes prior to July 15, 2002. On or
after such date, either Issuer may redeem the
Notes, in whole or in part, at any time at the
redemption prices set forth herein, together with
accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption.
At any time and from time to time on or prior to
July 15, 2000, either Issuer may, subject to
certain requirements, redeem in the aggregate up to
33 1/3% of the original aggregate principal amount
of the Series A Notes or the Series B Notes with
the cash proceeds to Iridium of one or more Equity
Offerings (as defined) at a redemption price equal
to 113.5% of the principal amount of any Series A
Notes being redeemed, or 115.0% of the principal
amount of any Series B Notes being redeemed, in
each case plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption; provided that at least 66 2/3% of the
original aggregate principal amount of each Series
of Original Notes must remain outstanding (in the
form of Original Notes, Exchange Notes or a
combination thereof, as the case may be)
immediately after each such redemption. See
"Description of Notes -- Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the option
to require the Issuers to repurchase all or a
portion of such holder's Notes at 101% of the
principal amount of the Notes, plus accrued and
unpaid interest and Liquidated Damages, if any, to
the purchase date. However, certain highly
leveraged transactions may not be deemed to be a
Change of Control, including, without limitation,
transactions with affiliates which comply with the
other covenants included in the Indentures. See
"Description of Notes -- Change of Control."
Additionally, there can be no assurance that the
Issuers will have the financial resources necessary
to repurchase the Notes upon a Change of Control.
See "Risk Factors -- Change of Control" and
"Description of Notes -- Change of Control."
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22
Subsidiary Guaranties...... The Original Notes are, and the Exchange Notes will
be, fully guaranteed on an unsecured, senior basis
by all present or future Guarantor Subsidiaries.
Iridium currently has no subsidiaries other than
Capital, Roaming and IP. Roaming and IP are
Guarantor Subsidiaries. See "Description of
Notes -- Subsidiary Guaranties" and "-- Certain
Covenants -- Future Guarantor Subsidiaries."
Ranking.................... The Original Notes are, and the Exchange Notes will
be, senior obligations of the Issuers. The Original
Notes do, and the Exchange Notes will, rank pari
passu in right of payment with all existing and
future senior Indebtedness of the Issuers, other
than any Subordinated Obligations (as defined). The
Original Notes are, and the Exchange Notes will be,
effectively subordinated to any secured
Indebtedness of the Issuers to the extent of the
value of the assets securing such Indebtedness. The
Subsidiary Guaranties will be unsecured, senior
obligations of the Guarantor Subsidiaries. As of
June 30, 1997, after giving pro forma effect to the
issuance of the Original Notes and the application
of a portion of the net proceeds therefrom to the
permanent reduction of the Guaranteed Bank
Facility, the Iridium Parties had outstanding
approximately $1,455 million in unsecured senior
Indebtedness (including the principal amount of the
Original Notes) and approximately $253 million in
Indebtedness that is subordinated to the Notes. See
"Use of Proceeds," "Description of Other
Indebtedness" and "Risk Factors -- Significant
Additional Funding Needs."
Restrictive Covenants...... The Indentures governing the Notes limit (i) the
incurrence of additional Indebtedness by Iridium
and the Restricted Subsidiaries (as defined); (ii)
the payment of dividends on, and redemption of,
Capital Stock (as defined) of Iridium and the
Restricted Subsidiaries and the redemption of
certain Subordinated Obligations (as defined) of
Iridium and the Restricted Subsidiaries; (iii)
certain other restricted payments, including
certain investments; (iv) sales of assets and
Restricted Subsidiary stock; (v) certain
transactions with affiliates; (vi) the sale or
issuance of capital stock of Restricted
Subsidiaries; (vii) the creation of liens; (viii)
the lines of business in which Iridium and the
Restricted Subsidiaries may operate; and (ix)
consolidations, mergers and transfers of all or
substantially all of the Issuers' assets. The
Indentures also prohibit certain restrictions on
distributions from Restricted Subsidiaries.
However, all of these limitations and prohibitions
are subject to a number of important qualifications
and exemptions. See "Description of
Notes -- Certain Covenants" and "-- Merger and
Consolidation."
Registration Rights........ Pursuant to the Exchange and Registration Rights
Agreement, the Iridium Parties agreed (i) to file a
registration statement within 15 days after the
Issue Date (which was July 16, 1997) with respect
to an offer to exchange each Series of Original
Notes for a series of notes of the Issuers with
terms identical in all material respects to each
such Series of Original Notes and (ii) to use their
reasonable efforts to cause the registration
statement to be
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declared effective by the Commission within 52 days
after the Issue Date. The Registration Statement of
which this Prospectus forms a part was filed on
July 21, 1997 to fulfill the Iridium Parties'
obligations under clause (i) of the preceding
sentence, and the sole purpose of the Exchange
Offer is to fulfill the obligations of the Iridium
Parties with respect to the Exchange and
Registration Rights Agreement. In certain
circumstances, the Issuers and the Guarantor
Subsidiaries are required to provide a shelf
registration statement to cover resales of the
Original Notes by certain holders. If the Issuers
and the Guarantor Subsidiaries do not comply with
their obligations under the Exchange and
Registration Rights Agreement, the Issuers will pay
Liquidated Damages to each Holder of Original Notes
as and to the extent described therein. See
"Exchange and Registration Rights Agreement."
Absence of a Public Market
for the Notes............ The Original Notes have not been registered under
the Securities Act and are subject to restrictions
on transferability and resale. The Original Notes
are new securities and there is currently no
established market for them. If issued, the
Exchange Notes generally will be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for
which there initially will be no market.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Original Notes or, if issued, the Exchange Notes.
The Original Notes are eligible for trading in the
PORTAL market. The Initial Purchasers have advised
the Issuers that they currently intend to make a
market in the Original Notes and, if issued, the
Exchange Notes. However, they are not obligated to
do so, and any market making with respect to the
Original Notes or, if issued, the Exchange Notes
may be discontinued without notice. The Issuers do
not intend to apply for listing of the Original
Notes or, if issued, the Exchange Notes on any
national securities exchange or for their quotation
through the NNM.
RISK FACTORS
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY HOLDERS OF
NOTES IN CONNECTION WITH THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON
PAGE 18.
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24
RISK FACTORS
The following risk factors, in addition to the other information contained
elsewhere in this Prospectus, should be carefully considered by holders of the
Original Notes in connection with the Exchange Offer.
DEVELOPMENT STAGE COMPANY; ABSENCE OF REVENUES
Iridium is a development stage enterprise with no operating history.
Prospective investors have no operating and financial data about the IRIDIUM
System on which to base an evaluation of the IRIDIUM System's performance and an
investment in the Series A Notes or the Series B Notes. Through June 30, 1997,
Iridium had realized cumulative net losses of approximately $218 million and
expects to realize significant net losses at least until some time after the
IRIDIUM System commences commercial operations, which is currently anticipated
to be September 1998. Through June 30, 1997, Iridium had incurred expenditures
totaling $2,541 million to Motorola under the Space System Contract and
expenditures totaling $96 million under the Terrestrial Network Development
Contract, in respect of completed milestones. The completion and maintenance of
the IRIDIUM System and implementation of commercial service will require
significant additional expenditures of funds. Iridium currently has no source of
revenues other than nominal interest income. No assurances can be given that, or
when, the IRIDIUM System will become commercially operational, or that, or when,
Iridium will have revenues from operations or positive cash flow or become
profitable. Until such time as Iridium develops sufficient revenues from
operations, Iridium will rely on additional debt to satisfy its debt service
obligations.
SIGNIFICANT ADDITIONAL FUNDING NEEDS
Iridium anticipates total cash funding requirements of approximately $4.365
billion through September 1998, the month Iridium expects to commence commercial
operations, and $5.1 billion (net of assumed revenues following commercial
activation) through year-end 1999, the last year in which Iridium projects
negative cash flow and a net increase in year-end borrowings. On June 13, 1997,
the IWCL IPO was consummated. The net proceeds to Iridium of the IWCL IPO were
approximately $224 million. As of June 30, 1997, Iridium had equity investments
of $1.982 billion, including the net proceeds of the IWCL IPO and $60 million
due from South Pacific Iridium Holdings Limited ("SPI") pursuant to the terms of
a definitive purchase agreement. At June 30, 1997, debt equaled approximately
$900 million, including borrowings under the $750 million (reduced on July 21,
1997 to $655 million) credit facility with a syndicate of banks (the "Guaranteed
Bank Facility") under which $660 million had been drawn as of June 30, 1997.
Borrowings under the Guaranteed Bank Facility are guaranteed by Motorola (the
"Motorola Guarantee"). Pursuant to the Motorola MOU, Iridium and Motorola agreed
that Iridium would permanently reduce the Guaranteed Bank Facility by an amount
equal to the excess of the net proceeds of certain offerings of senior notes of
Iridium (including the Original Notes) over $650 million (such a permanent
reduction in an amount of approximately $95 million was made in respect of the
Original Offering). In addition, pursuant to the Motorola MOU, Motorola has
conditionally agreed that, after giving effect to the Original Notes offering
and any permanent reduction in the Guaranteed Bank Facility resulting therefrom,
Motorola will guarantee up to $350 million of additional Indebtedness (including
principal and interest) under the Guaranteed Bank Facility or another credit
facility on identical terms (the "Motorola Additional Guarantee") provided that
borrowings under such additional Indebtedness are made on or prior to February
28, 1999. Borrowings under the Guaranteed Bank Facility mature in August 1998.
Pursuant to the Motorola MOU, Motorola agreed to extend the Motorola Guarantee
(including the Motorola Additional Guarantee, if committed) until after the
Stated Maturity (as defined) of the Notes if the Guaranteed Bank Facility is so
extended. Iridium believes it will be able to amend the Guaranteed Bank Facility
to extend its maturity at least through expected commercial activation, and it
would be able to increase the Guaranteed Bank Facility if it so requests. There
can be no assurance, however, that the bank lenders would agree to extend the
term of the Guaranteed
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Bank Facility, that such bank lenders would agree to any such requested increase
or that any such other identical credit facility would be available. See
"Certain Relationships and Related Transactions of Iridium -- Motorola Related
Matters -- Motorola MOU and Agreement Regarding Guarantee" and "Description of
Other Indebtedness."
Iridium has received a commitment letter from Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and BZW, the investment banking division
of Barclays Bank PLC, for a senior bank facility in a principal amount up to
$750 million (the "Secured Bank Facility"), to be secured by substantially all
of Iridium's assets. The availability of the Secured Bank Facility is subject to
significant conditions, including execution of satisfactory definitive
documentation, technical conditions relating to the IRIDIUM System, conditions
relating to regulatory approvals and conditions relating to other financing
sources. Borrowings under the Secured Bank Facility would mature on December 31,
1998, subject to Iridium's right to extend such maturity until June 30, 1999 if
it can demonstrate by October 31, 1998 that it has sufficient available or
committed funding for the projected capital and operating expenses under its
business plan through such extended maturity. See "Description of Other
Indebtedness." Assuming approximately $650 million of borrowings under the
Guaranteed Bank Facility (extended as discussed above) and full utilization of
the Secured Bank Facility, Iridium expects to have sufficient cash to meet its
anticipated funding requirements through September 1998, the month Iridium
expects to commence commercial operations. Iridium is seeking other senior bank
financing in order to meet its expected funding requirements through at least
year-end 1999, the last year in which Iridium projects negative cash flow and a
net increase in year-end borrowings. There can be no assurance, however, that
the Secured Bank Facility will be available to Iridium, or that any such other
bank financing will be obtained by Iridium on terms and conditions acceptable to
it, and, if any of such financing is unavailable, there can be no assurance that
Iridium will be able to obtain alternative financing on terms and conditions
acceptable to it. Iridium's estimated funding requirements do not reflect any
contingency amounts and therefore those requirements will increase, perhaps
substantially, in the event of unexpected cost increases or schedule delays.
RISK OF HIGHLY LEVERAGED CAPITAL STRUCTURE
Iridium is a development stage company with a highly leveraged capital
structure and expects to incur substantial additional Indebtedness, including
secured indebtedness. As of June 30, 1997, after giving pro forma effect to the
issuance of the Original Notes and the application of a portion of the net
proceeds therefrom to the permanent reduction of the Guaranteed Bank Facility,
the Iridium Parties had outstanding approximately $1,455 million in aggregate
principal amount of unsecured senior Indebtedness (including the principal
amount of the Original Notes) and approximately $253 million in aggregate
principal amount of Indebtedness that is subordinated to the Notes. See "Use of
Proceeds." As of June 30, 1997, none of the Iridium Parties had any secured
Indebtedness outstanding. Iridium expects to incur secured Indebtedness in an
aggregate principal amount of $750 million pursuant to the Secured Bank Facility
as well as other secured Indebtedness permitted by the Indentures. See
"Description of Other Indebtedness" and "Description of Notes -- Certain
Covenants -- Limitation on Liens." The amount of debt needed to finance the
IRIDIUM System could be increased by one or more factors outside the control of
Iridium, including cost increases related to the acquisition of the IRIDIUM
System, a delay in the delivery date of the system and increases in prevailing
market interest rates. Subject to restrictions in the Indentures, the Guaranteed
Bank Facility and the Motorola MOU, and to restrictions expected to be contained
in the Secured Bank Facility, Iridium may incur additional Indebtedness from
time to time, including secured and other senior Indebtedness. Iridium currently
has no significant income-producing assets from which to service the Notes or
any other indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Certain Relationships and Related Transactions of Iridium -- Motorola Related
Matters -- Motorola MOU and Agreement Regarding Guarantee," and "Description of
Notes -- Certain Covenants -- Limitation on Indebtedness" and "-- Limitation on
Liens."
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Iridium's current and future debt service requirements could have important
consequences to the holders of the Notes, including the following: (i) Iridium's
limited ability to obtain additional financing for future working capital needs
or for other purposes; (ii) a substantial portion of Iridium's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing funds available for operations and (iii)
Iridium's greater exposure to adverse economic conditions than competing
companies that are not as highly leveraged. In addition, the discretion of
Iridium's management with respect to certain business matters will be limited by
covenants contained in the Indentures and the Guaranteed Bank Facility, and
expected to be contained in the Secured Bank Facility and other debt
instruments. Among other things, such covenants limit or prohibit (or, in the
case of the Secured Bank Facility, are expected to limit or prohibit) Iridium
and its subsidiaries from incurring additional indebtedness, creating liens on
their assets, making certain loans, investments or guarantees, issuing preferred
stock, making certain asset or stock dispositions and entering into transactions
with affiliates and related persons. The Secured Bank Facility is expected to be
secured by substantially all of the assets of Iridium and the Reserve Capital
Call. There can be no assurance that such restrictions or prior liens will not
materially and adversely affect Iridium's ability to finance its future
operations or capital needs or to operate its business and engage in other
corporate activities. Moreover, a failure to comply with the terms of any
agreements with respect to outstanding or additional financing could result in
an event of default under such agreements, which could result in the
acceleration of the related debt and acceleration of debt under other debt
agreements that may contain cross-acceleration or cross-default provisions. See
"Description of Notes -- Certain Covenants" and "Description of Other
Indebtedness."
RISK OF ERROR IN FORWARD LOOKING STATEMENTS
Iridium is a development stage company. Accordingly, all statements in this
Prospectus that are not clearly historical in nature are forward looking.
Examples of such forward looking statements include the statements concerning
Iridium's operations, prospects, markets, size of addressable markets for mobile
satellite services, technical capabilities, funding needs, financing sources,
pricing, launch schedule, commercial operations schedule and future regulatory
approvals, as well as information concerning expected characteristics of
competing systems and expected actions of third parties such as equipment
suppliers, gateway operators, service providers and roaming partners. These
forward looking statements are inherently predictive and speculative and no
assurance can be given that any of such statements will prove to be correct.
Actual results and developments may be materially different from those expressed
or implied by such statements. Prospective investors should carefully review the
other risk factors set forth in this section of this Prospectus for a discussion
of various of the factors which could result in any of such forward looking
statements proving to be inaccurate.
In addition, the information in this Prospectus under "Prospectus
Summary -- Sources and Uses of Funds by Iridium" (other than historical
information) and the statements therein and elsewhere that 1999 is the last year
in which Iridium expects negative cash flow and a net increase in year-end
borrowings and as to projected additional capital needs after the commencement
of commercial operations, are forward looking statements which may turn out to
be inaccurate for the reasons described in the preceding paragraph and are also
based upon a number of assumptions. One or more of these assumptions is likely
to be incorrect. The projected financial information assumes, among other
things, that (i) the IRIDIUM System will become commercially operational in
September 1998; (ii) the IRIDIUM System will meet all systems specifications set
forth in the Space System Contract and the Terrestrial Network Development
Contract and will have service characteristics at least as favorable as those
expected by Iridium and described in this Prospectus; (iii) there will be no
increased costs resulting from excusable delays under the Space System Contract,
the Operations and Maintenance Contract or the Terrestrial Network Development
Contract; (iv) Motorola and Kyocera will develop, manufacture and sell in
sufficient numbers portable, hand-held phones that are capable of operating in
multi-mode format and Motorola will develop
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alphanumeric pagers for use with the IRIDIUM System on a timely basis in
accordance with the model descriptions set forth in this Prospectus and at the
estimated prices set forth in this Prospectus and Iridium will not incur any
significant expenditures as a result of any need to place any orders for or sell
any IRIDIUM subscriber equipment; (v) a sufficient number of gateways will be
constructed and delivered not later than September 1998 and will be fully
operational at such time; (vi) the satellite navigation and communications
software and the business support systems software will be developed and
integrated into Iridium's operations on a timely basis; (vii) Iridium will
contract with a sufficient number of service providers and roaming partners to
ensure effective marketing of IRIDIUM Services; (viii) the IRIDIUM System will
not require the placing into orbit of replacement satellites as a result of
events that require Iridium to bear the costs of replacement under the
Operations and Maintenance Contract; (ix) there will be no material change in
legislation or regulations or the administration thereof that will have an
unexpected effect on the business of Iridium; (x) there will be no material
adverse changes in any of Iridium's existing material contracts; (xi) Iridium,
its customers and other companies doing business with Iridium will obtain timely
requisite regulatory approvals to provide services in sufficient countries to
enable Iridium to carry out its business strategy; and (xii) the capacity of the
IRIDIUM System, as affected by, among other things, spectrum allocation, vocoder
selection and IRIDIUM Services usage patterns, will be sufficient to meet
Iridium's business plan.
With regard to the statements concerning the expected size of the
addressable market for Iridium's target markets, set forth under "Prospectus
Summary" and under "Business -- The IRIDIUM Market," and in addition to the
information set forth above, prospective investors are cautioned that such
statements are based exclusively upon market analysis conducted by Iridium.
Market analysis, including use of market research, by its nature does not lend
itself to mathematical certainty, since it is based upon respondents' assertions
rather than actual purchase decisions. Iridium's market analysis is based upon a
number of assumptions and it is likely that some of these assumptions will not
prove correct and unanticipated events may occur which could affect actual
markets realized. Moreover, the risks associated with market analysis are
heightened in cases such as this, where the analysis deals with a product and
service that does not yet exist and that is not directly comparable to any
product or service with which the respondents could be familiar. Consequently,
actual markets should be expected to vary from the market analysis included
herein and such variations may be material.
Iridium does not intend to publish updates or revisions of the projected
financial information or addressable market estimates included in this
Prospectus to reflect events or circumstances after the date hereof or to
reflect subsequent market analysis.
POTENTIAL FOR DELAY AND COST OVERRUNS
Iridium's business plan assumes the IRIDIUM System will commence commercial
operations in September 1998. Motorola's construction schedule for the
satellites in the IRIDIUM System requires an unprecedented rate of satellite
assembly for commercial telecommunications systems. A significant delay in the
delivery of the satellites needed for the space segment would materially and
adversely affect Iridium's operations. Although the Space System Contract is a
fixed-price contract (subject to certain adjustments) with a firm schedule for
construction and delivery, there can be no assurance that delays will not occur.
In addition, certain events causing failures or delays in performance may
constitute excusable delays under the Space System Contract. In the event of an
excusable delay, the schedule may be equitably extended and the price will be
adjusted for any additional costs incurred by Motorola. Motorola has the burden
to prove an event of excusable delay has occurred. Moreover, the liability of
Motorola under the contract is limited. See "Principal Contracts for the
Development of the IRIDIUM System."
A significant delay in the date the IRIDIUM System becomes fully
operational would harm the competitive position of Iridium by eroding the timing
advantages Iridium currently anticipates, would
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delay the generation of revenue by Iridium and might significantly affect
Iridium's ability to pay interest on, and the principal of, the Notes. See
"Business -- Competition."
Deployment of Satellites
The launch of the first five IRIDIUM satellites occurred on May 5, 1997 on
a McDonnell Douglas Delta II launch vehicle. This launch had been scheduled for
January 1997 but was delayed on four successive days and then postponed until
May 1997 following a launch failure involving the McDonnell Douglas Delta II
launch vehicle (which is the type of launch vehicle that McDonnell Douglas is
using for the IRIDIUM satellites). The first one-day delay was as a result of a
software problem at Motorola's satellite communications control facility, the
second one-day delay was as a result of a microwave link failure at the
Vandenberg Air Force base, the third one-day delay was as a result of a manual
water valve not being opened for cooling of the launch pad and the fourth
one-day delay was as a result of a problem with the insulation on the side of
the Delta II launch vehicle. The milestone date for the first launch under the
Space System Contract was January 29, 1997. Motorola has informed Iridium that
it is in the process of reworking the original launch schedule with its launch
service providers and currently believes its new planned launch schedule should
permit Iridium to meet its planned September 1998 commencement of commercial
operations. The second launch under the new launch schedule occurred on June 18,
1997 using Khrunichev's Proton launch vehicle, which carried seven IRIDIUM
satellites. The third launch occurred on July 9, 1997 on a McDonnell Douglas
Delta II launch vehicle, which carried five IRIDIUM satellites. An additional
five satellites are scheduled to be launched by late August 1997. There can be
no assurance, however, that succeeding launches will proceed on the new schedule
or that the space segment will be operational on schedule. The reworked launch
schedule will require that there are no additional significant launch delays and
that all three launch providers -- McDonnell Douglas, Khrunichev and China Great
Wall -- are able to provide launch services as currently planned. The new launch
schedule will be more compressed than the original schedule and several
intermediate milestones of the Space System Contract, in addition to the first
launch, are expected to occur after their contract milestone dates before
Motorola is able to return to the original contract schedule. This compression
of the launch schedule will add risk to the launch schedule and put additional
pressure on the in-orbit testing phase, including reduced flexibility in
responding to any problems identified in in-orbit testing, since some portions
of the in-orbit testing cannot commence until a minimum number of satellites are
in their assigned orbital position. The launch delay and the compression of the
launch schedule also could place pressure on the achievement of milestones under
the Terrestrial Network Development Contract. See "Principal Contracts for the
Development of the IRIDIUM System."
Following the January 1997 launch failure involving the McDonnell Douglas
Delta II launch vehicle, Motorola advised Iridium of its position that the U.S.
government's temporary postponement of Delta II launches pending completion of a
failure review analysis constituted an "excusable delay" under the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract. Motorola then began the process of reworking the original
launch schedule and notified Iridium it would not claim either a cost adjustment
under the Space System Contract, the Operations and Maintenance Contract or the
Terrestrial Network Development Contract or a schedule extension of the final
Space System Contract milestone as a result of the January 1997 Delta II launch
failure. Iridium and Motorola intend to amend the Space System Contract to
reflect the new planned launch schedule. There can be no assurance that events
constituting an "excusable delay" will not arise in the future, or, if any such
event of "excusable delay" does arise, that it will be resolved on terms that
are not materially adverse to Iridium.
On July 18, 1997, Iridium was informed by Motorola that Motorola has lost
communications with an IRIDIUM satellite, confirmed through technical analysis
on July 17, 1997. The satellite, one of the five launched on July 9, 1997, was
in a parking orbit awaiting its ascent to final mission orbit. Iridium was
advised by Motorola that should loss of the satellite be confirmed, Iridium will
not bear the financial risk of loss, nor will it affect the scheduled date for
commercial service in September 1998.
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No assurance can be given that anomalies such as occurred with respect to that
satellite would not occur in the future, or that such an event would not in the
future have a significant adverse effect on Iridium.
Construction and Operation of Gateways
The operation of the IRIDIUM System is dependent on the successful
construction and operation of gateways and the timely availability of necessary
regulatory licenses and approvals. Pursuant to the Gateway Authorization
Agreements, the gateway operators are obligated to use their reasonable best
efforts to meet certain operational capability dates. Iridium closely monitors
the progress of each gateway and currently expects that 11 gateways will be in
operation with voice functionality at the commencement of commercial operations.
Iridium expects paging functionality to be available at a portion of the
gateways by September 1998 with the remainder activated by October 1998.
However, there can be no assurance that one or more gateways will not fail to be
completed by the commencement of commercial operations, which could have a
material adverse effect upon Iridium. In particular, two gateways are behind
schedule with equipment procurement for their gateways. While Iridium believes
that it is probable that these two gateways will be operational by the planned
September 1998 commencement of commercial operations, in order for them to do so
they will need to move forward promptly, including making certain overdue
payments under their gateway equipment purchase agreements with Motorola. See
"-- Reliance on Motorola, Gateway Owners and Other Third Parties."
Development and Implementation of Software
As discussed under "-- Technology and Technology Implementation Risks;
Inability to Fully Test Prior to Space Deployment -- Integration of
Technologies" and "-- Development and Integration of Software," prior to
commencement of commercial operations, Iridium must develop and, in conjunction
with each of the gateway owners, integrate and test software related to the
operation of the IRIDIUM System, including the business support systems. A
significant delay in the development, deployment or implementation of such
software systems would have a material adverse effect on Iridium.
Development, Manufacture and Distribution of Subscriber Equipment
Significant delay in the development, manufacture and sale of phones and
pagers would have a material adverse effect on Iridium. Planned commercial
operation of the IRIDIUM System assumes that commercial quantities of the
portable, hand-held phones, TRCs and belt-worn pagers will be ordered
approximately six months in advance of expected delivery and then produced for
distribution shortly in advance of the commencement of commercial operations.
There can be no assurance that any such products will be developed, manufactured
and sold on a timely basis. Because there is no current market for IRIDIUM
Services and subscriber equipment, the financial incentive for manufacturers to
produce significant quantities of subscriber equipment in advance is limited.
While Iridium generally does not expect to act as a distributor of subscriber
equipment or derive any significant income from the sale of subscriber
equipment, it is contemplating a pre-commercial operation order of phones to
facilitate the initial availability of such equipment. There can be no assurance
that Iridium will place a pre-commercial operation order of phones. If Iridium
places such a pre-commercial operation order, Iridium will bear the risk that it
will be unable to resell the phones that it commits to purchase or that it will
be unable to do so at prices that will allow it to recoup its payments to the
manufacturer(s). Moreover, there is a risk that demand for IRIDIUM Services will
not materialize in a timely manner unless Iridium, its gateway operators or
service providers subsidize the cost of hand-held phones. Neither Iridium nor,
to Iridium's knowledge, its gateway owners and service providers currently plan
to provide any such subsidies. The costs associated with any pre-commercial
operation order of phones and the cost of any such subsidization could be
significant. Iridium's current projected funding needs do not reflect any costs
associated therewith.
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TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS; INABILITY TO FULLY TEST PRIOR TO
SPACE DEPLOYMENT
Integration of Technologies
Motorola's timely completion of its obligations under the Space System
Contract is necessary for Iridium to commence commercial operations on its
expected schedule in September 1998. However, the timely completion of such
obligations is not, in itself, sufficient for Iridium to achieve its expected
commercial operation schedule. To build the IRIDIUM System, Motorola and its
subcontractors must integrate a number of sophisticated technologies. The
integration of this array of diverse technologies is a complex task which has
not previously been attempted and is further complicated by the fact that a
significant portion of the hardware components associated with the IRIDIUM
System will be in space. Despite the extensive testing of the components of the
IRIDIUM System on the ground, the nature and complexity of the system is such
that final confirmation of the ability of the system to function in the intended
manner, including the ability of the IRIDIUM System to handle the anticipated
number of calls each day, cannot be confirmed until a substantial portion of the
system is deployed in space. Errors involving hardware or software components in
space may result in service limitations and corresponding reductions in revenue.
Development and Integration of Software
Implementation and operation of the IRIDIUM System, including the business
support systems necessary for such tasks as customer billing and subscriber
authentication, are also significantly dependent on software which has been, is
being or will have to be developed, integrated and tested and which would have
to be reprogrammed if errors require changes. Iridium believes that the
development of the software for the IRIDIUM System, including the space segment,
is one of the largest and most complex software creation and integration tasks
ever undertaken in a commercial satellite communications program. No assurance
can be given that the software necessary to Iridium's business that is being
developed or that will have to be developed will be completed when required,
including integration and testing, or that such software will function as
required.
Prior to commencement of commercial operations, the gateway operators must
license additional business support software, develop interface programs between
various software programs and implement software and support systems with
service providers and roaming partners. There can be no assurance that the
gateway operators will acquire or implement the business support systems
necessary for IRIDIUM Services or that the system supplier will provide such
systems or related services on a timely basis. Failure of a gateway operator to
acquire and implement an adequate business support system could have a material
adverse effect on Iridium.
Development and Production of Subscriber Equipment
The IRIDIUM subscriber equipment is also an essential component critical to
the successful commercial operation of the IRIDIUM System. An inability to
successfully develop and manufacture subscriber equipment in sufficient numbers
could delay commencement of commercial operations or limit the capacity of the
system and the quality of services offered. Such limitations could affect
subscriber acceptance of IRIDIUM Services and as a result could materially and
adversely affect Iridium. Motorola has produced a functional unminiaturized
prototype of the hand-held phone and a functional prototype of the belt-worn
pager. However, there can be no assurance that Motorola, Kyocera or any other
manufacturer will be able to develop on a timely basis, or at all, portable,
hand-held phones or belt-worn pagers that meet Iridium's expectations and which
can be mass produced at economical prices. See "-- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Reliance on Motorola, Gateway Owners and Other Third Parties."
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CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS ON CUSTOMER ACCEPTANCE
Iridium's ability to generate operating revenues sufficient to pay the
interest on, and principal of, the Notes will depend upon customer acceptance of
and satisfaction with IRIDIUM Services, which in turn will depend upon a variety
of factors, including the price and technical capabilities of the IRIDIUM
Services and equipment, and the extent, availability and price of alternative
telecommunications services.
There is no service available today which approximates the hand-held,
satellite-based service Iridium expects to provide. The IRIDIUM satellite system
is not intended to provide communications services that compete with terrestrial
wireless and paging services where they are available because of the advantages
such wireless and paging systems generally have in terms of cost, voice quality,
signal strength and ability to penetrate various environments (such as
buildings). Based upon current testing and simulations, IRIDIUM subscribers
using IRIDIUM Satellite Services via portable, hand-held phones should expect
some degradation in service quality and availability to occur in environments
where obstructions, such as trees, buildings and other natural and man-made
obstacles, are positioned between a satellite and the user. The severity of this
degradation will increase as the obstacles become larger and more densely
spaced. In addition, only extremely limited satellite voice service, or no
satellite voice service, is expected to be available in densely packed urban
environments or inside buildings with steel construction and metal coated glass
common in many urban high rise buildings (including, in particular, in most
hotels and professional buildings). Also, because the structure of automobiles
will tend to obstruct the satellite signal, use of a hand-held Iridium phone in
a moving automobile will make the effect of environmental obstructions temporary
but more pronounced. The actual limitations will vary, sometimes significantly,
as actual situations and conditions change and as the satellites move across the
sky. The IRIDIUM satellite paging service will also be unable to provide service
in certain environments where terrestrial paging generally would. While Iridium
believes that the addition of ICRS and the availability of multi-mode phones
will lessen the effect of these obstacles by providing access to local cellular
service (if available and if the local cellular provider has an agreement in
place with Iridium) in environments in which the IRIDIUM Satellite Service is
unavailable or degraded, there can be no assurance that (i) Iridium's
expectation will be correct as to subscribers' willingness to accept service
limitations, higher prices and heavier hand-held phones and larger pagers than
those to which such subscribers may otherwise be accustomed in order to have the
ability to make and receive calls on a worldwide basis with a single phone or to
receive pages on a satellite pager or (ii) that the service limitations will not
result in significantly lower sales to professional and other travelers than
Iridium anticipates. Although the Iridium paging service will also be
satellite-based, Motorola believes that because of the IRIDIUM System's expected
signal strength for paging, Iridium pages will be generally received in most
environments other than in the innermost sections of large buildings, in densely
packed urban canyons or in other situations where there are significant
obstructions between the satellite and the pager. However, the in building
penetration of an Iridium pager is expected to be below that generally
experienced by terrestrial pagers with mature terrestrial paging systems.
The IRIDIUM System has not been designed to provide high-speed data and
facsimile transmission capability. As a result, Iridium expects that the appeal
of Iridium facsimile and data services will be limited.
CONSEQUENCES OF IRIDIUM PHONE AND PAGER CHARACTERISTICS ON CUSTOMER ACCEPTANCE
Iridium believes that its success is dependent on the development of
satellite phones which are portable and hand-held and pagers which may be worn
on a belt. Moreover, Iridium's business plan assumes that there will be
multi-mode versions of the phone capable of operation with most of the major
terrestrial wireless system standards so that a subscriber can use the same
phone for terrestrial wireless service, including ICRS, and for IRIDIUM
Satellite Service. The phone and pager for the IRIDIUM System are still under
development. Motorola has informed Iridium that the
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portable, hand-held phone that Motorola is developing is expected to be larger
and heavier than today's pocket-sized terrestrial wireless phones and is
expected to have a significantly longer and thicker antenna than hand-held
terrestrial wireless telephones. Iridium expects that the Kyocera phone will be
relatively the same size and weight as the Motorola phone. The pager Motorola is
developing is slightly larger than today's standard alphanumeric belt-worn
pagers.
Subscribers will generally purchase equipment from service providers.
Iridium does not currently intend to manufacture or distribute IRIDIUM
subscriber equipment or derive any significant income from the sale of IRIDIUM
subscriber equipment. See "-- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment."
Based on information received from Motorola, Iridium expects that Motorola's
version of the multi-mode portable, hand-held phones will have an initial retail
price of approximately $3,000, including at least one TRC, with each extra TRC
having an initial retail price in the range of $500 to $1,000. Motorola's
version of the alphanumeric pager is expected to have an initial retail price of
approximately $500. These projected prices substantially exceed today's prices
for terrestrial wireless phones and pagers and may also exceed prices for
subscriber equipment of competing satellite-based systems. The cost of IRIDIUM
hand-held phones may limit demand for IRIDIUM Services, particularly among
individual purchasers. Motorola has made no commitment to sell subscriber
equipment at these estimated prices. Kyocera has not yet advised Iridium as to
the expected pricing of its hand-held phone.
RISKS RELATED TO ICRS
Subscribers to Iridium's ICRS service will not experience the
satellite-related service limitations when their multi-mode phone is accessing
local wireless service, for example, in major urban areas. While the
availability of ICRS may lessen somewhat the impact of the satellite-related
service limitations, ICRS will only be available in an area if (i) that area has
an existing wireless system, (ii) the system uses a protocol supported by
Iridium and (iii) that system has a roaming agreement with Iridium. In addition,
many wireless systems as currently configured, including systems covering large
portions of South America, use a form of wireless technology that does not
permit sufficient anti-fraud security or certain international dialing and,
therefore, it is unlikely that Iridium will provide ICRS coverage in areas that
are principally served by this type of technology. To fully implement ICRS,
Iridium also may need to obtain tariff approvals and other regulatory
authorizations from countries where the service will be offered, none of which
has been obtained. Portions of the ICRS service allowing roaming between IS-41
systems will not be implemented before 1999 and ICRS service in Japan is
expected to be delayed until 1999 as well.
In order for Iridium to offer interprotocol ICRS, Motorola entered into a
contract with a third-party supplier to develop, manufacture and deliver the IIU
that will permit protocol translation. However, there can be no assurance that
the required IIU will be delivered on a timely basis.
The integration of ICRS into Iridium's business management system requires
substantial software development and integration. There can be no assurance that
Iridium will be able to incorporate ICRS into its business support system on a
timely basis. Iridium's business plan currently calls for roaming agreements
covering networks in 57 countries by the commencement of commercial operations
in September 1998, with roaming agreements covering networks in approximately
150 countries in place by 2002. To date, Roaming has entered into five roaming
agreements. Certain terrestrial wireless service providers are offering or have
announced their intention to offer interprotocol roaming services that will
compete with ICRS, and Iridium may not be able to enter into roaming agreements
with such service providers. An inability to execute roaming agreements which
provide ICRS customers terrestrial wireless coverage in significant markets
could have a material adverse effect on Iridium. Neither Motorola nor Iridium
may have sufficient intellectual property rights to prevent other parties from
developing, selling or using equipment and systems for providing interprotocol
roaming services.
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SATELLITE LAUNCH RISKS
Number of Launches; Compressed Launch Schedule
In order for the IRIDIUM System to be fully operational under its current
specifications and timetable, Iridium anticipates the need to launch
successfully at least 66 low earth orbit satellites in the 12 to 15 month period
from the first launch on May 5, 1997. Moreover, to maintain the system,
additional satellites are expected to be launched each year during the term of
the Operations and Maintenance Contract. No other commercial satellite
communications system has required this number of launches to become fully
deployed and operational. Motorola has subcontracted with McDonnell Douglas,
Khrunichev and China Great Wall for launch services. These launch service
providers have from time to time experienced launch failures. There can be no
assurance that Iridium's satellites will be successfully deployed in a timely
manner or that launch failures, whether or not deploying IRIDIUM satellites,
will not occur and materially and adversely affect Iridium. The risk of a
material and adverse effect associated with an Iridium launch failure is
exacerbated by the fact that each launch vehicle will contain multiple
satellites.
The launch of the first five IRIDIUM satellites occurred on May 5, 1997 on
a McDonnell Douglas Delta II launch vehicle. This launch had been scheduled for
January 1997 but was delayed on four successive days and then postponed until
May 1997 as a result of the United States government's decision to temporarily
postpone launches of the McDonnell Douglas Delta II launch vehicle (which is the
type of launch vehicle that McDonnell Douglas is using for IRIDIUM satellites)
following a launch failure involving the McDonnell Douglas Delta II launch
vehicle. The first one-day delay was as a result of a software problem at
Motorola's satellite communications control facility, the second one-day delay
was as a result of a microwave link failure at the Vandenberg Air Force base,
the third one-day delay was as a result of a manual water valve not being opened
for cooling of the launch pad and the fourth one-day delay was as a result of a
problem with the insulation on the side of the Delta II launch vehicle. Motorola
has informed Iridium that it is in the process of reworking the original launch
schedule with its launch service providers and that it currently believes its
new launch schedule should permit Iridium to meet its planned September 1998
commencement of commercial operations. The new launch schedule will be more
compressed than the original schedule and several intermediate milestones of the
Space System Contract, in addition to the first launch, are expected to occur
after their contract milestone dates before Motorola is able to return to the
original contract schedule. This compression of the launch schedule will add
risk to the launch schedule and put additional pressure on the in-orbit testing
phase, including reduced flexibility in responding to any problems identified in
in-orbit testing, since some portions of the in-orbit testing cannot commence
until a minimum number of satellites are in their assigned orbital position. The
launch delay and the compression of the launch schedule also could place
pressure on the achievement of milestones under the Terrestrial Network
Development Contract. Delays in the new launch schedule could delay the
commencement of commercial operations, the availability of subscriber equipment
and the ability of gateways to function on a timely basis as well as impair
Iridium's ability to obtain additional funding. The second launch under the new
launch schedule occurred on June 18, 1997 using Khrunichev's Proton launch
vehicle, which carried seven IRIDIUM satellites. The third launch occurred on
July 9, 1997 on a McDonnell Douglas Delta II launch vehicle, which carried five
IRIDIUM satellites, and an additional five satellites are scheduled to be
launched by late August 1997. On July 18, 1997, however, Iridium was informed by
Motorola, confirmed by technical analysis on July 17, 1997, that it had lost
communications with one of those five satellites. The satellite was in a parking
orbit awaiting its ascent to final mission orbit. Iridium was advised by
Motorola that, should loss of the satellite be confirmed, Iridium will not bear
the financial risk of loss, nor will it affect the scheduled September 1998 date
for commercial service. No assurance can be given as to the occurrence of
anomalies in the future, or as to their effect on Iridium.
Khrunichev is expected to provide additional launch services for Iridium
using the Proton launch vehicle. In November 1996, there was a failure with
Khrunichev's Proton launch vehicle in connection with the Mars 96 mission that
the failure analysis determined was attributable to faulty
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guidance and control commands from the Mars 96 spacecraft. In addition,
Khrunichev experienced launch failures in February 1996 and May 1993. China
Great Wall is expected to provide launch services for Iridium using the Long
March 2C vehicle which has not been launched since October 1993. China Great
Wall experienced failures in December 1992 and January 1993 with its Long March
2E launch vehicle, and in February 1996 with its 3B launch vehicle.
Impact of Excusable Delays
The terms of the Space System Contract provide that Motorola will bear the
responsibility of launching the satellites that comprise the space segment.
Nevertheless, Iridium retains the risk of cost overruns and delays associated
with excusable delays, including delays in launch provider schedules due to
prior delays of launches of non-IRIDIUM satellites, and the risk of economic
damage due to any delay or reduced performance beyond the limited remedies
provided by the Space System Contract. Following the January 1997 launch failure
involving the McDonnell Douglas Delta II launch vehicle, Motorola advised
Iridium of its position that the United States government's temporary
postponement of Delta II launches pending completion of a failure review
analysis constituted an "excusable delay" under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Motorola then began the process of reworking the original launch
schedule and notified Iridium that it would not claim either a cost adjustment
under the Space System Contract, the Operations and Maintenance Contract or the
Terrestrial Network Development Contract or a schedule extension of the final
Space System Contract milestone as a result of the January 1997 Delta II launch
failure. The reworked launch schedule will require that there are no additional
significant launch delays and that all three launch providers -- McDonnell
Douglas, Khrunichev and China Great Wall -- are able to provide launch services
as currently planned. Iridium and Motorola intend to amend the Space System
Contract to reflect the new launch schedule. There can be no assurance that
events constituting "excusable delays" will not arise in the future, or, if any
event of "excusable delay" does arise, that it will be resolved on terms that
are not materially adverse to Iridium. See "-- Potential for Delay and Cost
Overruns -- Deployment of Satellites" and "Principal Contracts for the
Development of the IRIDIUM System."
Risks Related to Non-U.S. Launches
China Great Wall and Khrunichev are located in China and Russia,
respectively. Changes in laws, treaties, trade agreements, governmental policies
or political leadership in the United States, China, Russia or Kazakhstan, where
Khrunichev's launch facilities are located, could affect the political or
economic relationship between these countries and, as a result, could affect the
cost, availability, timing or overall advisability of utilizing these launch
services providers. In addition, the use of these launch services providers
requires various approvals from the government of the United States under the
United States Arms Export Control Act and the Export Administration Act. See
"Regulation of Iridium." There can be no assurance that the remaining required
approvals will be obtained. Failure to receive any of the required approvals
could result in an excusable delay under the Space System Contract, the
Terrestrial Network Development Contract and the Operations and Maintenance
Contract. Motorola has informed Iridium that in view of the suspension for over
three months in Delta II launches following the January 1997 Delta II launch
failure, its ability to meet its revised launch schedule and to meet the
schedule specified in the Space System Contract for delivery of the space
segment is dependent upon each of McDonnell Douglas, Khrunichev and China Great
Wall being able to provide launch services on a timely basis.
LIMITED LIFE OF SATELLITES; COST OF MAINTAINING THE SPACE SEGMENT; RISK OF
SATELLITE FAILURE OR DAMAGE
A significant portion of Iridium's tangible assets will be represented by
the satellites in the space segment. Iridium's business plan currently assumes
that the satellites will have a useful life of five years from their respective
launch dates. There can be no assurance that any satellite will actually
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achieve such a useful life. The actual useful life of any satellite will depend
upon a variety of factors including the quality of construction of the
satellite, the quality and durability of its components and whether the
satellite sustains casualty damage in space. Due to their low and rapid orbit of
the Earth, IRIDIUM satellites will place significant stress on the satellite
batteries which will be discharged and recharged 12 to 14 times a day, as
contrasted with approximately 20 times a year for geostationary satellites.
Maintaining the space segment is a complex undertaking which has not
previously been attempted on a commercial basis. The cost of maintaining the
space segment and the risk of loss of satellites are significant. Iridium has
entered into an Operations and Maintenance Contract with Motorola which provides
for the operation and maintenance of the space segment for its first five years
of operation at an aggregate cost to Iridium of approximately $2.88 billion,
assuming the space segment is delivered in September 1998 and assuming no
excusable delay occurs. Iridium has the option to extend the Operations and
Maintenance Contract for an additional two years for additional aggregate
payments aggregating $1.33 billion (based on the same assumption) and assuming
no excusable delay occurs. Under the Operations and Maintenance Contract,
Iridium will bear the risk of damage to satellites by the acts of third parties
(including but not limited to the degradation or complete loss of any satellite
due to contact with space debris of any size or character). See "Principal
Contracts for the Development of the IRIDIUM System -- Operations and
Maintenance Contract." Satellites operating in the low earth orbit region, such
as the IRIDIUM satellites, face a higher risk of damage from space debris than
satellites operating in geostationary orbit. As with any satellite system, the
IRIDIUM satellites face risk of damage from meteor and solar storms, which are
recurring phenomena. The potential for damage from meteor and solar storms is
difficult to quantify. Iridium has obtained insurance to cover certain of these
risks, but there can be no assurance that such insurance will provide adequate
mitigation in the event of a loss. Iridium also bears the risk of damage to
person or property resulting from the survival of any portion of a satellite
following planned or unplanned reentry. Motorola believes that the likelihood of
such damage is extremely remote and Iridium expects to insure against such risk.
Premature failure or interruption of one or more satellites, including
temporary losses, that for whatever reason are not promptly corrected or
replaced, could, among other things, cause gaps in service availability,
significantly degrade service quality, increase costs in the event Iridium is
liable, and result in loss of revenue for the period that service is compromised
and, as a result, could materially and adversely affect Iridium. On July 18,
1997, Iridium was informed by Motorola that Motorola has lost communications
with an IRIDIUM satellite, confirmed through technical analysis on July 17,
1997. The satellite, one of the five launched on July 9, 1997, was in a parking
orbit awaiting its ascent to final mission orbit. Iridium was advised by
Motorola that should loss of the satellite be confirmed, Iridium will not bear
the financial risk of loss, nor will it affect the scheduled date for commercial
service in September 1998. No assurance can be given as to the occurrence of
anomalies in the future, or as to their effect on Iridium, including financial
risk of loss.
Upon the expiration of the Operations and Maintenance Contract, Iridium,
unless it enters into another similar contract with Motorola or a third party,
will bear all risks of satellite damage or failure. In addition, if the contract
is not renewed, Iridium is obligated to pay Motorola $46 million for each spare
satellite then located in a low earth, non-operational storage orbit and, unless
Iridium has given Motorola one year's notice of its intention not to renew the
contract, $31 million for each spare satellite not yet launched and a fraction
of that amount for each partially completed spare satellite. The Space System
Contract provides that title and risk of loss or damage to each individual
satellite will pass to Iridium upon the arrival of each satellite at its
designated orbital location in the satellite constellation.
Given the limited life of the IRIDIUM System satellites, Iridium expects to
incur significant expense in maintaining an operational constellation of
satellites in space either through the Operations and Maintenance Contract (as
discussed above), or successor arrangements. If Iridium
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is for any reason unable to finance such expenses through internally generated
funds or external financing, such inability would have a material adverse effect
on Iridium.
RISKS ASSOCIATED WITH LICENSING AND SPECTRUM ALLOCATION
Significant Regulatory Approvals Required for Operation of the IRIDIUM System
The operation of the IRIDIUM System is and will continue to be subject to
United States and international regulation. This regulation is pervasive and
largely outside Iridium's direct control. The successful implementation of the
IRIDIUM System requires (1) the international allocation by a World
Radiocommunications Conference ("WRC") under the International Telecommunication
Union (the "ITU") of the spectrum required for IRIDIUM subscriber, gateway and
intersatellite links, (2) the domestic allocation in each country of spectrum
for MSS and Aeronautical Mobile Satellite (Route) Service ("AMS(R)S") use, (3) a
license from the Federal Communications Commission (the "FCC") for the
construction, launch and operation of the IRIDIUM satellites, using frequencies
assigned to it for subscriber, gateway and intersatellite links, (4) authority
to construct and operate the North American gateway in the United States and
system control facilities to be located in the United States and Canada,
including spectrum assignments for the gateway links, and for the use of the
IRIDIUM subscriber equipment, including spectrum assignments for the user links,
(5) in each other country in which a gateway or system control terminal will be
located, an authorization to construct and operate those facilities, including
necessary gateway link spectrum assignments, (6) in each country in which
IRIDIUM subscriber equipment will be operated, authority to market and operate
that equipment with the IRIDIUM System, user link spectrum assignments, and
authorization to offer IRIDIUM communications services, (7) international
coordination of the IRIDIUM System under the auspices of the ITU or domestic
coordination in each country where IRIDIUM Services are offered with other
entities using or proposing to use the spectrum required for the IRIDIUM System
or adjacent spectrum, to ensure the avoidance of harmful interference and (8)
consultation with the International Telecommunications Satellite Organization
("Intelsat") and the International Maritime Satellite Organization ("Inmarsat")
to ensure technical compatibility and avoid significant economic harm to the
extent required by those organizations. See "Regulation of Iridium." It is
expected that the availability of the Secured Bank Facility will be conditioned
on, among other things, obtaining and maintaining regulatory approvals to be
specified in definitive documentation for such Facility. See "Description of
Other Indebtedness -- Secured Bank Facility."
Significant Remaining Regulatory Approvals
Iridium, Motorola, and the various gateway owners have made substantial
progress in taking the steps needed to implement the IRIDIUM System, but a
significant number of additional regulatory approvals remain to be obtained, in
particular with respect to the approvals mentioned in (2), (5), (6) and (7)
above. See "Regulation of Iridium."
Aeronautical Certification. With respect to (2) above, Motorola submitted
in December 1996 a request to the FCC to authorize the IRIDIUM System to provide
AMS(R)S in its authorized band as part of its in-flight passenger communications
service. Several parties filed comments with and have petitioned the FCC to deny
Motorola's application. Among other arguments, petitioners claim that the
AMS(R)S proposal is inconsistent with ITU and FCC rules and allocations. In
addition to FCC approval, approval is needed from the Federal Aviation
Administration ("FAA"), which must certify that the IRIDIUM avionics equipment
meets minimum performance standards, and it may be necessary for IRIDIUM to
satisfy other international certification requirements. There can be no
assurance that the FCC application will be granted, or that the avionics
certification requirements will be satisfied in a timely fashion or at all.
Gateway Licensing. With respect to (5) above, Iridium currently expects to
have 11 operating gateways at the commencement of commercial operations.
However, because the IRIDIUM System utilizes intersatellite links, Iridium can
provide service worldwide with a smaller number of gateways or even a single
gateway. Unlike "bent pipe" systems, it is not necessary for a subscriber and a
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gateway to be within the footprint of a single satellite for a call to be
completed over the IRIDIUM System. Nevertheless, it is important for Iridium to
have a sufficient number of gateways available at the commencement of commercial
operations in order to reduce the landline charges from the gateway to the call
termination point and to ensure sufficient capacity of the IRIDIUM System.
Iridium believes that with a majority of the expected 11 gateways operational it
will be able to provide a sufficient level and quantity of service and there is
no specific gateway, or specific combination of gateways, that is critical to
providing IRIDIUM Satellite Services. If a gateway is not operational at the
commencement of commercial operations, the calls it would process would have to
be processed by an operational gateway, preferably one located in an adjacent
territory so that the costs of relaying the calls terrestrially can be
minimized. There can be no assurance that Iridium will have the necessary number
of gateways in service and licensed at the commencement of commercial operations
or that a gateway that is not operational or licensed at the commencement of
commercial operations will be able to make appropriate arrangements with an
operational and licensed gateway to provide service to its territory.
Each gateway must be licensed by the jurisdiction in which it is located.
Three final and five experimental licenses to build and operate gateways have
been received. The final licenses have been granted for the gateways in the
United States (Tempe), Thailand (Bangkok) and Taiwan (Taipei) and permit the
gateways to engage in commercial operations. The experimental licenses have been
granted for the gateways in Korea (Seoul), Brazil (Rio De Janeiro), Russia
(Moscow), Japan (Nagano) and Italy (Fucino) and permit the gateways to test
their links between the IRIDIUM satellites and terrestrial services. One of the
remaining three unlicensed gateways -- the gateway in India (Bombay) -- is under
construction in the expectation that it will be licensed. Iridium expects that
the gateway in India will be completed in March 1998. The gateways to be located
in China (Beijing) and Saudi Arabia (Jeddah) have not received licenses or
commenced construction, although in the case of the gateway in Saudi Arabia,
Iridium Middle East Corporation has entered into an agreement with Telespazio
for the construction of the gateway. The licenses that have been received by the
gateways are subject to conditions that relate to the completion of construction
and the provision of technical information to regulatory authorities. Iridium
expects that the licenses its gateways are seeking will have similar conditions.
There can be no assurance that the additional licenses necessary for Iridium to
obtain the service capability assumed in its business plan will be obtained on a
timely basis or at all. In addition, while Iridium believes the conditions
specified in the gateway licenses that have been received can be satisfied,
there can be no assurance that such conditions will be satisfied or that
conditions to licenses received in the future will be satisfied. See "Regulation
of Iridium -- Licensing Status."
Numerous Remaining Individual Country Authorizations. With respect to (2)
and (6) above, only thirteen countries have granted conditional licenses for the
use of IRIDIUM Satellite Services in their country. These thirteen countries are
the United States, Australia, Canada, Venezuela, New Zealand, Taiwan, Thailand,
Cook Islands, Guatemala, San Marino, Afghanistan, Micronesia and Colombia.
Iridium will require similar approvals in each country in which it intends to
offer service. In order for Iridium's business plan to be successful, approvals
in a substantial number of countries will need to be obtained prior to September
1998, the month commercial operations are expected to commence. Iridium is
seeking licenses throughout the world. However, Iridium is placing emphasis on
obtaining approvals by September 1998 from the 70 to 90 countries where Iridium
expects substantially all of the demand for, and usage of, IRIDIUM Services is
likely to be generated. While Iridium believes that all required licenses will
be obtained in a substantial majority of these countries by September 1998,
there can be no assurance that the required authorizations will be granted at
all or in a timely manner, or without burdensome conditions. Failure to obtain
licenses in a timely fashion could have a material adverse effect on Iridium.
Approval of the offering of IRIDIUM Services by many countries will be
contingent upon Iridium providing such countries with the ability to legally
monitor calls made to or from such countries. Iridium believes that it will be
able to address the concerns of many of these countries by the date
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commercial service is expected to begin and of other countries after the
commencement of commercial operations, but there can be no assurance that it
will be able to do so. In addition, other governmental or political concerns may
arise, including spectrum license fees or auctions, that may impair the ability
of Iridium to obtain licenses or offer IRIDIUM Services on a timely basis.
Interference from Other Satellite Systems. In addition, the IRIDIUM System
MSS downlinks to the IRIDIUM subscriber equipment operate on a secondary basis.
Under the rules of the ITU and the FCC, these downlinks may not cause harmful
interference to any primary spectrum user operating in the same frequency band
and must accept any interference caused to them by a primary spectrum user
operating in the same frequency band. In light of the secondary nature of
IRIDIUM's MSS downlinks, there can be no assurance that issues concerning
intersystem interference from CDMA MSS Systems will be resolved in a way that
will protect Iridium subscriber units from harmful interference. Any failure to
implement an acceptable limit on out-of-band CDMA emissions could significantly
reduce the total capacity of the IRIDIUM System. Furthermore, the MSS downlinks
of the IRIDIUM System may need to accept interference from Inmarsat terminals,
including Inmarsat aeronautical and land mobile terminals, when they are in the
vicinity of an IRIDIUM terminal. See "-- Competitive Risks; Factors Affecting
Iridium's Competitive Position -- Recent Developments in Licensing of Potential
Competitors."
GLONASS and Radio Astronomy Coordination. With respect to (7) above, the
IRIDIUM System, including IRIDIUM subscriber equipment, must be coordinated with
all other domestic and foreign users of the 1.6 GHz band. Currently, the Russian
aeronautical navigation system, GLONASS, operates in a frequency band that
overlaps the 1610-1626.5 MHZ band. MSS systems are required to coordinate their
operations with the previously registered operations of GLONASS. IRIDIUM
believes that a bilateral coordination agreement between Russia and the United
States is in the final stages of negotiation, under which Russia would agree to
move the GLONASS system's operations to frequencies below 1610 MHZ by January 1,
1999, and to frequencies below approximately 1605 MHZ by the year 2005. The FCC
has conditioned the Iridium blanket subscriber license upon compliance with a
level of protection from interference to the GLONASS system. Iridium believes
that it can meet the protection requested for GLONASS when GLONASS shifts down
in frequency to below approximately 1605 MHZ by the year 2005. During the
interim period between 1999 and when GLONASS shifts to below approximately 1605
MHZ, while there can be no assurance as to what level of protection will be
required to protect GLONASS, Iridium believes it will be able to satisfy any
reasonable level of protection required.
In addition, it will be necessary for other administrations to coordinate
with the Russian Federation concerning the level of protection that will be
afforded to GLONASS in countries outside the United States and Russia. In
Russia, additional restrictions are expected to be imposed which may limit the
amount of spectrum available to Iridium in Russia. There can be no assurance
that sufficient spectrum will be available to meet subscriber demand in Russia
or any other country that requires a higher level of protection for GLONASS than
the United States. Moreover, there can be no assurance that the CDMA based
global MSS systems will be able to meet the levels of protection required for
GLONASS, either in the United States, Russia, or elsewhere. Such an eventuality
might lead the FCC and other countries' regulatory authorities to consider
requests to reassign the CDMA systems to higher frequencies within the
1610-1626.5 MHZ allocation to protect GLONASS. This development might, in turn,
reduce the amount of spectrum available to Iridium. By orders released July 1,
1997 the FCC's International Bureau granted two MSS licenses, increasing the
number of U.S.-licensed MSS systems (including the IRIDIUM System) to five. The
two new licenses are for CDMA based systems which may make it more difficult for
the CDMA global systems to meet the protection levels required for GLONASS. See
"-- Competitive Risks; Factors Affecting Iridium's Competitive
Position -- Recent Developments in Licensing of MSS Competitors."
Under the FCC's rules, the IRIDIUM System also must protect U.S. radio
astronomy sites during periods when they are observing in the 1610.6-1613.8 MHZ
band. To date, Motorola has entered into memoranda of understanding and letter
agreements establishing principles for coordinating
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spectrum use (or, in one case, determining that coordination is not required)
with entities representing all of the 15 U.S. Radio astronomy sites. There can
be no assurance that final coordination agreements with these sites will be
concluded in a timely manner or, if FCC intervention is required, that the FCC
will impose a coordination solution that is acceptable to Iridium. Nor can there
be any assurance that the technical assumptions underlying the memoranda of
understanding will not differ from the manner in which the IRIDIUM System
performs once it is operational.
Some other countries will also require that the IRIDIUM System be
coordinated with Radio astronomy sites that observe in the 1.6 GHz band, and
Iridium will not be permitted to cause harmful interference to any such site.
Iridium and Motorola have commenced coordination discussions with numerous
non-U.S. Radio astronomy sites. While Iridium believes that it will be able to
demonstrate that Iridium's operations will not materially and adversely affect
the ability of radioastronomers to observe in the 1.6 GHz band, there can be no
assurance that these coordinations will be concluded successfully or in a timely
manner.
COMPETITIVE RISKS; FACTORS AFFECTING IRIDIUM'S COMPETITIVE POSITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and in other countries. The uncertainties and risks created
by this competition are intensified by the continuous technological advances
that characterize the industry, regulatory developments which affect competition
and alliances between industry participants. While no single wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will serve this market in some
fashion in the future. Iridium believes that its most likely direct competition
will come from the planned I-CO Global Communications (Holdings) Limited ("ICO")
telecommunications service and one or more of the other FCC-licensed MSS
applicants -- Loral/Qualcomm Partnership, L.P. (on behalf of Globalstar), TRW,
Inc. (on behalf of Odyssey), Mobile Communications Holdings, Inc. ("MCHI") (on
behalf of Elipso) and Constellation Communications, Inc. ("Constellation") (on
behalf of Aries). Iridium also expects to face competition from regional
geostationary satellite-based systems, including Asia Pacific Mobile
Telecommunications Satellite ("APMT"), Afro-Asian Satellite ("ASC") and PT Asia
Cellular Satellite ("ACeS") and from the existing Inmarsat geostationary global
satellite system. See "Business -- Competition."
Recent Developments in Licensing of MSS Competitors
By Orders released July 1, 1997, the FCC's International Bureau granted
licenses for the Ellipso system proposed by MCHI and the Aries system proposed
by Constellation. These Orders, which are subject to review by the full FCC,
increase to five the number of U.S.-licensed global MSS systems (including the
IRIDIUM System) and may result in increased competition for the IRIDIUM System.
The licensing of these two CDMA systems reduces the possibility that only one
CDMA system will become operational in the 1610-1621.35 MHZ frequency band
adjacent to the IRIDIUM System's frequency assignment. This in turn reduces the
likelihood that the FCC will increase the frequency assignment for the IRIDIUM
System. In addition, MCHI's and Constellation's licenses may make it more
difficult for CDMA based global systems to meet the protection levels required
for GLONASS, either in the United States, Russia or elsewhere. An inability to
meet these levels might lead to requests to reassign the CDMA systems to higher
frequencies within the 1610-1626.5 MHZ allocation to protect GLONASS. This
development might in turn reduce the amount of spectrum available to Iridium.
Furthermore, the possibility that two more CDMA systems may become operational
may increase the risk of harmful interference into the IRIDIUM System's MSS
downlinks.
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Competition from Interprotocol Roaming Service Providers, GSM Roaming Services,
Regional MSS Systems and Wireless Phone Rentals
Certain services are already available to provide roaming services among a
number of countries, including those that use incompatible cellular standards.
For example, GlobalRoam and Cellcard provide roaming between some North American
AMPS networks and some European and other GSM networks. The availability of such
international near-global roaming services is likely to increase. These services
will compete directly with Iridium's ICRS service and with Iridium's
satellite-based phone services for traveling professionals who travel between or
among territories with incompatible cellular standards. One other proposed MSS
system, ICO, and one regional geostationary satellite, ACeS, have indicated that
they may also offer some form of dual-mode satellite/cellular service, which may
include interprotocol roaming capabilities. Moreover, it is expected that
GSM-based service will continue to expand its reach (including further into
North America), permitting broader roaming capability by subscribers to such
systems without the need for any interprotocol equipment and with a single
phone. There is a risk that one or more regional mobile satellite services could
enter into agreements to provide intersystem roaming which could be global or
nearly global in scope. Iridium will also compete for travel customers with
businesses that provide short-term rentals of terrestrial wireless phones
capable of operating in specific countries or regions. These businesses often
have rental locations at airports, hotels and other locations and will also
deliver phones.
Risk of Delayed Market Entry
The success of the IRIDIUM System will depend in part on the ability of
Iridium to develop and operate the system in a timely fashion. Because some of
the regional satellite-based systems contemplate relatively simple ground
systems and are expected to deploy no more than two satellites, they may succeed
in deploying their systems before Iridium. A significant delay in the
commencement of service by Iridium could result in one or more competing global
MSS systems reaching the market before Iridium. If competing regional or global
systems are deployed and marketed before Iridium's system, Iridium's ability to
compete may be materially and adversely affected. See "-- Potential for Delay
and Cost Overruns."
Technical Capabilities and Financial Resources of Competitors
The technological qualities of Iridium's system will be critical to its
ability to compete. Iridium's system and each of its competitors'
satellite-based systems have different planned technical capabilities. The
actual technical capabilities of satellite-based communications systems will not
be known until such systems are in service. There can be no assurance that the
technological qualities of competing satellite-based systems will not exceed
those of the IRIDIUM System, making those systems more attractive to potential
subscribers. For example, Iridium believes that it will have a link margin
(signal strength) advantage over proposed competing MSS systems, but such
systems may be able to develop and implement technologies, such as "path
diversity" (serving a phone with multiple satellites simultaneously), that may
reduce or eliminate Iridium's expected advantage. Also, it is possible that the
IRIDIUM System may not be able to achieve the technological expectations of
Iridium.
Some of Iridium's potential competitors may have financial and other
resources greater than those of Iridium. There can be no assurance that one or
more of these competitors will not be better capitalized than Iridium.
Terrestrial wireless service providers have found it advantageous to subsidize
wireless phone purchases in order to stimulate demand for their services or to
respond to competitive pressures. Such subsidization requires financial
resources. There can be no assurance that Iridium will have the financial
resources required to pursue subsidization in the event subscriber equipment
subsidization becomes an advantageous strategy in the MSS market.
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Competition for Subscribers and Service Providers; Pricing
The IRIDIUM System is not intended to provide communications services that
compete with landline and terrestrial wireless services, but instead is designed
to complement such services. IRIDIUM Satellite Services will be priced
significantly higher than most terrestrial phone and paging services, and
IRIDIUM customers are not expected to discontinue their use of terrestrial
wireless services. Iridium's business plan assumes that Iridium will be able to
charge a global mobility premium, over the cost of a hypothetical
terrestrial-based call, for its Satellite Services. If the market will not
support such a premium, Iridium's ability to compete may be materially adversely
affected. Also, the IRIDIUM System will lack the operational capacity to provide
local service to large numbers of subscribers in concentrated areas and the
IRIDIUM System will not afford the same voice quality, signal strength and
degree of building penetration in areas that are served by mature terrestrial
wireless voice or paging systems. The extension of land-based telecommunications
systems to areas that are currently not serviced by landline or terrestrial
wireless phone or paging systems could reduce demand that might otherwise exist
in such areas for IRIDIUM Services.
In addition to competing for subscribers to its service, Iridium also
expects to compete with various other communications services for local service
providers. A failure to effectively compete with these services could materially
and adversely affect the availability to Iridium of the more desirable service
providers or the revenue sharing arrangements among Iridium, gateway operators,
service providers and roaming partners. Furthermore, ICO could have an advantage
in obtaining spectrum allocations and local operating approvals in a number of
countries because it is affiliated with Inmarsat, and investors in ICO and
Inmarsat include many state-owned telecommunications companies and the
regulatory authorities in their countries. See "Regulation of Iridium."
Competition in Paging Services
In addition to competing with paging services offered by proposed global
and regional MSS systems, if any, the IRIDIUM paging service will face
competition from regional and nationwide terrestrial paging services, and from
M-Tel's SkyTel service which currently provides paging services to approximately
20 countries around the world. SkyTel operates by forwarding paging messages via
satellite to a foreign paging network that subsequently transmits the message
over its local network. Also, in 1995 Inmarsat introduced an international
satellite-based one-way messaging service.
Competition Related to New Technologies and New Satellite Systems
Iridium may also face competition in the future from companies using new
technologies and new satellite systems which could render the IRIDIUM System
obsolete or less competitive. Such new technologies, even if not ultimately
successful, could have a material and adverse effect on Iridium as a result of
associated initial marketing efforts. Iridium's business could be materially and
adversely affected if competitors begin operations or existing
telecommunications service providers penetrate Iridium's target markets before
completion of the IRIDIUM System.
RELIANCE ON MOTOROLA, GATEWAY OWNERS AND OTHER THIRD PARTIES
Construction and Operation of the IRIDIUM System
Iridium does not independently have and does not intend to acquire, except
by contracting with other parties, the ability to design, develop or produce the
components of the IRIDIUM System or to launch the constellation of satellites or
to operate and maintain the system once it is fully deployed. Motorola has
agreed to provide these services to Iridium under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Thus, Iridium currently relies on Motorola to perform these critical
tasks. Motorola, in turn, is relying to a significant extent on subcontractors
and suppliers to perform many of the critical tasks in constructing the IRIDIUM
System. In addition, Iridium is currently relying on Motorola to maintain the
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necessary operating licenses for the system control facilities in the United
States, and the license from the FCC to construct, launch and operate the
system, and to operate and maintain the space segment for the benefit of
Iridium. Any assignment or transfer of control of these licenses could be
subject to the prior consent of the FCC. See "Regulation of Iridium -- Licensing
Status." Motorola has developed the specifications for the gateways and
subscriber equipment. Motorola is also supplying gateway equipment and
associated services and Iridium believes that currently Motorola and Kyocera are
the only companies that are planning to develop and sell subscriber equipment.
If for any reason Motorola or any of its important subcontractors fail to
perform as required under the agreements, the ability of Iridium to implement
the IRIDIUM System on time and within estimated costs and, once implemented, to
maintain and operate the system, could be materially and adversely affected.
Motorola's liability under the agreements for damages for any breach thereof is
limited. See "Principal Contracts for the Development of the IRIDIUM System" and
"-- Conflicts of Interest with Motorola."
Iridium has obtained commitments from its investors who are gateway
operators that they will use their reasonable best efforts to perform certain
critical functions including: obtaining the necessary licenses, if any, from the
jurisdictions in which they operate; constructing and operating the gateways;
connecting the IRIDIUM System to PSTNs; marketing IRIDIUM Services; selecting,
or acting as, service providers; and managing relations with IRIDIUM System
subscribers either directly or through service providers. Iridium is dependent
on the activities of its gateway operators for its success. Some gateway
operators are behind schedule in the steps necessary to establish and implement
their gateways. Other gateway operators have indicated that they may not receive
regulatory approvals for some of the countries in their territories at the
anticipated commencement of commercial operations in September 1998. Iridium has
entered into Gateway Authorization Agreements with its gateway operators with
respect to these obligations and gateway operators have entered into gateway
equipment purchase agreements with Motorola for the purchase of gateway
equipment for 11 gateways. Motorola has committed to deliver the gateway
equipment for these gateways including voice functionality by September 1998
although, in certain circumstances such as a gateway's failure to perform its
payment obligations or comply with import license requirements and beneficial
occupancy dates, the relevant contracts permit Motorola to delay delivery or
cancel the agreement. Several gateways are late in complying with some of these
conditions. Motorola currently intends to activate the gateway equipment for
paging functionality at a portion of the gateways by September 1998 with the
remainder activated by October 1998. There can be no assurance that Motorola
will be able to meet its gateway supply commitments or that gateway operators
will perform their obligations under the Gateway Authorization Agreements or
gateway equipment purchase agreements. In addition, the ICRS functionality and
enhanced call intercept modifications being negotiated with Iridium will require
all gateway operators to sign agreements with Motorola for this functionality.
No such agreements have been signed. See "Principal Contracts for the
Development of the IRIDIUM System -- Gateway Authorization Agreements."
Distribution and Marketing of IRIDIUM Services
The sales of IRIDIUM Services and of IRIDIUM subscriber equipment to the
ultimate consumer will be made by service providers which will be, or will be
selected by, Iridium's gateway operators. Iridium's business plan assumes
substantial sales of IRIDIUM subscriber equipment by service providers prior to
the commencement of commercial services. Iridium's success will depend upon the
motivation and ability of such service providers to generate on a timely basis
demand for IRIDIUM Services and subscriber equipment, and there can be no
assurance that such demand can be generated on a timely basis. As Iridium will
not control the retail pricing of IRIDIUM Services or equipment to subscribers,
decisions on pricing by gateway operators and service providers could materially
and adversely affect Iridium. The failure of one or more gateway operators to
fulfill their obligations to Iridium on a timely basis could have a material and
adverse effect on Iridium, particularly in view of the fact that the appeal of
the IRIDIUM System will be dependent in part upon
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the extent to which its services are accessible from, and deliverable to, most
of the world. There can be no assurance that service providers will provide
sufficient economic or contractual incentive for service providers to
successfully execute Iridium's business plan with respect to customer
acquisition and retention, pricing, customer service and marketing, particularly
in light of the fact that sales of IRIDIUM Services and subscriber equipment are
likely to represent only a portion of each service provider's business. In
addition, while Iridium anticipates devoting significant resources to
advertising, Iridium is dependent on gateway operators and service providers
effectively cooperating in the marketing of IRIDIUM Services in their
territories. Failure of the gateway operators and service providers to
adequately fund and implement the marketing of IRIDIUM Services could have a
material adverse effect on Iridium.
A number of gateway operators have entered into non-binding memoranda of
understanding with entities that have indicated an interest in becoming IRIDIUM
Service providers in their service territories but have not yet executed
definitive agreements to any significant extent. The willingness of companies to
become service providers will be dependent upon a variety of factors including
pricing of services and compensation to service providers, local regulations and
the perceived competitiveness of the IRIDIUM System.
RISKS ASSOCIATED WITH PRINCIPAL SUPPLY CONTRACTS
Space System Contract
Iridium and Motorola have entered into the Space System Contract which
provides for the payment by Iridium to Motorola of $3.45 billion (subject to
certain adjustments) for the design, development, production and delivery in
orbit of the space segment. As of June 30, 1997, Iridium had incurred $2.54
billion of this amount, and all but $150 million of this price is required to be
paid by Iridium before the space segment is determined to be fully operational.
Furthermore, Motorola's aggregate liability under the Space System Contract and
related contracts with Iridium in the event the system is not operational is
subject to the Motorola Liability Limitations (defined below) and in no event is
Motorola required under the contract to refund amounts previously paid by
Iridium to Motorola. In addition, subject to certain exceptions, Iridium bears
the risk, including additional costs, if any, resulting from excusable delays
under the Space System Contract, as well as certain of the risks of loss for
satellites once placed in orbit. Following the January 1997 launch failure
involving the McDonnell Douglas Delta II launch vehicle, Motorola advised
Iridium of its position that the United States government's temporary
postponement of Delta II launches pending completion of a failure review
analysis constituted an "excusable delay" under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Motorola then began the process of reworking the original launch
schedule and notified Iridium that it would not claim either a cost adjustment
under the Space System Contract, the Operations and Maintenance Contract or the
Terrestrial Network Development Contract or a schedule extension of the final
Space System Contract milestone as a result of the January 1997 Delta II launch
failure. The reworked launch schedule will require that there are no additional
significant launch delays and that all three launch providers -- McDonnell
Douglas, Khrunichev and China Great Wall -- are able to provide launch services
as currently planned. The second launch under the new launch schedule occurred
on June 18, 1997 using Khrunichev's Proton launch vehicle, which carried seven
IRIDIUM satellites. The third launch occurred on July 9, 1997 on a McDonnell
Douglas Delta II launch vehicle, which carried five IRIDIUM satellites. An
additional five satellites are scheduled to be launched by late August 1997.
Iridium and Motorola intend to amend the Space System Contract to reflect the
new planned launch schedule. There can be no assurance that events constituting
"excusable delays" will not arise in the future, or, if any event constituting
an "excusable delay" does arise, that it will be resolved on terms that are not
materially adverse to Iridium. See "-- Potential for Delay and Cost
Overruns -- Deployment of Satellites" and "Principal Contracts for the
Development of the IRIDIUM System."
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On July 18, 1997, Iridium was informed by Motorola that Motorola has lost
communications with an IRIDIUM satellite, confirmed through technical analysis
on July 17, 1997. The satellite, one of the five launched on July 9, 1997, was
in a parking orbit awaiting its ascent to final mission orbit. Iridium was
advised by Motorola that should loss of the satellite be confirmed, Iridium will
not bear the financial risk of loss, nor will it affect the scheduled date for
commercial service in September 1998.
The Space System Contract may be terminated upon the occurrence of certain
events of default. If Iridium defaults, it is obligated to (i) make certain
payments to Motorola, including the reasonably anticipated profits Motorola
could have earned had it been permitted to complete its contracts, a portion of
the prices of all partially completed milestones and all costs of stopping work,
including Motorola's costs of terminating subcontracts and purchase commitments
and (ii) assign certain permits and licenses to Motorola which were previously
transferred to Iridium. If Motorola defaults, Motorola's liability is limited to
reasonable costs of completion in excess of the contract price, subject to the
Motorola Liability Limitations discussed below. Motorola would also be entitled
to withhold certain intellectual property associated with various aspects of the
IRIDIUM System, as a result of which Iridium might not be able to complete the
construction of the system. See "Principal Contracts for the Development of the
IRIDIUM System."
The Space System Contract provides that, to the extent Motorola has any
liability to Iridium under the contract for any costs, damages, claims or losses
whatsoever arising out of or related to such contract, or any such liability
under the Operations and Maintenance Contract, the Terrestrial Network
Development Contract or any other contract executed between Iridium and Motorola
in connection with the IRIDIUM System, or any provisions of any of the
foregoing, whether pursued as a breach of contract or as a tort or other cause
of action and whether accruing before or after completion of all the work
required under the contracts, such liability shall be limited to $100 million in
the aggregate. Each contract also provides that Motorola shall not be liable to
Iridium, whether in contract, tort or otherwise, for special, incidental,
indirect or consequential damages, including, without limitation, lost profit or
revenues. As described under "Principal Contracts for the Development of the
IRIDIUM System," the Space System Contract, Operations and Maintenance Contract
and Terrestrial Network Development Contract each contain other significant
limitations on Motorola's potential liability. The foregoing are the "Motorola
Liability Limitations."
Operations and Maintenance Contract
Iridium has also entered into the Operations and Maintenance Contract with
Motorola which obligates Motorola for a period of five years after completion of
the final milestone under the Space System Contract to operate the IRIDIUM space
segment and to exert its best efforts to monitor, upgrade and replace the
hardware and software of the IRIDIUM space segment as necessary to maintain
specified performance levels. Iridium has the right to extend the term of this
contract for an additional two years. This contract provides for specified
increasing quarterly payments by Iridium to Motorola that are expected to
aggregate approximately $2.88 billion, subject to certain adjustments. If
Iridium exercises its option to extend the Operations and Maintenance Contract
for an additional two years, the payments due will be based upon specified
quarterly payments ranging up from $157 million in 2003. Such payments are
expected to aggregate approximately $1.33 billion, subject to certain
adjustments. In the event that completion of the Space System Contract and,
therefore, the commencement of the five year period of the Operations and
Maintenance Contract, is delayed more than six months for any reason (other than
causes within the reasonable control of Motorola), the specified quarterly
payments will be adjusted to account for any additional costs incurred by
Motorola. See "Principal Contracts for the Development of the IRIDIUM System."
Motorola does not make any warranty with respect to the services, materials or
equipment supplied under this contract. In the event that the Operations and
Maintenance Contract terminates or expires (including termination arising from
certain defaults by Motorola or Iridium), Iridium would be obligated to make
certain additional payments to Motorola. However, if the termination arises from
certain defaults of Motorola, Motorola could also be required to make certain
payments to Iridium
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(subject to the Motorola Liability Limitations). See "-- Limited Life of
Satellites; Cost of Maintaining the Space Segment; Risk of Satellite Failure or
Damage." The remedies of Iridium and Motorola specified in the contract for a
default under the contract are exclusive of all other remedies.
The Operations and Maintenance Contract contains provisions relating to
indemnification, excusable delays, insurance, permits and licenses, waivers of
rights, events of default and other matters similar to those contained in the
Space System Contract. Motorola's liability under the Operations and Maintenance
Contract is subject to the Motorola Liability Limitations. In the event that the
Space System Contract is terminated for whatever reason, the Operations and
Maintenance Contract will also terminate. See "Principal Contracts for the
Development of the IRIDIUM System."
Terrestrial Network Development Contract
Iridium has also entered into the Terrestrial Network Development Contract
with Motorola, pursuant to which Motorola is obligated to design and develop the
gateway hardware and software, and license Iridium to use and permit others to
use intellectual property developed under the contract to procure the
development and manufacture of gateways from sources other than Motorola.
Motorola will be paid a total of approximately $270 million under the contract
in increments tied to the completion of milestones, including those relating to
acceptance tests of the completed gateway design. Motorola's liability under the
Terrestrial Network Development Contract is subject to the Motorola Liability
Limitations and the contract contains provisions relating to excusable delays,
waivers of rights, events of default and other matters similar to those
contained in the Space System Contract and the Operations and Maintenance
Contract.
Amendments to Principal Contracts
As a result of technological developments, changes in the desired product
mix and features of the IRIDIUM Services, the addition of enhanced system
capabilities (including ICRS, "follow-me paging" and enhanced call intercept),
and scheduling adjustments, there have been, and Iridium anticipates there will
be, a variety of pending and anticipated amendments and interpretations to the
principal supply contracts and other agreements and letters with Motorola.
Iridium's estimate of the cost of anticipated amendments is reflected in
Iridium's estimates of its funding requirements. There can be no assurance that
future technological, market or regulatory developments will not necessitate
unanticipated amendments to such contracts and agreements or that Motorola or
other vendors will be willing or able to provide for these new capabilities on
terms acceptable to Iridium. Furthermore, Iridium has no assurance of having
alternative suppliers to Motorola for provision of these capabilities.
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND DEVELOPING MARKETS
Since Iridium expects to provide telecommunications services in almost
every country, it is subject to certain multinational operational risks, such as
changes in domestic and foreign government regulations and telecommunications
standards, licensing requirements, tariffs or taxes and other trade barriers,
price, wage and exchange controls, political, social and economic instability,
inflation, and interest rate and currency fluctuations. The risks enumerated
above are often greater in developing countries or regions. In addition,
although Iridium anticipates that gateway operators and service providers will
make all payments in United States dollars, the potential lack of available
United States currency in developing markets may prevent gateway operators and
service providers in such markets from being able to do so. Because Iridium
expects to receive most payments in United States dollars it does not intend to
hedge against exchange rate fluctuations. Under current United States law,
Iridium, as a U.S. company, may be prohibited from doing business in Cuba, Iran,
Iraq, Libya and North Korea. These restrictions may limit, or eliminate
entirely, the provision of gateway services or IRIDIUM Services in these
countries. Motorola and other United States companies may also be prohibited
from selling equipment in these countries.
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PRICING RISK
Under Iridium's pricing strategy it will set wholesale prices for IRIDIUM
Services and service providers will control the retail price. Service providers
may price IRIDIUM Services in a manner that is sub-optimal to Iridium, including
setting too high a retail price, and thereby reducing total demand without an
offsetting increase in per minute revenue to Iridium. Moreover, Iridium and its
service providers may be forced to lower retail prices in response to
competition. In addition, pricing for telecommunication services, including long
distance rates, has trended downward in recent years. This downward trend may
make it difficult for Iridium to hold or raise its wholesale prices.
LIMITED SATELLITE CAPACITY
To provide commercially adequate service, ensure user acceptance and
operate successfully, the IRIDIUM System will have to provide minimum levels of
availability of IRIDIUM Satellite Services, which will depend upon system
capacity. Various factors, including usage patterns, will have a significant
impact on the capacity of the IRIDIUM System for a particular geographic area
and on a system-wide basis. Most important among these are usage patterns and
spectrum allocation. Iridium could experience unexpected usage patterns which
could exceed the capacity of the IRIDIUM System through one or several gateways.
If Iridium faces significant capacity issues, its ability to increase its
spectrum assignment in any market is subject to significant regulatory hurdles.
There can be no assurance that the necessary spectrum assignments will occur or
that adverse and unanticipated usage patterns will not materialize. Failure to
achieve a commercially viable capacity level for any reason, including but not
limited to those mentioned in this section, would materially and adversely
affect Iridium.
CONFLICTS OF INTEREST WITH MOTOROLA
Motorola has and will have various conflicts of interest with Iridium.
Motorola is the creator and developer of the concept of the IRIDIUM System, the
principal supplier to Iridium, a founding investor of Iridium, a gateway owner,
Iridium's largest Class 1 Interest holder, a holder of warrants to acquire Class
1 Interests and a warrant to acquire Series M Class 2 Interests, the guarantor
of Iridium's borrowings under its Guaranteed Bank Facility. See "Certain
Relationships and Related Transactions of Iridium -- Motorola Related Matters"
and "Description of Other Indebtedness."
Although Motorola does not by itself control the Iridium Board and is not
permitted to participate in decisions or other actions by Iridium with respect
to the Space System Contract, Operations and Maintenance Contract and the
Terrestrial Network Development Contract, Motorola, through its position as (i)
the holder of the largest ownership interest in Iridium, (ii) potentially the
largest holder of Class A Common Stock (through exchanges of Class 1 Interests
for shares of Class A Common Stock), (iii) the guarantor under the Motorola
Guarantee and, if issued, the Motorola Additional Guarantee and (iv) the
principal supplier to Iridium, could in certain situations exercise significant
influence over Iridium. For example, in addition to its representation on the
Iridium Board, Motorola could have control over Iridium as or similar to that of
a creditor through its position as a guarantor under the Guaranteed Bank
Facility.
Motorola and Iridium entered into the Space System Contract, the Operations
and Maintenance Contract and the Terrestrial Network Development Contract after
extensive negotiations. Iridium, however, was a wholly-owned subsidiary of
Motorola at the time the Space System Contract and Operations and Maintenance
Contract were negotiated and therefore these negotiations were not conducted on
an arm's-length basis. Moreover, although these agreements provide for specific
prices, Motorola's obligations and liabilities thereunder are subject to certain
limitations which allocate various risks to Iridium and may have the effect of
increasing the price paid by Iridium. Iridium's payment obligations under these
agreements are expected to comprise most of its expenses, and the proceeds of
the Original Offering will be used primarily to make milestone payments to
Motorola under the Space System Contract and the Terrestrial Network Development
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Contract. See "Use of Proceeds," "Principal Contracts for the Development of the
IRIDIUM System" and "Certain Relationships and Related Transactions of Iridium."
Under the Space System Contract, Motorola has agreed to license the rights
to manufacture, sell and use certain intellectual property to the extent
essential to manufacture IRIDIUM subscriber equipment to competent suppliers
that are acceptable to Motorola. Motorola maintains that it has substantial
discretion in its exercise of these rights and could limit the ability of
potential suppliers to manufacture and sell IRIDIUM subscriber equipment. See
"Principal Contracts for the Development of the IRIDIUM System -- Space System
Contract." If Motorola asserts its position and refuses to license intellectual
property to one or more potential manufacturers, the availability of subscriber
equipment and the characteristics and price thereof could be adversely affected,
which could in turn reduce the demand for IRIDIUM Services. Motorola has,
however, entered into a license agreement with Kyocera which allows Kyocera to
manufacture IRIDIUM phones and Iridium believes that if both Motorola and
Kyocera manufacture equipment, they will be able to produce a sufficient number
of IRIDIUM phones. In addition, Motorola has informed Iridium that it has not
declined to license the essential intellectual property to any third party.
Therefore, while Iridium believes that this risk has been reduced, such risk has
not been eliminated since there can be no assurance that Motorola will not
exercise its rights in the future in a manner that limits the access of other
potential manufacturers to the intellectual property essential for the
manufacture of subscriber equipment.
CONFLICTS OF INTEREST WITH GATEWAY OWNERS
The Iridium Board consists of representatives of certain of the world's
leading telecommunications companies. Almost all of the members of the Iridium
Board have been appointed by investors in Iridium who also are gateway owners
and service providers. Because Iridium will be a supplier to the gateways and
the service providers, the interests of Iridium are expected to conflict in
certain respects with the interests of the gateway owners and the service
providers. For example, this conflict of interest will be relevant in setting
the wholesale prices that Iridium will charge for airtime and other IRIDIUM
Services. There can be no assurance that the allocation of revenues between
Iridium and the gateway owners or operators by the Iridium Board will not have
an adverse effect on Iridium. See "Principal Contracts for the Development of
the IRIDIUM System."
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
Iridium's success will be dependent upon the efforts of its management team
and its ability to attract and retain qualified management and personnel in the
future. Iridium has no employment contract with any employee and is subject to
the possibility of loss of one or more key employees at any time. Iridium must
also rely upon several employees of Motorola who play a key role in the
performance of Motorola's obligations under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Iridium has no control over the relationship between Motorola and such
employees. Iridium could be materially and adversely affected by the loss of one
or more key employees. In addition, Iridium's success will be dependent in part
upon gateway operators having qualified personnel at the various gateways to (i)
oversee the construction of and operate gateways and (ii) execute significant
aspects of Iridium's licensing, marketing and distribution efforts. Significant
and rapid growth in demand for IRIDIUM Services would also require Iridium and
possibly various gateway operators to make additions to personnel to manage such
growth while continuing to meet customer service expectations.
PATENTS AND PROPRIETARY RIGHTS
The Space System Contract and the Terrestrial Network Development Contract
provide generally that Motorola will retain all rights to the intellectual
property associated with the IRIDIUM System. Motorola's obligations under the
Space System Contract and the Terrestrial Network Development Contract to
license these intellectual property rights to third-party suppliers are
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subject to significant conditions which could limit Iridium's ability to obtain
alternate suppliers of necessary components of the IRIDIUM System in the future.
Various aspects of the design of the IRIDIUM System are already covered by
Motorola patent, copyright and trade secret rights or are the subject of pending
patent applications. Motorola has filed numerous patent applications on the
IRIDIUM System to date and expects to file additional patent applications, both
in the United States and abroad, as the development of the IRIDIUM System
progresses. There can be no assurance that such applications will be granted in
a timely manner or at all, or that, if such patents are obtained that such
patents, and any copyrights or trade secret rights will be adequate to prevent
others from using the intellectual property used in Iridium's business.
Furthermore, many of Iridium's competitors have obtained, and may be expected to
obtain in the future, patents that may cover or affect products or services that
directly or indirectly relate to those offered by Motorola for the IRIDIUM
System. Iridium or Motorola may not be aware of all patents that may potentially
be infringed by products developed by Motorola for the IRIDIUM System. In
addition, patent applications in the United States are confidential until a
patent is issued and, accordingly, Iridium cannot evaluate the extent to which
the products developed by Motorola for the IRIDIUM System may infringe claims
contained in pending patent applications. In general, if it were determined that
one or more of such products infringe on patents held by others, Motorola and
Iridium could be required to (i) cease developing or marketing such products,
(ii) obtain licenses to develop and market such products from the holders of the
patents or (iii) redesign such products in such a way as to avoid infringing the
patent claims. The extent to which Iridium may be required in the future to
obtain licenses with respect to patents held by others and the availability and
cost of any such licenses is currently unknown. There can be no assurance that
Iridium would be able to obtain such licenses on commercially reasonable terms
or, if it were unable to obtain such licenses, that Motorola would be able to
redesign the products which it developed for the IRIDIUM System to avoid
infringement.
Motorola has agreed pursuant to the Space System Contract to indemnify
Iridium for claims of infringement of any valid and enforceable patent in any
country where IRIDIUM Services are authorized which is brought against Iridium
on account of the space segment or any part thereof that is supplied to Iridium
by Motorola under the Space System Contract. However, Motorola's liability
thereunder is subject to certain significant limitations. For example, if
Motorola's liability in respect of a claim or proceeding in any particular
country exceeds 10% of the actual income derived by Iridium from the provision
of IRIDIUM Services in that country, Iridium is required to cooperate to
mitigate Motorola's liability, including either terminating the provision of
IRIDIUM Services in that country or releasing Motorola from liability for patent
infringement in that country in excess of such 10% amount. See "Principal
Contracts for the Development of the IRIDIUM System -- Space System Contract."
ALLEGED HEALTH RISKS
Certain media reports have suggested possible links between the use of
portable cellular telephones which integrate transmitting antennas into their
handsets and certain health risks, including cancer, as well as possible
interference between digital cellular telephones and pacemakers, hearing aids
and other electronic medical devices. The FCC has issued amended and updated
guidelines for evaluating environmental radio frequency radiation from
FCC-regulated transmitters. These guidelines are intended to protect the public
from health risks due to exposure to radio frequency energy. Similar guidelines
were issued in 1996 by the International Commission on Non-Ionizing Radiation
Protection, an international body assigned to develop guidelines regarding non-
ionizing radiation. Guidelines are also being considered by certain other
international agencies. No assurance can be given that in the future other
standards bodies will not issue standards that could require or otherwise result
in phone modifications which may materially and adversely affect Iridium. At
this time, there are no FCC proposals relating to the alleged health risks
associated with digital-based cellular phones and pacemakers, hearing aids and
other electronic medical devices. There can be no assurance that the FCC will
not regulate the use of digital technology in wireless
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communications devices in a manner that would adversely affect Motorola's or
Kyocera's ability to design and develop a digital phone for use with the IRIDIUM
System.
RISK OF ANTITRUST OR OTHER COMPETITION REGULATION
Antitrust and competition laws generally may affect Iridium's ability to
grant exclusive rights to construct and operate IRIDIUM gateway systems. See
"Principal Contracts for the Development of the IRIDIUM System -- Gateway
Authorization Agreements." Compliance with these and other laws and regulations
may, in some cases, require formal notification or informal consultation with
governmental enforcement or administrative authorities. This process may result
in delays in securing approval, where necessary, to offer, grant or exercise
rights, or may result in restrictions or prohibitions on the offer, grant or
exercise of such exclusive rights. It also could adversely affect the ability of
Iridium to operate or to obtain necessary licenses or otherwise to conduct
business in one or more areas of the world.
RISKS ASSOCIATED WITH GROWTH
While there can be no assurance that customer acceptance of and
satisfaction with IRIDIUM Services will result in substantial and increasing
demand for IRIDIUM Services, significant and rapid growth in demand for IRIDIUM
Services would require Iridium to make additions to personnel and management
information systems to manage such growth while continuing to meet customer
service expectations. In addition, spectrum and satellite infrastructure
characteristics of the IRIDIUM System set inherent capacity limitations that
would prevent growth above certain levels.
RANKING OF THE NOTES
The Exchange Notes will be, and the Original Notes are, senior obligations
of the Issuers. The Exchange Notes will, and the Original Notes do, rank pari
passu in right of payment to all existing and future unsecured Indebtedness of
the Issuers, other than the Subordinated Obligations (as defined). The
Subsidiary Guaranties are and will be unsecured, senior obligations of the
Guarantor Subsidiaries. The obligations of Iridium under the Guaranteed Bank
Facility rank pari passu with Iridium's obligations under the Notes. The
obligations of Iridium under the Guaranteed Bank Facility are guaranteed by
Motorola to the extent described under "Description of Other Indebtedness --
Guaranteed Bank Facility." The Motorola Guarantee reimbursement obligations of
Iridium to Motorola under the Agreement Regarding Guarantee rank pari passu with
the Notes.
The Notes are not secured by any asset of any Iridium Party. Accordingly,
the Original Notes are, and the Exchange Notes will be, effectively subordinated
to any secured obligation of the Iridium Parties to the extent of the value of
the assets securing such obligations. If Iridium becomes insolvent or is
liquidated, or if payment under any secured obligation is accelerated, the
creditor with respect to any secured obligation would be entitled to exercise
the remedies available to a secured creditor under applicable law and pursuant
to instruments governing such obligation. Accordingly, such creditors will have
a prior claim on the secured assets of Iridium. In any event, because the Notes
are not be secured by any of Iridium's assets, it is possible that there would
be no assets remaining from which claims of the holders of the Notes could be
satisfied or, if any such assets remain, such assets might be insufficient to
satisfy such claims fully. See "Description of Notes."
As of June 30, 1997, after giving pro forma effect to the issuance of the
Original Notes and the application of a portion of the net proceeds therefrom to
the permanent reduction of the Guaranteed Bank Facility, the Iridium Parties
would have had outstanding approximately $1,455 million in aggregate principal
amount of unsecured senior Indebtedness (including the principal amount of the
Original Notes) and approximately $253 million in aggregate principal amount of
Indebtedness that is subordinated to the Notes. See "Use of Proceeds." As of
June 30, 1997, none of the Iridium
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Parties had any secured Indebtedness outstanding. Iridium expects to incur
additional secured Indebtedness in an aggregate principal amount of $750 million
pursuant to the Secured Bank Facility and other secured Indebtedness permitted
by the Indentures. See "Description of Other Indebtedness." Under the
Indentures, Iridium and its subsidiaries will be permitted to incur additional
Indebtedness, including Indebtedness secured by assets of Iridium and its
subsidiaries. See "Description of Notes -- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Liens."
RESTRICTIVE LOAN COVENANTS UNDER OTHER INDEBTEDNESS
The Guaranteed Bank Facility includes, and the Secured Bank Facility is
expected to include, certain covenants that, among other things, will restrict
the ability of Iridium and its subsidiaries to: (i) dispose of assets; (ii)
incur additional indebtedness; (iii) incur guarantee obligations; (iv) prepay
other indebtedness or amend other debt instruments; (v) pay dividends; (vi)
create liens on assets; (vii) make investments, loans or advances; (viii) make
acquisitions; (ix) engage in mergers or consolidations; (x) change the business
conducted by Iridium; or (xi) engage in certain transactions with affiliates and
otherwise will restrict certain corporate activities. In addition, the Secured
Bank Facility is expected to contain a total debt capitalization covenant and a
covenant to maintain committed or available funding sources through the term of
the Secured Bank Facility to meet Iridium's projected capital and operating
expenses. There can be no assurance that these requirements will be met in the
future. If they are not, the holders of the Indebtedness under the Guaranteed
Bank Facility and Secured Bank Facility will be entitled to declare such
Indebtedness immediately due and payable.
CERTAIN CONSEQUENCES RELATED TO ORIGINAL ISSUE DISCOUNT
The Original Notes were issued at a substantial discount from their
principal amount at maturity. If a bankruptcy is commenced by or against an
Issuer or Guarantor Subsidiary under the United States Bankruptcy Code, the
claim of a holder of Notes against such Issuer or Guarantor Subsidiary with
respect to the principal amount thereof may be limited to an amount equal to the
sum of (i) the initial offering price for the Original Notes and (ii) that
portion of the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the United States Bankruptcy Code. Any
original issue discount that was not amortized as of any such bankruptcy filing
would constitute "unmatured interest."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if an
Issuer or a Guarantor Subsidiary, at the time it issued or guaranteed the Notes,
(a) incurred or guaranteed such indebtedness with the intent to hinder, delay or
defraud creditors, or (b)(i) received less than reasonably equivalent value or
fair consideration and (ii)(A) was insolvent at the time of such incurrence, (B)
were rendered insolvent by reason of such incurrence or guarantee (and the
application of the proceeds thereof), (C) was engaged or were about to engage in
a business or transaction for which the assets remaining with such Issuer or
Guarantor Subsidiary constituted unreasonably small capital to carry on its
business, or (D) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, then, in each such case, a
court of competent jurisdiction could void, in whole or in part, the Notes or
the applicable Subsidiary Guarantee or, in the alternative, subordinate the
Notes or the applicable Subsidiary Guarantee to existing and future indebtedness
of that Issuer or Guarantor Subsidiary. The measure of insolvency for purposes
of the foregoing would likely vary depending upon the law applied in such case.
Generally, however, an Issuer would be considered insolvent if the sum of its
debts, including contingent liabilities, were greater than all of its assets at
a fair valuation, or if the present fair saleable value of its assets was less
than the amount that would
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be required to pay the probable liabilities on its existing debts, including
contingent liabilities, as such debts become absolute and matured. Iridium
believes that, for purposes of the United States Bankruptcy Code and state
fraudulent transfer or conveyance laws, the Notes are being issued without the
intent to hinder, delay or defraud creditors and for proper purposes and in good
faith, and that Iridium will receive reasonably equivalent value or fair
consideration therefor, and that after the issuance of the Original Notes and
the application of the net proceeds therefrom, Iridium was and, in the case of
the Exchange Notes, will be solvent, will have sufficient capital for carrying
on its businesses and will be able to pay its debts as they mature. However,
there can be no assurance that a court passing on such issues would agree with
the determination of Iridium.
POSSIBLE UNENFORCEABILITY OF SUBSIDIARY GUARANTIES
The holders of the Original Notes have, and the holders of the Exchange
Notes will have, no direct claim against Guarantor Subsidiaries other than the
claim created by the Subsidiary Guaranties, which may themselves be subject to
legal challenge in the event of the bankruptcy of a Guarantor Subsidiary. If
such a challenge were upheld, the Subsidiary Guarantees would be unenforceable.
To the extent that the Subsidiary Guarantees are not enforceable, the rights of
holders of the Notes to participate in any distribution of assets of any
Guarantor Subsidiary upon liquidation, bankruptcy, reorganization or otherwise
may, as is the case with other unsecured creditors of Iridium, be subject to
prior claims of creditors of that Guarantor Subsidiary. The Indentures contain
covenants that restrict the ability of Iridium's Restricted Subsidiaries to
enter into agreements limiting distributions and transfers, including dividends.
However, the ability of Iridium's subsidiaries to pay dividends and make other
payments may be restricted by, among other things, applicable state corporate
laws and regulations or by terms of agreements to which they may become party.
See "Description of Notes."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require the Issuers to repurchase all or any portion of such
holder's Notes at a price equal to 101% of the principal amount of such Notes,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. The Issuers' failure to purchase the Notes would result in a default
under the Indentures. In the event of a Change of Control, there can be no
assurance that the Issuers would have sufficient assets to satisfy all of its
obligations. The Issuers' ability to redeem the Notes may also be limited by
restrictions imposed by any other debt obligations that may then be in effect
and compliance with applicable securities laws. An event constituting a Change
of Control may cause an event of default under new Bank Credit Agreements (as
defined), upon which event of default all amounts outstanding under the Bank
Credit Agreements may become due and payable. See "Description of
Notes -- Change of Control."
ABSENCE OF A PUBLIC MARKET
The Original Notes have not been registered under the Securities Act and
are subject to restrictions on transferability and resale. The Original Notes
are new securities and there is currently no established market for them. If
issued, the Exchange Notes generally will be freely transferable (subject to the
restrictions discussed elsewhere herein) but will be new securities for which
there initially will be no market. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Original Notes or, if issued,
the Exchange Notes. The Original Notes are eligible for trading in the PORTAL
market. The Initial Purchasers have advised the Issuers that they currently
intend to make a market in the Original Notes and, if issued, the Exchange
Notes. However, they are not obligated to do so, and any market making with
respect to the Original Notes or, if issued, the Exchange Notes may be
discontinued without notice. The Issuers do not intend to
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apply for listing of the Original Notes or, if issued, the Exchange Notes on any
national securities exchange or for their quotation through the NNM.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Issuers do
not intend to register the Original Notes under the Securities Act. In addition,
any holder of Original Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Original Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Original Notes not tendered could be adversely affected. No holder of an
Original Note shall be entitled to receive any Liquidated Damages with respect
to such Original Note, if a holder of such Original Note was, at any time while
the Exchange Offer was pending, eligible to exchange, and did not validly
tender, such Original Note for a freely transferable corresponding Exchange Note
in such Exchange Offer. See "The Exchange Offer" and "Exchange and Registration
Rights Agreement."
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IRIDIUM'S OWNERSHIP STRUCTURE AND STRATEGIC INVESTORS
Iridium was formed as a limited liability company pursuant to the
provisions of the Delaware Limited Liability Company Act (the "Delaware Act") on
July 16, 1996. Iridium, Inc., a Delaware corporation and the predecessor of
Iridium, was formed on June 14, 1991. On July 29, 1996, Iridium, Inc. was merged
with and into Iridium, with Iridium as the surviving entity. Iridium's purpose
is to acquire, own and manage the IRIDIUM System. Capital was formed as a
Delaware corporation on June 16, 1997, and other than serving as an Issuer of
the Notes, does not conduct any business.
IWCL was incorporated by Iridium as a Bermuda company on December 12, 1996
and has its principal offices at Clarendon House, 2 Church Street, Hamilton,
Bermuda. IWCL was formed for the purpose of acting as a member of Iridium.
IWCL's only asset is its interest in Iridium and its only activity is
participating in the management of Iridium.
The following is a chart of Iridium's ownership structure:
[OWNERSHIP STRUCTURE CHART]
The above chart reflects percentage ownership in outstanding Class 1
Interests only.
For additional information on IWCL's governance arrangements and its
relationship with Iridium, see "Certain Matters Regarding Relationship of IWCL
and Iridium." For information regarding the potential Asset Drop-Down
Transaction (as defined) and the substitution of the resulting subsidiary of
Iridium for the obligations of Iridium under the Notes, see "Description of
Notes -- Merger and Consolidation" and "Description of Other
Indebtedness -- Secured Bank Facility."
Capital is a wholly owned subsidiary of Iridium. The Original Notes are,
and the Exchange Notes will be, the joint and several obligations of Iridium and
Capital, although Iridium received all of the net proceeds of the Original
Notes. Capital has no significant assets and does not conduct any operations.
IP, a Delaware limited liability company and a wholly owned subsidiary of
Iridium, holds the worldwide trademark registrations for Iridium. Roaming, also
a Delaware limited liability company and a wholly owned subsidiary of Iridium,
is the entity that enters into roaming agreements for ICRS on behalf of Iridium.
Iridium currently has no subsidiaries other than Capital, Roaming and IP.
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IRIDIUM'S STRATEGIC INVESTORS
Iridium's strategic investors include market leaders in providing wireless
telecommunications services, manufacturing telecommunications equipment and
satellite systems and supplying satellite launch services. IWCL and Iridium's
strategic investors have collectively invested, or committed to invest,
approximately $3.46 billion in Iridium, including equity, debt and guarantees,
representing approximately 79% of Iridium's projected total funding needs
through the end of September 1998, the month Iridium expects to commence
commercial operations, and approximately 68% of Iridium's projected total
funding needs through the end of 1999, the last year in which Iridium expects
negative cash flow and a net increase in year-end borrowings. See "Prospectus
Summary -- Sources and Uses of Funds by Iridium." Iridium believes that its
ability to develop and commercialize the IRIDIUM System and to compete in the
highly competitive wireless telecommunications market is greatly enhanced by the
technical expertise, regulatory experience, project management skills,
distribution capacity and market presence of its strategic investors.
Iridium's strategic investors which are telecommunications services
providers include such leading companies as Sprint and BCE Mobile Communications
Inc. in North America, STET and Vebacom in Europe and DDI (Japan), UCOM
(Thailand) and SK Telecom in Asia. Motorola, one of the world's leading
providers of wireless communications systems and equipment, Iridium Canada Inc.
and Sprint Corporation have been allocated the North American gateway service
territory, which principally consists of the United States and Canada. STET, a
leading European telecommunications company, has been allocated a gateway
service territory consisting of countries in Western Europe, including Belgium,
Denmark, France, Greece, Italy, Luxembourg, the Netherlands and Switzerland.
o.tel.o communications GmbH & Co., a provider of mobile and satellite
communications in Germany and an indirect subsidiary of VEBA AG, one of the
largest corporations in Germany, has been allocated a gateway service territory
consisting of countries in or near Europe, including Austria, Bulgaria, the
Czech Republic, Finland, Germany, Hungary, Ireland, Israel, Norway, Poland,
Portugal, Romania, Spain, Sweden, Slovakia, Ukraine and the United Kingdom. SK
Telecom, a provider of cellular and paging services, has been allocated the
gateway service territory consisting of North Korea and South Korea. Pacific
Electric Wire & Cable Co., Ltd. ("PEWC"), a leading provider of
telecommunications services and equipment, has been allocated a gateway service
territory consisting of Taiwan, Indonesia, Brunei, Papua New Guinea and the
Philippines. Thai Satellite Telecommunications Co., Ltd., a company formed by
UCOM, one of the largest cellular and paging operations in Thailand, has been
allocated a gateway service territory consisting of Cambodia, Laos, Malaysia,
Singapore, Thailand and Vietnam. Because of the prominence of many of these
investors, Iridium believes that its strategic investors have provided
significant assistance in the process of seeking regulatory approvals and their
assistance will continue to be of great importance. In addition, Iridium expects
that these investors will use their existing wireless communications sales and
services organizations to market and distribute IRIDIUM Services and subscriber
equipment for use with the IRIDIUM System in their territories, which include
their existing base of approximately 14 million wireless subscribers.
The IRIDIUM investor group also includes organizations with significant
satellite development and launch expertise, including Raytheon, a leading
developer and manufacturer of electronic systems, equipment and components,
Lockheed Martin, a world leader in defense and space system technology and
design, Khrunichev, a state-owned aerospace engineering and manufacturing
company in Russia, and China Aerospace, a major diversified industrial group. As
strategic investors, each has contributed significantly to major subsystems of
the space segment of the IRIDIUM System. Lockheed Martin designed and is
manufacturing the satellite bus; Raytheon is providing the main mission antennas
for the satellites; China Great Wall Industry Corporation, a subsidiary of China
Aerospace, will provide launches for the initial deployment of the satellites of
the space segment (and additional launches for the maintenance of the space
segment); and Khrunichev will provide several launches for the initial
deployment of the space segment. In addition, Iridium expects that Motorola and
Kyocera, two of the world's leading manufacturers of wireless
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telephones, will manufacture and sell subscriber equipment for use with the
IRIDIUM System. See "Iridium Investors, Number of Class 1 Interests Owned,
Percentage Ownership and Principal Gateway Service Territories."
USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange pursuant to the
Exchange Offer. Iridium will pay the expenses of the Exchange Offer, estimated
to be approximately $300,000. The net proceeds to Iridium (directly or
indirectly) from the Original Offering (including the proceeds from IWCL for the
purchase by IWCL of warrants to purchase Class 1 Interests of Iridium (the "LLC
Interest Warrants") issued in connection with the Original Offering) were
approximately $745 million. Iridium will use approximately $650 million in net
proceeds from the Original Offering primarily for milestone payments under the
Space System Contract and the Terrestrial Network Development Contract and to a
lesser extent for other general corporate purposes. Pending such use, Iridium
has reduced the amount outstanding under the revolving Guaranteed Bank Facility
to zero and invested the remainder in short-term investment grade debt
securities. Iridium used approximately $95 million to permanently reduce the
commitment of the bank lenders under the Guaranteed Bank Facility (which
correspondingly reduced the Motorola Guarantee). See "Prospectus
Summary -- Sources and Uses of Funds by Iridium." For a discussion of the term
of, and the interest rates applicable to, the Guaranteed Bank Facility, see
"Description of Other Indebtedness -- Guaranteed Bank Facility."
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CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the capitalization
of Iridium and (ii) the capitalization of Iridium pro forma to give effect to
the Original Offering.
JUNE 30, 1997
-------------------------
ACTUAL PRO FORMA
---------- ----------
(DOLLARS IN THOUSANDS)
Guaranteed Bank Facility.................................. $ 660,000 $ 660,000(1)
13% Senior Notes due 2005, Series A....................... -- 275,681(2)
14% Senior Notes due 2005, Series B....................... -- 477,145(2)
14 1/2% Senior Subordinated Notes due to Members in
2006.................................................... 253,337 253,337
Members' equity:
Class 2 Interests, 50,000 interests authorized for Series
M; an aggregate of 300,000 interests authorized for
Series A, Series B and Series C
Series M, no interests issued and outstanding........... -- --
Series A, 37,194 interests issued and outstanding....... 37,194 37,194
Series B, 1 interest issued and outstanding............. -- --
Series C, 75 interests issued and outstanding........... -- --
Class 1 Interests, 225,000,000 interests authorized,
141,219,150 interests issued and outstanding............ 1,968,366 1,985,479(3)
Deficit accumulated during the development stage.......... (217,694) (217,694)
Adjustment for minimum pension liability.................. (733) (733)
---------- ----------
Total members' equity........................... 1,787,133 1,804,246
---------- ----------
Total capitalization............................ $2,700,470 $3,470,409
========== ==========
- ---------------
(1) Does not reflect any temporary reduction in the Guaranteed Bank Facility
resulting from the application of the net proceeds of the Original Offering.
See "Use of Proceeds."
(2) The Series A Notes will accrete to a value of $300 million at maturity and
the Series B Notes will accrete to a value of $500 million at maturity.
(3) Gives effect to the allocation of $17.1 million to warrants to purchase up
to 1,560,000 Class 1 Interests issued to IWCL in connection with the
Original Offering.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were originally issued and sold on July 16, 1997. Such
sales were not registered under the Securities Act in reliance upon the
exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. Pursuant to an Exchange and Registration Rights Agreement
entered into by the Iridium Parties in connection with the sale of the Original
Notes (the "Exchange and Registration Rights Agreement"), the Iridium Parties
agreed to file with the Commission a registration statement (an "Exchange Offer
Registration Statement") relating to an exchange offer (a "Registered Exchange
Offer") pursuant to which other series of notes of the Issuers (the Exchange
Notes) would (i) be covered by such Exchange Offer Registration Statement, (ii)
contain terms which are identical in all material respects to the terms of the
respective Original Notes, except as set forth in this Prospectus, and (iii) be
offered in exchange for Original Notes tendered at the option of the holders
thereof. The Registration Statement of which this Prospectus is a part is an
Exchange Offer Registration Statement within the meaning of the Exchange and
Registration Rights Agreement, and the Exchange Offer constitutes a Registered
Exchange Offer within the meaning of the Exchange and Registration Rights
Agreement. The sole purpose of the Exchange Offer is to fulfill the obligations
of the Iridium Parties with respect to the Exchange and Registration Rights
Agreement. See "Exchange and Registration Rights Agreement."
If (i) because of any change in law or applicable interpretations thereof
by the Staff of the Commission, the Issuers determine upon the advice of their
outside counsel that they are not permitted to effect the Exchange Offer as
contemplated by the Exchange and Registration Rights Agreement, (ii) any
Original Notes validly tendered pursuant to the Exchange Offer are not exchanged
for Exchange Notes within 30 days after the commencement of the Exchange Offer,
(iii) either Chase Securities Inc. or Merrill Lynch, Pierce, Fenner and Smith,
as Initial Purchasers of the Original Notes (the "Initial Purchasers"), so
requests within 90 days after the consummation of the Exchange Offer with
respect to Original Notes that were not eligible to be exchanged for Exchange
Notes in the Exchange Offer and are then held by it following the consummation
of the Exchange Offer, (iv) any applicable law or interpretations do not permit
any holder of Original Notes to participate in the Exchange Offer, (v) any
Holder of an Original Note that participates in the Exchange Offer notifies
Iridium within 20 business days after the consummation of the Exchange Offer
that it did not receive freely transferable Exchange Notes in exchange for
validly tendered Original Notes or (vi) the Issuers so elect, then the Iridium
Parties will use their reasonable efforts to file as promptly as practicable
with the Commission a shelf registration statement (the "Shelf Registration
Statement") on the terms set forth in the Exchange and Registration Rights
Agreement to cover resales of Transfer Restricted Securities (as defined) from
time to time by such holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration Statement
and who agree in writing to be bound by all provisions of the Exchange and
Registration Rights Agreement (including certain indemnification obligations).
For purposes of the foregoing, "Transfer Restricted Securities" means each
Original Note until (i) the date of which such Original Note has been exchanged
for a freely transferable corresponding Exchange Note in the Exchange Offer,
(ii) the date on which such Original Note has been effectively registered under
the Securities Act and disposed of in accordance with the Shelf Registration
Statement, or (iii) the date on which such Original Note is distributed to the
public pursuant to Rule 144 under the Securities Act or is saleable pursuant to
Rule 144(k) under the Securities Act. In the event that (i) the Iridium Parties
have failed to file the Exchange Offer Registration Statement or, if applicable,
the Shelf Registration Statement, (ii) the Exchange Offer Registration
Statement, or, if applicable, the Shelf Registration Statement, has not been
declared effective by the Commission, or (iii) the Exchange Offer has not been
consummated or the Exchange Offer Registration Statement or the Shelf
Registration Statement ceases to remain effective or usable, in each case within
specified time
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periods, the Iridium Parties will be obligated to pay Liquidated Damages with
respect to certain remaining Transfer Restricted Securities. See "Exchange and
Registration Rights Agreement."
TERMS OF THE EXCHANGE
The Issuers hereby offer to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal"), (i) $1,000 in principal amount of
Series A/EN Exchange Notes for each $1,000 in principal amount of Series A
Original Notes and (ii) $1,000 in principal amount of Series B/EN Exchange Notes
for each $1,000 in principal amount of Series B Original Notes. The terms of the
Exchange Notes are identical in all material respects to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes will generally be freely transferable by holders
thereof. The holders of the Exchange Notes (as well as remaining holders of any
Original Notes (except in the limited case of any obligation relating to a Shelf
Registration Statement, as discussed above)) will not be entitled to exchange or
registration rights under the Exchange and Registration Rights Agreement. See
"Exchange and Registration Rights Agreement." The Exchange Notes will evidence
the same debt as the Original Notes and will be entitled to the benefits of the
respective Indenture pursuant to which such Notes were issued. See "Description
of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Issuers believe that Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an "affiliate" of an Iridium Party within the meaning of Rule 405 under
the Securities Act, (ii) a broker-dealer who acquired such Original Notes
directly from an Iridium Party or (iii) broker-dealers who acquired such
Original Notes as a result of market making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Original Notes, where such Original Notes were acquired by such broker-dealer as
a result of market-making activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." The Letter of Transmittal states that by so acknowledging, and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Original Notes where such Original Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuers
have agreed that they will make this Prospectus available to be used in
connection with any such resale by all persons subject to the prospectus
delivery requirements of the Securities Act for such period of time as such
persons must comply with such requirements in order to resell Exchange Notes;
provided that (i) in the case where such prospectus and any amendment or
supplement thereto must be delivered by a broker-dealer receiving Exchange Notes
in exchange for Original Notes acquired for its own account as a result of
market-making activities or other trading activities (an "Exchanging Dealer"),
such period shall be the lesser of 180 days and the date on which all Exchanging
Dealers have sold all Exchange Notes held by them and (ii) the Issuers shall
make such prospectus and any amendment or supplement thereto available to any
broker-dealer for use in connection with any resale of any Exchange Notes for a
period of not less than 90 days after the consummation of the Exchange Offer.
Any holder that cannot rely upon such interpretations
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must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
Tendering holders of Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1997, unless the
Issuers in their sole discretion extend the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Issuers, expires.
The Issuers reserve the right to extend the Exchange Offer at any time and from
time to time prior to the Expiration Date by giving written notice to State
Street Bank and Trust Company (the "Exchange Agent") and by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Original Notes previously tendered pursuant
to the Exchange Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Issuers waive any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver or amendment is first published, sent or given to holders of
Original Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Original Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Issuers of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. Except as set forth below, in order for Original Notes
to be validly tendered pursuant to the Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry tender, an Agent's Message
(as defined) in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at its address set forth on
the back cover of this Prospectus and either (i) tendered Original Notes must be
received by the Exchange
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Agent, (ii) such Original Notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation, including an
Agent's Message if the tendering holder has not delivered a Letter of
Transmittal, must be received by the Exchange Agent, in each case on or prior to
the Expiration Date, or (iii) the guaranteed delivery procedures set forth below
must be complied with. The term "book-entry confirmation" means a timely
confirmation of a book-entry transfer of Original Notes into the Exchange
Agent's account of DTC. The term "Agent's Message" means a message, transmitted
by DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the Letter of Transmittal (including the
representations contained therein) and that the Iridium Parties may enforce the
Letter of Transmittal against such participant.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuers and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Original Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself or herself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such Original Notes, either make appropriate
arrangements to register ownership of the Original Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take considerable time.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Original Notes at The Depository Trust Company ("DTC") for
purposes of the Exchange Offer within two business days after the date of this
Prospectus. Any financial institution that is a participant in DTC's book-entry
transfer facility system may make a book-entry delivery of the Original Notes by
causing DTC to transfer such Original Notes into the Exchange Agent's account at
DTC in accordance with DTC's Authorized Tender Offer Program ("ATOP") procedures
for transfers. Such holder of Original Notes using ATOP should transmit its
acceptance on DTC on or prior to the Expiration Date (or comply with the
guaranteed delivery procedures set forth below). DTC will verify such
acceptance, execute a book-entry transfer of the tendered Original Notes into
the Exchange Agent's account at DTC and then send to the Exchange Agent
confirmation of such book-entry transfer, including an Agent's Message
confirming that DTC has received an express acknowledgment from such holder that
such holder has received and agrees to be bound by the Letter of Transmittal and
that the Iridium Parties may enforce the Letter of Transmittal against such
holder.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE
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USED, PROPER INSURANCE BE OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR
BEFORE THE EXPIRATION DATE.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the Expiration Date, a tender may be effected if
the Exchange Agent has received at its office listed on the back cover hereof on
or prior to the Expiration Date a letter or facsimile transmission from an
Eligible Institution setting forth the name and address of the tendering holder,
the names in which the Original Notes are registered and, if possible, the
certificate numbers of the Original Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within five trading days
after the date of execution of such letter or facsimile transmission by the
Eligible Institution, the Original Notes, in proper form for transfer, will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Original Notes being tendered by the above-described method (or a timely
book-entry confirmation) are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Issuers may, at their
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by Eligible Institutions for the purposes described in this paragraph
are being delivered with this Prospectus and the related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely book-entry confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Original Notes (or a timely
book-entry confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuers, be unlawful. The Issuers also reserve the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of the Issuers, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Issuers' interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Issuers and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Issuers
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Issuers to be
necessary or desirable to complete the
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exchange, assignment and transfer of tendered Original Notes. The Transferor
further agrees that acceptance of any tendered Original Notes by the Issuers and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Iridium Parties of their obligations under the Exchange and
Registration Rights Agreement and that the Iridium Parties shall have no further
obligations or liabilities thereunder (except in certain limited circumstances).
All authority conferred by the Transferor will survive the death or incapacity
of the Transferor and every obligation of the Transferor shall be binding upon
the heirs, legal representatives, successors, assigns, executors and
administrators of such Transferor.
By tendering Original Notes, the Transferor certifies (a) that it is not an
"affiliate" of any of the Iridium Parties within the meaning of Rule 405 under
the Securities Act, that it is acquiring the Exchange Notes offered hereby in
the ordinary course of such Transferor's business, that such Transferor has no
arrangement with any person to participate in the distribution of such Exchange
Notes and, if not a broker-dealer, the Transferor is not engaged in a
distribution of the Exchange Notes or (b) that it is an "affiliate" (as so
defined) of an Iridium Party or of the Initial Purchasers and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Original Notes to be withdrawn, the certificate numbers of Original
Notes to be withdrawn, the principal amount of Original Notes to be withdrawn
(which must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name of
the registered holder of such Original Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Issuers that the person withdrawing the tender has succeeded
to the beneficial ownership of the Original Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Original Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Issuers, and
such determination will be final and binding on all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for
exchange validly tendered Original Notes when, as and if an Issuer has given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving Exchange Notes from the Issuers and causing
the Original Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Original Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Original Notes. Original Notes
not
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accepted for exchange by the Issuers will be returned without expense to the
tendering holders (or in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the procedures
described above, such non-exchanged Original Notes will be credited to an
account maintained with DTC promptly following the Expiration Date or, if the
Issuers terminate the Exchange Offer prior to the Expiration Date, promptly
after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, no Iridium Party will be required to issue or guarantee
Exchange Notes in respect of any properly tendered Original Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service) or, at its option, modify or otherwise amend the Exchange Offer,
if (a) there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof, or (iii) resulting in
a material delay in the ability of the Issuers to accept for exchange or
exchange some or all of the Original Notes pursuant to the Exchange Offer; (b)
any statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the sole judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in clauses
(a)(i) or (ii) above or, in the sole judgment of the Issuers, might result in
the holders of Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes which are greater than those described in the
interpretations of the Commission referred to in this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or (c) a
material adverse change shall have occurred in the business, condition
(financial or otherwise), operations, or prospects of the Issuers.
The foregoing conditions are for the sole benefit of the Iridium Parties
and may be asserted by any of them with respect to all or any portion of the
Exchange Offer regardless of the circumstances (including any action or inaction
by any Iridium Party) giving rise to such condition or may be waived by the
Issuers in whole or in part at any time or from time to time in their sole
discretion. The failure by the Issuers at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, and each right
will be deemed an ongoing right which may be asserted at any time or from time
to time. In addition, the Issuers have reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Issuers concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Issuers will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to (i) the registration statement of which this Prospectus constitutes a
part or (ii) qualification under the Trust Indenture Act of 1939 (the "Trust
Indenture Act") of the applicable Indenture pursuant to which such Original
Notes were issued.
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EXCHANGE AGENT
State Street Bank and Trust Company, the Trustee under each of the
Indentures, has been appointed as the Exchange Agent for the Exchange Offer.
Letters of Transmittal must be addressed to the Exchange Agent at its address
set forth on the back cover page of this Prospectus.
Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Iridium Parties have not retained any dealer-manager or similar agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Iridium
Parties will, however, pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Iridium Parties will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
Iridium and are estimated at approximately $300,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by any Iridium Party. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of any Iridium Party since the respective dates as of which information
is given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Original Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuers may, at
their discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of
Original Notes in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Issuers by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
APPRAISAL RIGHTS
Holders of Original Notes will not have dissenters' rights or appraisal
rights in connection with the Exchange Offer.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders should not be
a taxable exchange for Federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Iridium Parties will have fulfilled a covenant contained in the terms of the
Exchange and Registration Rights Agreement. Holders of the Original Notes who do
not tender their certificates in the Exchange Offer will continue to hold such
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certificates and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture pursuant to which such Original Notes were issued.
Except in limited circumstances relating to rights to request a Shelf
Registration Statement, as discussed above, the exchange and registration
rights, and the right to receive Liquidated Damages, pursuant to the Exchange
and Registration Rights Agreement will cease to have further effect as a result
of the consummation of this Exchange Offer. See "Exchange and Registration
Rights Agreement." All untendered Original Notes will continue to be subject to
the restriction on transfer set forth in the Indenture pursuant to which such
Original Notes were issued. To the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Original
Notes could be adversely affected. See "Risk Factors -- Consequences of Failure
to Exchange."
The Issuers may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
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SELECTED FINANCIAL DATA
The following selected financial data of Iridium as of December 31, 1992
(predecessor company), 1993, 1994, 1995 and 1996 and for the year ended December
31, 1992 (predecessor company), the period January 1, 1993 to July 28, 1993
(predecessor company) and the period July 29, 1993 (the Initial Contribution
Date) to December 31, 1993, and the years ended December 31, 1994, 1995 and
1996, have been derived from the consolidated financial statements of Iridium
(and its predecessor prior to the Initial Capital Contribution Date), which have
been audited by KPMG Peat Marwick LLP, independent certified public accountants.
The selected financial data of Iridium as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 are derived from the unaudited condensed
consolidated financial statements of Iridium. In the opinion of management of
Iridium, such unaudited condensed consolidated financial statements include all
adjustments necessary for a fair presentation of the financial position and the
results of operations as of and for such periods. The selected financial data
set forth below should be read in conjunction with "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Iridium and notes thereto included
herein.
PERIOD PRIOR TO
INITIAL CAPITAL PERIODS FOLLOWING INITIAL
CONTRIBUTION DATE(1) CAPITAL CONTRIBUTION DATE
----------------------------- --------------------------------------------- SIX MONTHS ENDED
JAN. 1, 1993 JULY 29, 1993 YEAR ENDED DEC. 31, JUNE 30,
YEAR ENDED TO TO ----------------------------- -------------------
DEC. 31, 1992 JULY 28, 1993 DEC. 31, 1993 1994 1995 1996 1996 1997
------------- ------------- ------------- ------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS EXCEPT PER CLASS 1 INTEREST DATA)
CONSOLIDATED STATEMENT OF
LOSS DATA:
Revenues(2)............... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Sales, general and
administrative.......... 8,773 5,309 7,141 17,561 27,187 71,404 18,731 84,468
Interest Income........... -- -- 390 4,252 5,226 2,395 1,715 614
Provision for income
taxes................... -- -- 173 1,525 1,684 4,589 487 --
------ ------ ------ ------- ------- ------- ------ -------
Net Loss.................. $ 8,773 $ 5,309 $ 6,924 $14,834 $23,645 $73,598 $17,503 $ 83,854
====== ====== ====== ======= ======= ======= ====== =======
Net Loss per Class 1
Interest................ $ -- $ -- $ .43 $ .38 $ .27 $ .64 $ .15 $ .71
====== ====== ====== ======= ======= ======= ====== =======
OTHER DATA(3):
Ratio of earnings to fixed
charges(4)................ -- -- -- -- -- -- -- --
Deficiency of earnings to
cover fixed charges....... $ 8,773 $ 5,309 $ 6,751 $13,309 $21,961 $97,136 $22,408 $115,886
DECEMBER 31, JUNE 30, 1997
------------------------------------------------------- ---------------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(5)
------- -------- -------- ---------- ---------- ---------- --------------
(DOLLARS IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ -- $ 23,496 $202,391 $ 51,332 $ 1,889 $ 106,419 $ 851,358
System under construction................ $ -- 275,000 646,000 1,448,000 2,376,884 2,708,325 2,708,325
Total assets............................. $ -- 299,886 851,809 1,505,383 2,434,081 2,934,545 3,704,484
Long-term debt........................... $ -- -- -- -- 735,904 913,337 1,666,163
Total Members' equity (deficit).......... $(9,530) $294,308 $795,813 $1,404,610 $1,572,029 $1,787,133 $1,804,246
- ---------------
(1) These amounts reflect certain costs incurred by Motorola prior to July 29,
1993, which were reimbursed by Iridium.
(2) Iridium is a development stage company and accordingly has no revenue for
the periods presented.
(3) For purposes of determining the ratio of earnings to fixed charges, and the
deficiency of earnings to cover fixed charges, "earnings" includes pre-tax
income (loss) adjusted for fixed charges. "Fixed charges" consists of
interest capitalized and that portion of operating lease rental expense
(deemed to be one-third of rental expense) representative of interest.
(4) The ratios of earnings to fixed charges are not presented for each of 1992,
1993, 1994, 1995 and 1996, and the six months ended June 30, 1996 and 1997,
because earnings were inadequate to cover fixed charges by approximately
$8,773,000, $12,060,000, $13,309,000, $21,961,000 and $97,136,000, and
$22,408,000 and $115,886,000, respectively.
(5) Pro forma as adjusted to give effect to the Original Offering. Does not
reflect any reduction in the Guaranteed Bank Facility resulting from the
application of the net proceeds of the Original Offering. See "Use of
Proceeds."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Iridium is currently devoting its entire efforts to commercializing and
establishing the IRIDIUM System. As such, Iridium's current principal activities
relate to managing the design, construction and development of the system and
preparing for its day-to-day operations. See "Business" and Iridium's financial
statements and notes thereto included elsewhere in this Prospectus.
Each of Roaming, IP and Capital is a wholly owned subsidiary of Iridium.
Each of Roaming, IP and Capital has no significant assets and does not conduct
any operations. IWCL acts as a member of Iridium and has no other business.
IWCL's sole asset is its Class 1 Interests in Iridium.
LIQUIDITY AND CAPITAL RESOURCES
Funding Requirements
Iridium will require substantial amounts of continued outside financing to
acquire and develop its assets and to commence operations. With respect to the
IRIDIUM System, Iridium and Motorola have entered into (i) the Space System
Contract for the design, development, production and delivery in orbit of the
space segment, (ii) the Operations and Maintenance Contract to provide day-
to-day management of the space segment after deployment and to monitor, upgrade
and replace hardware and software of the space segment as necessary to maintain
performance specifications and (iii) the Terrestrial Network Development
Contract to design the gateway hardware and software. Substantially all of the
initial capital raised by Iridium is being used and will continue to be used to
make payments to Motorola under the Space System Contract and, to a lesser
extent, the Terrestrial Network Development Contract. The Space System Contract
provides for a fixed price of $3.45 billion (subject to certain adjustments),
scheduled to be paid by Iridium to Motorola over approximately a five-year
period for completion of milestones under the contract. Payments under the
Operations and Maintenance Contract will be payable quarterly and are expected
to aggregate approximately $2.88 billion over such contract's initial five-year
term (assuming commencement of commercial operations on September 23, 1998 and
no excusable delays), in addition to the cost of certain spare satellites at the
completion of the contract. The payments increase each year, ranging from
quarterly payments of $129.4 million in 1998 to $157.4 million in 2003 to $171.4
million in 2005. If Iridium exercises its option to extend the Operations and
Maintenance Contract for an additional two years, the payments due for that
two-year extension are expected to aggregate approximately $1.33 billion
(assuming commencement of commercial operations on September 23, 1998 and no
excusable delays). The Terrestrial Network Development Contract provides for
payments aggregating approximately $270 million. As a result of technological
developments, changes in the product mix of the IRIDIUM Service, and scheduling
adjustments, including the implementation of ICRS into Iridium's service
offerings, there have been, and Iridium anticipates there will be, amendments
and interpretations of the Space System Contract, the Terrestrial Network
Development Contract and the Operations and Maintenance Contract and other
agreements and letters with Motorola, which may increase the total costs of
these contracts. Iridium's estimate of the cost of anticipated amendments is
reflected in Iridium's estimates of its funding requirements. These amendments
and interpretations may affect the price and terms of those agreements. See
"Risk Factors -- Risks Associated with Principal Supply Contracts -- Amendments
to Principal Contracts."
Through June 30, 1997, Iridium has incurred expenditures totaling $2.54
billion to Motorola under the Space System Contract in respect of completed
milestones and expenditures totaling $96 million under the Terrestrial Network
Development Contract. Based on current estimates and
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the current planned schedule, Iridium's expected future cash requirements by
year under the contracts through December 31, 1999 are approximately as follows:
REMAINDER OF
1997 1998 1999
------------ ------------- ----
(IN MILLIONS)
Space System Contract.................... $477 $ 589 --
Terrestrial Network Development 68 47 $ 91
Contract...............................
Operations and Maintenance Contract...... -- 140 538
Iridium will also require funds for working capital, business software
development, interest on anticipated borrowings, financing costs and operating
expenses until some time after the commencement of commercial operations. See
"Prospectus Summary -- Sources and Uses of Funds by Iridium." Iridium's interest
expense will increase significantly as a result of its financing plan. During
commercialization, Iridium will be required to make payments to Motorola under
the Operations and Maintenance Contract. After December 31, 1999 (the last year
in which Iridium projects negative cash flow and a net increase in year-end
outstanding borrowings), Iridium's obligations relating to the Operations and
Maintenance Contract and funds needed for working capital, capital expenditures
and debt service are anticipated to be funded through operations. Iridium
anticipates cash funding requirements of approximately $4.365 billion through
September 1998, the month Iridium expects to commence commercial operations, and
$5.1 billion (net of assumed revenues following commencement of commercial
operations) through year-end 1999, the last year in which Iridium projects
negative cash flow and a net increase in year-end borrowings.
The foregoing information reflects Iridium's current estimate of its
funding requirements through year-end 1999. Actual amounts may be expected to
vary from such estimates for a variety of reasons, including unforeseen
construction, integration or regulatory delays or launch failures. See "Risk
Factors -- Risk of Error in Forward Looking Statements," "-- Potential for Delay
and Cost Overruns," and "-- Satellite Launch Risks -- Impact of Excusable
Delays."
Sources of Funding
As of June 30, 1997, Iridium had equity investments of $1.982 billion,
including approximately $224 million in net proceeds from the IWCL IPO and $60
million due from South Pacific Iridium Holdings Limited pursuant to the terms of
a definitive purchase agreement. At June 30, 1997, debt equaled approximately
$900 million, including borrowings under the $750 million Guaranteed Bank
Facility, under which $660 million was outstanding as of June 30, 1997. On July
21, 1997, Iridium permanently reduced the bank commitments under the Guaranteed
Bank Facility to $655 million. Borrowings under the Guaranteed Bank Facility are
guaranteed by Motorola. Pursuant to the Motorola MOU, Motorola has conditionally
agreed to guarantee up to $350 million of additional Indebtedness (including
principal and interest) under the Guaranteed Bank Facility or another credit
facility on identical terms (the "Motorola Additional Guarantee"), provided that
borrowings under such additional Indebtedness are made on or prior to February
28, 1999. Borrowings under the Guaranteed Bank Facility mature in August 1998.
Pursuant to the Motorola MOU, Motorola has agreed to extend the Motorola
Guarantee (including the Motorola Additional Guarantee, if committed) until
after the Stated Maturity (as defined) of the Notes, if the Guaranteed Bank
Facility is so extended. Iridium believes it would be able to amend the
Guaranteed Bank Facility to increase its amount and to extend its maturity at
least through expected commercial activation, if it so requests. There can be no
assurance, however, that the bank lenders will agree to increase the amount of
the Guaranteed Bank Facility or to extend the term of the Guaranteed Bank
Facility if so requested by Iridium, or that any such other identical credit
facility would be available. See "Description of Other Indebtedness" and
"Certain Relationships and Related Transactions of Iridium -- Motorola Related
Matters."
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Iridium has received a commitment letter from Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and BZW, the investment banking division
of Barclays Bank PLC, for the Secured Bank Facility in a principal amount up to
$750 million, to be secured by substantially all of Iridium's assets and by the
Reserve Capital Call (as defined). The availability of the Secured Bank Facility
is subject to significant conditions, including execution of satisfactory
definitive documentation, technical conditions relating to the IRIDIUM System,
conditions relating to regulatory approvals and conditions relating to other
financing sources. Borrowings under the Secured Bank Facility would mature on
December 31, 1998, subject to Iridium's right to extend such maturity until June
30, 1999 if it can demonstrate by October 31, 1998 that it has sufficient
available or committed financing for its projected capital and operating
expenses under its business plan through such extended maturity. See
"Description of Other Indebtedness." After giving effect to the $745 million
received from the Original Notes on July 16, 1997, and assuming approximately
$650 million of borrowings under the Guaranteed Bank Facility (extended through
the expected commencement of commercial operations as discussed above) and full
utilization of the Secured Bank Facility, Iridium expects to have sufficient
cash to meet its anticipated funding requirements through September 1998, the
month Iridium expects to commence commercial operations. Iridium is seeking
other senior secured bank financing in order to meet its expected funding
requirements through at least year-end 1999, the last year in which Iridium
projects negative cash flow and a net increase in year-end borrowings.
Additional financing may also need to be obtained through the issuance of
equity or debt securities in the public or private markets. The availability and
terms of any such financing are uncertain and are dependent, in part, on market
conditions existing at the time of any proposed financing. Iridium's estimated
funding requirements will increase, perhaps substantially, in the event of
unexpected cost increases or schedule delays. Additional equity financing, if
pursued, may be raised either privately from strategic or financial investors,
or through additional public offerings. See "Certain Matters Regarding
Relationship of IWCL and Iridium -- Share Issuance Agreement." Pursuant to the
Motorola MOU, Iridium agreed that, to the extent the net proceeds to Iridium of
senior note offerings prior to December 31, 1997 (including the Series A and B
Notes) exceed $650 million, it will apply such excess to a prepayment of the
Guaranteed Bank Facility and to a permanent reduction of the commitments of the
lenders thereunder (provided that such commitments need not be reduced to an
amount less than $275 million); on July 21, 1997 such commitments were reduced
to $655 million as a result of the Original Offering discussed above.
In connection with the Secured Bank Facility, the bank lenders will require
a security interest in substantially all of Iridium's assets and the Reserve
Capital Call. The bank lenders also will require that the membership interests
in Iridium, or any company to which all or substantially all of Iridium's assets
are transferred, be pledged as security under the Secured Bank Facility. In
connection with granting such security interest, Iridium expects to enter into a
transaction whereby Iridium will establish a new wholly-owned subsidiary and
transfer all or substantially all of its assets and liabilities to that
subsidiary with Iridium remaining as a holding company for the new entity.
Iridium would then pledge all of the membership interests in the new entity to
the bank lenders in connection with the Secured Bank Facility. The new entity is
expected to be a member-managed limited liability company with Iridium acting as
the sole member and would assume Iridium's obligations with respect to currently
outstanding indebtedness of Iridium. See "Description of Notes -- Merger and
Consolidation."
As a result of Iridium's outstanding debt and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
Iridium will have substantial indebtedness. Iridium's ability to meet all of its
debt service obligations when due will require it to generate significant cash
flow from operations or, if necessary, make additional borrowings to refinance
its outstanding indebtedness. No assurance can be made that Iridium will be able
to generate sufficient cash flow to meet its debt service obligations or will be
able to refinance indebtedness. The debt instruments governing future
indebtedness will contain restrictions on, among other things, the incurrence of
indebtedness. See "Risk Factors -- Significant Additional Funding Needs,"
"-- Risk of Highly Leveraged Capital Structure."
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OPERATIONS
Iridium is a development stage company and, as such, will not generate any
revenues from operations until the IRIDIUM System is constructed and deployed,
and commercial operations commence, which is currently anticipated to be in
September 1998. To date, Iridium's only source of income has been interest
income on the cash and investment balances from the proceeds of equity
commitments, which amounted to approximately $12.9 million from the initial
capital contribution date to June 30, 1997. During the same period, Iridium
recorded a net loss of $203 million. In addition, during the years ended
December 31, 1991 and 1992, and the period from January 1, 1993 to the Initial
Capital Contribution Date, aggregate costs of $14.8 million were incurred by
Motorola. Such costs were paid by Iridium to Motorola pursuant to a
reimbursement agreement.
As a development stage company, Iridium has incurred losses since its
inception and will continue to do so for the foreseeable future. Iridium's
ability to become profitable and generate positive cash flow is dependent on the
successful commencement of the operation of the IRIDIUM System, wide subscriber
acceptance and numerous other factors. See "Risk Factors -- Development Stage
Company; Absence of Revenues."
Capitalization of Costs
All payments by Iridium under the Space System Contract are being
capitalized. These capitalized costs are then depreciated over the five-year
estimated life of the satellites. Depreciation expense is realized on a
satellite-by-satellite basis, commencing with the acceptance of title for each
such satellite. Depreciation related to the ground control stations commences
with the placement in service of each such station. Capitalized amounts under
the Space System Contract and the Terrestrial Network Development Contract
aggregated $2.64 billion through June 30, 1997. In addition, costs incurred in
connection with the issuance by Iridium of Class 1 Interests are reflected as a
reduction of additional paid-in capital. Payment of these costs and charges has
resulted in significant negative operating cash flow. Certain interest expenses
will also be capitalized. See "-- Interest Expense."
A portion of the payments made under the Operations and Maintenance
Contract will be capitalized and depreciated. The amount so capitalized will be
determined on a yearly basis depending upon the number of replacement satellites
put into service. Any payments under the Operations and Maintenance Contract not
capitalized will be expensed in the year paid.
Operating Expenses
For the period from the Initial Capital Contribution Date through June 30,
1997, marketing, general and administrative expenses were approximately $208
million. During the period prior to the Initial Capital Contribution Date, total
accumulated expenditures of approximately $14.8 million were incurred, primarily
to reimburse Motorola for expenses associated with operating Iridium during the
period from its incorporation in 1991 through the Initial Capital Contribution
Date. Iridium expects a substantial increase in future operating expenditures
relating to sales, marketing and other costs associated with commercialization.
Interest Expense
Iridium expects to finance a significant portion of its capital
requirements through borrowings. As a result of these borrowings, Iridium will
have significant interest costs. Interest costs are being capitalized while the
system is under construction and will be depreciated thereafter. This has
resulted in all interest costs being capitalized during 1995, 1996, and the six
month period ended June 30, 1997, and will likely have similar results for the
remainder of 1997, with a meaningful portion of interest cost expensed in 1998
and all interest cost expensed beginning in 1999. Some portion of interest
expense will not be paid in cash, including the interest expense related to
Iridium's 14 1/2% Senior Subordinated Notes through March 1, 2001. Such non-cash
interest will be accrued and such accrual will increase outstanding indebtedness
on Iridium's balance sheet.
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Income Taxes
Iridium reports its income as a partnership for United States federal
income tax purposes and, accordingly, is not expected to be directly subject to
U.S. federal income tax. Iridium may, however, be subject to tax in some state,
local or foreign jurisdictions on portions of its income.
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BUSINESS
OVERVIEW
Iridium is developing and commercializing a global mobile wireless
communications system that will enable subscribers to send and receive telephone
calls virtually anywhere in the world -- all with one phone, one phone number
and one customer bill. The IRIDIUM System will combine the convenience of
terrestrial wireless systems with the global reach of Iridium's satellite
system. Launch of the first five IRIDIUM satellites occurred on May 5, 1997 and
launch of the next seven IRIDIUM satellites occurred on June 18, 1997. The third
launch, which included five satellites, occurred July 9, 1997; however, on July
18, 1997, Iridium was informed by Motorola, Inc. ("Motorola") that it had lost
communication with one of those satellites. An additional five satellites are
scheduled to be launched by late August 1997. See "Risk Factors -- Satellite
Launch Risks."Iridium expects to commence commercial service in September 1998.
See "Risk Factors -- Potential for Delay and Cost Overruns."
Iridium believes there is a significant market comprised of individuals and
businesses who need global communications capability and are willing to pay for
the convenience of a hand-held wireless phone or belt-worn pager. The
availability of terrestrial wireless communications service is often constrained
by the limited geographic coverage of terrestrial systems, the incompatibility
of differing wireless protocols or the absence of roaming agreements among
wireless operators. The combination of ICRS, IRIDIUM Satellite Services and
IRIDIUM paging will extend wireless access globally and allow Iridium's
customers to be reached by phone or pager, and to place phone calls from or to,
virtually anywhere in the world with one phone and one phone number. ICRS is
expected to enable customers to roam internationally among terrestrial wireless
networks, even those using different protocols, that have roaming agreements
with Iridium. IRIDIUM Satellite Services will extend voice services to the
regions of the globe not served by terrestrial systems. Iridium intends to offer
global paging both in combination with IRIDIUM voice services and as a
stand-alone service. Iridium believes that the signaling capabilities of the
IRIDIUM System will enable Iridium to track a voice customer's location
effectively and with minimal customer cooperation, thereby allowing Iridium to
direct pages and calls as customers travel globally. Iridium also expects to
offer, commencing in 1999, a broad range of in-flight passenger communications
services with participating airlines, including global incoming and outgoing
voice, data and facsimile services. In addition, Iridium expects to market
IRIDIUM Services to governmental, industrial and rural users of wireless
communications systems. Iridium believes it will be the only wireless
communications system in operation prior to 2000 that will be able to offer this
array of global communications services. See "Risk Factors -- Consequences of
Satellite Service Limitations on Customer Acceptance" and "-- Consequences of
IRIDIUM Phone and Pager Characteristics on Customer Acceptance."
The IRIDIUM System encompasses four components: the "space segment," which
will include the low earth orbit satellite constellation and the related control
facilities; the ground stations or "gateways," which will link the satellites to
terrestrial communications systems; the IRIDIUM subscriber equipment, which will
provide mobile access to the satellite system and terrestrial wireless systems;
and the terrestrial wireless interprotocol roaming infrastructure, which will
facilitate roaming among the IRIDIUM satellite system and multiple terrestrial
wireless systems that use different wireless protocols. The satellite
constellation of the IRIDIUM System, which will consist of 66 operational
satellites arranged in six polar orbital planes, is being assembled and
delivered in orbit by Motorola pursuant to a fixed price contract, subject to
certain adjustments. Motorola also will operate and maintain the satellite
constellation for five years (extendible to seven years at Iridium's option).
Each of the 11 gateways will be owned, operated and financed by one or more
investors in Iridium or their affiliates. Iridium expects that portable,
hand-held IRIDIUM phones will be manufactured by at least two experienced
suppliers, Motorola and Kyocera, both of which have hand-held IRIDIUM phones
under development. The phones are expected to be available in satellite only and
multi-mode models, with the multi-mode model allowing subscribers to access the
IRIDIUM System and most terrestrial wireless systems using different protocols
with a single phone. ICRS
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will support roaming among the two principal types of terrestrial wireless
protocols -- IS-41 (AMPS, NAMPS and CDMA) and GSM (GSM900, DCS1900 and DCS1800).
Roaming between these protocols requires cross-protocol translation which will
be accomplished for ICRS through the IIU, being developed under the direction of
Motorola. The IIU will permit system management information, including customer
authentication and location, to be relayed between systems using different
technologies.
STRATEGY
Iridium's strategy is to launch and operate the premier global mobile
wireless network. The key components of this strategy are set forth below:
Provide a unique service package to traveling professionals enabling them
to be reached and make calls virtually anywhere in the world. IRIDIUM Satellite
Services will complement terrestrial wireless services and provide the traveling
professional with communications capability in areas where terrestrial wireless
service is unavailable, inconvenient, of poor quality or unreliable. Iridium
intends to offer ICRS and global paging as complements to IRIDIUM Satellite
Services and as stand-alone services. Iridium believes that it will be the only
wireless communications system in operation prior to 2000 that will be able to
offer virtually global mobile voice and paging services, including:
- Global coverage. An IRIDIUM subscriber will generally have worldwide
wireless coverage wherever IRIDIUM Services are authorized, including
mid-ocean and remote areas. The availability of the IRIDIUM Satellite
Service will not be limited by the customer's proximity to a gateway.
Iridium believes this feature will make its Satellite Services
particularly well suited for aeronautical and shipping communications and
for service in land areas where LEO MSS systems using "bent pipe"
technology are not expected to have the more extensive gateway
infrastructure needed by such systems to provide global coverage.
- Convenient roaming onto terrestrial wireless networks. Iridium will
offer subscribers a combination of IRIDIUM Satellite Services and ICRS.
With the addition of ICRS, customers will be able to overcome (i) the
incompatibility of differing wireless protocols and (ii) the service
limitations of satellite-only voice services in buildings and urban
canyons. Iridium expects to be able to deliver all of its voice services
with one phone, one phone number and one customer bill.
- Global paging with belt-worn pagers. The IRIDIUM belt-worn pager will
have the capability of receiving alphanumeric messages of up to 63
characters and numeric messages of up to 20 digits virtually anywhere in
the world. With Iridium's global paging, users of IRIDIUM Satellite
Services or ICRS will generally be able to update their location on the
IRIDIUM System by briefly turning on their phone, thereby allowing the
IRIDIUM System to send a targeted page. Iridium believes that it will be
the first company, and the only company prior to 2000, which will offer
global paging to a belt-worn pager.
- Greater signal strength. The IRIDIUM System is designed to provide
greater signal strength than proposed competing MSS systems. Iridium
believes this greater signal strength will allow it to better serve
hand-held phones, and provide a higher degree of in-building signal
penetration for pagers, than competing MSS systems.
Be the first to market with a global wireless communications
system. Iridium plans to capitalize on the substantial design, development,
fabrication and testing efforts and financial investment to date of its
strategic investors to bring the IRIDIUM Services to market at the earliest
practicable date, which is currently expected to be September 1998. Iridium
believes that it will be the only wireless communications system in operation
prior to 2000 that will be able to offer global mobile voice and paging services
in each country in which IRIDIUM Services are authorized.
Adapt proven technologies through an industrial team led by Motorola. The
IRIDIUM System adapts proven technology, including GSM cellular call processing
technology, intersatellite links,
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FDMA/TDMA radio transmission technology, a 2,400 bps vocoder and business
support software. Iridium believes that the primary technological challenge is
the integration of these proven technologies into a single system. Motorola, the
principal investor in Iridium, is a leading international provider of wireless
communications systems, cellular phones, pagers, semiconductors and other
electronic equipment. The industrial team assembled by Motorola to build and
deliver in orbit the IRIDIUM System consists of major companies experienced in
aerospace and telecommunications, including Nuova Telespazio, Lockheed Martin,
Raytheon, McDonnell Douglas, Khrunichev and China Aerospace.
Capitalize on the strengths of its strategic investors. A number of
Iridium's strategic investors provide telecommunications services in various
parts of the world and have significant operating, regulatory and marketing
experience in their service territories. Iridium expects that its investors with
existing wireless communications sales and service organizations will use these
organizations to market and distribute IRIDIUM Services and equipment to
potential subscribers. Because of the prominence of many of these investors,
Iridium believes that their efforts to obtain the necessary regulatory approvals
have been, and will continue to be, of great importance.
Utilize existing wireless distribution channels. Iridium's strategy is to
target primarily traveling professionals, who are generally wireless phone
users. Iridium's strategy is to provide customers with an enhancement to their
existing terrestrial wireless service through existing marketing and
distribution channels rather than to focus on individuals who have no or limited
landline or wireless communications experience and live in areas where no
marketing and distribution channels currently exist.
IRIDIUM SERVICES
General
IRIDIUM will provide global communications services primarily to
individuals who require the convenience of having a hand-held wireless phone and
belt-worn pager that can be used virtually anywhere. Iridium will offer IRIDIUM
Satellite Services to customers who need to send or receive telephone calls in
areas not currently served by terrestrial wireless services. Iridium will offer
ICRS to customers who require wireless communications but travel frequently to
areas served by terrestrial wireless services that are incompatible with their
"home" wireless service. For customers who require continuous wireless
communications outside their terrestrial wireless coverage areas, IRIDIUM
Satellite Services and ICRS will be offered in combination as IRIDIUM Universal
Service, which will allow the customer to conveniently switch between the
IRIDIUM satellite system and any terrestrial wireless system that has a roaming
agreement with Iridium. Iridium expects to be able to deliver all of its voice
services with one phone, one phone number and one customer bill. Iridium also
intends to offer global paging both in combination with Iridium's voice services
and as a stand-alone service.
IRIDIUM Satellite Services
Because the IRIDIUM System will consist of a global network of satellites,
it will generally provide service to subscribers anywhere on the surface of the
Earth where IRIDIUM Services are authorized. The IRIDIUM System is designed to
provide a satellite-mode link margin (signal strength) for voice communication
that averages approximately 16dB with an unobstructed view of the satellite,
which Iridium believes will be a significantly higher link margin than other
proposed MSS systems. Iridium believes its greater signal strength will allow it
to better serve portable, hand-held telephones than competing MSS systems. See
"Risk Factors -- Consequences of Satellite Service Limitations on Customer
Acceptance" for a discussion of certain of the service limitations of IRIDIUM
Satellite Services. Iridium also expects to be able to offer a full array of
features including call waiting, call hold, conference calling, call forwarding
and call barring, although certain of these features are not expected to be
available until after commencement of commercial operations.
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The IRIDIUM System has not been designed to provide high-speed data and
facsimile transmission capability. IRIDIUM satellite fax service will allow
subscribers to send and receive facsimiles at 2,400 bps over the IRIDIUM System.
Subscribers will be provided with a fax mailbox through which faxes are sent to
the subscriber and retrieved by the subscriber when convenient. The mailbox
notifies subscribers of received faxes and can allow them to be automatically
forwarded to any facsimile device. Iridium expects that its facsimile services
will commence in 1999. Iridium will also provide data services commencing in
1999 which will enable customers to send or receive asynchronous data over the
IRIDIUM System at speeds of up to 2,400 bps.
IRIDIUM Cellular Roaming Services
Iridium is planning to establish the broadest global terrestrial wireless
roaming service. To meet this goal, Iridium intends to enter into roaming
agreements with wireless service providers worldwide and to offer ICRS as a
complement to IRIDIUM Satellite Services. Iridium's business plan currently
calls for roaming agreements covering networks in more than 50 countries by the
commencement of commercial operations in September 1998, with roaming agreements
covering networks in more than 150 countries in place by 2002. To date, Roaming
has entered into five roaming agreements. ICRS will permit subscribers to roam
among terrestrial wireless networks that have roaming agreements with Iridium,
with Iridium essentially acting as the customer's "home" system or as an
interface between the visited wireless network and the customer's home
terrestrial wireless network, even if the visited and home networks use
differing cellular protocols (e.g., IS-41, including AMPS, NAMPS and CDMA; and
GSM, including GSM900, DCS1900 and DCS1800). With ICRS, customers are expected
to be able to overcome (i) the coverage limitations of their "home" wireless
network when traveling to a city served by a wireless operator that does not
have a roaming agreement with the customer's home wireless network but does have
one with Iridium and (ii) the service limitations of satellite-only service when
in buildings and urban canyons, where terrestrial wireless service will
typically be available. Customers who travel between cities that are served by
different terrestrial wireless protocols but do not travel beyond the reach of
terrestrial wireless services will be able to realize the interprotocol benefits
of ICRS with either Iridium's planned single phone that is compatible with
multiple protocols, or with a combination of cellular phones, one for each
protocol. See "Risk Factors -- Risks Related to ICRS." The availability of ICRS
depends upon the successful development of the IIU. See "-- Space
Segment -- ICRS."
IRIDIUM Universal Services
Iridium intends to offer its Universal Services to customers who require
both satellite and terrestrial wireless service while traveling outside of their
"home" territories. IRIDIUM's Universal Service will allow a customer to
conveniently use both the IRIDIUM satellite system and any terrestrial wireless
network that has a roaming agreement with Iridium. For Universal Service, a user
will require an IRIDIUM phone and a phone that is compatible with the local
wireless protocol. To meet this requirement with a single phone, Motorola is
developing a multi-mode phone that will work alternatively with the IRIDIUM
System and most major terrestrial wireless systems, with the user able to adapt
the phone to the appropriate terrestrial protocol by inserting the corresponding
TRC into the phone (e.g. a GSM900-TRC in Europe or an AMPS-TRC in North
America), although the CDMA TRC will not be available until some time after
commencement of commercial operations. Kyocera is developing a multi-mode phone
that is expected to be configured as a satellite phone casing into which
terrestrial wireless phones using differing wireless protocols can be inserted.
In addition, like IRIDIUM Satellite Services and ICRS customers, Universal
Service customers will be able to have one phone number, which can either be an
IRIDIUM phone number (i.e., it will begin with "8816" or "8817," the
international country codes assigned to Iridium by the ITU) or the customer's
"home" cellular number.
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Paging
Iridium intends to offer global paging both as a stand-alone service and
bundled with its voice service offerings. Iridium believes that its bundled
paging and voice service offering will be particularly attractive to Iridium's
principal target customer, the traveling professional, who desires constant
communication capability. The IRIDIUM pager is expected to have a 26dB link
margin and provide the ability to receive alphanumeric messages of up to 63
characters and numeric messages of 20 digits. Iridium believes it will be the
first company, and the only company prior to 2000, that will be able to offer
global paging to a belt-worn pager. See "Risk Factors -- Consequences of IRIDIUM
Phone and Pager Characteristics on Customer Acceptance."
To use the L-band capacity of the IRIDIUM System efficiently, a page will
be sent to specified message delivery areas ("MDAs"). Iridium intends to vary
the size of each MDA in light of demand, capacity and competition. Since the
pager is a one-way device and cannot tell the network its location, it is
anticipated that the subscriber will be required to choose up to three MDAs for
normal delivery of the message. It is anticipated that, when traveling,
subscribers will be able to update their MDAs via a touch-tone phone, operator
assistance or Internet access. An IRIDIUM Satellite Service or ICRS customer
will have the benefit of "follow-me paging." Unlike the pager, the IRIDIUM
satellite phone and cellular phones are two-way devices and, when turned on,
identify the location of the subscriber. With "follow-me paging," customers will
generally be able to register their location by briefly turning on their IRIDIUM
phone (at no charge) or, in the case of ICRS customers, their terrestrial
wireless phone. The network then can identify the appropriate MDAs to send a
page, without further customer cooperation.
Iridium expects that a caller who is unable to reach an Iridium customer,
because the phone is turned off or the customer is in a building or urban canyon
where satellite voice service is unavailable, will be given the option to send a
page, leave a voice-mail message for the customer or both. By this means,
Iridium expects to provide communications capability virtually anywhere in the
world.
Aeronautical Services
Iridium expects to offer cabin and flightdeck communications to and from
business and commercial aircraft commencing in 1999. This service is expected to
be an extension of Iridium's voice services, since airline passengers,
especially business travelers, have a heightened demand for telephone services
due to the isolated, restrictive, and often time-consuming nature of air travel.
Subscribers to the IRIDIUM Satellite Services will not be able to use their
IRIDIUM phone within aircraft due to regulatory constraints and the inability of
the voice signal to penetrate the exterior of the aircraft, although Iridium
pagers should be able to receive pages unless prohibited by the carrier.
Therefore, a specialized IRIDIUM communications subsystem is expected to be
manufactured and sold to carriers to serve this market segment. Using this
communications subsystem, the IRIDIUM System would offer passengers (whether or
not they are IRIDIUM subscribers) and the flight-deck global voice, data and
facsimile communications capability. This would extend cabin coverage beyond
traditional land-based air-to-ground services. Iridium believes it will be able
to provide aeronautical services with less voice delay and smaller exterior
equipment than competing satellite-based systems. Iridium has entered into a
non-binding memorandum of understanding with AlliedSignal to design and provide
these services and equipment and Iridium, Motorola and AlliedSignal are in the
process of negotiating definitive agreements. See "Risk Factors -- Reliance on
Motorola, Gateway Owners and Other Third Parties."
In December 1996, Motorola submitted a request to the FCC to authorize the
IRIDIUM System to provide Aeronautical Mobile-Satellite Route Service
("AMS(R)S") in its authorized band. The IRIDIUM System is the only mobile
satellite system, licensed or in development, that can provide a communication
capability that is truly global, while using spectrum already allocated for
AMS(R)S. Several parties filed comments with and have petitioned the FCC to deny
Motorola's application to
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provide AMS(R)S service. Among other arguments, petitioners claim that the
AMS(R)S proposal is inconsistent with International Telecommunication Union and
FCC rules and allocations. In addition to FCC approval, approval is needed from
the FAA, which must certify that the avionics satisfy other international
certification requirements. There can be no assurance that the FCC application
will be granted, or that the avionics certification requirements will be
satisfied at all, or in a timely fashion. See "Regulation of
Iridium -- Licensing Status." Assuming all necessary authorizations are
obtained, Iridium expects to provide both the FCC required "safety"
communications capabilities to the flightdeck and passenger communications,
including voice and facsimile. An individual aircraft may be served by multiple
satellite communications carriers.
THE IRIDIUM MARKET
General
The market for IRIDIUM Satellite Services and ICRS is the worldwide market
for global personal voice, paging and data communications. IRIDIUM Services are
targeted at meeting the communications needs of users who (i) travel outside
their "home" wireless network to areas that are not served by terrestrial
wireless systems or are served only by local wireless standards that are
incompatible with their "home" wireless network standard, (ii) find it important
to be able to make or receive calls, or receive pages, at any time by means of a
single phone or belt-worn pager, with a single phone or pager number or (iii)
are located where terrestrial landline or wireless services are not available or
do not offer an attractive and convenient option.
Global MSS systems such as the IRIDIUM System are designed to address two
broad trends in the communications market: (i) the worldwide growth in the
demand for portable wireless communications -- according to industry sources,
the worldwide wireless communications market had approximately 135 million
subscribers at year-end 1996 and is estimated to grow to over 400 million
subscribers by year-end 2000; and (ii) the growing demand for communications
services to and from areas where landline or terrestrial wireless service is not
available or accessible. The IRIDIUM System architecture and the IRIDIUM
Services are primarily designed to serve customers who place the greatest value
on global mobile communications capability and have the ability to pay for
premium service.
To estimate potential demand for its services, Iridium has engaged in
extensive market analysis, including primary market research which involved
screening over 200,000 persons and interviewing more than 23,300 individuals
from 42 countries and 3,000 corporations with remote operations. Based on this
market analysis, Iridium has identified five target markets for IRIDIUM
communications services: traveling professionals; corporate/industrial;
government; rural; and aeronautical. Iridium expects the traveling professional
and corporate/industrial markets will provide most of the demand for IRIDIUM
Services. Iridium expects that individuals in these markets are more likely to
need and have the ability to afford hand-held, global mobile communications
capability than, for example, individuals who live in remote areas outside
existing distribution channels for wireless communications.
Iridium estimates that the addressable traveling professional market, which
it defines as all employed adults living in urban areas who own a wireless phone
and travel at least four times per year beyond the coverage of their current
wireless phone, will include approximately 42 million individuals by 2002. The
global corporate/industrial addressable market, which consists of companies with
more than 1,000 employees in industries with operations that are likely to need
mobile satellite services, is estimated by Iridium to include over 8,800
companies by 2002. Iridium believes that its unique service package is
well-tailored to meet the demands of, and will give Iridium an advantage over
competing MSS systems in, these target markets. For a discussion of the forward
looking nature of Iridium's estimates and various of the factors which could
cause actual addressable markets to differ materially from these estimates see
"Risk Factors -- Risk of Error in Forward Looking Statements."
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Target Markets
Iridium believes that the traveling professional and corporate/industrial
communications markets will be its principal target markets.
Traveling Professional. Individuals in the traveling professional market
segment are expected to represent a major market opportunity for IRIDIUM
Services. Currently, the ability of terrestrial wireless service subscribers to
roam outside their home territory or region is limited by (i) the absence or
unavailability of local wireless service in many regions, particularly
lesser-developed regions of the world; (ii) the absence of roaming agreements
between the user's local wireless provider and the wireless providers in the
country or region in which the user is traveling; and (iii) the inability of the
user's phone to operate with wireless phone systems employing a different
wireless protocol than in the user's "home" wireless system. Iridium expects
that its satellite, ICRS and paging services will appeal to traveling
professionals as a logical extension of their existing communications
capabilities. Iridium believes traveling professionals will use this increased
capability to remain in contact with their home or office and a substantial
portion of these calls will be international calls. The defining element for
this segment is that the handset purchase decision is made by the individual,
with the IRIDIUM account registered in his or her name.
Corporate/Industrial. Iridium believes that the corporate/industrial
market segments constitute a significant opportunity for IRIDIUM Services. The
corporate sub-segment consists of national and multinational companies whose
executives travel outside of their home terrestrial wireless coverage area and
who will have a need for MSS services in the regular course of business. The
industrial sub-segment includes industries that are expected to demand MSS
services at remote industrial sites and on land and water transportation
vehicles, such as utilities, oil and mineral exploration, pipeline,
construction, engineering, fishing and forestry. For companies that have
multiple locations around the globe, or a requirement for remote fleet
management and communications, the IRIDIUM System is expected to provide a
single technical and operational communications solution regardless of location,
in contrast to MSS and terrestrial systems that cannot provide global coverage.
IRIDIUM Satellite Services and paging services are expected to be used in this
market segment for business communication and emergency backup communication.
The defining element for this group is that the handset purchase decision is
made by the business and that the end user is an employee of that business.
Aeronautical. The worldwide aviation fleet is expected to number over
250,000 aircraft in the year 2002 with 44,000 aircraft expected to be users of
either satellite or terrestrial communications services. Unlike the
geostationary systems currently in use, the size and weight of the expected
IRIDIUM aeronautical product line make it feasible to include aircraft from all
segments of the aviation industry in the addressable market for MSS services.
Iridium expects its satellite communications services to co-exist with existing
terrestrial aeronautical system installations, providing regional coverage in
areas not served by terrestrial networks, such as mid-ocean and remote areas.
Government. Currently, governments are significant users of satellite
services, and Iridium anticipates that the coverage and portability
characteristics of IRIDIUM Satellite Services and paging services will make them
attractive for a variety of governmental applications. The government
communications addressable market is expected to encompass use of MSS services
by governmental departments and agencies and international organizations for
civilian and military applications, including law enforcement, official travel
and disaster relief. In addition, governments are expected to demand MSS
services for operations in areas where inadequate terrestrial communication
capability is common, such as for border patrols, customs officials,
communication with ships at sea and embassy communications.
Rural. The rural communications market segment for MSS systems is
comprised of two main subcategories: services to users based in (i) areas with
inadequate or inconvenient access to any telephone services, typically in
developing countries, and (ii) areas in which potential demand for terrestrial
wireless service exists but such services have yet to be deployed, or, if
deployed, are of
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poor quality, typically in rural areas of developed countries. The variety of
available subscriber equipment is expected to permit a range of applications
that would enable IRIDIUM Satellite Services to be a precursor to a permanent
wired or terrestrial wireless service in the geographic area. IRIDIUM Satellite
Services could also be used as a long-term communications solution for those
geographic areas around the world for which no terrestrial system can be
economically justified.
DISTRIBUTION AND MARKETING
Iridium's distribution strategy reflects its role as a wholesaler of
IRIDIUM Services and is primarily designed to leverage off established retail
distribution channels by using existing distributors of wireless services as
IRIDIUM service providers and marketing IRIDIUM Services to their customers.
Iridium will implement the distribution of IRIDIUM Services through its gateway
operators, all of which have agreed to become or engage IRIDIUM service
providers within their exclusive gateway territories. IRIDIUM service providers
will generally have primary responsibility for marketing IRIDIUM Services within
their territories in accordance with marketing policies and programs established
by Iridium. They will also be responsible for customer service, billing and
collection. Iridium anticipates that gateway operators will distribute IRIDIUM
Services through their own distribution channels or through, or in conjunction
with, one or more existing wireless service providers (including ICRS roaming
partners). Iridium expects that its service providers also will include affinity
partners (e.g., airlines, hotels and car rental companies).
Iridium has targeted key markets and is in active discussions in
conjunction with its gateway operators to contract with entities to act as
service providers and roaming partners in each of these markets. Within each
market, Iridium is targeting those potential service providers and roaming
partners that can reach the targeted Iridium market segments in the most
effective manner. The ability to provide roaming capabilities onto terrestrial
wireless networks is a critical element of establishing a roaming relationship
between roaming partners and the IRIDIUM System. When acquiring a terrestrial
wireless carrier as a retail distribution access point, the benefit of the
incremental roaming revenue brought to that roaming partner from around the
world through the Iridium network relationships could prove to be important in
signing the roaming partner. IRIDIUM Services can also be easily added to the
terrestrial wireless providers' bundle of services offered to its customer base.
Iridium's marketing strategy is to position IRIDIUM as the premier brand in
global wireless communications services. Iridium believes that its principal
target markets -- traveling professional and corporate/industrial -- can be
accessed through established marketing channels, which will permit more
effective marketing compared to MSS systems targeting individuals in remote
areas where marketing opportunities and distribution channels are limited.
Iridium is coordinating with its gateway partners to determine the optimum
allocation of marketing expenditures based on the primary market research that
Iridium has conducted. Iridium plans to engage in direct marketing to certain
markets, such as the utility, oil and gas, mining and maritime industries.
Iridium believes that a coordinated and comprehensive global marketing strategy,
supported by its market research, will promote a consistent message and permit
Iridium to establish a global brand identity.
PRICING
Iridium intends to implement a pricing strategy for its voice services
similar to the prevailing pricing structure for terrestrial wireless calls.
Prices for terrestrial wireless calls generally reflect two components -- a
charge based on the landline "dial-up" rate for a comparable call (primarily the
long distance charges) and a mobility premium for the convenience of wireless
service (including any roaming charges). Pricing for both IRIDIUM Satellite
Services and ICRS is expected to be based on this structure.
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For international IRIDIUM Satellite Services calls, which Iridium expects
will constitute the majority of calls over the IRIDIUM satellite system, the
"dial-up" rate component will be designed to approximate the rates for
comparable landline point-to-point international long distance calls. Iridium
has analyzed and will continue to analyze published international direct dial
rates around the world as well as published international calling card rates of
many of the largest international telecommunications carriers in establishing
the "dial-up" rate component. Iridium intends to set the global mobility premium
with reference to the premium charged by other wireless services, including
cross-protocol international terrestrial wireless roaming services and competing
MSS systems.
Iridium will set the wholesale prices for its services to allow for a
suggested retail price that will approximate the "dial-up" plus mobility
premium. Iridium's wholesale price will be designed to compensate Iridium, as
the network provider, and the originating and terminating gateways, as well as
to cover the PSTN tail charges. The home gateway will mark up the wholesale
price and the service provider will establish the final retail price. Iridium
expects that for international wireless calls, Iridium's suggested retail prices
will be competitive with other global MSS systems. In addition, from a
regulatory approval perspective in markets where the monopoly telecommunications
provider and the licensing authority are the same entity, a pricing strategy
that takes into account the "dial-up" alternatives allows Iridium to respond to
concerns that Iridium will capture the local monopoly provider's long-distance
revenues by undercutting terrestrial "dial-up" rates.
For ICRS pricing, the "dial up" rate component is primarily the long
distance charge, if any, which will be passed through to the customer. The
mobility premium will be set to compensate the parties involved, primarily the
serving network for its airtime charges, the visited gateway for customer
authentication and Iridium for protocol translation services. The retail price
will include the markup of the home gateway and service provider. Iridium
believes that its ICRS suggested retail prices will be comparable to other
cross-protocol roaming services.
In addition to airtime charges, IRIDIUM subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer IRIDIUM Services as additional features to their existing
wireless services, permitting their customers to remain customers of the
wireless network and to roam onto the IRIDIUM System. These customers will pay a
feature charge to Iridium for the roaming privilege that will be significantly
below the IRIDIUM monthly subscription fee, but they will pay an additional
roaming premium for calls made over the IRIDIUM System.
Initially, Iridium paging subscribers will pay a fixed monthly subscription
fee for unlimited paging. Iridium expects to implement per page pricing after
commencement of commercial operations, with the cost per page based, in part, on
the size of the geographic area covered by the page. The monthly paging
subscription fees will be reduced for persons who are also subscribers to
IRIDIUM voice services.
While Iridium expects to compete with other MSS systems and other
cross-protocol roaming services, Iridium does not intend to compete with
terrestrial cellular telephone systems for the vast majority of personal
communications services, because, among other reasons, IRIDIUM satellite voice
services are expected to be priced significantly higher than most terrestrial
wireless services.
THE IRIDIUM SYSTEM
The IRIDIUM System is comprised of four functional components: the space
segment, the gateways, the IRIDIUM subscriber equipment and the terrestrial
wireless interprotocol roaming infrastructure. The space segment, which includes
the satellite constellation and the related ground control facilities, will
allow Iridium to route voice, data and paging communications virtually anywhere
in the world. The gateways will link the satellite constellation with
terrestrial communications systems and will provide other call-processing
services, such as subscriber validation and billing information collection. The
Iridium subscriber equipment, which is expected to include single-mode and
multi-mode, portable, hand-held phones, aeronautical equipment, including
installed
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phones, and belt-worn pagers, will allow subscribers to access the IRIDIUM
System or be contacted via the IRIDIUM System virtually anywhere in the world.
The terrestrial wireless interprotocol roaming infrastructure will facilitate
roaming among the IRIDIUM System and multiple terrestrial wireless systems that
use different wireless protocols. Iridium will own the space segment and the
interprotocol roaming infrastructure, gateway owners will own and operate the
gateways, and subscribers will own the subscriber equipment.
Iridium believes that the capabilities of the IRIDIUM System will allow
Iridium to provide service features that Iridium's principal target markets,
traveling professional and corporate/industrial, will find desirable and that
will differentiate Iridium from its competitors. The number and distribution of
satellites in the IRIDIUM constellation should allow Iridium to provide
virtually global coverage, including mid-ocean and remote area access to the
IRIDIUM System. Multi-mode phones are expected to allow ICRS subscribers to
operate first with a local terrestrial cellular service (if one having a roaming
agreement in effect with Iridium is available) and then switch to the IRIDIUM
satellite system if a terrestrial service cannot be accessed. With Iridium's
global paging service, a subscriber will be able to receive a targeted page
virtually anywhere in the world with minimal customer cooperation. Iridium
believes that its expected signal strength will allow it to better serve
hand-held phones and provide a higher degree of in-building penetration for
pagers than competing MSS systems. Iridium believes that the 2,400 bps vocoder
selected by Motorola will provide voice quality that is acceptable to
terrestrial wireless customers. See "Risk Factors -- Consequences of Satellite
Service Limitations on Customer Acceptance" and "-- Consequences of IRIDIUM
Phone and Pager Characteristics on Customer Acceptance."
SPACE SEGMENT
The satellite constellation of the space segment will consist of a
constellation of 66 operational satellites arranged in six orbital planes in low
earth orbit. To minimize the cost of the constellation and reduce production
time, the design of the satellites emphasizes attributes which facilitate
production in large quantities. The satellites will be placed in six distinct
planes in near-polar orbit at an altitude of approximately 780 kilometers and
will circle the Earth approximately once every 100 minutes. Each satellite will
communicate with subscriber equipment on the ground using main mission antennas,
with gateways using gateway link antennas and with other IRIDIUM satellites in
space using crosslink antennas.
The main mission antennas will communicate with subscriber units through
tightly focused antenna beams forming a continuous pattern on the Earth's
surface. The main mission antenna subsystem of each satellite will include three
phased array antennas, each containing an array of transmit/receive modules.
Collectively, the 48 beams produced by a single satellite will combine to cover
a circular area with a diameter of approximately 4,340 kilometers. The IRIDIUM
System architecture will incorporate certain characteristics, such as call
hand-off, which will allow the space segment communications link with subscriber
equipment to be transferred from satellite to satellite as the satellites move
over the area where the subscriber is located.
The cross-link antennas will permit satellites in the constellation to
communicate with one another. Each IRIDIUM satellite will have four cross-link
antennas to allow it to communicate and route traffic to the two satellites that
are fore and aft of it in the same orbital plane as well as neighboring
satellites in the adjacent co-rotating orbital planes. This intersatellite
networking capability is a significant distinguishing feature of the IRIDIUM
System and provides a number of benefits. These intersatellite links, which
enable the satellites to function as switches in the sky, will allow the IRIDIUM
System to (i) select the optimal space-to-ground path of each call, thereby
enhancing system reliability and capacity while reducing the costs associated
with the use of terrestrial phone systems, (ii) service subscribers in all areas
(including, mid-ocean and remote areas) regardless of the proximity to a
gateway, (iii) provide full global service with a relatively small number of
gateways, thereby lowering total ground segment build-out and operating costs
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and (iv) provide enhanced ability to track the location of a voice customer,
allowing Iridium to target calls and pages as customers travel globally.
Operation of the satellites will be monitored, managed and controlled by
the system control segment. The master control facility is located in Virginia,
the back-up control facility is located in Italy, and the TT&C stations are
located in northern Canada and Hawaii, with an additional transportable
telemetry system currently located in Iceland. These facilities will manage the
performance and status of each of the individual satellites. The master control
facility will also manage the network by developing and distributing routing
tables for use by the satellites and gateways, directing traffic routing through
the network, and controlling cell formation by the satellites' main mission
antennas. In addition, the master control facility will manage the system
control segment itself by, for example, assigning earth terminals to satellites
and controlling data flow between the master and back-up control facilities.
Implementation of the Space Segment. The space segment of the IRIDIUM
System is being designed and constructed for Iridium by Motorola. See "Principal
Contracts for the Development of the IRIDIUM System."
Launch of the first five IRIDIUM Satellites occurred on May 5, 1997 and the
next seven IRIDIUM satellites were launched on June 18, 1997. An additional five
IRIDIUM satellites were launched on July 9, 1997; however, on July 18, 1997,
Iridium was informed by Motorola that it had lost communication with one of
those satellites. Five additional satellites are scheduled to be launched by
late August 1997. See "Risk Factors -- Satellite Launch Risks." Under the Space
System Contract, Motorola has completed 34 of the 47 contract milestones.
Contract milestone 30 -- initial launch of Iridium satellites -- was scheduled
for completion in January 1997, but the launch did not occur until May 5, 1997.
See "Risk Factors -- Potential for Delay and Cost Overruns." The remaining 13
milestones relate to the deployment, testing and completion of the space segment
of the IRIDIUM System, including the related ground control facilities. The
space segment is scheduled under the Space System Contract for completion on
September 23, 1998. Ground testing of satellite hardware has been substantially
completed. By August 1, 1997, twenty-four satellites had been produced, six
additional satellites were in final assembly and testing and additional
satellites were being produced at a rate of approximately five per month.
Motorola has completed construction of most of the terrestrial facilities
necessary to command the in-space movements of the satellites, including the
master control facilities and the associated TT&C facilities.
Motorola has entered into subcontracts with suppliers for the provision of
major subsystems of the Space Segment. The principal Space Segment
subcontractors include:
Manufacturers
- Lockheed Martin Corporation. Lockheed has designed and is manufacturing
the satellite bus. Lockheed is an investor in Iridium.
- Raytheon Company. Raytheon is providing the main mission satellite
antennas. Raytheon is an investor in Iridium.
- Nuova Telespazio. Telespazio is providing system engineering on system
control segment development and is expected to operate the back-up
control facility. Telespazio is an affiliate of STET, an investor in
Iridium.
Launch Providers
The requirements for the deployment of the initial satellite constellation
entail the placement into orbit of a large number of satellites in a relatively
short period of time, using conventional expendable launch vehicles. Based on
technical, commercial and other considerations, Motorola selected the following
three commercially offered launch systems for the deployment phase: Long
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March 2C through China Great Wall; Proton through Khrunichev; and Delta II
through McDonnell Douglas.
- China Great Wall Industry Corporation. China Great Wall has contracted
with Motorola to provide some of the launches for the initial deployment
of the space segment (and additional launches for the maintenance of the
space segment) utilizing its Long March 2C vehicle, which is expected to
launch two IRIDIUM satellites into orbit with each launch. An affiliate
of China Great Wall, Iridium China (Hong Kong) Ltd., is an investor in
Iridium and has been allocated the IRIDIUM gateway service territory for
China, Hong Kong, Macau and Mongolia.
- Khrunichev State Research and Production Space Center. Khrunichev has
contracted to provide some of the launches for the initial deployment of
the space segment utilizing the Proton launch vehicle, which is expected
to launch seven IRIDIUM satellites into orbit with each launch.
Khrunichev is an investor in Iridium and has been allocated the IRIDIUM
gateway service territory for Russia and eight other republics of the
former Soviet Union.
- McDonnell Douglas Corporation. McDonnell Douglas has contracted to
provide the majority of the launches for the initial deployment of the
space segment utilizing its Delta II launch vehicle, which is expected to
launch five IRIDIUM satellites into orbit with each launch.
Under the Space System Contract and the Operations and Maintenance
Contract, Motorola has agreed to procure the necessary space segment launch
services, and to place into orbit, and maintain in orbit, the space segment. In
light of the magnitude of the launch services procurement, the risks inherent in
satellite launch activity and the potential impact on Iridium's business if the
provision of launch services fails (including the potential that launch service
problems could give rise to excusable delays under the space System Contract and
Operations and Maintenance Contract), Motorola has developed numerous space
segment launch scenarios using various combinations of available launch systems
to fit the requirements of the IRIDIUM System in terms of cost, reliability,
availability, technical performance, credibility of suppliers and other factors.
The launch of the first five IRIDIUM satellites occurred on May 5, 1997 on
a McDonnell Douglas Delta II launch vehicle. This launch had been scheduled for
January 1997 but was delayed on four successive days and then postponed
following a launch failure involving the McDonnell Douglas Delta II launch
vehicle (which is the type of launch vehicle that McDonnell Douglas is using for
the IRIDIUM satellites). The first one-day delay was as a result of a software
problem at Motorola's satellite communications control facility, the second
one-day delay was as a result of a microwave link failure at the Vandenberg Air
Force base, the third one-day delay was as a result of a manual water valve not
being opened for cooling of the launch pad and the fourth one-day delay was as a
result of a problem with the insulation on the side of the Delta II launch
vehicle. Following the January 1997 failure of a Delta II launch vehicle, the
United States government ordered a halt to all further Delta II launches pending
completion of an internal review of the failure. That failure review was
completed on May 2, 1997 and concluded that the launch failure resulted from an
explosion of one of the nine solid rocket boosters attached to the first stage
of the launch vehicle. Thereafter, the launch suspension was lifted. The first
launch of IRIDIUM satellites occurred on May 5, 1997 (following successive
postponements on May 2, May 3 and May 4 due to weather conditions and a faulty
warning light). Motorola has informed Iridium that it is in the process of
reworking the original launch schedule as a result of the initial delays and
that it currently believes its new launch schedule should permit Iridium to meet
its planned September 1998 commencement of commercial operations. This reworked
launch schedule assumes that there are no additional significant launch delays
and that all three launch providers -- McDonnell Douglas, Khrunichev and China
Great Wall -- are able to provide launch services as currently planned. The
reworked launch schedule also creates risks because it has compressed the time
otherwise available for testing. The second launch under the new launch schedule
occurred on June 18, 1997 using Khrunichev's Proton launch vehicle, which
carried seven IRIDIUM satellites. The third launch occurred on July 9, 1997 on a
McDonnell Douglas Delta II launch vehicle, which carried five IRIDIUM
satellites. An additional five satellites are
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scheduled to be launched by late August 1997 on a McDonnell Douglas Delta II
launch vehicle. There can be no assurance that succeeding launches will proceed
on the new schedule or that the space segment will be operational on schedule.
See "Risk Factors -- Potential for Delay and Cost Overruns." On July 18, 1997,
Iridium was informed by Motorola that Motorola has lost communications with an
IRIDIUM satellite, confirmed through technical analysis on July 17, 1997. The
satellite, one of the five launched on July 9, 1997, was in a parking orbit
awaiting its ascent to final mission orbit. The other 16 satellites orbiting the
Earth continue to function within normal parameters. Iridium was advised by
Motorola that should loss of the satellite be confirmed, Iridium will not bear
the financial risk of loss, nor will it affect the scheduled date for commercial
service in September 1998. There can be no assurance that other anomalies would
not occur with respect to satellites after launch, or that such anomalies would
not have a significant adverse affect on Iridium including financial risk of
loss. See "Risk Factors -- Satellite Launch Risks."
Following the initial deployment of the satellite constellation, launch
services will be required in connection with the maintenance of the system. This
will entail the placement into orbit of satellites for the replacement of failed
or degraded satellites originally placed into orbit as part of the deployment
mission. The maintenance mission for satellite launch services may be performed
by a number of launch systems. Motorola has conducted technical and commercial
discussions with a number of potential suppliers and has selected a Long March
2C launch vehicle for what it expects will be a minority portion of the
maintenance launch services. Motorola expects that a number of other launch
systems currently under development would satisfy the remaining requirements of
the maintenance mission. Motorola intends to select a supplier or suppliers for
the remaining maintenance launches based on technical, commercial and other
considerations.
See "Risk Factors -- Potential for Delay and Cost Overruns -- Deployment of
Satellites" for a discussion of various risks associated with the deployment of
the satellites.
In addition, Motorola has constructed the master control facility located
in Virginia, two TT&C stations in northern Canada and one TT&C station in
Hawaii, with an additional transportable telemetry system currently located in
Iceland. The back-up control facility is nearing completion in Italy and is
expected to be operated by Telespazio under contract with Motorola. Telespazio
will also provide engineering support services in connection with the
integration and construction of the facility.
Gateways
Gateway earth stations will provide call-processing services, such as
subscriber validation and the interconnection between the world's PSTNs and the
IRIDIUM System by connecting calls made through the IRIDIUM System to and from
the local PSTN generally through an international switching center. Gateways
will communicate with the space segment via gateway link antennas on the
satellites and ground-based antennas, or earth terminals, at each terrestrial
gateway facility. Each gateway facility will typically include three or four
antennas, a controller to manage communications with the constellation, an
operations center to perform local network management, a paging message
origination controller, and a switch that connects the gateway to the local
PSTN. Each gateway will also include a subscriber database used in
call-processing activities, such as subscriber validation. Gateways will
generate call detail records used in billing. Iridium has authorized the
issuance of warrants to acquire up to 9,165,000 Class 1 Interests at a price of
$.00013 per Class 1 Interest to gateway owners who complete construction and
installation of their gateways on schedule and who meet certain revenue criteria
thereafter. None of such warrants has been issued.
Implementation of Gateways. The success of Iridium is dependent upon the
efforts of its gateway owners, all of whom are investors, or affiliates of
investors, in Iridium. Iridium is focusing considerable efforts on the
coordination of the development of the gateway infrastructure and business
systems. See "-- Distribution and Marketing."
Iridium has assigned all of its gateway service territories to its equity
investors or their affiliates. Iridium expects these gateway service territories
to be served initially through 11 gateways. Iridium
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has entered into Gateway Authorization Agreements with all investors or their
affiliates having gateway service territory allocations. Each Gateway
Authorization Agreement obligates the gateway operator to use its reasonable
best efforts to perform, among other obligations, the following with respect to
its designated territory: (i) contract with Motorola to supply the gateway
equipment; (ii) provide gateway services; (iii) obtain all required governmental
licenses and permits necessary to construct and operate gateways; (iv) designate
IRIDIUM service providers, which may include the gateway operator; (v) require
compliance by each service provider with established guidelines; and (vi)
support Iridium-approved positions at the WRC of the ITU. See "Principal
Contracts for the Development of the IRIDIUM System -- Gateway Authorization
Agreements."
Under the Space System Contract, Motorola has agreed to (i) design and make
available to Iridium as proprietary information the gateway interface
specification, (ii) develop and sell IRIDIUM gateway equipment, and (iii)
license to responsible and competent suppliers of that equipment the rights to
use the information in that specification for certain purposes to the extent
essential to manufacture and sell IRIDIUM gateways. Iridium does not anticipate
that companies other than Motorola will manufacture gateway equipment. In order
to assure timely development of the gateway equipment and to coordinate the
development effort, Iridium entered into the Terrestrial Network Development
Contract in 1995 which has allowed it to implement a more disciplined and
systematic development plan for the gateways and which Iridium believes will
increase the likelihood of a timely in-service date for the gateways. Under the
Terrestrial Network Development Contract, Motorola is designing and developing
the gateway hardware and software. See "Principal Contracts for the Development
of the IRIDIUM System -- Terrestrial Network Development Contract."
Iridium and the gateway operators have established a schedule for the
construction of the necessary gateway facilities by the gateway operators. While
some gateway operators are behind in meeting some of the milestones in this
schedule, Iridium believes that eleven gateway facilities will be completed and
operational at the time commercial operations commence. Eleven gateway operators
have entered into gateway equipment purchase agreements with Motorola. Pursuant
to the executed gateway equipment purchase agreements, gateways have been
configured to match the owner's anticipated initial capacity requirements for
the relevant gateway service territory. Capacity requirements vary from gateway
to gateway, based on PSTN interface requirements and the number and availability
of switching trunks, as well as projections regarding the number of calls
originated by IRIDIUM subscribers within the gateway service territory and the
number of calls over the IRIDIUM System originated from or terminated in the
gateway service territory's PSTN. The construction of the Iridium North America
(Tempe, Arizona) and Nippon Iridium Corporation (Nagano, Japan) gateway
facilities is substantially complete and the telecommunications equipment is now
being installed at both locations. Equipment procurement has commenced for seven
other gateways pursuant to gateway equipment purchase agreements with Motorola.
Two gateways are behind schedule with equipment procurement for their gateways.
While Iridium believes that it is probable that these two gateways will be
operational by the planned September 1998 commencement of commercial operations,
in order for them to do so they will need to move forward promptly, including
making certain overdue payments under their gateway equipment purchase
agreements with Motorola. There can be no assurance that one or more gateways
will not fail to be completed by the commencement of commercial operations,
which could have a material adverse effect upon Iridium.
Subscriber Equipment
Subscribers will communicate via the system of satellites and gateways
using IRIDIUM subscriber equipment that will provide one or more of voice,
paging, data, and facsimile services. Iridium expects that subscriber equipment
will be made available by at least two suppliers, Motorola and Kyocera. In
addition to portable, hand-held phones Iridium expects that vehicle-mounted,
transportable, fixed telephones, as well as simplex alphanumeric belt-worn
pagers will be made available. Based on information received from Motorola,
Iridium expects that Motorola's version of
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the portable, multi-mode, hand-held phone will have an initial retail price of
approximately $3,000, including at least one TRC, and its version of the
alphanumeric pager will have an initial retail price of approximately $500. IWCL
has not been advised by Kyocera as to the possible pricing of Iridium subscriber
equipment that is expected to be manufactured by Kyocera.
Iridium does not currently intend to manufacture or distribute IRIDIUM
subscriber equipment or derive any income from the sale of IRIDIUM subscriber
equipment. See "Risk Factors -- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Consequences of IRIDIUM Phone and Pager Characteristics on Customer
Acceptance." Such equipment is expected to be manufactured by existing
manufacturers of similar terrestrial subscriber equipment and to be distributed
by such manufacturers through gateway owners and operators, service providers
and other telecommunications equipment distributors. Motorola has committed
substantial resources to develop, and plans to sell, IRIDIUM subscriber
equipment including portable, hand-held phones and belt-worn pagers. Motorola
has informed Iridium that it has entered into a license agreement with Kyocera
relating to the basic intellectual property rights essential to develop and
manufacture personal voice subscriber equipment for use on the IRIDIUM System.
This license agreement does not obligate Kyocera to develop, manufacture or sell
any IRIDIUM subscriber equipment. If other subscriber equipment manufacturers
wish to develop and sell IRIDIUM subscriber equipment, they will be required to
enter into similar licensing agreements with Motorola. See "Principal Contracts
for the Development of the IRIDIUM System" for a description of Motorola's
agreement with Iridium to grant certain licenses for intellectual property
rights. See "Risk Factors -- Conflicts of Interest with Motorola."
The IRIDIUM System phones are still under development, although a
functional unminiaturized prototype has been developed. Motorola has informed
Iridium that the portable, hand-held phone that Motorola has been developing is
expected to be larger and heavier than today's pocket-sized, hand-held cellular
telephones and is expected to have a longer and thicker antenna than hand-held
cellular telephones. Motorola has informed Iridium that the pager Motorola will
develop is expected to be slightly larger than today's standard alphanumeric
belt-worn pagers. The unminiaturized prototypes have been built using the same
or similar components expected to be used in the production model of the IRIDIUM
phone. The prototypes have been built in a larger housing to facilitate testing
and problem solving.
Business Support Systems
The IRIDIUM System will be capable of supporting basic "back office"
business functions required by Iridium, gateway operators, and service
providers, including a clearinghouse operated by Iridium to calculate the
amounts owed to and from Iridium and each gateway operator in order to determine
net settlements of such amounts among such entities. These business support
functions include service provision, customer service, and billing and
collection, as well as clearing and settlements. These functions will be
provided by means of computer and manual processes at each gateway and service
provider location and, most likely, at a central processing point. The gateway
owners and operators will be required to license or purchase software and
equipment in order to exchange information with the clearinghouse and to handle
settlements with service providers, inter-exchange service providers, government
entities and others. Iridium has proposed to develop, and to provide to the
gateways, some of the required software and hardware. In addition, the gateways
will have to enter into settlement agreements with service providers, on behalf
of Iridium, in order to account for and settle the ICRS and the non-satellite
service portions of the IRIDIUM Services. The coordination of business support
functions among Iridium, the gateways and the service providers necessary to the
provision of the IRIDIUM Services is a large and complex undertaking which will
require the establishment of comprehensive data exchange capabilities and the
negotiation and execution of hundreds of settlement agreements with gateway
operators and service providers. See "Risk Factors -- Reliance on Motorola,
Gateway Owners and Other Third Parties."
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ICRS
ICRS allows different protocol-based networks to communicate with each
other. Protocol formats are the "language" by which networks communicate.
Similar protocol networks can communicate easily with one another by sending
signals between the networks in a standard language that is understood by both
networks. Different protocol networks require a translator in order to
communicate with each other.
An ICRS customer who roams onto a cellular network that has a roaming
agreement with Iridium will be recognized by the visited network as an Iridium
ICRS customer when the customer turns on his phone. The visited network, using
an Iridium gateway, will send a request for authentication either terrestrially
or over the IRIDIUM System to the IIU, the protocol translation device that is
being developed under the direction of Motorola for Iridium. The IIU will search
for the home location of the customer and convert the signal to the appropriate
protocol of the customer's home network. The home network will authenticate the
customer by signaling back to the IIU which will then convert the signal back to
the protocol of the visited network and send the response in the appropriate
protocol to the visited network. At the end of this authentication process
(which is expected to be completed in seconds), the home network knows to
forward a call to the customer to the visited network for completion and the
visited network has the necessary authentication to allow the roaming customer
to access the visited network as a roaming customer and complete a call.
An ICRS customer can be "homed" on a cellular network, in which case the
customer's phone number will be his home cellular phone number. Alternatively,
the customer can be "homed" on the IRIDIUM System, in which case the customer's
phone number will begin with "8816" or "8817," the international "country" codes
assigned to Iridium. Customers "homed" on the IRIDIUM System will pay a monthly
subscription fee and a fee for calls made over the IRIDIUM System. Customers
"homed" on a cellular network will pay a feature charge to Iridium that will be
significantly below the monthly subscription fee, but they will pay an
additional roaming premium for calls made over the IRIDIUM System. In general,
customers who place a large number of IRIDIUM satellite service calls will have
an incentive to be "homed" on the IRIDIUM System, while customers who place a
small number of IRIDIUM satellite service calls will have an incentive to be
"homed" on a terrestrial network.
For inter-protocol terrestrial cellular roaming, a user must have a
telephone that operates with the visited network (e.g., a GSM phone if roaming
onto a GSM network or a DCS1800 phone roaming onto an IS-41 network that uses
the DCS1800 frequency). An ICRS customer will not be required to own an IRIDIUM
phone. Subscribers will be able to use any terrestrial wireless handset that can
support a GSM SIM card or have an IS-41 handset that has been programmed for
ICRS service. Motorola has indicated that it intends to develop TRCs compatible
with most major terrestrial wireless networks, although some (including CDMA)
will be developed and distributed after the commencement of commercial
operations.
Iridium's business plan currently calls for roaming agreements with
wireless operators in more than 50 countries by the commencement of commercial
operations in September 1998 expanding to approximately 150 countries by 2002.
Many wireless systems as currently configured, including systems covering large
portions of South America, use a form of wireless technology that does not
permit sufficient anti-fraud security or certain international dialing and,
therefore, it is unlikely that Iridium will provide ICRS coverage in areas that
are principally served by this type of technology. See "Risk Factors -- Risks
Related to ICRS." ICRS is not expected to be available between certain IS-41
systems before 1999 or in Japan before 1999.
PROGRESS TO DATE
The following chart sets forth Iridium's past and projected development
milestones. Estimates for the commencement of service do not account for
potential delays. There can be no assurance
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that the IRIDIUM System will commence commercial operations in September 1998 as
planned. See "Risk Factors -- Potential for Delay and Cost Overruns."
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1987: - IRIDIUM System conceived by Motorola
- Research and development begins
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1990: - Planned IRIDIUM System announced worldwide
- FCC license application filed
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1991: - Iridium, Inc. incorporated
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1992: - Global MSS spectrum allocated at WARC-92
- Experimental license granted by FCC
- Full scale research and development by Motorola, Lockheed and Raytheon underway
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1993: - Stock purchase agreements executed covering $800 million in equity commitments
- Space System Contract and Operations and Maintenance Contract become effective
- Key subcontracts signed by Iridium and Motorola
- System procurement and build-out commenced
=================================================================================
1994: - IRIDIUM System preliminary design reviews completed
- Additional stock purchase agreements executed covering an additional $798
million
- IRIDIUM satellite communications payload application-specific integrated
circuits designed, fabricated and validated
- Gateway Authorization Agreements executed
=================================================================================
1995: - Space Segment license awarded by FCC, subject to certain conditions
- IRIDIUM System critical design reviews completed
- Terrestrial Network Development Contract executed
- Nine Gateway Equipment Purchase Agreements executed
- Prototype phones available for lab testing
=================================================================================
1996: - Additional $300 million raised
- Full-scale IRIDIUM satellite manufacture begins
- $750 million Guaranteed Bank Facility established
- Kyocera begins development of Iridium phones
- Construction of gateways begins
=================================================================================
1997: - First launch of IRIDIUM satellites on a Delta II launch vehicle
- IWCL IPO completed
- $100 million SPI purchase of Class 1 Interests
- First launch of IRIDIUM satellites on a Proton launch vehicle
- Original Offering completed
- Secured Bank Facility expected to be established
- Master control facility substantially complete
- Significant portion of satellite launches expected to occur
- Gateway construction expected to continue and initial testing to begin
- Prototype phones and pagers tested with in-orbit satellites
- Significant progress expected in obtaining service providers, roaming
agreements and L-band licenses
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1998: - Satellite launches expected to be completed
- Gateway construction expected to be completed
- Subscriber trials expected to be completed
- Continued progress expected in obtaining service providers, roaming agreements
and L-band licenses
- Commercial operations expected to begin
---------------------------------------------------------------------------------
COMPETITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and other countries. The uncertainties and risks created by
this competition are intensified by the continuous technological advances that
characterize the industry, regulatory developments that affect competition and
alliances between industry participants. While no single existing wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will seek to serve this market in
some fashion in the future. Iridium believes that its most likely direct
competition will come from the planned ICO telecommunications service and from
one or more of the other FCC licensed MSS applicants -- Loral/Qualcomm
Partnership, L.P., on behalf of Globalstar, TRW, on behalf of Odyssey, MCHI, on
behalf of Ellipso, and Constellation, on behalf of Aries.
Iridium believes that its ability to compete successfully in the market for
global personal communications will depend primarily upon the timing of its
entry into the market, the technological qualities of the IRIDIUM System,
including its global coverage, signal strength, dependability and capacity and
the market appeal of Iridium's service offerings, including ICRS. Successful
competition will also depend on the cost of service to subscribers and the
success of the marketing, distribution and customer service efforts of gateway
operators and service providers. Iridium believes that it currently has an
earlier planned full global service capability than any of the licensed MSS
applicants or ICO (based upon information contained in their FCC filings or
public announcements).
While Iridium's system and proposed competing mobile satellite systems have
different planned technical capabilities, Iridium believes that the
distinguishing features of the IRIDIUM System will include: (i) its higher
signal strength for Satellite Services which Iridium believes will afford both
better voice quality and signal penetration to portable, handheld phones and a
higher degree of in-building penetration for pagers; (ii) its intersatellite
networking capability, which Iridium believes will permit full global coverage,
reduce the number of gateways required to provide global coverage, enhance
system reliability and capacity and reduce tail charges incurred for the
landline portion of telephone calls; and (iii) its ICRS offering, which will
offer one number, one phone, one bill, voice, fax and data communication and
"follow-me paging" through either a cellular or an IRIDIUM phone number. Iridium
believes that these distinguishing features will make IRIDIUM Services better
suited, compared with other potential MSS competitors, to meet the global
coverage and service quality demanded from the high-end, traveling professional.
In addition, Iridium believes that it will be the first MSS system to offer full
global coverage in all authorized jurisdictions.
Mobile Satellite Systems
Inmarsat has announced plans for a 12-satellite, MEO system consisting of
ten operational and two spare satellites. This system is to operate in the 2 GHz
band and will be owned by a new Inmarsat affiliate, ICO, formerly known as
Inmarsat-P. Many of the investors in Inmarsat, including numerous state-owned
telecommunications companies, have announced that they will participate in the
ownership of the new venture and ICO has announced the receipt of significant
equity commitments from these investors. Iridium believes that ICO will be the
most direct competitor to
Iridium for the traveling professional market. However, ICO has announced that
the full constellation will not be operational before the year 2000, which
should provide Iridium with a first-to-market advantage.
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Globalstar, a 48-satellite LEO system, has been proposed by Loral/Qualcomm.
It will offer both fixed and mobile telecommunications services. The Globalstar
system will employ CDMA digital modulation technology and Globalstar has
announced an expected in-service date of 1998, with the full constellation in
place by early 1999. The Globalstar system utilizes "bent pipe" technology and
Globalstar has indicated that it will require between 50 and 75 gateways to
provide full global land-based coverage of virtually all inhabited areas of the
globe. The target market for Globalstar, like the regional GEO systems described
below, covers persons who lack telephone service or are underserved or not
served by existing or future cellular systems.
Odyssey, a 12-satellite MEO system, has been proposed by TRW. The proposed
system would offer mobile satellite service globally and would be based on CDMA
digital modulation technology. TRW has announced an expected in-service date of
2001, with full service available in 2002. Ellipso, a 16-satellite NGSO system,
has been proposed by MCHI. Aries, a 46-satellite NGSO system, has been proposed
by Constellation. Both systems would offer mobile satellite service globally and
would use CDMA digital modulation technology. The licenses for each of MCHI's
and Constellation's systems require that the system be fully operational by July
2003. MCHI has announced that it intends to begin full operation of its system
by the year 2000, while Constellation has stated that it plans to begin
operations in 2002.
Iridium also expects to encounter competition from regional mobile
satellite systems, two of which have been launched and several of which are in
the planning stage, as well as from Inmarsat. In April 1995, AMSC launched a GEO
satellite covering North America to provide fixed and mobile voice and data
services to briefcase-sized mobile terminals and carmounted units. Mobilesat,
launched in 1994, is a GEO satellite covering Australia, New Zealand and parts
of the Pacific Basin which provides mobile and fixed, voice and data services to
briefcase-sized mobile terminals and car-mounted units. ACeS has proposed a one-
or two-satellite GEO satellite systems covering Asia, including Thailand,
Indonesia and the Philippines, and offering mobile voice and data
telecommunications to briefcase-sized mobile terminals, car-mounted units and
handheld units. APMT has proposed a two-satellite GEO satellite system covering
India, China and certain Southeast Asian nations, offering mobile
telecommunications to dual-mode, handheld terminals. Sataphone and Thuraya are
two consortia proposing GEO systems to serve the North Africa/Middle East
region, with dual-mode hand-held phones. EAST is a hybrid system proposed by
Matra-Marconi to provide fixed services, and mobile services to hand-held units,
with a GEO satellite covering Europe, the Middle East and Africa. Afro-Asian
Satellite Communications has proposed a two GEO satellite system covering 55
countries in the Middle East, the AsiaPacific region and eventually Africa,
serving dual-mode, hand-held terminals. Elekon-Stir is a proposed Russian LEO
system consisting of seven satellites offering store and forward mobile data
services and with limited voice capabilities. Inmarsat currently operates a
world-wide GEO system that is capable of providing fixed and mobile voice and
data services to laptop-sized "Mini-M" terminals and to briefcase-sized mobile
terminals and car-mounted units. Other regional systems that may be established
could also provide services that compete with the IRIDIUM Satellite Services.
The regional GEO systems do not provide full global coverage and, therefore, are
expected to generally target persons not currently served by landline or
cellular telephone service. It is possible that one or more regional mobile
satellite services could enter into agreements to provide intersystem roaming
that could be global or nearly global in scope.
Land-based Telecommunications Systems
Iridium does not intend to compete with terrestrial cellular telephone
systems for the vast majority of personal communications services, because,
among other reasons, IRIDIUM satellite voice services will be priced
significantly higher than most terrestrial wireless services, the IRIDIUM System
will lack the operational capacity to provide local service to large numbers of
subscribers in concentrated areas and Iridium's satellite system is not expected
to afford the same voice quality, signal strength, or ability to penetrate
various environments (such as buildings) as terrestrial
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wireless systems. Rather, Iridium expects its subscribers to use IRIDIUM
Satellite Services in areas or situations where local cellular systems use a
standard incompatible with that of the users' home markets or where terrestrial
service is unavailable, inconvenient, of poor quality or unreliable. As
terrestrial cellular systems expand their geographical penetration, particularly
outside of major urban and suburban areas and improve the quality of coverage in
already-served areas, potential customers for IRIDIUM Satellite Services and
other satellite-based services will be lost. Moreover, the advent of near global
terrestrial cellular roaming described below will represent a significant
competitive threat to Iridium's satellite-based service and ICRS, particularly
with respect to traveling professionals who spend most of their time in regions
that are well served by terrestrial-based wireless services.
Terrestrial Cellular Interprotocol Roaming Services
Iridium's ICRS service offering, which will allow IRIDIUM subscribers to
roam onto a variety of cellular networks, will face competition from existing
and future terrestrial cellular interprotocol roaming services, which provide
roaming services across similar cellular networks.
GTE Mobilnet (GTE) and Deutsche Telekom Mobil ("DeTeMobil") of Germany
currently offer GlobalRoam, a two-way cellular roaming service between certain
North American AMPS cellular networks and GSM cellular networks in certain
countries where DeTeMobil has GSM roaming agreements. AT&T Wireless Services of
the United States and Vodafone of the United Kingdom offer CellCard, a service
which provides one-way roaming from certain North American AMPS networks to
certain GSM networks in certain countries which have roaming agreements with
Vodafone.
Three other proposed MSS systems, ICO, Globalstar and Odyssey, and at least
one regional GEO, ACeS, have indicated that they may also offer some form of
dual-mode satellite/cellular service, which may include interprotocol roaming
capabilities such as those expected to be offered by Iridium.
In addition, a number of rental services, primarily United States based,
provide cellular phones to persons traveling in countries with cellular
standards that differ from the traveler's home market. For example, Worldcell
provides United States based travelers GSM phones for travel to Europe, while
Shared Technologies Cellular, in conjunction with United Airlines, provides AMPS
phones for visitors to the United States. These businesses often have rental
locations at airports, hotels and auto rental locations and will also deliver
phones by mail service. These companies' services may compete with Iridium's
ICRS service and satellite-based service offerings. See "Risk Factors --
Competitive Risks; Factors Affecting Iridium's Competitive
Position -- Competition from Interprotocol Roaming Service Providers, GSM
Roaming Services, Regional MSS Systems and Wireless Phone Rentals."
Paging
In addition to competing with paging services offered by proposed regional
MSS systems, the IRIDIUM paging service will face competition from regional and
nationwide terrestrial paging services, and from M-Tel's SkyTel service which
currently provides paging services to 20 countries around the world. SkyTel
operates by forwarding paging messages via satellite to a foreign paging network
that subsequently transmits the message over its local network. Also, in 1995
Inmarsat introduced an international satellite-based one-way messaging service.
Iridium believes that the relatively higher link margins of the IRIDIUM paging
service will provide superior performance to any proposed satellite paging
systems and that Iridium will be the only global paging service using a
belt-worn pager before 2000.
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RESEARCH AND DEVELOPMENT
Iridium has engaged in preliminary discussions with Motorola regarding
possible long-term enhancements to the IRIDIUM System, including a possible
second generation of IRIDIUM satellites. Such discussions are exploratory and
Iridium has made no significant financial commitment to long-term enhancements.
EMPLOYEES
As of June 30, 1997, Iridium had approximately 256 full-time employees.
None of Iridium's employees are covered by a collective bargaining agreement.
Iridium's management considers its relations with its employees to be good.
PROPERTIES
Motorola has constructed the master control facility on a 10.4 acre parcel
of land in Loudoun County, Virginia, TT&C facilities on leased or licensed land
in Yellowknife and Iqualuit, Northwest Territories, Canada and Oahu, Hawaii and
the backup control facility, which is nearing completion in Rome, Italy. The
backup control facility is located on one floor of a building owned by Nuova
Telespazio and pictured on the inside front cover of this Prospectus. Title to
these properties is scheduled to be passed to Iridium prior to the time Motorola
completes the final milestone under the Space System Contract.
Iridium leases approximately 128,750 square feet of space at three
locations in metropolitan Washington, D.C. under leases that expire in January
1999, with renewal options. Iridium's principal executive office is located at
1575 Eye Street, N.W., Washington, D.C. 20005.
LEGAL PROCEEDINGS
Iridium is not a party to any pending legal proceedings material to its
financial condition or results of operations. None of Capital, Roaming or IP is
a party to any pending legal proceedings.
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REGULATION OF IRIDIUM
TELECOMMUNICATIONS REGULATION AND SPECTRUM ALLOCATION: OVERVIEW
The allocation and use of the radio frequency spectrum for the provision of
communications services are subject to international and national regulation.
The implementation and operation of the IRIDIUM System, like those of all other
satellite and wireless systems, are dependent upon obtaining licenses and other
approvals.
The international regulatory framework for spectrum allocation and use is
established by the International Telecommunication Union ("ITU"). The ITU, which
is composed of representatives from most of the countries of the world, meets
officially at conferences known as World Radiocommunications Conferences
("WRC"s) (previously known as World Administrative Radio Conferences or "WARC"s)
to decide the radio services that should be permitted to operate in various
radio bands and the rules for operating in those bands.
The national administration of each country decides how the radio
frequencies that the ITU has allocated to particular communications services
should be allocated and assigned domestically to specific companies. In
addition, the provision of communications services in most countries is subject
to regulatory controls by the national governments of each country.
In the United States, the FCC is the regulatory agency responsible
domestically for allocating spectrum and for licensing and regulating
communication systems, facilities, and services. The FCC regulates satellites in
accordance with laws passed by the United States Congress, particularly the
Communications Act of 1934, as amended (the "Communications Act"), regulations
adopted pursuant to those laws, and judicial opinions rendered by U.S. courts.
IRIDIUM SYSTEM LICENSING REQUIREMENTS
The IRIDIUM System is being built with the capability to link phones to
IRIDIUM satellites using up to 10.5 MHZ of spectrum in L-band frequencies from
1616-1626.5 MHZ on a bi-directional time division basis, Earth-to-space and
space-to-Earth. The system will also be capable of operating "feeder" links in
the frequencies 19.4-19.6 GHz and 29.1-29.3 GHz (connecting satellites to ground
earth station gateway facilities) and intersatellite links in the frequencies
23.18-23.38 GHz (linking the satellites in the constellation to each other).
The licensing requirements for the IRIDIUM System include: (i) the FCC
license for the space segment; (ii) the licenses in each country where there is
a gateway or TT&C earth station; and (iii) the licenses in each country for the
IRIDIUM subscriber equipment and service and for the use of required
frequencies. In addition, the IRIDIUM System must be coordinated with other
users of spectrum that have rights to use the same or adjacent frequencies to
the frequencies assigned to the IRIDIUM System. It is only necessary for one
country to license the space segment, which includes authorizing the
construction, launch, and operation of the satellites, including the use of the
intersatellite links and the operation of the primary satellite control center
in the country.
The gateway earth stations provide the feeder link between the satellite
network and the PSTNs around the world. Iridium expects that IRIDIUM gateways
will be located in at least eleven different countries during the first years of
operation. A radio license to operate a gateway earth station in a significant
portion of the 29.1-29.3 GHz (Uplink) and 19.4-19.6 GHz (Downlink) frequency
bands must be issued by the appropriate governmental authority of each of the
countries in which an IRIDIUM gateway is to be located. Similar authorizations
may be obtained in the United States and Canada to operate TT&C earth stations.
Each country in which Iridium intends to operate must authorize the use of
the frequencies linking the phones to the satellites, allowing communication
between end users and the satellite network. At a minimum, the IRIDIUM System
needs exclusive use of the frequencies 1621.35-1626.5 MHZ for this purpose, with
authority to operate bi-directionally within that band. In order to operate
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the IRIDIUM subscriber equipment in a country, Iridium must obtain from the
country a radio license to permit the operation of phones and pagers within the
country. The licensing procedures vary in different countries. Generally there
are three aspects to the required license(s): (i) authorization for the use of
the frequencies requested; (ii) authorization for the equipment to be marketed
and used (including subscriber equipment that may circulate from country to
country); and (iii) authorization for the service to be provided.
Because of the global mobile nature of the service, each national
administration will be asked to grant a blanket or class license authorizing a
substantial number of handsets, recognizing equipment that has been type
approved or certified by other countries, and allowing for the free circulation
and transborder roaming of terminal equipment.
LICENSING STATUS
General
Iridium, Motorola, and the gateway owners have made substantial progress in
taking the regulatory steps needed for the IRIDIUM System to obtain the coverage
assumed in its business plan, but a significant number of additional regulatory
approvals outside the United States remain to be obtained. Each gateway must be
licensed by the jurisdiction in which it is located. Three final and five
experimental licenses to build and operate gateways have been received. The
final licenses have been granted for the gateways in the United States (Tempe),
Thailand (Bangkok) and Taiwan (Taipei) and permit the gateways to engage in
commercial operations, including use of the gateway links with the IRIDIUM
satellites. The experimental licenses have been granted for the gateways in
Korea (Seoul), Brazil (Rio De Janeiro), Russia (Moscow), Japan (Nagano) and
Italy (Fucino) and permit the gateways to test their links between the IRIDIUM
satellites and terrestrial services. One of the remaining three unlicensed
gateways -- the gateway in India (Bombay) -- is under construction in the
expectation that it will be licensed. Iridium expects that the gateway in India
will be completed in March 1998. The gateways to be located in China (Beijing)
and Saudi Arabia (Jeddah) have not received licenses or commenced construction.
The final licenses that have been received by the gateways are subject to
conditions that relate to the completion of construction and the provision of
technical information to regulatory authorities. Iridium expects that the
licenses its other gateways are seeking will have similar conditions. There can
be no assurance that the additional licenses necessary for Iridium to obtain the
service capability assumed in its business plan will be obtained on a timely
basis or at all. In addition, while Iridium believes the conditions specified in
the final gateway licenses that have been received can be satisfied, there can
be no assurance that such conditions will be satisfied or that conditions to
licenses received in the future will be satisfied.
To date, thirteen administrations have granted either full or conditional
licenses for the provision of IRIDIUM Satellite Services in their respective
countries. The thirteen countries are the United States, Australia, Canada,
Venezuela, New Zealand, Taiwan, Cook Islands, Guatemala, San Marino, Thailand,
Afghanistan, Micronesia and Colombia. Iridium is seeking licenses throughout the
world. However, Iridium is placing emphasis on obtaining approvals by September
1998 from the 70 to 90 countries where Iridium expects substantially all of the
demand for, and usage of, IRIDIUM Services is likely to be generated. There can
be no assurance that additional authorizations will be granted at all, or in a
timely manner, or without burdensome conditions. There can be no assurance that
sufficient licenses for Iridium to obtain the coverage assumed in its business
plan will be obtained on a timely basis or at all. Nor can there be any
assurance that Iridium will be able to secure additional spectrum, if needed. In
addition, while Iridium is not aware of any country that has indicated that it
will not provide a service license by the commencement of commercial operations,
the process of obtaining service licenses in each country of the world is
complex and certain gateway operators, in particular those with responsibility
for obtaining licenses in numerous countries such as Iridium Africa and Iridium
SudAmerica, have indicated that they may not receive regulatory approvals for
some of the countries of their territories at the anticipated commencement of
commercial operations
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in September 1998. See "Description of Other Indebtedness -- Secured Bank
Facility" for a discussion of regulatory approvals as a borrowing condition
under the Secured Bank Facility.
Spectrum Allocation
At the WARC-92, the ITU allocated to the MSS service: (i) on a primary
basis, 16.5 MHZ of spectrum in the 1610-1626.5 MHZ band (Earth-to-space); and
(ii) on a secondary basis, 12.7 MHZ of spectrum in the 1613.8-1626.5 MHZ band
(space-to-Earth). The ITU had previously authorized the other frequency bands
used in the IRIDIUM System for the purpose for which Iridium intends to use
them. At the 1995 World Radio Conference ("WRC 95"), the ITU defined the
coordination procedure for systems operating in the bands proposed to be used by
Iridium for its feeder links. The ITU's role in allocating frequencies necessary
for the operation of the first generation IRIDIUM System is now essentially
complete.
United States Licensing
The space segment of the IRIDIUM System, including the use of the
intersatellite frequency band (23.18 to 23.38 GHz), has already been licensed by
the FCC in the United States. The license has a term of ten years and contains
other conditions typical of satellite system licenses granted by the FCC. The
license term begins on the date the first satellite is in orbit and the first
transmission occurs. The license states that, absent extensions, the IRIDIUM
System must be fully constructed and operational by October 2002. Any
significant change to the operating parameters of the IRIDIUM satellites could
require an application for modification of the current FCC license. Any such
application could be subject to competing applications and there can be no
assurance that it would be granted at all, or that it would not be subject to an
auction process. Two applicants have appealed the FCC decision which (i) found
that they initially had failed to establish the necessary financial
qualifications, and gave them additional time to demonstrate such
qualifications; and (ii) granted licenses to the IRIDIUM System and two other
global MSS systems, and also have appealed the FCC decision which adopts
qualification standards for the applicants. The license for the IRIDIUM System
remains in full force and effect while these appeals are pending and Iridium
expects that the FCC decision to issue a license for the IRIDIUM System will be
affirmed, although there can be no assurance that the courts will do so. See
"-- Competition."
Although the FCC has stated that it will renew the IRIDIUM System
authorization unless extraordinary circumstances prevent it from doing so, there
can be no assurance that the IRIDIUM System license will be renewed.
The IRIDIUM System license is held by Motorola Satellite Communications,
Inc., a wholly owned subsidiary of Motorola, which is contractually bound to
operate it for the exclusive benefit of Iridium. As a result, Motorola, rather
than Iridium, has the responsibility to construct, launch, operate, and maintain
the IRIDIUM System in accordance with the terms of the license. Any request to
renew or modify the IRIDIUM System license must be filed and prosecuted by
Motorola. If the Space System Contract or the Operations and Maintenance
Contract is ever terminated or not renewed, Motorola would have to assign the
IRIDIUM license to Iridium or a third party. Any such assignment would be
subject to FCC approval.
Under both the ITU's rules and the terms of the IRIDIUM System license, the
IRIDIUM System must be coordinated with all other domestic and foreign users of
the frequency bands assigned to the IRIDIUM System. The United States has
essentially completed the process of registering the IRIDIUM space segment
operations with the ITU. It has submitted the advance publication and
coordination materials to the ITU and coordinated the use of the space segment
with all those administrations expressing concerns that the system might cause
or receive interference to their systems. On this basis, the United States has
requested the ITU to notify the IRIDIUM System in the ITU's Master Frequency
Register, which will give it a legal right to protection from interference from
future systems. Once the request is published, administrations that have
previously engaged in
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coordination with the United States regarding the IRIDIUM System may file
comments on the claim that coordination is complete. Any comments will need to
be resolved before the IRIDIUM System will be listed in the Master Frequency
Register. Iridium believes that coordination has been completed successfully
between the IRIDIUM System and all existing or planned systems that have been
identified under the coordination process. If further coordination is required
with any identified system, it is possible that such coordination would not be
completed prior to Iridium's projected commencement of commercial operations.
However, Iridium believes that failure to complete such coordination would be
unlikely to have a material adverse effect on Iridium. There is no other action
required from any other country to license the space segment.
Under the FCC's rules and the terms of the license, prior to commencing
operations Motorola must complete coordination with U.S. radioastronomy sites
and complete consultations with the Inmarsat and Intelsat systems. See
"-- Consultations and Coordinations."
In the United States, frequencies have been assigned to the IRIDIUM System
feeder links in the 29.1-29.25 and 19.4-19.6 GHz bands. The 29.1-29.25 GHz
frequencies are shared with the local multipoint distribution service ("LMDS"),
and the FCC has adopted restrictions on LMDS operations that are designed to
protect MSS feeder links from interference. The 19.4-19.6 GHz frequencies are
shared with terrestrial microwave stations and each gateway earth station must
be coordinated in advance with licensed microwave stations. Both frequency bands
are also shared with the proposed feeder link operation of TRW's Odyssey system.
TRW's earth stations must be separated geographically from the IRIDIUM System
gateways in order to avoid causing harmful interference. The FCC recently
granted a license for the first IRIDIUM System gateway to be located in Tempe,
Arizona. Licenses have also been granted in the United States for authority to
construct and operate TT&C facilities in Arizona and Hawaii.
The United States license authorizing construction, launch and operation of
the space segment includes the use of 1621.35 to 1626.5 MHZ radio frequency band
in the United States exclusively for the IRIDIUM subscriber links. This
frequency assignment may be increased if no more than one CDMA satellite system
becomes operational in the adjacent frequency band. The FCC has issued a license
permitting 200,000 IRIDIUM mobile phones to be used in the United States,
conditioned upon Motorola submitting a study showing its terminals will comply
with radiation hazard requirements. Iridium believes that Motorola will comply
with this requirement.
Licensing Outside the United States
In countries other than the United States, the remaining significant
regulatory steps include: (i) in each country in which a gateway or system
control terminal will be located, authorization to construct and operate those
facilities, including necessary gateway feeder link spectrum assignments, must
be obtained; (ii) in each country in which IRIDIUM subscriber equipment will
operate, authority to market and operate that equipment with the IRIDIUM System,
and the use of the necessary user link spectrum, must be granted; and (iii)
coordination of the use of the frequencies to be used by the IRIDIUM System must
be achieved. As discussed under "-- General," applications for authorizations
for gateway, subscriber, and TT&C facilities are in varying stages of processing
in countries other than the United States and there can be no assurance that
these applications will be granted or that sufficient spectrum for initial needs
will be assigned. Of the gateway and subscriber authorizations granted to date,
several are conditional and there can be no assurance that these conditions will
be satisfied. If the initial spectrum assignments prove insufficient as demand
increases over time, there is no assurance Iridium will be able to obtain
additional spectrum from the FCC or other administrations.
Countries in Europe are approaching frequency assignments and licensing
issues on a regional basis. CEPT, an organization of forty-three countries in
greater Europe, has adopted recommendations regarding the frequency assignment
plan and the authorization process which it will recommend that member countries
follow. These recommendations are voluntary but many European
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countries -- especially EU members -- are expected to follow these
recommendations. These recommendations currently give Iridium the opportunity to
obtain the spectrum it needs to operate initially in Europe. There is a risk
that Iridium may have to share this spectrum with other planned satellite
systems using an FDMA/TDMA access mode. Because European countries must follow
ITU procedures which Iridium believes will protect Iridium's minimum spectrum
requirements, Iridium believes this risk is unlikely to occur. However, there
can be no assurance that Iridium will receive all the spectrum it needs to
operate in Europe.
IRIDIUM mobile subscriber equipment must be type accepted in many countries
in accordance with national, regional and/or internationally-recognized
standards relating to unwanted emissions, network controls, etc. At the 1996 ITU
World Telecommunication Policy Forum, the participating countries agreed to
start a process that has become known as the GMPCS memorandum of understanding
(the "GMPCS MOU"). If the participating countries can reach agreements covering
the IRIDIUM System and the IRIDIUM subscriber equipment, it will facilitate (i)
the free circulation of subscriber equipment and (ii) universal handset type
approvals. Absent such multilateral agreements, IRIDIUM subscriber equipment
circulation from country to country would require numerous bilateral agreements.
While substantial work has progressed to date on developing these standards for
IRIDIUM subscriber equipment, there can be no assurance that these standards
will ever be established or approved on time.
In connection with Iridium's efforts to obtain worldwide regulatory
approval for IRIDIUM Services, governmental, political and security concerns
have arisen. One such concern is that authorization of IRIDIUM Services by many
countries will be contingent upon Iridium providing such countries with the
ability to legally monitor calls made to or from such countries. Iridium
believes that it will be able to address the concerns of many of these countries
by the date commercial service is expected to begin and of other countries after
the expected commencement of commercial operations. However, there can be no
assurance that it will be able to do so or that the emergence of governmental or
political concerns will not impair the ability to obtain licenses or the
offering of IRIDIUM Services on a timely basis. See "Risk Factors -- Risks
Associated with Licensing and Spectrum Allocations."
CONSULTATIONS AND COORDINATIONS
Intelsat and Inmarsat are international organizations that own and operate
satellite systems. International obligations undertaken by the nations which
have signed the international agreements creating Intelsat and Inmarsat,
including the United States, impose special requirements on the licensing and
operation of other satellite systems, including the IRIDIUM System.
Specifically, under these international agreements the United States must
consult with both Intelsat and Inmarsat prior to authorizing any international
satellite system to ensure that the system will not cause significant economic
or technical harm to the Intelsat system or significant technical harm to the
Inmarsat system. The FCC license to construct, launch, and operate the IRIDIUM
System is expressly subject to the completion of these consultations and
notification by the United States Department of State that the United States has
completed its international obligations with respect to Intelsat and Inmarsat.
The consultation with Intelsat has been completed, although the Department of
State has not yet issued its notification and, therefore, the condition in the
FCC license has not technically been fulfilled. The consultation with Inmarsat
has not begun, but Iridium believes the consultation will be successfully
concluded.
Currently, the Russian aeronautical navigation satellite system, GLONASS,
operates in a frequency band that overlaps the 1610-1626.5 MHZ MSS band. When
operating co-channel with GLONASS, MSS systems are required to coordinate their
operations with the previously registered operations of GLONASS. In addition,
even when not operating co-channel, out-of-band emission limits protect GLONASS
operations from harmful interference. Iridium believes that a bilateral
coordination agreement between Russia and the United States is in the final
stages of negotiation, under which Russia would agree to move the GLONASS
system's operations to frequencies below
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1610 MHZ by January 1, 1999, and to frequencies below approximately 1605 MHZ by
the year 2005. The FCC has conditioned the IRIDIUM blanket subscriber license
upon compliance with a level of protection from interference to the GLONASS
system which has yet to be determined. During the three-month period between
September 1, 1998, the month Iridium expects to commence commercial operations,
and January 1, 1999, the month the GLONASS operational frequencies will shift
from being below 1616 MHZ to being below 1610 MHZ, and during the interim period
between 1999 and when GLONASS shifts to below 1605 MHZ, Iridium believes it will
be able to satisfy any reasonable level of protection that is required although
there can be no assurance as to what level of protection will be required.
Iridium believes that it can meet the protection requested for GLONASS when
GLONASS shifts down in frequency to below 1605 MHZ by January 1, 2005. Other
administrations will also need to coordinate with the Russian Federation
concerning the level of protection that will be afforded to GLONASS in their
territory. In Russia itself, additional restrictions are expected to be imposed
which may limit the amount of spectrum available to Iridium in Russia. There can
be no assurance that sufficient spectrum will be available to meet subscriber
demand in Russia or any other country that requires a higher level of protection
for GLONASS than the United States. Moreover, there can be no assurance that
CDMA systems will be able to meet the levels of protection required for GLONASS,
either in the United States, Russia or elsewhere. If such systems do not meet
the protection requirements, the FCC and/or other countries' regulatory
authorities might consider requests to reassign the CDMA systems to higher
frequencies within the 1610-1626.5 MHZ allocation in order to protect GLONASS.
This development might in turn reduce the amount of spectrum available to
Iridium. See "-- Competition."
Under the FCC's rules, the IRIDIUM System also must protect U.S.
radioastronomy sites during periods when they are observing in the 1610.6-1613.8
MHZ band. Coordination with each such site must be completed before Iridium may
commence operations. To date, Motorola has entered into memoranda of
understanding and letter agreements establishing principles for coordinating
spectrum use (or, in one case, determining that coordination is not required)
with entities representing all of the 15 U.S. radioastronomy sites. Iridium
believes that Motorola will be able to demonstrate that Iridium's operations
will not materially and adversely affect the ability of radioastronomers to
observe in the 1.6 GHz band, but there can be no assurance that final
coordination agreements with these sites will be concluded in a timely manner
or, if FCC intervention is required, that the FCC will impose a coordination
solution that is acceptable to Iridium. Also, there can be no assurance that the
technical assumptions underlying the memoranda of understanding will not differ
from the manner in which the IRIDIUM System performs once it is operational.
Other administrations may also require that the IRIDIUM System be
coordinated with radioastronomy sites that observe in the 1.6 GHz band. Iridium
believes there are approximately 13 other countries that have such
radioastronomy sites observing in that band. Iridium and Motorola have commenced
coordination discussions with numerous non-U.S. radioastronomy sites. While
Iridium believes that it will be able to demonstrate that IRIDIUM's operations
will not materially and adversely affect the ability of radioastronomers at
these sites to observe in the 1.6 GHz band, there can be no assurance that these
coordinations will be concluded successfully or in a timely manner.
In addition to potential interference between MSS systems and other users
of the 1.6 GHz band, there is a potential for intersystem interference among the
MSS systems themselves. Although the FCC declined to impose an unwanted
emissions requirement on CDMA MSS systems to limit their out-of-band emissions
in order to protect IRIDIUM subscriber units from interference, it has directed
the parties to negotiate an agreement imposing an out-of-band emissions mask on
the CDMA systems; if an agreement cannot be reached, the FCC has stated that it
will resolve the issue.
Emissions standards are now under consideration in various international
forums which would limit out-of-band emissions into the IRIDIUM System to a
level which Iridium believes would not cause harmful interference to the
operation of the IRIDIUM System. These standards would apply to all CDMA MSS
systems, including any subsequent CDMA MSS systems which are authorized to use
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the 1610-1621.35 MHZ band. There can be no assurance, however, that the
standards adopted would not cause harmful interference to the operation of the
IRIDIUM System.
The IRIDIUM System MSS downlinks operate on a secondary basis. Under the
rules of the ITU and the FCC, these secondary downlinks may not cause harmful
interference to any primary spectrum user that is operating co-frequency and
must accept any interference caused to them by such primary spectrum users. In
light of the secondary nature of IRIDIUM's MSS downlinks, if the FCC is required
to resolve the inter-system interference issue, there can be no assurance that
it will protect IRIDIUM subscriber units from harmful interference. Any failure
to implement an acceptable CDMA emissions mask could significantly reduce the
total capacity of the IRIDIUM System. Furthermore, the downlinks of the IRIDIUM
System may need to accept interference from Inmarsat terminals, including
Inmarsat aeronautical and land mobile terminals, when they are in the vicinity
of an IRIDIUM terminal.
ELECTRONIC SURVEILLANCE LAWS
The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was
enacted on October 25, 1994. CALEA requires that telecommunications carriers
deploy equipment, facilities, and services that meet certain electronic
surveillance requirements identified in the statute. Penalties of $10,000 a day
could be imposed under CALEA as well as an order of compliance in the case of a
failure to comply, and other unspecified penalties, including injunctions, might
otherwise be imposed. The United States government has indicated that CALEA
imposes requirements on the IRIDIUM System similar to the requirements that the
United States government has requested to be implemented by the cellular
industry. Discussions with the United States government are ongoing to determine
the extent of the IRIDIUM System's obligations and the timing of the
implementation of these requirements into the IRIDIUM System. It is unknown
whether an agreement will be reached with the U.S. government which resolves
these issues. Thus, there exists the possibility of a dispute over the IRIDIUM
System's obligations. See "-- Licensing Status" for a description of the
surveillance requirements of countries outside the United States.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS; EXPORT ADMINISTRATIONS
ACT
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Iridium's operations will fall within the scope of these
regulations.
The Export Administrations Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which are not affected by
the International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Iridium's
ability to put the space segment in place, the export or re-export of IRIDIUM
subscriber equipment as well as earth stations and related equipment and
technical data, may be subject to these regulations, if such equipment is
manufactured in the United States and then exported or re-exported. These
regulations may also affect the export, from one country outside the United
States to another, of United States-origin technical data or the direct products
of such technical data.
Motorola has obtained authorization to export the IRIDIUM satellites,
including associated launch support equipment, currently scheduled to be
launched in Kazakhstan on Khrunichev's
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Proton launch vehicle. Motorola has obtained authorization needed to export the
IRIDIUM satellites, including associated launch support equipment, currently
scheduled for launch in China on China Great Wall's Long March 2C launch
vehicle. See "Risk Factors -- Satellite Launch Risks -- Risks Related to
Non-U.S. Launches."
COMPETITION
At the time that the FCC authorized the construction of the IRIDIUM System,
it also authorized two other competitive MSS systems to operate in the
1610-1626.5 MHZ band. These were the Globalstar system, proposed by
Loral/Qualcomm Partnership, L.P. ("Loral/Qualcomm"), and the Odyssey system,
proposed by TRW. The Globalstar, Odyssey, and IRIDIUM System were the only Big
LEO systems initially licensed by the FCC. While the IRIDIUM System was granted
exclusive use of the 1621.35-1626.5 MHZ band in the United States, Odyssey and
Globalstar were granted shared use of the bands 1610-1621.35 MHZ and 2483.5-2500
MHZ. All three competitive systems have been licensed to operate; and they are
not mutually exclusive.
At the same time the FCC authorized the IRIDIUM, Globalstar and Odyssey
systems, the FCC afforded three other applicants (that had initially failed to
establish their qualifications) additional time in which to demonstrate that
they were financially qualified: MCHI; Constellation; and American Mobile
Satellite Corporation ("AMSC"). In September 1996, AMSC chose not to proceed and
the FCC dismissed its application.
MCHI and Constellation have filed challenges to the FCC's licensing rules,
as well as the FCC's determination that they were each not financially
qualified, with the United States Court of Appeals for the District of Columbia
Circuit. These challenges include an appeal from the FCC's decision to license
the IRIDIUM, Globalstar and Odyssey Systems.
Following the submission of updated financial information by MCHI and
Constellation to the FCC, by Orders released July 1, 1997, the FCC's
International Bureau granted licenses for the Ellipso system proposed by MCHI
and the Aries system proposed by Constellation. These Orders, which are subject
to review by the full Commission, increase to five the number of U.S.-licensed
global MSS systems (including the IRIDIUM System) and may result in increased
competition for the IRIDIUM System. The licensing of these two Code Division
Multiple Allocation ("CDMA") systems reduces the possibility that only one CDMA
system will become operational in the 1610-1621.35 MHZ frequency band adjacent
to the IRIDIUM System's frequency assignment. This in turn reduces the
likelihood that the FCC will increase the frequency assignment for the IRIDIUM
System. In addition, MCHI's and Constellation's licenses may make it more
difficult for CDMA based global systems to meet the protection levels required
for GLONASS, either in the United States, Russia or elsewhere. An inability to
meet these levels might lead to requests to reassign the CDMA systems to higher
frequencies within the 1610-1626.5 MHZ allocation to protect GLONASS. This
development might in turn reduce the amount of spectrum available to Iridium.
Furthermore, the possibility that two more CDMA systems may become operational
may increase the risk of harmful interference into the IRIDIUM System's MSS
downlinks.
Competition with the IRIDIUM System is also expected from ICO, the private
company affiliated with Inmarsat to provide a mobile satellite service using
satellites to be positioned in medium earth orbit. ICO's system is expected to
become a significant competitor of the IRIDIUM System. ICO's proposed service
will not operate in the same set of user link frequencies in which the IRIDIUM,
Globalstar, and Odyssey systems are proposed to operate.
INTERCONNECTION
The IRIDIUM System is predicated upon an international dialing and
signaling model that treats the system as if it were a separate "country." Most
traffic moving to or from the IRIDIUM network will be considered as
international traffic. The IRIDIUM gateway serves as the link between the
IRIDIUM System and the PSTNs within the gateway territory. Consistent with this
"country" model,
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an IRIDIUM gateway needs to route traffic between the IRIDIUM System and the
international PSTN. For a country to send a call originating in its PSTN to the
IRIDIUM System, it must send the call via its international network to the
nearest IRIDIUM gateway, which may be in a neighboring country. Similarly, for
the IRIDIUM System to send an IRIDIUM System-originated call to a country's
PSTN, it must send the call through its gateway to the international PSTN. In
both cases, IRIDIUM gateways need to interconnect to the PSTN. Thus,
interconnection agreements need to be established between the IRIDIUM gateway
operators and the local PSTN operators in the country in which the gateway is
located.
Every country should be able to send traffic from its PSTN to the nearest
IRIDIUM gateway. Since the IRIDIUM System will be treated like a "country" with
a dedicated country code, each country will route traffic based on that country
code to the IRIDIUM gateway. To route IRIDIUM System traffic properly, the
network operators in every country must update their international switches (and
domestic ones, if necessary) to include the IRIDIUM country code and signaling
point codes.
It is also important that each IRIDIUM gateway be granted, by the country
in which the gateway is located: (i) any necessary and appropriate international
carrier status to route traffic to and from the country in which it is located;
(ii) the right to route IRIDIUM System traffic through the PSTN as an
international carrier and not as an end user (classification as an international
carrier, versus an end user, would enable IRIDIUM gateways to negotiate with
other carriers on a carrier-to-carrier basis); and (iii) the right to route
traffic using leased lines.
COUNTRY CODE
The ITU Telecommunication Standardization Bureau ("TSB") is empowered to
allocate international dialing codes for countries, geographic areas, and global
services. Although there are numerous three-digit "country codes" still
available for allocation, until recently such codes have generally been granted
only to countries and to geographic areas, in order to conserve this limited
resource. The TSB is advised on international code issues by its Study Group 2,
which is composed primarily of representatives of telecommunications service
organizations and representatives of government administrations. Iridium applied
to the TSB for a country code for the IRIDIUM System. ICO, Globalstar and
Odyssey submitted requests for country code resources, as well.
In May 1996, Study Group 2 decided that these systems should share a
country code and allocated code "881" for this purpose. Each eligible system
will receive two values of the digit following the code 881. For example, the
IRIDIUM System will use codes 8816 and 8817, which will enable Iridium to
identify 200 million subscribers. The Director of the TSB will let each system
reserve its codes for testing and officially assign them later. Iridium has
already been advised by the Director of the TSB that codes have been reserved
for the IRIDIUM System.
The four-digit country code must be used by domestic and international
carriers in each country to route calls to the IRIDIUM System and to recognize
those calls for billing purposes as calls to the IRIDIUM network. Although the
typical three-digit country code is supported by all carriers for the call
routing and billing systems, it is expected that some carriers will have to
modify their routing and billing systems, and in some cases, enhance their
switch capacity, to be able to route and bill for calls destined for the IRIDIUM
System and other MSS systems. It is possible that some carriers will not agree
to make the necessary modifications, to make them in a timely fashion, or to
make them without Iridium and other MSS system operators paying for some or all
of the costs of such modifications. It is generally expected that resistance to
making the modifications is most likely to occur in developing countries that
employ less modern switching equipment.
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PRINCIPAL CONTRACTS FOR THE DEVELOPMENT OF THE IRIDIUM SYSTEM
Iridium and Motorola have entered into the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. In addition, Iridium has entered into a Gateway Authorization
Agreement with each of its investors that has been allocated a gateway service
territory. Iridium has also entered into contracts with Andersen Consulting LLP
for the development and deployment of the IRIDIUM business support systems and
the associated gateway business systems that will be deployed in each gateway.
The following summary discusses the material provisions of the contracts. Each
of these contracts has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part and prospective investors are urged to read
the exhibits for a complete understanding of the terms of these contracts. There
have been, and Iridium anticipates there will be, amendments and interpretations
to the principal supply contracts. See "Risk Factors -- Potential for Delay and
Cost Overruns" and "-- Risks Associated with Principal Supply
Contracts -- Amendments to Principal Contracts." Capitalized terms used in the
following summary that are defined in the contracts have the meanings ascribed
to them in the contracts.
SPACE SYSTEM CONTRACT
Motorola has agreed under the Space System Contract to design, develop,
produce and deliver in orbit the Space Segment of the IRIDIUM System consisting
of the Constellation and System Control Segment. The Space System Contract
provides for a price of $3.45 billion, scheduled to be paid by Iridium to
Motorola over approximately a five-year period upon the completion of 47
performance milestones. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." This price is not subject to change based
upon inflation but is subject to certain other adjustments. The Space System
Contract generally requires that the Space Segment must pass an acceptance plan
demonstrating, among other things and as specified therein, specified minimum
performance coverage and capacity criteria by a specified date (as extended for
certain excusable delays) as a condition to Iridium's obligation to accept the
Space Segment and make the final contract payment of $150 million. Following
acceptance by Iridium, the coverage and capacity performance level of the Space
Segment will be governed by the Operations and Maintenance Contract. In
addition, the Space System Contract provides that the warranty made by Motorola
that the Space Segment will comply with the requirements specified in the
acceptance plan immediately upon completion of the contract, but not thereafter,
is in lieu of all other warranties. The liability of Motorola to Iridium under
the Space System Contract is subject to certain limitations (discussed below).
The Space System Contract also requires Motorola to deliver the Satellite
Subscriber Unit (Voice) Interface Specification and the Space System Operations
Plan. The Satellite Subscriber Unit (Voice) Interface Specification was
delivered by Motorola and accepted by Iridium in October 1996. Motorola has also
agreed to license the rights to use the information in the Voice Encoding
Algorithm to the extent essential to implementation of the Satellite Subscriber
Unit (Voice) Interface Specification to telecommunications equipment
manufacturers on mutually acceptable terms and conditions (which may include
royalty payments), provided that the government of such manufacturer's country
has authorized the operation of the IRIDIUM System in that country. Motorola has
indicated to Iridium that it interprets the word "essential" as used in the
prior sentence to mean "technically essential." Iridium does not agree that this
qualification of the term "essential" can or should be implied from the
applicable language in the Space System Contract. In the Space System Contract
Motorola has agreed to design and make available to Iridium as proprietary
information: (i) the Gateway Interface Specification; (ii) the Paging Unit
Interface Specification; and (iii) the Satellite Communication Link Interface
Specification. Separate agreements have been and are expected to be entered into
between Motorola and other appropriate parties providing for the production and
sale of IRIDIUM gateways, subscriber units and other components of the IRIDIUM
System. Motorola has also agreed to develop and sell IRIDIUM gateway equipment,
phones, paging
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units and MXUs to third parties and to license to responsible and competent
suppliers acceptable to Motorola, all on reasonable terms and conditions (which
may include royalty payments) mutually acceptable to Motorola and such third
parties and suppliers, the right to use the information in these interface
specifications to the extent essential for the supplier to manufacture and sell
the applicable Iridium products. The Space System Contract provides that in
connection with the grant of licenses referred to in this paragraph Motorola may
require reciprocal rights to intellectual property of the prospective licensee.
The Space System Contract provides for 47 milestones with scheduled
completion dates ranging from January 29, 1994 to September 23, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Upon completion of each such milestone in accordance with the
contract, Iridium is obligated to pay Motorola the price corresponding to such
milestone. The contract generally provides that Iridium's exclusive remedy for
Motorola's failure to complete any or all of the interim milestones by the
scheduled dates shown on an exhibit to the Space System Contract (as they may be
adjusted) is relief of Iridium's obligation to pay the applicable amount for
such milestones until Motorola completes or is deemed to have completed such
milestones. Iridium has the right, in the event it disagrees with Motorola's
assertion that it has completed a milestone and is therefore permitted to
receive payment, to challenge such assertion by Motorola. Failure to complete
any given milestone will not relieve Iridium of its obligation to make payments
with respect to subsequent completed milestones. Failure to complete one or more
of the milestones on a timely basis so as to prevent completion of the final
milestone within twelve months of the scheduled date (as that date may have been
adjusted under the contract) in accordance with the terms of the contract as
established by clear and convincing evidence would permit Iridium to terminate
the contract if Motorola does not act to commence correction of that failure
within 30 days after receipt of notice from Iridium specifying that failure.
Failure to complete the final milestone by the scheduled completion date (as it
may be adjusted) may cause Motorola to forego all or a portion of the $150
million final milestone payment. The final milestone payment is payable in full
only if Motorola completes the final milestone on the scheduled completion date
(as that date may have been extended under the contract). The payment will be
reduced ratably each day from $150 million to $115 million if completion of the
final milestone is delayed to December 23, 1998 or to the extent that the
commitment to deliver a specified number of gateways is not met. Thereafter,
failure to complete the final milestone will result in a monthly reduction of
the remaining $115 million ratably on a monthly basis from $115 million to zero
if the final milestone is delayed to on or after September 23, 1999. The final
milestone payment penalty is stated in the Space System Contract to be Iridium's
exclusive remedy for Motorola's failure to complete the final milestone on a
timely basis, except that, under certain circumstances, Iridium may declare
Motorola in default if the final milestone is not completed within 12 months of
the scheduled date (as that date may have been adjusted under the Space System
Contract).
Motorola will have no liability under the Space System Contract for
failures or delays in performance, including with respect to the failure to
complete the final milestone on a timely basis, to the extent that such failure
or delay results from an event that is an excusable delay or certain other
specified delays or occurrences. Further, milestone payments under the Space
System Contract will be adjusted to account for any additional costs incurred by
Motorola as a result of an excusable delay. An excusable delay is defined under
the Space System Contract to include any event beyond the reasonable control and
without the fault or negligence of Motorola and its subcontractors, which may
therefore limit the effect of the specified payment penalties. Delays in
launches of satellites caused by the actions or inactions of Motorola's launch
service subcontractors directly pursuant to their subcontracts with Motorola do
not constitute excusable delays under the contract. All other delays in the
launch of satellites arising for whatever reason not caused by Motorola would
constitute excusable delays under the contract, including delays in launches of
IRIDIUM satellites due to delays in prior launches scheduled for third parties.
Motorola has the burden of proving that an event constitutes an excusable delay.
In the event of an excusable delay,
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Motorola will have an obligation to use its best efforts to mitigate the
additional costs or schedule impact of the excusable delay to the extent
reasonable.
The Space System Contract provides that Motorola generally will retain
rights to the intellectual property associated with the Space Segment. Motorola
has agreed to indemnify Iridium, subject to specified qualifications and
limitations, for claims of infringement of any valid and enforceable patent on
account of the Space Segment or any part thereof provided by Motorola to Iridium
under the Space System Contract in any country of the world where an IRIDIUM
service provider has been authorized to provide IRIDIUM Services by an
authorized gateway operator and licensed, to the extent required, by the
government of such country to provide IRIDIUM Services. These qualifications and
limitations include the following: (i) Motorola's total indemnity liability for
attorneys' fees, costs and adverse judgments is limited to the amount Iridium
paid Motorola for the particular items found to infringe; (ii) if Motorola's
liability in respect of a claim or proceeding in any particular country exceeds
10% of the actual income derived by Iridium from operation of the IRIDIUM System
in that country, Iridium will cooperate in mitigating Motorola's liability,
including either terminating service in that country or releasing Motorola from
liability for patent infringement in that country in excess of such 10% amount;
and (iii) Motorola's total liability in respect of this indemnity obligation is
subject to, and counted against, the Motorola Liability Limitations set forth
under "Risk Factors -- Risks Associated with Principal Supply Contracts -- Space
System Contract." Iridium has agreed to indemnify Motorola for claims or losses
resulting from Motorola's compliance with Iridium's designs, specifications or
instructions. See "Risk Factors -- Patents and Proprietary Rights."
Motorola has agreed under the Space System Contract that it, or one of its
wholly owned subsidiaries, shall use its reasonable best efforts to obtain all
permits, licenses and approvals required by the FCC or by any applicable United
States law or regulation, as well as obtain and coordinate the necessary orbital
locations and radio frequency spectrum, to construct, launch and operate the
Space Segment. Under the Space System Contract, Motorola is responsible for all
of its costs in applying for, obtaining and renewing these licenses and
approvals and Iridium is responsible for any other expenses of Motorola in
connection with the licenses and approvals. The Space System Contract provides
that Motorola must use its reasonable best efforts to apply for and obtain
appropriate authorization from the FCC to transfer such permits, licenses and
approvals to Iridium if Iridium so requests and is, in the written opinion of
Motorola's legal counsel, lawfully qualified to hold them. Motorola is not
entitled to any reimbursement by Iridium of its expenses in obtaining or
transferring the FCC permits, licenses and approvals.
In addition, the Space System Contract provides that Motorola will have no
liability to Iridium or its direct or indirect customers for any damages
resulting from any loss, destruction, degradation or failure of the Space
Segment or its subsystems to operate satisfactorily. Iridium has agreed in the
Space System Contract to indemnify Motorola and its affiliates without limit
against any and all claims by third parties caused by or arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium, except liabilities, losses and damages caused by the
willful misconduct or gross negligence of Motorola. Iridium has also granted
Motorola certain waivers of liability and has agreed to maintain at least $500
million of general liability insurance during the term of the Space System
Contract to cover certain third party liability risks arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium. The remedies of Iridium and Motorola specified in the
contract for a default under the contract are exclusive of all other remedies.
The Space System Contract provides that title and risk of loss or damage to
each individual satellite will pass to Iridium upon the arrival of each
satellite at its designated orbital location in the satellite constellation.
Title and risk of loss or damage of the System Control Segment shall pass to
Iridium upon the earlier of (i) Motorola's demonstration to Iridium of each
Constellation and System Control Segment facility's acceptance plan pursuant to
the Space System Contract or (ii) completion of Milestones 40 (backup control
facility integration and test complete) and 41 (master control facility
integration and test complete) in respect to each facility.
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Motorola has agreed in the Space System Contract that, without Iridium's
consent, it will not produce for itself or others a similar satellite-based
space system of a global communication system for commercial use prior to the
earlier of July 31, 2003 or the termination date of the Space System Contract.
OPERATIONS AND MAINTENANCE CONTRACT
In order to provide for the operation and maintenance of the IRIDIUM System
at a specified level of performance once it is completed pursuant to the Space
System Contract, Iridium has entered into the Operations and Maintenance
Contract with Motorola. This contract obligates Motorola, for a period of five
years after completion of the final milestone under the Space System Contract,
to operate the Space Segment and to exert its best efforts to monitor, upgrade
and replace the hardware and software of the Space Segment (including the
individual satellites) necessary to maintain it at specified minimum coverage
and capacity factors, in exchange for specified quarterly payments. The
Operations and Maintenance Contract provides for fixed quarterly payments that
range from $129.4 million per quarter in 1998, increasing annually to $178.8
million per quarter in 2006. Such payments during the initial five-year term are
expected to aggregate approximately $2.88 billion, subject to certain
adjustments. In addition, Iridium has the option to extend this contract for an
additional two years with payments based upon the quarterly payments specified
above. Such payments for the two year extension are expected to aggregate
approximately $1.33 billion. In the event that completion of the Space System
Contract and, therefore, the commencement of the five year period of the
Operations and Maintenance Contract is delayed more that six months for any
reason other than causes within the reasonable control of Motorola, the
specified quarterly payments shall be adjusted to account for any additional
costs incurred by Motorola.
Specifically, the Operations and Maintenance Contract requires Motorola to
provide the necessary labor to operate the system control segment facilities as
specified in the Space System Operations Plan and to control the satellites of
the satellite constellation and the day-to-day Space Segment management
functions, including the monitoring of the Space Segment interface with the
gateways, phones, paging units and MXUs. It also requires Motorola to exert its
best efforts to monitor, upgrade and replace the hardware and software of the
Space Segment, including the launch of additional satellites, as necessary to
maintain the Space Segment at specified minimum coverage and capacity factors.
In the event of any excusable delay, Motorola would be relieved of the
obligation to exert its best efforts to meet the specified factors, but would be
required to maintain the coverage and capacity factors at the best reasonable
level it can, and it would also be entitled to continued payment of the full
quarterly amounts under the contract and any additional costs it incurs as a
result of such excusable delay.
The Operations and Maintenance Contract provides that the title and risk of
loss or damage to each spare satellite passes to Iridium upon the earlier of its
arrival in low earth storage orbit or the date on which Motorola demonstrates to
Iridium the arrival of the satellite in its designated orbital location. The
Operations and Maintenance Contract provides for additional payments by Iridium
to Motorola (as much as $46 million per satellite) where satellites in low earth
orbit (including satellites in low earth orbit storage) are damaged by the acts
of third parties (as described therein, including contact with space debris) and
replaced by Motorola at the request of Iridium. If the cause of a partial or
complete degradation or inoperability of a satellite is not known to have been
caused by contact with an object in space, its loss will nonetheless be assumed
to have been caused by a third party (and its replacement cost therefore the
responsibility of Iridium rather than Motorola) if the evidence available to the
parties suggests to reasonable and prudent experts knowledgeable in the field of
spacecraft orbital operations and/or space debris that a space object (i.e.,
space debris) may have impacted a satellite and caused it to become partially or
completely inoperative. Iridium's cost for a replacement satellite will be $23
million in this circumstance rather than $46 million. Moreover, the effect of
damage to satellites by acts of third parties is to be disregarded
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in determining the coverage and capacity factors, so that the required
performance of the Space Segment under the contract would be reduced while the
affected satellites were repaired or replaced.
TERRESTRIAL NETWORK DEVELOPMENT CONTRACT
Iridium and Motorola have entered into the Terrestrial Network Development
Contract. Under the Terrestrial Network Development Contract, Motorola agreed to
design and develop the gateway hardware and software and license Iridium to use
and permit others to use intellectual property developed under the contract to
procure the development and manufacture of gateway equipment from sources other
than Motorola. The Terrestrial Network Development Contract specifies certain
performance standards and service requirements for the gateways, and provides
common specifications for the gateways and improved oversight by Iridium of the
development process for the gateways. Iridium believes this streamlined the
development process and resulted in better integration of the gateways into the
IRIDIUM System. Iridium has currently agreed to pay Motorola approximately $270
million under the contract in increments tied to the completion of milestones,
including milestones relating to acceptance tests of the completed gateway
design.
IRIDIUM BUSINESS SUPPORT SYSTEM CONTRACT
Iridium has entered into a contract with Andersen Consulting, LLP
("Andersen") under which Andersen is developing the business support system for
the IRIDIUM System. This computer system is called the Iridium Business Support
System ("IBSS"). The IBSS will provide for typical telecommunications business
support functions, including billing, settlement, customer records, service
activation, and equipment management. In conjunction with the development of the
IBSS, Andersen is developing the gateway and service provider business systems
that will be deployed at each gateway and service provider location and which
are necessary for the gateways and service providers to operate with the IBSS
and to perform essential gateway and service provider back office business
functions.
The Iridium component of the IBSS will be located and operated at Iridium
facilities in the United States. The gateway and service provider components
will be located throughout the world. The components will be connected by a
terrestrial data network and will operate together to support the functions of
the IBSS. The IBSS is to be deployed using both custom designed software and
currently existing software purchased from commercial vendors. Because
components of the IBSS will have to be deployed around the world, it will be
necessary to meet U.S. export requirements and import requirements of other
countries.
The contract with Andersen for the development of the IBSS has been entered
into at a fixed price of $43 million. Andersen has also agreed to perform
deployment and maintenance functions of the IBSS. Andersen and Iridium are
currently negotiating the terms and conditions for the deployment and
maintenance functions. An agreement for the incorporation of the changes
necessary to accommodate the ICRS has not been negotiated.
Although Iridium believes that the development of the IBSS is proceeding in
accordance with its expectations and with its commercial activation plan, there
is no assurance that Andersen will be successful or timely in the development
and delivery of the IBSS. While the contract with Andersen for the IBSS provides
that Iridium can secure damages from Andersen up to a set limit in the event of
Andersen's breach, the amount of such damages would be insufficient to
compensate Iridium for the loss of revenue should the IBSS fail to function for
a substantial period of time.
OTHER SYSTEM DEVELOPMENT CONTRACTS AND AMENDMENTS
In addition to the contracts described above, Iridium is currently in
negotiations with Motorola and other vendors or prospective vendors relating to
new contracts, or amendments to existing contracts, providing for the
development of new or enhanced system or service capabilities. In
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addition, Iridium anticipates that it is likely that requirements will arise in
the future for additional contracts, or additional amendments to existing
contracts, for the development of system or service capabilities not currently
identified, or for other changes regarding system development or implementation.
In general, Iridium believes that it will be able to successfully complete such
negotiations, on terms that it finds acceptable, and in a time frame consistent
with the implementation of the system and service capabilities described herein,
but there can be no assurance that such negotiations will be successfully, or
timely, concluded or that the work to be performed thereunder will be
satisfactorily and timely completed.
Amendments to Principal Contracts
As a result of technological developments, changes in the product mix of
the IRIDIUM service, and scheduling adjustments, there have been, and Iridium
anticipates there will be, amendments to the Space System Contract, the
Terrestrial Development Contract, the Operations and Maintenance Contract and
the IBSS Contract. Iridium's estimate of the costs of anticipated amendments is
reflected in Iridium's estimates of its funding requirements. There can be no
assurance that future technological, market or regulatory developments will not
necessitate unanticipated amendments to such contracts or that Motorola or other
venders will be willing or able to provide these new capabilities on terms
acceptable to Iridium.
Gateway and Service Provider Rights
Iridium has granted certain exclusive rights to most of its equity
investors to be gateway operators in specified gateway service territories. Each
investor who has been allocated a gateway service territory has entered into a
Gateway Authorization Agreement with Iridium. See "-- Gateway Authorization
Agreements." The allocation of gateway service territories is subject to any
applicable antitrust laws. The allocation of gateway rights to any investor in
Iridium is also subject to forfeiture for a number of reasons, including the
failure of such investor to obtain required authorizations within stated time
periods. The loss of gateway rights, however, does not diminish an investor's
obligations under Iridium's Limited Liability Company Agreement, including
obligations to fund committed amounts to Iridium. See "-- Gateway Authorization
Agreements" for a description of the terms of the Gateway Authorization
Agreements.
Each investor in Iridium that is allocated a gateway service territory has
been granted under Iridium's Limited Liability Company Agreement the exclusive
right, to the extent permitted by applicable law, to act as, and to designate
others to act as, an IRIDIUM satellite service provider in its allocated
territory, subject to obtaining necessary government authorizations and entering
into documentation that is acceptable to such investor and Iridium.
Obligations Relating to Spectrum Access
Each non-governmental investor that has been allocated a gateway service
territory has agreed: (i) to use its reasonable best efforts to cause the
government and other relevant authorities in jurisdictions in which such
purchaser conducts any material part of its business to ratify and adopt the
spectrum allocation and service definitions for low earth orbiting satellites
adopted at WARC-92; (ii) to use its reasonable best efforts to obtain from such
governments and authorities allocations of the frequencies necessary to operate
and use the IRIDIUM System within the jurisdictions of such governments and
authorities; and (iii) to use its reasonable best efforts to cause such
governments and authorities to facilitate the coordination of the use of such
frequencies within such government's jurisdiction. In addition, each
governmental investor has agreed: (i) to ratify and adopt the spectrum
allocation and service definitions for low earth orbiting satellites adopted at
WARC-92; (ii) to use its reasonable best efforts to facilitate the allocation of
the frequencies necessary to operate and use the IRIDIUM System within its
country; and (iii) to use its reasonable best efforts to facilitate the
coordination of the use of such frequencies within such government's
jurisdiction.
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GATEWAY AUTHORIZATION AGREEMENTS
Iridium has entered into a Gateway Authorization Agreement with each of its
investors that has been allocated a gateway service territory. The Gateway
Authorization Agreements provide that Iridium and each gateway operator will use
their reasonable best efforts to agree upon: (i) the specific location of the
gateway within the gateway operator's allocated territory; (ii) the
communications capacity of each gateway; and (iii) the specific construction and
operational schedule for each gateway (collectively, the "Gateway Master Plan").
At present, most of the gateway operators have committed to country locations
for their gateways in their respective Gateway Authorization Agreements. The
Gateway Authorization Agreements also provide that the each gateway operator
will use its reasonable best efforts to have its gateway operational in advance
of the scheduled Full Operational Capability Date.
The Gateway Authorization Agreements also provide that each gateway
operator will use its reasonable best efforts to undertake and complete on a
schedule consistent with the Gateway Master Plan the following: (i) apply for,
obtain and maintain all governmental authorizations and frequency allocations
necessary to construct and operate its gateway and provide gateway services in
its gateway service territory, (ii) contract with Motorola and/or other
suppliers to design, construct and maintain its gateway in accordance with the
Gateway Master Plan and Iridium's set of guidelines, recommendations, rules,
plans and other instructions relating to technical and operational matters
associated with operation of the IRIDIUM System (the "IRIDIUM System
Practices"), (iii) provide for the staffing, testing and operation of its
gateway in accordance with the IRIDIUM System Practices, (iv) consistent with
the applicable requirements of the IRIDIUM System Practices, establish and
maintain appropriate interconnection, access and settlement arrangements through
and with each PSTN operating within its gateway service territory that are
required to effectively distribute and utilize IRIDIUM Satellite Services within
its gateway service territory, (v) designate service providers, which may
include the gateway operator, within its gateway service territory, provide
gateway services to its service providers and require compliance by its service
providers with established guidelines, and (vi) support Iridium-approved
positions at WRCs of the ITU.
Pursuant to the Gateway Authorization Agreements, Iridium agreed to provide
to each gateway operator, including each gateway operator's designated service
providers, continuous access to the Space Segment, commencing at such time as
the gateway operator's gateway has been constructed, tested and commissioned in
accordance with the Gateway Master Plan and is in full satisfactory compliance
with the IRIDIUM System Practices. The Gateway Authorization Agreements also
provide that each gateway operator will comply with the instructions of Iridium,
when in Iridium's reasonable judgment any action is required, including
cessation of gateway transmissions. In addition, Iridium has the right to
suspend access to the Space Segment if Iridium reasonably determines that such
continued access would harm overall system operation and either (i) the gateway
operator has failed to take previously requested corrective action or (ii) the
need for immediate action by Iridium is required to avoid harm to overall system
operation.
The Gateway Authorization Agreements provide that the Iridium Board will
establish pricing policies and practices, including specific rates and currency
requirements, governing access to the Space Segment upon prior consultation with
each gateway operator, and that each gateway operator will comply with these
pricing policies and practices to the extent permitted by applicable law and
regulation.
The Gateway Authorization Agreements also provide that Iridium will use its
reasonable best efforts to establish and have operational the clearinghouse
facility, which will serve as the central point for the collection of call
detail and billing records produced within the IRIDIUM System, on or before the
Full Operational Capability Date.
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MANAGEMENT
IRIDIUM AND CAPITAL
The following table sets forth information concerning the executive
officers and directors of Iridium as of August 15, 1997.
NAME AGE POSITION
- ---------------------------------- --- -------------------------------------------------
Robert W. Kinzie(1)............... 63 Chairman of the Board
Edward F. Staiano................. 61 Vice Chairman of the Board and Chief Executive
Officer
Mauro Sentinelli.................. 50 Executive Vice President -- Marketing and
Distribution
Leo Mondale....................... 38 Senior Vice President -- Marketing & Strategic
Planning
O. Bruce Dale..................... 54 Vice President -- Network Operations
Lauri J. Fitz-Pegado.............. 42 Vice President -- Global Gateway Relations
Mark Gercenstein.................. 46 Vice President -- Business Operations
Roy Grant......................... 40 Vice President -- Chief Financial Officer
Dale F. Hogg...................... 55 Vice President -- Human Resources
Francis Latapie................... 56 Vice President -- Government Affairs
Neal F. Meehan.................... 55 Vice President -- Aeronautics
Larry G. Rands.................... 56 Vice President -- Engineering
F. Thomas Tuttle.................. 55 Vice President, General Counsel & Secretary
Robert N. Beury, Jr. ............. 44 Assistant Secretary and Deputy General Counsel
Richard L. Lesher(2)(3)(4)........ 63 Vice Chairman of the Board and Independent
Company Director
Hasan M. Binladin(4).............. 49 Director (designated by Iridium Middle East)
Ulf Bohla(1)(4)................... 53 Director (designated by Vebacom Holdings, Inc.)
Gordon J. Comerford(2)............ 60 Director (designated by Motorola)
Atilano de Oms Sobrinho(2)(4)..... 54 Director (designated by Iridium SudAmerica)
Robert A. Ferchat(4).............. 62 Director (designated by Iridium Canada)
Alberto Finol(1)(3)(4)............ 62 Director (designated by Iridium SudAmerica)
Edward Gams(1).................... 49 Director (designated by Motorola)
Kazuo Inamori(4).................. 65 Director (designated by Nippon Iridium)
Georg Kellinghusen(4)............. 50 Director (designated by Vebacom Holdings, Inc.)
Hardianto K. Kamarga.............. 50 Director (designated by P.T. Bakrie & Brothers)
S. H. Khan(4)..................... 59 Director (designated by Iridium India)
Anatoli I. Kiselev(4)............. 58 Director (designated by Khrunichev)
George S. Medawar(1)(3)(4)........ 64 Director (designated by Iridium Africa)
John F. Mitchell(3)............... 69 Director (designated by Motorola)
Jung L. Mok(3)(4)................. 48 Director (designated by SK Telecom)
Giuseppe Morganti(1)(2)(4)........ 64 Director (designated by Iridium Italia)
J. Michael Norris................. 50 Director (designated by Motorola)
Yusai Okuyama(2)(4)............... 65 Director (designated by Nippon Iridium)
John M. Scanlon................... 55 Director (designated by Motorola)
Theodore H. Schell(1)(4).......... 53 Director (designated by Sprint)
William A. Schreyer(2)(3)(4)...... 69 Independent Company Director
Sribhumi Sukhanetr(3)(4).......... 65 Director (designated by Thai Satellite)
Tao-Tsun Sun(2)(4)................ 47 Director (designated by Pacific Electric Wire &
Cable)
Yoshiharu Yasuda(1)(3)(4)......... 57 Director (designated by Nippon Iridium)
Wang Mei Yue(3)(4)................ 56 Director (designated by Iridium China)
- ---------------
(1) Members of the Banking and Financing Committee
(2) Members of the Audit Committee
(3) Members of the Compensation Committee
(4) Members of the Related Party Contracts Committee
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The following table sets forth information concerning the executive
officers and Directors of Iridium Capital as of August 15, 1997.
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------------
Robert W. Kinzie..................... 63 Director
Edward F. Staiano.................... 61 Chairman of the Board and Chief Executive Officer
Roy Grant............................ 40 Chief Financial Officer
F. Thomas Tuttle..................... 55 Secretary
Set forth below is information concerning each director and executive
officer of Iridium and, where indicated, Capital, including each individual's
principal occupation and employment. Unless otherwise indicated, each executive
officer holds office until a successor is duly elected and qualified. The
directors of Iridium are designated by the Members and serve until the Member
has designated a successor. There are no family relationships between any
officers and directors of Iridium.
Executive Officers of Iridium and Capital
EDWARD F. STAIANO -- Vice Chairman and Chief Executive Officer of Iridium
since January 2, 1997 and Director since October 1994. Chairman of the Board and
Chief Executive Officer of Capital since June 18, 1997. Dr. Staiano served
Motorola as Executive Vice President, President and General Manager of the
General Systems Sector (comprised of the cellular subscriber group, cellular
infrastructure group, network ventures division, personal communications and the
computer group) from 1989 to December 1996.
MAURO SENTINELLI -- Executive Vice President -- Marketing and Distribution
of Iridium since August 1, 1997. Prior to joining Iridium, Mr. Sentinelli was
Deputy Director General in charge of Strategic Planning, Strategic Marketing and
International Affairs for Telecom Italia Mobile from 1995 to 1997 and Deputy
Managing Director for 1994 to 1995. He joined SIP, Telecom Italia's predecessor,
in 1974, and held various positions in engineering, marketing and strategic
planning. He became head of Business Development the Mobile Service Department
in 1988 and launched the company's cellular service.
LEO MONDALE -- Senior Vice President -- Marketing and Strategic Planning of
Iridium since January 1995. From July 1993 until January 1995, Mr. Mondale
served as Vice President, Government Affairs and Strategic Planning and from
January 1991 to July 1993 as Vice President -- International Relations of
Iridium. From July 1, 1990 to January 31, 1992, he was Director of International
Relations for the Satellite Communications unit of Motorola. Before joining
Motorola, Mr. Mondale served as Vice President of the Fairchild Space & Defense
Corporation, where he was responsible for the international and commercial
activities of Fairchild Space from 1989 to 1990. Prior to joining Fairchild, Mr.
Mondale was Legal Counsel to the then Space Division of Matra, S.A. (now
Matra-Marconi Space, N.V.), based in Paris, France, following several years of
private legal practice in Washington, D.C.
O. BRUCE DALE -- Vice President -- Network Operations of Iridium since
April 1995. Prior thereto, Mr. Dale served in a number of positions at Bell
Communications Research ("Bellcore") including, General Manager, Service
Assurance Systems and General Manager, Planning & Engineering System from March
1993 to April 1995, Vice President, Customer Service Center from January 1992 to
March 1993, and Assistant Vice President, Provisioning Systems Laboratory from
January 1990 to January 1992. From March 1982 to December 1989, Mr. Dale served
as Director of Data Network Systems Development Laboratory for AT&T Bell
Laboratories.
LAURI J. FITZ-PEGADO -- Vice President -- Global Gateway Relations since
May 1997. Prior to joining Iridium, Ms. Fitz-Pegado served at the U.S.
Department of Commerce as the Director General and Assistant Secretary of the
U.S. & Foreign Commercial Service (US&FCS) International Trade Administration
from June 1994 to June 1997 and as a Special Advisor to the Secretary of
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Commerce from June 1993 to June 1994. From June 1982 to June 1993, Ms.
Fitz-Pegado worked at Hill & Knowlton Public Affairs Worldwide, most recently as
Managing Director and Senior Vice President.
MARK GERCENSTEIN -- Vice President -- Business Operations of Iridium since
August 1992. Prior to joining Iridium, Mr. Gercenstein was Director of Marketing
of Motorola Satellite Communications from 1990 to 1992. Prior to assuming that
position, Mr. Gercenstein held various marketing and engineering assignments at
Motorola Government Electronics Group from 1984 to 1990, Spar Aerospace from
1985 to 1987 and Bendix Aerospace from 1975 to 1982.
ROY GRANT -- Vice President -- Chief Financial Officer of Iridium since
April 30, 1997 and Vice President -- Treasurer from November 1996 to July 1997.
Chief Financial Officer of Capital since June 18, 1997. Prior to joining
Iridium, Mr. Grant served from 1992 to 1996 as Finance Director for Edison
Mission Energy, the largest independent power developer in the United States.
Mr. Grant also worked for Marriott Corporation from 1988 to 1992 in its
corporate and project finance areas and at American Airlines from 1980 to 1988,
most recently as its Managing Director -- Banking where he was responsible for
all of the airline's banking relationships.
DALE F. HOGG -- Vice President -- Human Resources of Iridium since August
1996 and Director of Human Resources since August 1994. Before joining Iridium,
Mr. Hogg was Corporate Manager, Compensation and Global Staffing for W.R. Grace
& Co. He previously served from 1985 to 1991 as Regional Director, Human
Resources for the Coca-Cola Company, from 1982 to 1985 as Vice President for
Warner Communications and from 1980 to 1982 as Corporate Personnel Manager for
the LTV Corporation. He has also held Human Resources positions at The Williams
Companies and Rockwell International. Additionally, he served as news anchor for
a CBS affiliate from 1972 to 1980.
FRANCIS LATAPIE -- Vice President -- Government Affairs of Iridium since
October 1996. From January 1996 until October 1996, Mr. Latapie served as
Executive Director, Government Affairs of Iridium. Before joining Iridium, Mr.
Latapie worked for Intelsat since 1974 in various management positions. From
1968 to 1974, Mr. Latapie was Scientific Attache in the United States,
representing the French Government in all matters dealing with space and
telecommunications.
NEAL F. MEEHAN -- Vice President -- Aeronautics of Iridium since April
1997. Prior to joining Iridium, Mr. Meehan served as Executive Vice President of
In-Flight Phone Corporation ("IFPC") from April 1995 and as a consultant to IFPC
from March 1992 to April 1995. Mr. Meehan was co-founder and Executive Director
of Worldwide Transportation Group, Inc. from 1991 to 1995. Mr. Meehan worked at
Texas Air Corporation from 1987 to 1990 as Senior Vice President of Customer
Services. Mr. Meehan also served as the founding President and Chief Executive
Officer of Continental Express, the regional airline subsidiary of Continental
Airlines.
LARRY G. RANDS -- Vice President -- Engineering of Iridium since August
1993. Mr. Rands was employed by Motorola Satellite Communications as Assistant
Manager System Engineering from November 1991 through July 1993. Prior thereto,
Mr. Rands spent twelve years with COMSAT Corporation, where he served in several
management positions, most recently, Senior Director of System Engineering. He
has also held positions with CONTEL/ASC, RCA Laboratories, Rockwell
International and Hughes Aircraft.
F. THOMAS TUTTLE -- Vice President, General Counsel and Secretary of
Iridium since April 1996. Mr. Tuttle had been employed by Iridium as Assistant
Secretary since January 1994 and as Deputy General Counsel since November 1993.
Secretary of Capital since June 18, 1997. Before joining Iridium, Mr. Tuttle was
in private law practice in Washington, D.C. from 1986 to 1994. Prior thereto, he
served as Vice President, Regulatory and Industry Relations with Satellite
Business Systems and held senior legal positions with COMSAT Corporation.
ROBERT N. BEURY JR. -- Assistant Secretary and Deputy General Counsel of
Iridium since April 1996 and Assistant Secretary since January 1995. Mr. Beury
has been employed by Iridium as
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Counsel -- Corporate Matters since May 1994. Prior to joining Iridium, he was
General Counsel of the Virginia Center for Innovative Technology from 1987 to
1994.
Directors of Iridium
ROBERT W. KINZIE -- Chairman of the Board of Iridium since October 1991 and
Chief Executive Officer from October 1991 to January 1, 1997. Director of
Iridium Capital since June 18, 1997. Prior to joining Iridium, Mr. Kinzie was
the Director of Strategic Planning for Intelsat from 1987 to 1991. Prior to
joining Intelsat, Mr. Kinzie worked from 1966 to 1987 in a number of positions
with COMSAT Corporation including President, Communications Services Division
and President of COMSAT General Corporation. Prior to joining COMSAT Corporation
in 1966, Mr. Kinzie was an economist with the FCC from 1962 to 1965.
RICHARD L. LESHER -- Vice Chairman of the Board and Independent Company
Director of Iridium since June 1997. Mr. Lesher was appointed Vice Chairman of
the Board and Independent Company Director upon consummation of the IWCL IPO.
Mr. Lesher has served as the President of the Chamber of Commerce of the United
States, the world's largest association of business organizations, since 1975.
HASAN M. BINLADIN -- Director of Iridium since January 1996. During the
past five years, Mr. Binladin has served as Senior Vice President of the Saudi
Binladin Group.
ULF BOHLA -- Director of Iridium since October 1994; member of the Banking
and Financing Committee and the Related Party Contracts Committee. Mr. Bohla has
been the Chief Executive Officer of o.tel.o communications GmbH & Co. since July
1, 1994 and is currently Chairman of the Board of Directors of Vebacom Holdings,
Inc. Prior thereto, he served in various positions with IBM since 1970 including
General Manager of Telecommunications at IBM Europe from 1993 to June 1994, Vice
President of International Marketing Operations at IBM USA from 1991 to 1993 and
Director of the North German region at IBM Germany from 1989 to 1991.
GORDON J. COMERFORD -- Director of Iridium since July 1993; Chairman of the
Audit Committee. Mr. Comerford is a member of the Board of Directors of Iridium
SudAmerica Corporation and Iridium Canada, Inc. Mr. Comerford has been a Senior
Vice President of Motorola since 1989. He joined Motorola's communications
sector in 1974 as a Director of Business Management and became a Corporate Vice
President in 1980.
ATILANO DE OMS SOBRINHO -- Director of Iridium since June 1996; member of
the Audit Committee and the Related Party Contracts Committee. Mr. Oms is
Chairman of the Board, President and CEO of Inepar S.A., a diversified Brazilian
corporation with operations in telecommunications, electrical current control
equipment and services, mass transport, vehicle distribution and financial
markets. Mr. Oms is a member of the Board of Directors of Iridium SudAmerica and
Iridium Brasil. He also serves on the Boards of the National Confederation of
Industries (CNI), ABINEE-National Association of Electro-Electronic Industries
and the Federation of Industries of Parana State.
ROBERT A. FERCHAT -- Director of Iridium since January 1995; member of the
Related Party Contracts Committee. Mr. Ferchat has served as Chairman and
Executive Officer since May 1995 and as Chairman, President and Chief Executive
Officer from November 1994 to May 1995 at BCE Mobile Communications Inc. Prior
thereto he served as Chairman, President and Chief Executive Officer of TMI
Communications, a satellite communications company, from 1992 to 1994. He also
served as President of Northern Telecom Canada Ltd. from 1985 to 1990. Mr.
Ferchat has also served as a director at BCE Mobile Communications Inc. since
1994.
ALBERTO FINOL -- Director of Iridium since July 1993; member of the
Compensation Committee, the Banking and Financing Committee, and the Related
Party Contracts Committee. Mr. Finol has been the President of Ilapeca, a
Venezuelan holding company with interests in dairy products, supermarkets,
pharmaceuticals and communications, since 1990 and has served as a Director
since 1966. He is the Chairman of Iridium SudAmerica and the Chairman and a
major shareholder of
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Iridium Andes-Caribe Ltd., one of the owners of Iridium SudAmerica. He has also
served as the Director of Group Zuliano, a major Venezuelan petrochemical
holding group. He represented his native region of Zulia on the Venezuelan
Congress from 1969 to 1993.
EDWARD GAMS -- Director of Iridium since July 1993; member of the Banking
and Financing Committee. Mr. Gams has served as Corporate Vice President and
Director of Investor Relations of Motorola since 1996 and Vice President and
Director of Investor Relations of Motorola since 1991. He was first employed by
Motorola in 1979, and has held a variety of positions in operational and
corporate finance, including service as Director of Corporate Financial Planning
from February 1991 to August 1991 and as manager of Corporate Financial Planning
from December 1989 to February 1991.
KAZUO INAMORI -- Director of Iridium since July 1993; member of the Related
Party Contracts Committee. Dr. Inamori has been Chairman of the Board of DDI
Corporation since 1984, of Kansai Cellular Telephone Co., Ltd. since 1988, of
Taitoh Corporation since 1990, of Nippon Iridium Corporation since 1993, of DDI
Tokyo Pocket Telephone Inc. since 1994, of DDI Kansai Pocket Telephone Co., Ltd.
since 1994, Kyocera Multimedia Corporation since 1995 and at Kyocera DDI
Institute of Future Telecommunications Inc. since 1996. Dr. Inamori established
Kyocera Corporation in 1959 and has been Chairman of the Board since 1986.
GEORG KELLINGHUSEN -- Director of Iridium since July 1997; member of the
Related Party Contracts Committee. Dr. Kellinghusen has been a member of the
Board of Vebacom GmbH since August 1996. From 1989 to 1996, Dr. Kellinghusen was
affiliated with Varta AG, most recently as the Chairman of the Board of
Varta-Bosch Autobatterien GmbH. Prior to joining Varta AG, Dr. Kellinghusen
served as Controller, Commercial Director and Director, German-Language Books
Production Division, for Bertelsmann AG.
HARDIANTO K. KAMARGA -- Director of Iridium since June 1997. Since 1993 Mr.
Kamarga has served as a Senior Vice President and Director of P.T. Bakrie &
Brothers. Prior thereto, he worked with PT Radio Frequency Communication from
1976 to 1983, his last position being President Director. He has been President
Director, Bakrie Communications Corporation since 1994, President Director of
Bakrie Electronics Corporation since 1990, and President Director, Ratelindo
since 1993.
S. H. KHAN -- Director of Iridium since October 1994, member of the Related
Party Contracts Committee. Mr. Khan has served as Chairman and Managing Director
of the Industrial Development Bank of India since December 1993. Prior thereto,
from 1966, he served in various positions with the Industrial Development Bank
of India, including Managing Director from February 1992 to December 1993 and
Executive Director from 1986 to 1992. He also serves as Chairman of the Small
Industries Development Bank of India, Credit Analysis & Research Ltd., National
Securities Depository Ltd. and National Stock Exchange of India Ltd. He is also
Director on the Boards of Export-Import Bank of India, IDBI Bank Ltd., Life
Insurance Corporation of India, General Insurance Corporation of India, Discount
and Finance House of India Ltd., Deposit Insurance and Credit Guarantee
Corporation and Securities Trading Corporation of India Ltd., India Growth Fund
Inc., as a Trustee of Unit Trust of India ("UTI"), and as a Member of the
Advisory Board of UTI Mutal Fund and India Fund.
ANATOLI I. KISELEV -- Director of Iridium since July 1993; member of the
Related Party Contracts Committee. Mr. Kiselev has served as General Director of
the facility that has produced the Salyut, Almaz and Mir space stations, the
Proton rocket, and other spacecraft since 1993. Mr. Kiselev has been employed by
Khrunichev, and its predecessor organizations since 1956, including as
Khrunichev Enterprise Director from 1975 to 1993.
GEORGE S. MEDAWAR -- Director of Iridium since July 1993; member of the
Compensation Committee, the Related Party Contracts Committee and the Banking
and Financing Committee. Dr. Medawar has served as Group Senior Advisor to the
Mawarid Holding Company and Director of Mawarid Services (UK Limited) since
1987. He has also been a board member of ACE (Insurance) Holding Inc. since 1978
and of Orbit Communications Company Limited since 1993. He served as the
Chairman of the Board of Directors at Halston Borghese International from 1991
to 1994.
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JOHN F. MITCHELL -- Director of Iridium since July 1993; Chairman of the
Compensation Committee since July 1993. Mr. Mitchell has served as Vice Chairman
of the Board of Motorola since 1988 and served as Officer of the Board from 1988
to 1995. He was employed by Motorola from 1953 to 1995 and served as President
from 1980 to 1986 and as Chief Operating Officer from 1986 to 1988.
JUNG L. MOK -- Director of Iridium since October 1994; member of the
Compensation Committee and the Related Party Contracts Committee. Mr. Mok has
served as a director and as the Senior Executive Vice President of SK Telecom
since 1994. Prior thereto, Mr. Mok served as Senior Managing Director and Chief
Operating Officer of Taehan Telecom Limited from 1991 to 1994 and as Managing
Director at USA, Inc. since 1989.
GIUSEPPE MORGANTI -- Director of Iridium since April 1996; member of the
Banking and Financing Committee, the Audit Committee and the Related Party
Contracts Committee. Since August 1996, Mr. Morganti has served as Chief
Executive Officer and Managing Director of Iridium Italia S.p.A Mr. Morganti has
been with STET since 1984 in various management positions within the Planning
and Strategic Control Department, most recently as the head of the
Telecommunications Services Division.
J. MICHAEL NORRIS -- Director of Iridium since July 1996; Mr. Norris is a
Senior Vice President of Motorola and has been with Motorola for 24 years. He is
currently the Senior Vice President and General Manager of the Network
Management Group, responsible for all Motorola cellular joint ventures and
IRIDIUM gateway operations worldwide. He also sits on the boards of Hutchinson
Telephone Company Ltd. (Hong Kong), World Telecom Holding Company, Ltd.
(Thailand) and Pelephone (Israel).
YUSAI OKUYAMA -- Director of Iridium since July 1996; member of the Audit
Committee and Related Party Contracts Committee. Mr. Okuyama has been President
of DDI Corporation since 1993 and President of Nippon Iridium (Bermuda) Ltd.
since 1995. Mr. Okuyama has been Chairman of the Board at seven of the DDI
Pocket Telephone Companies since 1994 and at five of the DDI Cellular Telephone
companies since 1995. Mr. Okuyama retired from MPT in 1989 as a deputy secretary
of MPT and served at MPT related enterprises as President before joining DDI
Corporation in 1993.
JOHN M. SCANLON -- Director of Iridium since January 1997. Mr. Scanlon is
Executive Vice President of Motorola and President of Motorola's Cellular
Networks & Space Sector. Mr. Scanlon joined Motorola in August 1990. Prior to
joining Motorola, Mr. Scanlon spent 24 years with AT&T, rising to the position
of Group Vice President. Mr. Scanlon is also a director of Media.Com.
THEODORE H. SCHELL -- Director of Iridium since July 1993; Chairman of the
Banking and Financing Committee and member of the Related Party Contract
Committee. Mr. Schell has served as Senior Vice President -- Strategic Planning
and Corporate Development at Sprint since 1990. Prior thereto, he served as
President and Chief Executive Officer of RealCom Communications Corporation, an
IBM subsidiary.
WILLIAM A. SCHREYER -- Independent Company Director of Iridium. Mr.
Schreyer was appointed Independent Company Director, upon consummation of the
IWCL IPO in June 1997. Mr. Schreyer is Chairman Emeritus of Merrill Lynch & Co.,
Inc. and has served as Chairman of the Board from April 1985 through June 1993
and as Chief Executive Officer from July 1984 through April 1992. Mr. Schreyer
is currently a Director of Callaway Golf Company, Deere & Company, True North
Communications Inc., Schering-Plough Corporation and Willis Corroon Group.
SRIBHUMI SUKHANETR -- Director of Iridium since July 1993; member of the
Compensation Committee, the Banking and Financing Committee and the Related
Party Contracts Committee. Since 1992, Mr. Sukhanetr has been the Chairman of
United Communication Industry Co., Ltd. ("UCOM") and of Thai Satellite
Telecommunications Co., Ltd., a subsidiary of UCOM. Prior thereto, he served as
advisor to the Prime Minister's Office in Thailand from February 1991 to
September 1992 and as Permanent Secretary to the Ministry of Transport and
Communications from 1988 to February 1991.
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TAO-TSUN SUN -- Director of Iridium since January 1994; member of the Audit
Committee and the Related Party Contracts Committee. Mr. Sun has been Executive
Director and President of Pacific Electric Wire & Cable Co., Ltd. since 1986.
Since 1996, he has served as Executive Director of Taiwan Electric Wire & Cable
Ind. Assoc. and of Chinese National Federation of Industries, and as Honorary
Chairman of the Council for Industry and Commercial Development. He has also
served as Chairman of Taiwan Aerospace Corporation since 1994, Executive
Director of Walsin Lihwa Corp. and Executive Vice Chairman of Charoong Thai Wire
& Cable Co., Ltd. since 1993 and Director of Pacific Construction Co., Ltd.
since 1995.
YOSHIHARU YASUDA -- Director of Iridium since January 1996; member of the
Banking and Financing Committee, the Compensation Committee and the Related
Party Contracts Committee. Mr. Yasuda has been Vice President of Nippon Iridium
Corporation since June 1996 and a Director since June 1995. Mr. Yasuda was
Director of DDI Corporation from 1992 to 1995. Prior to joining DDI Corporation,
Mr. Yasuda was with the Sanwa Research Institute.
WANG MEI YUE -- Director of Iridium since October 1995; member of the
Compensation Committee and the Related Party Contracts Committee. Dr. Wang has
served as Chairman and President of Iridium China (Hong Kong) Ltd. since
September 1995, as Chairman and President of China Aerospace International
Holdings Ltd., Hong Kong since 1993 and as Chairman of China Southern
Telecommunication Co., Ltd. since 1991. From 1988 to 1993 Dr. Wang served as
Vice Chairman of the Board at Conic Investment Co. Ltd.
Executive Compensation
The following table sets forth the compensation paid for the fiscal year
ended December 31, 1996 to those persons who were, at December 31, 1996,
Iridium's Chief Executive Officer and the four next most highly compensated
executive officers.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING LTIP ALL OTHER
POSITION YEAR SALARY BONUS(A) COMPENSATION OPTIONS/SARS PAYOUT COMPENSATION
- ------------------------- ---- -------- -------- ------------ ------------ ------ ------------
Robert W. Kinzie......... 1996 $372,194 $117,669 $1,596(b) 90,000 -- $7,819(c)
Chairman & Former Chief
Executive Officer
Jerrold D. Adams......... 1996 301,772 98,010 -- 75,000 -- 4,500(d)
Former President &
Chief Operating
Officer
Paul V. Daverio.......... 1996 234,236 46,580 -- 45,000 -- 4,500(d)
Former Chief Financial
Officer
Leo Mondale.............. 1996 220,561 100,000 -- 45,000 -- 4,500(d)
Senior Vice
President --
Marketing &
Strategic Planning
Mark Gercenstein......... 1996 201,692 62,909 -- 45,000 -- 4,500(d)
Vice President --
Business Operations
- ---------------
(a) Through the fiscal year ending December 31, 1995 Iridium maintained the
Iridium Long Range Incentive Plan of 1993 (the "Plan"). The Plan was
terminated as of December 31, 1995. Final
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awards for performance in Fiscal Year 1995 were determined by the
Compensation Committee of the Iridium Board in April 1996. The Iridium
Option Plan (described elsewhere) was at that time substituted for the Plan.
Under the Long Range Incentive Plan amounts were earned each year and
credited to an account established for the participant. Amounts in each
account earn interest at 1% over the prime rate until the end of the
performance cycle which runs from 1993 through 1998. The amounts in each
account will become payable in fiscal year 1999, subject to forfeiture in
the event the participant's employment with Iridium is terminated for any
reason other than death, disability, retirement or a change from full-time
to part-time employment. As of December 31, 1996, the amount in each
participant's account was: Mr. Kinzie -- $715,941, Mr. Adams -- $566,501,
Mr. Daverio -- $258,179, Mr. Mondale -- $337,771, and Mr.
Gercenstein -- $328,945. Mr. Adams received the balance of his account on
February 1, 1997. For all other executive officers these amounts will
continue to earn interest until paid in 1999.
(b) Amount paid representing reimbursement of federal income taxes due to income
imputed by reason of life insurance provided.
(c) Value of term life insurance ($3,319) and Iridium matching contribution to
401(k) plan ($4,500).
(d) Iridium matching contributions to 401(k) plan.
Mr. Adams retired on February 1, 1997. Pursuant to the terms of the
Selected Senior Officer's Supplemental Retirement Plan, Mr. Adams elected to
receive an immediate cash payment in the amount of $2,649,957 (the value of the
annuity to which he was entitled under the Plan including $1,232,669 in respect
of taxes paid by Iridium). The Compensation Committee of the Iridium Board
permitted Mr. Adams to receive the amount in his Iridium Long Range Incentive
Plan account ($569,806) and permitted him to retain his vested options to
purchase 16,275 Class 1 Interests at a price of $13.33 per Class 1 Interest
pursuant to the Iridium Option Plan as provided in the plan with respect to
retirement, provided that Mr. Adams entered into a non-competition agreement.
Mr. Daverio resigned from IWCL and Iridium, effective April 1, 1997. The
Compensation Committee of the Iridium Board permitted Mr. Daverio to receive the
amount in his Iridium Long Range Incentive Plan account ($264,956), permitted
him to retain his vested options to purchase 12,000 Class 1 Interests at a price
of $13.33 per Class 1 Interest pursuant to the Iridium Option Plan as provided
with respect to retirement, and granted him a severance payment equal to his
salary through December 31, 1997 ($164,333), provided that Mr. Daverio enter
into a non-competition agreement.
On January 2, 1997, Edward F. Staiano became Chief Executive Officer and
Vice Chairman of the Iridium Board. Pursuant to the terms of his employment
agreement, Dr. Staiano will receive a base salary of $500,000 per year. In
addition to base salary, Iridium has agreed to provide Dr. Staiano, at its
expense, with a car, a furnished apartment in Washington, D.C. and access to a
corporate jet aircraft. Iridium has agreed to provide reimbursement for any tax
liability created as a result of the use of those items. Dr. Staiano was also
awarded options to purchase 750,000 Class 1 Interests of Iridium at a price of
$13.33 per Interest. The options vest, pro rata, over a period of five years.
Vested options may be exercised at any time after a public offering. Dr.
Staiano's options will continue to vest even if his employment is terminated by
Iridium, other than for cause, so long as he is not retained or employed by a
competitor. Dr. Staiano does not receive an annual bonus or participate in
Iridium's retirement plans.
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Option Grants
The following table sets forth the options granted for the fiscal year
ended December 31, 1996 for each named executive officer.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE
TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS/SARS RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OF OPTION TERM
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION -----------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- -------------------- ------------ ------------ ----------- ---------- --------- -----------
Robert W. Kinzie.... 90,000 12.3 $ 13.33 12/31/05 $ 754,670 $ 1,912,490
Jerrold D. Adams.... 75,000 10.3 $ 13.33 12/31/05 628,890 1,593,740
Paul V. Daverio..... 45,000 6.2 $ 13.33 12/31/05 377,335 956,245
Leo Mondale ........ 45,000 6.2 $ 13.33 12/31/05 377,335 956,245
Mark Gercenstein.... 45,000 6.2 $ 13.33 12/31/05 377,335 956,245
Year End Option/SAR Table
The following table shows certain information with respect to stock options
held as of December 31, 1996 by the named executive officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SAR
SHARE AT FISCAL YEAR-END AT FISCAL YEAR END
ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- -------------- ----------- ------------- ----------- -------------
Robert W. Kinzie.... -- $-- -- 90,000 --
Jerrold D. Adams.... -- -- -- 75,000 -- --
Paul V. Daverio..... -- -- -- 45,000 -- --
Leo Mondale......... -- -- -- 45,000 -- --
Mark Gercenstein.... -- -- -- 45,000 -- --
Compensation Committee Interlocks and Insider Participation
Iridium's Compensation Committee determines the compensation of Iridium's
executive officers consistent with guidelines established by the Iridium Board.
The members of Iridium's Compensation Committee for the fiscal year ending
December 31, 1996 were Alberto Finol, George S. Medawar, John F. Mitchell, Jung
L. Mok, Sribhumi Sukhanetr, Wang Mei Yue and Yoshiharu Yasuda. The Iridium
Compensation Committee was chaired by Mr. Mitchell, formerly an executive
officer of Motorola, who continues to serve as Vice Chairman of the Board of
Directors of Motorola. Messrs. Mitchell and Finol serve as the Chairman and
Deputy Chairman of IWCL, respectively.
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Pension Plan
PENSION PLAN TABLE
YEARS OF SERVICE
------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------------ -------- -------- -------- -------- --------
125,000....................... $ 36,964 $ 49,286 $ 61,607 $ 73,929 $ 86,250
150,000....................... 45,000 60,000 75,000 90,000 105,000
175,000....................... 53,036 70,714 88,393 106,071 123,750
200,000....................... 61,071 81,429 101,786 122,143 142,500
225,000....................... 69,107 92,143 115,179 138,214 161,250
250,000....................... 77,143 102,857 128,571 154,286 180,000
300,000....................... 93,214 124,286 155,357 186,429 217,500
400,000....................... 125,357 167,143 208,929 250,714 292,500
450,000....................... 141,429 188,571 235,714 282,857 330,000
500,000....................... 157,500 210,000 262,500 315,000 367,500
Iridium maintains the Iridium LLC Pension Plan (the "Pension Plan") for the
benefit of its employees. The Pension Plan is a defined benefit plan and is
qualified under the provisions of the U.S. Internal Revenue Code related to such
plans. Benefits payable under the Pension Plan are computed on the basis of a
single life annuity payable at age 65 and are subject to a partial offset by
Social Security payments. Compensation taken into account for purposes of
computing the benefits payable under the Pension Plan generally includes final
average salary, bonuses and qualified salary deferrals. Although the U.S.
Internal Revenue Code of 1986, as amended, limits the amount of covered
compensation under the Pension Plan to $150,000 subject to adjustment (the
"Compensation Cap"), the table above also reflects benefits payable under a
supplemental retirement income plan (the "Supplemental Plan") established by
Iridium for the benefit of employees whose compensation exceeds the Compensation
Cap or whose benefit would be limited by Section 415 of the U.S. Internal
Revenue Code. Benefits under the Supplemental Plan are calculated in the same
manner as the Pension Plan. Under the Supplemental Plan, Iridium will pay the
employee an amount which together with the amounts due under the Pension Plan
will equal what the employee would have received under the Pension Plan if the
Compensation Cap was not in effect. Mr. Kinzie has five years of credited
service; Mr. Adams has retired as of February 1, 1997, and is currently
collecting a pension on the basis of seven years of credited service under the
Pension Plan; Mr. Daverio had three years of credited service at the time of his
resignation; Mr. Mondale has six years of credited service; and Mr. Gercenstein
has 11 years of credited service. Messrs. Kinzie, Adams, Mondale and Gercenstein
participate in the Pension Plan but do not participate in the Supplemental Plan.
Prior to his resignation, Mr. Daverio participated in both the Pension Plan and
the Supplemental Plan.
Iridium maintains a supplementary retirement plan for selected senior
officers. The plan provides for an annual income, normally beginning at age 60,
equal to the larger of (i) 40% of the participant's compensation (salary plus an
adjustment for bonuses) at retirement or (ii) the annual benefit calculated
using the formula under the Supplemental Plan, in either case reduced by any
amount payable under the Pension Plan. Regardless of which formula is used, the
total retirement income cannot exceed 70% of an individual's retiring salary. At
retirement a participant receives an annuity purchased by Iridium from an
insurance company sufficient to make the payments required. Iridium also pays to
the participant or to the proper taxing authorities an amount sufficient to pay
the income taxes arising from the purchase of the annuity for the participant. A
participant also has the option of receiving a lump sum equal to the purchase
price of the annuity. As with the annuity Iridium pays the income taxes arising
from the payment of the lump sum. Based on salary levels at January 1, 1997 and
average short term incentive plan bonuses for the last five years, the estimated
annual benefit payable if the recipient elected an annuity would be: Mr. Kinzie
$200,339,
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Mr. Mondale $127,248 and Mr. Gercenstein $112,462. On February 1, 1997 Mr. Adams
retired and received a lump sum payment in lieu of an annuity.
Employment Arrangements
Motorola had entered into an individual agreement with Robert W. Kinzie
providing him with a right to reemployment with Motorola should he become
unemployed by Iridium because Iridium was no longer a viable business entity or
because his services were no longer desired by Iridium for reasons other than
misconduct (as the term is defined by Motorola policy). This agreement was in
effect until December 31, 1996.
On January 2, 1997, Edward F. Staiano became Chief Executive Officer and
Vice Chairman of the Iridium Board. Pursuant to the terms of his employment
agreement, Dr. Staiano will receive a base salary of $500,000 per year. In
addition to base salary, Iridium has agreed to provide Dr. Staiano, at its
expense, with a car, a furnished apartment in Washington, D.C. and access to a
corporate jet aircraft. Iridium has agreed to provide reimbursement for any tax
liability created as a result of the use of those items. Dr. Staiano was also
awarded options to purchase 750,000 Class 1 Interests of Iridium at a price of
$13.33 per Interest. The options vest, pro rata, over a period of five years.
Vested options may be exercised at any time after a public offering. Generally,
Dr. Staiano's options are subject to all of the provisions of the Iridium Option
Plan (described elsewhere) except that Dr. Staiano's options will continue to
vest even if his employment is terminated by Iridium, other than for cause, so
long as he is not retained or employed by a competitor. Dr. Staiano does not
receive an annual bonus or participate in Iridium's pension plans.
IRIDIUM Option Plan
Iridium has established a plan under which executive officers and managers
of Iridium are awarded options to purchase Class 1 Interests of Iridium (the
"Option Plan"). The Option Plan covers 2,625,000 Class 1 Interests. The Option
Plan also permits the award of stock appreciation rights in connection with any
grant of options. As of July 8, 1997, options covering 1,977,525 Class 1
Interests had been granted at an exercise price of $13.33 per Class 1 Interest.
As of that date no stock appreciation awards had been granted. This amount of
outstanding options includes the options issued to Dr. Staiano when he joined
Iridium and do not include the options issuable to Mr. Lesher and Mr. Schreyer
effective upon their appointment as directors of IWCL and Iridium. If an award
under the Option Plan expires, or is terminated, surrendered or canceled, the
Class 1 Interests subject to such award are added to the number of Class 1
Interests available for awards under the Option Plan.
Under the Option Plan, option awards are made from time to time by the
Compensation Committee of the Iridium Board. The exercise price of options under
the Option Plan is the fair market value of a Class 1 Interest on the date the
option is granted.
The right to exercise the options vests, pro rata, over a period of five
years, however, all options and stock appreciation rights become immediately
vested on a Change in Control (as defined in the Option Plan) and in the event
of a Change in Control, Iridium is required to purchase each outstanding option
and stock appreciation right for an immediate lump sum payment equal to the
difference between (i) the higher of (x) the fair market value of a Class 1
Interest immediately prior to payment or (y) the highest price actually paid in
connection with the Change in Control, and (iii) the exercise price. A "Change
in Control" is defined in the Option Plan as a sale by one or more holders of
50% or more of the outstanding Class 1 Interests, other than in connection with
a Public Offering (as defined), to third parties who are not holders of Class 1
Interests or affiliated with holders of Class 1 Interests and following which
the members of the Iridium Board prior to the sale cease to constitute a
majority of the Iridium Board. Once vested an option may be exercised at any
time after a Public Offering. The term "Public Offering" includes a registered
public offering by
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Iridium or another entity which is a special purpose member of Iridium. The IWCL
IPO constituted a Public Offering under the Option Plan.
The plan was established in April 1996 and all options granted to date have
an exercise price of $13.33 per Class 1 Interest. Except for Dr. Staiano, under
the Option Plan, a participant whose employment is terminated by Iridium
forfeits any unvested options. There are exceptions for death, retirement and
certain other situations. Dr. Staiano's options will continue to vest even if
his employment is terminated by Iridium, other than for cause, so long as he is
not retained or employed by a competitor.
The Option Plan provides that each outstanding option to acquire a Class 1
Interest shall automatically become an option to acquire a share of Class A
Common Stock at the same exercise price then in effect. IWCL has agreed that
upon the exercise of any options, it will issue to Iridium, for delivery to an
exercising option holder, the number of shares of Class A Common Stock covered
by the exercised options and Iridium has agreed to simultaneously deliver to
IWCL a like number of Class 1 Interests. The exercise price of the option will
be paid to Iridium and will represent payment for the Class A Common Stock by
the exercising option holder and for the Class 1 Interests by IWCL. See "Certain
Matters Regarding Relationship of IWCL and Iridium -- Share Issuance Agreement."
All options and stock appreciation rights issued in the future shall relate to
shares of Class A Common Stock. The Change in Control vesting provision will
continue to apply to Changes in Control of Iridium.
THE INITIAL GUARANTORS
Each of the Initial Guarantors is a Delaware limited liability company, of
which Iridium is the only member. Pursuant to the limited liability company
agreement relating to each Initial Guarantor, the power and authority to manage
and conduct the business and affairs of such company is vested in Iridium,
acting through certain of the officers and directors of Iridium listed above.
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INTEREST OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Iridium's Class 1 Interests as of August 13, 1997 (i) by each
person known by Iridium to own beneficially more than five percent of its Class
1 Interests and (ii) by all of Iridium's executive officers and directors (named
in the table under "Management" above) as a group.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(1)
----------------------------------------- -------------------------- -------------------
Motorola, Inc.(2) ....................... 41,343,292 28.41%
1303 East Algonquin Rd.
Schaumburg, IL 60196
Nippon Iridium (Bermuda) Limited(3)...... 15,750,000 11.15
c/o NIPPON IRIDIUM CORPORATION
Ichibancho FS Building 8
Ichibancho Chiyoda-ku
Tokyo 102 Japan
Vebacom Holdings, Inc.(4)................ 12,427,875 8.80
c/o o.tel.o communications GmbH & Co.
Am Bonneshof 35
D-40474 Dusseldorf Germany
All Directors and Executive Officers as a
Group(5)............................... 0 0
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Class 1 Interests. Class 1 Interests subject to options or warrants
currently exercisable or exercisable within 60 days of the date of this
Offering Memorandum are deemed outstanding for computing the percentage
ownership of the person holding such options or warrants, but are not deemed
outstanding for computing the percentage of any other person.
(2) The Class 1 Interests beneficially owned by Motorola include 26,533,425
Class 1 Interests held directly by Motorola and 4,309,687 Class 1 Interests
issuable under a warrant to purchase Series M Class 2 Interests in Iridium
which would be convertible into Class 1 Interests equal to 2.5% of the fully
diluted number of Class 1 Interests outstanding at the time of exercise. The
remaining Class 1 Interests shown in the table as being beneficially owned
by Motorola consists of 5,250,000 Class 1 Interests held by Iridium Canada
(33.3% of which is owned by a subsidiary of Motorola) and 5,250,000 Class 1
Interests held by Iridium India Telecom (20% of which is owned by a
subsidiary of Motorola). Although Motorola does not have the right to vote
or dispose of the Class 1 Interests held by these companies, it may be
deemed to beneficially own these interests because these companies cannot
dispose of their Class 1 Interests without the consent of the applicable
Motorola subsidiary. The beneficial ownership of Motorola does not include
Class 1 Interests issuable under warrants to which Motorola will become
entitled after the date of this Prospectus as a result of its guarantee of
borrowings by Iridium or Class 1 Interests that may be issued pursuant to
the Reserve Capital Call.
(3) Nippon Iridium (Bermuda) Limited is a wholly owned subsidiary of Nippon
Iridium Corporation, which is a consortium formed by DDI Corporation.
(4) Vebacom Holdings, Inc. is a wholly owned subsidiary of o.tel.o
communications GmbH & Co., which is owned by VEBA Telecom GmbH and Lehman
Brothers Bankhaus Aktiengesellschaft (as a fiduciary).
(5) No directors or executive officers of Iridium own Class 1 Interests. The
IWCL directors and the executive officers of Iridium own an aggregate of
211,752 shares of Class A Common Stock and IWCL owns 211,752 Class 1
Interests in respect of such Class A Common Stock. Up to 2,625,000 shares of
Class A Common Stock may be issued pursuant to the Iridium Option Plan. As
of the date of this Prospectus, options covering an aggregate of 1,541,400
shares of Class A Common Stock had been granted to Iridium's executive
officers. Options to purchase 226,001 shares of Class A Common Stock were
vested at August 1, 1997. See "Management -- IRIDIUM Option Plan."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF IRIDIUM
MOTOROLA RELATED MATTERS
Motorola is one of the world's leading providers of electronic equipment,
systems, components and services. Its products include two-way radios, pagers,
cellular telephones and systems, semiconductors, defense and aerospace
electronics, automotive and industrial electronics, computers, and data
communications and information processing equipment.
Motorola created and developed the concept of the IRIDIUM System and
Iridium's initial technical and business plans. Motorola is a founding investor,
has been allocated gateway service territories, shares a gateway service
territory and has additional interests in other entities which have been
allocated gateway service territories. Motorola is Iridium's largest member,
owning directly and indirectly approximately 23% of the Class 1 Interests in
Iridium. The Iridium Board and its management include numerous current and
former Motorola employees. Motorola is also Iridium's principal supplier through
the Space System Contract, the Operations and Maintenance Contract and the
Terrestrial Network Development Contract. See "Principal Contracts for the
Development of the Iridium System."
Under a Support Agreement, Motorola provides certain general and
administrative support to Iridium. On a cost reimbursable basis, Motorola has
provided payroll processing and related benefits to Iridium employees, processed
payment to certain contractors providing support to Iridium and has provided
other administrative support. The amount of the services provided by Motorola
has declined as Iridium's internal staff has increased. In 1996, total payments
to Motorola under the Support Agreement were approximately $852,000.
Motorola MOU and Agreement Regarding Guarantee
Motorola guaranteed up to $750 million of Iridium's borrowings (including
principal and interest) under the Guaranteed Bank Facility pursuant to the
Motorola Guarantee. In connection with the execution and delivery of the
Motorola Guarantee, Motorola and Iridium entered into an Agreement Regarding
Guarantee (the "Original Agreement Regarding Guarantee"), under which (among
other things) Iridium agreed (i) to reimburse Motorola for any payment required
pursuant to the Motorola Guarantee, (ii) not to take certain actions without
Motorola's approval and (iii) to pay to Motorola, as compensation for the
Motorola Guarantee, warrants to purchase Class 1 Interests. In addition,
pursuant to the Original Agreement Regarding Guarantee, Motorola was granted the
right to appoint an additional Director on the Iridium Board and as security for
Iridium's reimbursement obligation under the Original Agreement Regarding
Guarantee, Iridium granted to Motorola a security interest in substantially all
of its assets.
In connection with the Original Offering, Iridium and Motorola entered a
Memorandum of Understanding ("Motorola MOU") and amended and restated the
Original Agreement Regarding Guarantee (as so amended and restated, the
"Agreement Regarding Guarantee"). Pursuant to the Motorola MOU, (i) Motorola
agreed to consent to an amendment of the Guaranteed Bank Facility (and to enter
into related amendments to the Motorola Guarantee) in order to extend the
maturity of such Facility until after the Stated Maturity of the Notes; (ii)
Motorola agreed to consent to an amendment to the Guaranteed Bank Facility (or
to entry into a new bank credit facility on the same terms) in order to increase
such Facility by (or to establish such new facility in the amount of) $350
million -- the amount of the Motorola Additional Guarantee -- and to document
the Motorola Additional Guarantee; (iii) Iridium agreed that, to the extent the
net proceeds to Iridium of senior note offerings prior to December 31, 1997
(including the Original Offering) exceed $650 million, it will apply such excess
to a prepayment of the Guaranteed Bank Facility and to a permanent reduction of
the commitments of the lenders thereunder; provided that such commitments need
not be reduced to an amount less than $275 million (as a result of the Original
Offering, the $750 million of commitments under Guaranteed Bank Facility was
reduced to $655 million); (iv) Motorola
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agreed to release its security interest in Iridium's assets granted pursuant to
the Original Agreement Regarding Guarantee; (v) Iridium agreed to repay all
amounts outstanding under the Guaranteed Bank Facility and to terminate the
commitments of the lenders thereunder prior to or simultaneous with any optional
redemption of the Notes; (vi) Motorola agreed to subordinate certain of its
claims to the claims of the lenders under the Secured Bank Facility; (vii)
Motorola agreed to allow Iridium to defer, at Iridium's option, payment of
approximately $96 million expected to be due to Motorola on September 30, 1998
and thereafter pursuant to the Terrestrial Network Development Contract until
after the Stated Maturity of the Notes, with the amount deferred being
compensated as part of the Motorola Exposure (the amount of the deferral
pursuant to the Motorola MOU (to the extent exceeding amounts deferrable
pursuant to the Terrestrial Network Development Contract), including accrued
interest thereon, the "FOC Payment Deferral"); and (viii) during certain periods
in which the Motorola Exposure (as defined below) is less than $275 million and
Motorola has not been required to make payments on its guarantee of the
Guaranteed Bank Facility, Motorola will waive certain rights it holds in
connection with the Series B and Series C Class 2 Interests of Iridium (see
"Description of Iridium LLC Limited Liability Company Agreement"). In addition,
in the Motorola MOU Iridium agreed that, in certain circumstances, it will not
have outstanding at any time until the maturity of the Guaranteed Bank Facility
(as extended as discussed above) (i) in excess of $1.7 billion in aggregate
principal amount of borrowed money indebtedness that is secured by assets of
Iridium; (ii) in excess of $1.25 billion in aggregate principal amount (or
initial gross proceeds in the case of any senior notes issued at a discount) of
senior notes (including the Notes), and (iii) total indebtedness for borrowed
money (which shall consist solely of amounts described in clauses (i) and (ii)
above) in excess of $2.95 billion. Certain of the agreements of Motorola and
Iridium in the Motorola MOU are subject to conditions, including the consistency
of definitive documents with the Motorola MOU and the Agreement Regarding
Guarantee. Motorola's agreement to provide the Motorola Additional Guarantee is
subject to the condition that the LLC Agreement be amended to provide Motorola
with additional governance rights if the Motorola Exposure exceeds $750 million.
Under the Agreement Regarding Guarantee, Iridium agreed (i) to reimburse
Motorola for any payment required pursuant to the Motorola Guarantee or the
Motorola Additional Guarantee; provided, that if the Guaranteed Bank Facility is
accelerated as result of a Motorola-Based Default (as defined in the Agreement
Regarding Guarantee) such reimbursement will be made on the same terms as
provided in the Guaranteed Bank Facility or any other relevant credit agreement;
(ii) except in situations in which the Motorola Exposure is $275 million or less
and certain other conditions are satisfied, not to take certain actions without
Motorola's approval; and (iii) to pay to Motorola, as compensation for the
Motorola Exposure, warrants to purchase Class 1 Interests based on the amount
and duration of the Motorola Exposure. In the event the Motorola Exposure is
$275 million or less and certain other conditions are satisfied, then in lieu of
such warrants to purchase Class 1 Interests, Iridium may pay to Motorola, as
compensation for the Motorola Exposure, (i) interest thereon at an interest rate
equal to the excess of the rate borne by senior notes of Iridium (including the
Notes) over the rate applicable under the Guaranteed Bank Facility or any other
relevant credit agreement, and (ii) for each day, the average daily warrant
compensation payable to holders of senior notes of Iridium multiplied by the
Motorola Exposure (pro rata based on the amount and duration of the Motorola
Exposure compared with the amount and duration of such senior notes).
"Motorola Exposure" means the commitments of the lenders under the
Guaranteed Bank Facility, the payments made by Motorola pursuant to the Motorola
Guarantee or the Motorola Additional Guarantee (to the extent not repaid by
Iridium) and the Vendor Financing Amount. "Vendor Financing Amount" means the
amount of the FOC Payment Deferral (if such deferral is exercised) and any other
vendor financing provided by Motorola to or for the benefit of Iridium, other
than any vendor financing or payment deferral under the Terrestrial Network
Development Contract as in effect on the date of the Agreement Regarding
Guarantee.
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Motorola Conflicts of Interest
Motorola has and may have various conflicts of interest with Iridium and
its members. See "Risk Factors -- Conflicts of Interest with Motorola." Motorola
is the principal supplier to Iridium as well as the actual or prospective
supplier and licensor to gateway owners and operators, service providers,
subscriber equipment manufacturers and individual subscribers. See "Risk
Factors -- Reliance on Motorola, Gateway Owners and Other Third Parties."
Motorola has asserted and may assert positions on the Space System Contract,
Operations and Maintenance Contract, the Terrestrial Network Development
Contract and the Guarantee Agreement that are contrary to those asserted by
Iridium. See "Principal Contracts for the Development of the IRIDIUM System" and
"Risk Factors -- Risk of Highly Leveraged Capital Structure" and "-- Satellite
Launch Risks." To help ameliorate these conflicts under the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract, Iridium maintains a Related Party Contracts Committee of
the Iridium Board which consists of all Board members other than any Board
members who are directors, officers, employees or persons nominated to serve on
the Board of Directors by Motorola (so long as Motorola is a party to the Space
System Contract, the Operations and Maintenance Contract or the Terrestrial
Network Development Contract), Lockheed Martin or Raytheon (so long as Lockheed
Martin or Raytheon, as the case may be, are subcontractors to Motorola under the
Space System Contract or the Operations and Maintenance Contract). The Related
Party Contracts Committee has authority to review and monitor the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract and, as it deems appropriate, cause Iridium to enforce its
rights thereunder and propose amendments and waivers to these contracts.
Iridium's payment obligations under these contracts are expected to comprise
most of Iridium's expenses and the proceeds of the Offerings will be used
primarily to make milestone payments under the Space System Contract and the
Terrestrial Network Development Contract. See "Risk Factors -- Conflicts of
Interest with Motorola."
Motorola has been involved in the manufacture of components for satellites
for over thirty years. Motorola has informed Iridium that it has under
consideration possible future space-based data and communications systems and
ventures. Motorola has also informed Iridium that Motorola may decide to
undertake further development of one or more such systems or ventures but no
decision has been made as to whether Iridium would be a participant in any such
system or venture. It is possible that any such system could be competitive to
some degree with the IRIDIUM System. Motorola has agreed in the Space System
Contract that, without Iridium's consent, it will not produce for itself or
others a similar satellite-based space system of a global communication system
for commercial use prior to the earlier of July 31, 2003 or the termination date
of the Space System Contract. Subsidiaries of Motorola have applied to the FCC
for licenses to construct, launch and operate satellite-based systems designed
to provide fixed-broadband, fixed-data transmissions.
OTHER MATTERS
Iridium Services Deutschland, a wholly owned subsidiary of o.tel.o
communications GmbH & Co., the parent of Vebacom Holdings, Inc., a holder of
approximately 8.8% of the Class 1 Interests, was allocated a gateway service
territory consisting of several countries in or near Europe. Nippon Iridium
Corporation, an affiliate of Nippon Iridium (Bermuda) Corporation, a holder of
approximately 11.2% of the Class 1 Interests, was allocated the Japan gateway
service territory. Each of o.tel.o communications GmbH & Co. and Nippon Iridium
Corporation have entered into a Gateway Authorization Agreement, pursuant to
which they, or their affiliates, will operate their respective Gateway service
territory and provide gateway services. In addition, o.tel.o communications GmbH
& Co. and Nippon Iridium Corporation will serve as service providers to their
respective gateway territory and, as such, will be entitled to payments
associated with sales of IRIDIUM Services.
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Kyocera, an affiliate of Nippon Iridium Corporation, a holder of
approximately 11.2% of the Class 1 Interests, has entered into a license
agreement with Motorola with respect to the development and manufacture of
multi-mode phones for use with the IRIDIUM System. This license agreement does
not obligate Kyocera to develop, manufacture or sell any IRIDIUM subscriber
equipment. Iridium expects that Kyocera will develop, manufacture and sell
multi-mode phones for use with the IRIDIUM System. Iridium intends to enter into
a contract with Motorola to cover the expenses associated with testing the
Kyocera subscriber equipment with the IRIDIUM System, estimated to be $12.2
million.
Certain of the directors of IWCL are, or have been within the past year,
executive officers of suppliers of Iridium. In addition, certain of the
directors of Iridium are executive officers of gateway owners and service
providers. See "Management" and "Risk Factors -- Conflict of Interest with
Gateway Owners."
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IRIDIUM'S INVESTORS, NUMBER OF CLASS 1 INTERESTS OWNED,
PERCENTAGE OWNERSHIP AND PRINCIPAL GATEWAY SERVICE TERRITORIES
Set forth below is a summary of the investors in Iridium, the number of
Class 1 Interests owned by each investor, their percentage ownership of Class 1
Interests and, if applicable, their principal gateway service territories at
August 13, 1997:
NUMBER OF
CLASS 1
INTERESTS PERCENTAGE PRINCIPAL GATEWAY
INVESTOR OWNED(1) OWNERSHIP(2) SERVICE TERRITORY
- -------------------------------- ---------- ------------ --------------------------------
IWCL............................ 12,000,000 8.5 Not Applicable
Iridium Africa Corporation...... 3,000,000 2.1 Africa (excluding Morocco and
Egypt) and Turkey
Iridium Andes -- Caribe......... 4,350,000 3.1 South America and Caribbean(4)
Iridium Brasil Ltda............. 2,824,725 2.0 South America and Caribbean(4)
Iridium Canada, Inc. ........... 5,250,000(5) 3.7 North America(3)
Iridium China (Hong Kong)
Ltd. ......................... 5,250,000 3.7 China, Mongolia, Hong Kong and
Macau
Iridium India Telecom Limited... 5,250,000 3.7 Indian Subcontinent
Iridium Italia S.p.A............ 5,550,000 3.9 Certain countries in Europe
including Belgium, Denmark,
France, Greece, Italy,
Luxembourg, the Netherlands
and Switzerland(4)
Iridium Middle East
Corporation................... 6,000,000 4.3 Middle East, Morocco, Egypt and
Central Asia
Khrunichev State Research and
Production Center............. 6,133,125 4.3 Russia and eight other republics
of the Commonwealth of
Independent States
Motorola, Inc. ................. 26,533,425(5) 18.8 North America(3), Mexico(6) and
Central America, South America
and Caribbean(4)
Nippon Iridium (Bermuda)
Limited....................... 15,750,000 11.2 Japan
Pacific Electric Wire & Cable
Co., Ltd. .................... 5,250,000 3.7 Indonesia, Brunei, Papua New
Guinea, the Philippines and
Taiwan
SK Telecom...................... 5,250,000(5) 3.7 North Korea and South Korea
South Pacific Iridium Holdings
Limited....................... 7,500,000 5.3 Certain countries in the South
Pacific region including
Australia and New Zealand
Sprint Iridium, Inc. ........... 5,250,000 3.7 North America(3)
Thai Satellite
Telecommunications Co.,
Ltd. ......................... 5,250,000 3.7 Southeast Asia
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NUMBER OF
CLASS 1
INTERESTS PERCENTAGE PRINCIPAL GATEWAY
INVESTOR OWNED(1) OWNERSHIP(2) SERVICE TERRITORY
- -------------------------------- ---------- ------------ --------------------------------
Vebacom Holdings, Inc. ......... 12,427,875 8.8 Certain countries in or near
Europe including Austria,
Bulgaria, the Czech Republic,
Finland, Germany, Hungary,
Ireland, Israel, Norway,
Poland, Portugal, Romania,
Spain, Sweden, Slovakia,
Ukraine and the United Kingdom
Lockheed Martin Corporation..... 1,500,000 1.1 Not Applicable
Raytheon Company................ 900,000 0.7 Not Applicable
- ---------------
(1) Represents each investor's direct holdings of outstanding Class 1 Interests,
excluding Class 1 Interests issuable upon exercise of outstanding options,
warrants (including the LLC Interest Warrants) and conversion of outstanding
convertible securities.
(2) The percentages do not give effect to any Class 1 Interests that IWCL may
have acquired or will acquire as a result of the application of the proceeds
from the sale of shares of IWCL's non-voting Class B Common Stock, par value
$.01 per share (the "Class B Common Stock") pursuant to the Global Ownership
Program. See "Certain Matters Regarding Relationship of IWCL and
Iridium -- Global Ownership Program."
(3) The North American gateway service territory, principally consisting of the
United States and Canada, is shared by Iridium Canada, Motorola and Sprint.
(4) The South America and Caribbean gateway service territory is owned and will
be operated by Iridium SudAmerica. Iridium SudAmerica is owned by Iridium
Brasil, Iridium Andes-Caribe, Motorola International Development
Corporation, a wholly owned subsidiary of Motorola, and Iridium Italia.
(5) As of April 30, 1997, SK Telecom and Sprint Iridium, Inc. each owned 13,550
Series A Class 2 Interests in addition to the Class 1 Interest set forth
above. Similarly, Motorola, Inc. also owns 1 Series B Class 2 Interest and
75 Series C Class 2 Interests. BCE Mobile Communications, Inc., an affiliate
of Iridium Canada, Inc., owns 9,206 Series Class 2 Interests.
(6) It is anticipated that the Mexican gateway service territory initially will
be served by the North American gateway equipment.
IWCL was incorporated by Iridium on December 12, 1996. Its only asset is
its interest in Iridium and its only activity is participating in the management
of Iridium. See "Certain Matters Regarding Relationship of IWCL and Iridium."
IRIDIUM AFRICA CORPORATION was formed by Mawarid Overseas Company Limited
to invest in Iridium. Mawarid Overseas Company Limited is related to the Mawarid
Group, one of the largest industrial groups in Saudi Arabia, with operations in
satellite broadcasting, financial services, trading, manufacturing,
construction, telecommunications, and municipal and health care services.
Iridium Africa Corporation has been allocated a gateway service territory
consisting of over 50 countries located primarily in or near Africa (excluding
Morocco and Egypt) and Turkey.
IRIDIUM CANADA, INC. is a corporation owned one-third by a Motorola
subsidiary and one-third each by two subsidiaries of BCE, Inc. -- BCE Mobile
Communications, Inc. and Bell Canada International, Inc. BCE, Inc. is Canada's
largest telecommunications company. BCE Mobile provides a variety of wireless
telecommunications services to the Canadian market, including cellular, paging,
data and air-to-ground communications services. Iridium Canada, Inc., Motorola
and Sprint Corporation share the North American gateway service territory,
consisting of Canada, St. Pierre and Miquelon, Bermuda, Puerto Rico and the
United States.
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IRIDIUM CHINA (HONG KONG) LTD. is a wholly owned subsidiary of China
Aerospace, a major diversified industrial group based in China which is also the
parent company of China Great Wall Industries Corporation, the previous owner of
all Iridium China equity interests in Iridium. China Great Wall is a
subcontractor to Motorola to launch IRIDIUM satellites on its Long March 2C
rocket. Iridium China has been allocated a gateway service territory consisting
of China, Mongolia, Hong Kong and Macau.
IRIDIUM INDIA TELECOM LIMITED is a consortium of Indian financial
institutions that invested in Iridium initially through Infrastructure Leasing &
Financial Services Limited ("IL&FS"). The consortium includes: The Industrial
Development Bank of India, IL&FS, Exim Bank of India, State Bank of India, The
Industrial Credit and Investment Corporation of India Limited, General Insurance
Corporation of India, Housing Development Finance Corporation Limited, IL&FS
Venture Fund, Life Insurance Corporation of India, SCICI Ltd. and Unit Trust of
India. A wholly-owned subsidiary of Motorola, Inc. is also a member of the
consortium. Iridium India Telecom Ltd. has been allocated a gateway service
territory consisting of India, Bangladesh, Bhutan, Nepal, Sri Lanka and
Maldives.
IRIDIUM ITALIA S.P.A. is an affiliate of STET -- Societa Finanziaria
Telefonica per Azioni ("STET"). STET is the holding company of an integrated
telecommunication group and is one of the largest corporations in Italy. Its
largest subsidiary, Telecom Italia, is the principal provider of voice and data
telecommunications services in Italy and is the world's fifth largest telecom
operator by number of subscribers. STET (or affiliated companies) is providing
engineering support services to Motorola as part of the procurement and
operation of the IRIDIUM System. Motorola has entered into several agreements
with an affiliate of STET, Nuova Telespazio, for work related to the backup
system control facility, gateways and other portions of the IRIDIUM System.
Iridium Italia has been allocated a gateway service territory consisting of
certain countries in Europe including Belgium, Denmark, France, Greece, Italy,
Luxembourg, the Netherlands and Switzerland.
IRIDIUM MIDDLE EAST CORPORATION is owned one-half by Mawarid Overseas
Company Limited and one-half by Trinford Investments S.A. Trinford Investments
is a company affiliated with the Saudi Binladin Group. Binladin is also one of
the largest diversified industrial groups in Saudi Arabia, with operations
covering major construction projects, airport maintenance and operation,
telecommunications and hotels. Both Mawarid and Binladin operate
internationally. Iridium Middle East Corporation has been allocated a gateway
service territory consisting of over 20 countries located in the Middle East and
Central Asia, as well as Morocco and Egypt.
IRIDIUM SUDAMERICA CORPORATION is owned by Iridium Andes-Caribe, Iridium
Brasil Ltda., Iridium Italia and a wholly-owned subsidiary of Motorola. Iridium
Andes-Caribe is a consortium of private Venezuelan investors with experience in
consumer foodstuffs, communications, construction, finance and retailing.
Inepar, the majority owner of Iridium Brasil, is a diversified Brazilian
corporation with operations in telecommunications, electrical current control
equipment and services, mass transport, vehicle distribution and financial
markets. Iridium SudAmerica has been allocated a gateway service territory
consisting of approximately 40 countries located primarily in South America and
the Caribbean.
KHRUNICHEV STATE RESEARCH AND PRODUCTION SPACE CENTER is a state-owned
aerospace engineering and manufacturing company in the Russian Federation.
Khrunichev has been engaged in the manufacture of launch vehicles, orbital
stations and other space equipment for more than 30 years. Khrunichev has
contracted to provide launch services to Motorola with the Proton rocket as part
of the deployment of the space segment. Khrunichev has also been allocated a
gateway service territory consisting of Belarus, Estonia, Georgia, Kazakhstan,
Latvia, Lithuania, Moldova, the Russian Federation and Uzbekistan.
MOTOROLA, INC. is one of the world's leading providers of wireless
communications and electronic equipment, systems, components and services for
worldwide markets. Motorola products include two-way radios, pagers, personal
communications systems, cellular telephones and systems,
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discrete semiconductors and integrated circuits, defense and aerospace
electronics, automotive and industrial electronics, computers, data
communications, and information processing and handling equipment. Motorola is
the primary contractor to Iridium and the IRIDIUM gateway operators for the
procurement of components of the IRIDIUM System. See "Business -- Progress to
Date." Motorola has also been allocated, or otherwise received: (i) a share of
the North American gateway service territory along with Iridium Canada, Inc. and
Sprint Corporation; (ii) the entire Mexican/Central American gateway service
territory; (iii) an interest in Iridium SudAmerica, which has been allocated the
gateway service territory including South America and the Caribbean; and (iv) an
interest in Iridium India Telecom Limited, which has been allocated the gateway
service territory for the Indian subcontinent.
NIPPON IRIDIUM (BERMUDA) LIMITED is a wholly owned subsidiary of Nippon
Iridium Corporation which is a consortium company formed in Bermuda by DDI
Corporation, Japan's leading independent telecommunications company and a
provider of cellular, PHS and long distance telephone service, and Kyocera
Corporation, a supplier of ceramic integrated circuit packages, electronic
components and electronic equipment. Investors in Nippon Iridium Corporation
include Kansai Cellular Telephone Co., Ltd., Ushio Inc., SECOM Co., Ltd., Sony
Corporation, Mitsui & Co., Ltd., Kyushu Cellular Telephone Co., Ltd., Chugoku
Cellular Telephone Co., Ltd., Shikoku Cellular Telephone Co., Ltd., Tohoku
Cellular Telephone Co., Ltd., Hokuriku Cellular Telephone Co., Ltd., Hokkaido
Cellular Telephone Co., Ltd., The Sanwa Bank Limited, Daiwa Securities Co.,
Ltd., The Industrial Bank of Japan, Limited, The Long-Term Credit Bank of Japan,
Ltd., and Mitsubishi Corporation. Nippon Iridium Corporation has been allocated
the Japan gateway service territory.
PACIFIC ELECTRIC WIRE & CABLE CO., LTD. ("PEWC") is a diversified
international corporation with interests in telecommunications services,
property development, banking and financial services and securities investment.
PEWC is the largest producer of telecommunications and power cable in Taiwan.
PEWC has been allocated a gateway service territory consisting of Taiwan,
Indonesia, Brunei, Papua New Guinea and the Philippines.
SK TELECOM was formed by Korea Telecommunications Corporation to provide
cellular and paging services in the Republic of Korea. Management control of
Korea Mobile Telecommunications Corporation is held by Sunkyong Business Group,
a large Korean conglomerate. Korea Mobile Telecommunications Corporation has
been allocated the gateway service territory consisting of North Korea and South
Korea.
SOUTH PACIFIC IRIDIUM HOLDINGS LIMITED is a subsidiary of P.T. Bakrie &
Brothers ("Bakrie"), a major Indonesian conglomerate, with operations in
plantations, rubber trading, infrastructure support and telecommunications.
Through subsidiaries, including P.T. Bakrie Communications Corporation, Bakrie
provides cellular services in Indonesia (Ratelindo), Australia (Link
Communications) and fixed wire services in Vietnam and Uzbekistan. In connection
with its anticipated investment in Iridium, South Pacific Iridium Holdings
Limited was allocated the South Pacific gateway service territory.
SPRINT IRIDIUM, INC. is an indirect wholly owned subsidiary of Sprint
Corporation. Sprint Corporation is a diversified telecommunications company with
the only nationwide all-digital fiber-optic network in the United States. Its
divisions provide global voice, data and video conferencing services and related
products. Sprint Corporation has been allocated a share of the North American
gateway service territory along with Iridium Canada, Inc. and Motorola.
THAI SATELLITE TELECOMMUNICATIONS CO., LTD. is a company formed by United
Communications Industry Co., Ltd. of Thailand ("UCOM") to invest in Iridium.
UCOM is one of the largest cellular and paging operators in Thailand and is also
a reseller of communications equipment. Thai Satellite Telecommunications Co.,
Ltd. has been allocated a gateway service territory consisting of Cambodia,
Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam.
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VEBACOM HOLDINGS, INC., a wholly-owned subsidiary of o.tel.o communications
GmbH & Co., which is owned by VEBA Telecom GmbH and Lehman Brothers Bankhaus
Aktiengesellschaft (as a fiduciary). VEBA AG, the indirect owner of o.tel.o
communications GmbH & Co., together with its subsidiaries, is one of the largest
corporations in Germany. Its telecommunications branch offers a wide variety of
telecommunications services including mobile communications, satellite
communications services, network management, cable television and paging
services. Vebacom has been allocated a gateway service territory consisting of
countries in or near Europe including Austria, Bulgaria, the Czech Republic,
Finland, Germany, Hungary, Ireland, Israel, Norway, Poland, Portugal, Romania,
Spain, Sweden, Slovakia, Ukraine and the United Kingdom.
The following investors have not been allocated a gateway service
territory:
LOCKHEED MARTIN CORPORATION is a world leader in defense and space systems
technology, designing and producing military aircraft, missiles, electronic
systems and satellites, as well as providing a wide range of government and
commercial aeronautical, space, environmental and engineering services. Lockheed
Martin is a principal subcontractor to Motorola in the construction of IRIDIUM
satellites.
RAYTHEON COMPANY is engaged in the conception, development, manufacture and
sale of electronic systems, equipment and components for government and
commercial use. Raytheon also has operations in aircraft products and energy and
environmental services. Raytheon is a principal subcontractor to Motorola in the
construction of the IRIDIUM System and is primarily responsible for providing
the main mission antennas for the satellites.
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DESCRIPTION OF IRIDIUM LLC LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary of certain provisions of the Limited Liability
Company Agreement of Iridium LLC, dated as of July 29, 1996, as amended (the
"LLC Agreement"). This summary does not purport to be a complete description of
the LLC Agreement, and is qualified in its entirety by reference to the LLC
Agreement which is available upon request from Iridium at 1575 Eye Street N.W.,
Washington, D.C. 20005, Attention: Secretary.
ESTABLISHMENT; PURPOSE
Iridium was formed as a limited liability company pursuant to the
provisions of the Delaware Limited Liability Company Act (the "Delaware Act") on
July 16, 1996. Iridium, Inc., a Delaware corporation and the predecessor of
Iridium, was formed on June 14, 1991. On July 29, 1996, Iridium, Inc. was merged
with and into Iridium, with Iridium as the surviving entity. Iridium's purpose
is to acquire, own and manage the IRIDIUM System.
THE IRIDIUM BOARD; COMMITTEE STRUCTURE AND MANAGEMENT
Iridium is governed by the Iridium Board. The Members may manage Iridium
only through their designated directors and have no authority, in their capacity
as members, to act on behalf of Iridium. The day-to-day activities of Iridium
are managed by its officers, subject to the supervision of the Iridium Board.
The officers are nominated and elected by the Iridium Board. The LLC Agreement
requires that the Chairman of the Iridium Board be a Director and that the Vice
Chairman and Chief Executive Officer be a Director.
Each Member, other than IWCL, is entitled to appoint one director to the
Iridium Board for each 5,250,000 Class 1 Interests owned. Class 1 Members, other
than IWCL, may aggregate their Class 1 Interests and appoint one director for
each 5,250,000 Class 1 Interests owned in the aggregate.
The Iridium Board may act through one or more committees established by the
LLC Agreement or by resolution, with each committee having the powers of the
Iridium Board to the extent provided in the LLC Agreement or the relevant
resolution. The LLC Agreement establishes the following four committees, which
are the only existing committees of the Iridium Board:
Banking and Financing Committee. This committee is authorized
generally to supervise matters relating to the financing of Iridium. The
committee must consist of not fewer than eight directors.
Related Party Contract Committee. This committee consists of all
directors of Iridium not designated by Motorola, Lockheed Martin and
Raytheon. Motorola, Lockheed Martin and Raytheon are the contracting and
principal subcontracting Members, respectively, under the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial
Network Development Contract. The committee has the authority to review,
monitor and enforce Iridium's rights with respect to the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial
Network Development Contract. Directors appointed by Lockheed Martin and
Raytheon will be appointed to the committee when they cease to be
subcontractors under the contracts. Directors appointed by Motorola will be
appointed to the committee when Motorola ceases to be a party to the
contracts.
Compensation Committee. This committee must consist of not fewer than
three directors, appointed by the Iridium Board, who are not officers or
employees of Iridium. The committee has the authority to review, and
provide recommendations relating to the compensation and benefits of
managerial employees and has authority to administer the Option Plan
(unless the Iridium Board appoints a substitute committee).
Audit Committee. This committee is required to review, and make
recommendations regarding, Iridium's internal accounting and financial
controls, including the preparation of
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financial statements and the engagement of independent public accountants.
The committee must consist of two or more directors, appointed by the
Iridium Board, who are not officers or employees of Iridium.
See "-- Classes of Membership Interests -- Series B and Series C Class 2
Interests" for certain special rights with respect to the Iridium Board and its
committees that have been granted to Motorola in connection with its guarantee
of the borrowings under the Guaranteed Bank Facility.
SPECIAL RIGHTS OF IWCL IN THE GOVERNANCE OF IRIDIUM
The LLC Agreement provides that IWCL will have certain special membership
rights during the Special Rights Period (as defined). See "Certain Matters
Regarding Relationship of IWCL and Iridium -- Participation in the Governance of
Iridium." During the IWCL Special Rights Period (i) IWCL shall be entitled to
designate two Independent Company Directors as Directors of Iridium, (ii) one
Director of Iridium designated by IWCL shall be elected Vice Chairman of the
Iridium Board and (iii) one Director of Iridium designated by IWCL shall be a
member of each committee of the Iridium Board. Pursuant to the LLC Agreement,
IWCL will not be entitled to appoint more than two directors to the Iridium
Board even if its ownership interest increases and it would otherwise have been
entitled to additional appointment rights. In addition to any other voting
rights which IWCL may have under the LLC Agreement, under the Delaware Act or
otherwise, during the IWCL Special Rights Period, Iridium may not take any of
the following actions, or permit any of the following actions or events to
occur, without the consent of one of the Directors of Iridium designated by
IWCL: (i) make any material amendments or modifications to the LLC Agreement;
(ii) approve any business plan of Iridium that would result in any material
change in the purpose of Iridium as set forth in the LLC Agreement or otherwise
change Iridium's business so that it varies materially from the business purpose
contemplated by the LLC Agreement; (iii) acquire, other than in the ordinary
course of business of Iridium, (a) a controlling interest or a majority of the
voting stock or equity of, any corporation or other entity that would be a
Significant Subsidiary (as such term is defined in the rules under the
Securities Act) or (b) any other assets if the aggregate fair market value
thereof is greater than $50 million; (iv) sell, lease (as lessor), exchange or
otherwise dispose of all or substantially all of the assets of Iridium (other
than to a person controlled by Iridium); (v) cause the dissolution and/or
liquidation of Iridium; or (vi) take certain bankruptcy or insolvency related
actions with respect to Iridium.
CLASSES OF MEMBERSHIP INTERESTS
The Members' interests in Iridium are divided into two classes: "Class 1
Interests" which represent the common equity of Iridium and "Class 2 Interests"
which represent the preferred equity of Iridium. The LLC Agreement authorizes
Iridium to issue 225,000,000 Class 1 Interests, 50,000 Series M Class 2
Interests and 300,000 additional Class 2 Interests. At June 13, 1997 there were
141,219,150 Class 1 Interests issued and outstanding. There are three series of
Class 2 Interests outstanding.
Class 1 Interests. Subject to the rights of holders of any series of
Class 2 Interests, all voting rights of the Members are vested in the Class
1 Interests.
Series A Class 2 Interests. The Series A Class 2 Interests are
convertible preferred interests that are entitled to dividends at a rate of
14 1/2% per annum from the Original Issue Date to, but not including, the
relevant Series A Redemption Date. The dividends on the Series A Class 2
Interests are payable, either in-kind or in cash, at the option of Iridium,
through February 28, 2001. Commencing March 1, 2001, dividends on the
Series A Class 2 Interests are payable only in cash. Dividends on the
Series A Class 2 Interests accrue whether or not they have been declared
and whether or not there are profits or other funds of Iridium legally
available for the payment of such dividends. No dividend may be declared
and paid on the Class 1 Interests unless all accrued dividends on the
Series A Class 2 Interests have been paid in full.
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The Series A Class 2 Interests are convertible to Class 1 Interests at any
time, at the option of the holder, at the Series A Conversion Price then in
effect, initially $54.03. The Series A Conversion Price is adjusted from
time to time to reflect, among other things, distributions or
reclassification of the Class 1 Interests. At April 30, 1997, each Series A
Class 2 Interest was convertible into 18.51 Class 1 Interests. The Series A
Class 2 Interests are redeemable, at the option of Iridium, at any time
after March 1, 2001 at redemption prices that adjust downward each March 1
for four years at a proportionate rate from 107.5% of the Series A
Liquidation Preference ($1,000 plus accrued and unpaid dividends) on March
1, 2001 to 100% of the Series A Liquidation Preference on March 1, 2005.
After March 1, 2005 the Series A Class 2 Interests are redeemable at 100%
of the Series A Liquidation Preference. At April 30, 1997 there are 36,305
Series A Class 2 Interests outstanding.
Series B and Series C Class 2 Interests. In connection with
Motorola's guarantee of the Guaranteed Bank Facility, Iridium issued to
Motorola one Series B Class 2 Interest and 75 Series C Class 2 Interests.
These are the only issued and outstanding Series B and Series C Class 2
Interests. The Series B Class 2 Interests and Series C Class 2 Interests do
not pay any dividends. The Series B Class 2 Interest entitles Motorola to
one seat on the Iridium Board in addition to Directors it may otherwise
appoint as the owner of Class 1 Interests and Series M Class 2 Interests.
The Series C Class 2 Interests entitle Motorola to appoint a majority of
the Board of Directors (and of all committees other than the Related Party
Contract Committee) in the event of certain events of default relating to
the Guaranteed Bank Facility. The Series B and Series C Class 2 Interests
are redeemable by Iridium at $.01 per Interest upon the later of (i) the
termination or expiration of the Guarantee Agreement of Motorola and (ii)
the reimbursement of any payments made by Motorola pursuant to the
Guarantee Agreement.
Series M Class 2 Interests. Motorola owns a warrant (the "Series M
Warrant") to purchase Series M Class 2 Interests in an amount that would be
convertible into 2.5% of the outstanding Class 1 Interests at the time of
exercise of the Series M Warrant, calculated on a fully diluted basis, at a
price of $1,000 per Series M Class 2 Interest, subject to antidilution
adjustments. No Series M Class 2 Interests are currently outstanding.
Dividends on each Series M Class 2 Interest will accrue at the rate of
8.00% per annum of the sum of the Liquidation Value thereof plus all
accumulated and unpaid dividends thereon, from and including the date of
issuance of such Interest to and including the date on which the
Liquidation Value of such Interests is paid or the date on which such
Interest is converted into Class 1 Interests. Dividends accrue whether or
not they have been declared and whether or not there are profits or other
funds of Iridium legally available for the payment of dividends.
Additionally, when dividends are declared or paid on the Class 1 Interests,
the holders of Series M Class 2 Interests will be entitled to participate
in such dividends ratably. The Series M Class 2 Interests are convertible
into Class 1 Interests at any time at the option of the holder. The number
of Class 1 Interests into which the Series M Class 2 Interests are
convertible is computed by multiplying the number of Series M Class 2
Interests to be converted by $1,000 and dividing the result by the Series M
Conversion Price then in effect. The initial Series M Conversion Price is
$13.33, but is subject to antidilution adjustments from time to time, and
at the current Series M Conversion Price each Series M Class 2 Interest
would be convertible into 75 Class 1 Interests. Upon the occurrence of an
Event of Noncompliance, defined as a failure by Iridium to pay when due the
full amount of dividends due to holders of Series M Class 2 Interests or
the occurrence of certain enumerated acts by Iridium related to bankruptcy
or insolvency, the holders can demand the immediate redemption of all
interests at Liquidation Value plus accumulated and unpaid interest and the
number of seats on the Iridium Board will be increased by one at the
request of the holders of a majority of the Series M Class 2 Interests then
outstanding and the holders of Series M Class 2 Interests will be entitled
to elect an individual to fill such newly created Director position. There
are no Series M Class 2 Interests issued or outstanding.
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MERGER
The LLC Agreement provides that Iridium may merge or consolidate with one
or more limited liability companies, corporations, or similar entities provided
that the transaction is approved by the Iridium Board and Class 1 Members
holding not less than 66 2/3% of the outstanding Class 1 Interests. In the event
of a merger, Members who hold Interests and do not vote in favor of, or consent
in writing to, the merger are entitled to appraisal rights subject to certain
exceptions.
DIVIDEND AND LIQUIDATION RIGHTS
Class 1 Members are entitled to receive dividends, as and when declared by
the Iridium Board, in its discretion. Class 2 Members are entitled to receive
dividends, if any, in accordance with the terms of the relevant series of Class
2 Interests, as and when declared by the Iridium Board. The Class 2 Interests
rank senior to the Class 1 Interests as to dividends and distributions upon the
liquidation, dissolution and winding-up of Iridium.
The LLC Agreement requires the Iridium Board, to the extent of legally
available funds, to declare and pay a pro rata dividend in an amount which, when
added to any prior dividends paid with respect to the profits of the same year,
is sufficient to assure that each non-U.S. Class 1 Member receives an amount at
least equal to the amount of such Member's U.S. federal, state and local income
tax liability resulting from allocations of Iridium's income to such Member.
ISSUANCE OF ADDITIONAL INTERESTS; RESTRICTIONS ON TRANSFER; RIGHTS OF FIRST
REFUSAL
With the consent of Class 1 Members holding a majority of the Class 1
Interests, the Iridium Board may, at any time, cause Iridium to admit additional
Members upon conditions determined by the Iridium Board. Subject to certain
exceptions, if Iridium authorizes the issuance or sale of any Class 1 Interests,
Iridium must first offer to sell to each Class 1 Member a portion of such Class
1 Interests that would prevent any dilution in such Class 1 Member's holdings of
Class 1 Interests, provided that upon exercise of such purchase rights, the
number of Class 1 Interests of any holder of Class 1 Interests may not exceed
45% of the Class 1 Interests deemed outstanding on such date.
The LLC Agreement contains significant restrictions on the ability of a
Member to transfer any Interests in Iridium. Prior to making any transfer of
Interests in Iridium (other than certain transfers to affiliates), the person
seeking to make such transfer must notify Iridium and all holders of Class 1 and
Class 2 Interests of the terms and conditions of the proposed transfer. In order
for the proposed transfer to be permitted, a number of conditions must be
satisfied, including but not limited to the conditions that (i) a majority of
the Iridium Board approve the transfer and (ii) the transfer not result in any
person (other then IWCL) beneficially owning, or having the right to
beneficially own, more than 45% of the outstanding Class 1 Interests. In
addition, Iridium may elect to purchase all (but not less than all) of the
Interests to be transferred upon the terms and conditions of the proposed
transfer and, if Iridium elects not to make such purchase, any of the holders of
Class 1 and Class 2 Interests may purchase all (but not less than all) of the
Interests to be transferred on a pro rata basis.
The LLC Agreement provides that as long as Motorola is the principal
supplier to Iridium and/or Motorola or one of its subsidiaries is the holder for
the benefit of Iridium of any FCC license to construct, operate or launch the
IRIDIUM System, Motorola will not transfer (other than certain exempt transfers)
any of its Class 1 Interests issued in respect of common stock of Iridium, Inc.
purchased under the 1993 Stock Purchase Agreement. This restriction does not
apply to any Class 1 Interests purchased pursuant to the Reserve Capital Call.
In addition, in the event that Motorola no longer is the principal supplier to
Iridium and neither Motorola nor one of its subsidiaries is the holder for the
benefit of Iridium of any FCC license to construct, operate or launch the
IRIDIUM System, and Motorola desires to transfer any Class 1 Interests prior to
July 19, 2003, Motorola is required to offer all other holders of Class 1
Interests the opportunity to participate ratably in such sale at the same price
and on the same terms as Motorola.
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CAPITAL CONTRIBUTIONS; RESERVE CAPITAL CALL
Contributions to the capital of Iridium, with respect to each Member who
purchases an Interest, are made in an amount equal to the net purchase price to
Iridium for such Interest (such amount being such Member's capital contribution
to Iridium). The LLC Agreement requires that the Class 1 Members cause their
Class 1 Interests in the aggregate to be entitled to at least 21% of each item
of the capital, income, gain, loss, deduction or credit distributions of Iridium
at all times. Members generally are not required to make additional capital
contributions to Iridium other than in connection with the Reserve Capital Call.
Seventeen Members of Iridium have made varying Reserve Capital Call
commitments to purchase an aggregate of 18,206,550 additional Class 1 Interests
at a purchase price of $13.33 per Class 1 Interest, upon a date thirty days
after the date of the receipt of a funding notice from the treasurer of Iridium.
The treasurer of Iridium is required to provide such a notice on the date on
which the treasurer has first determined that Iridium will not have available to
it sufficient funds to meet its contractual obligations and other funding
requirements on the forty-fifth day thereafter absent exercise of the Reserve
Capital Call. The LLC Agreement provides Iridium several non-exclusive remedies
in the event a Member fails to pay any of the amounts required by a Reserve
Capital Call, including redeeming the defaulting Member's Class 1 Interests for
an amount equal to $1.33 per Class 1 Interest. The Commitment Letter in respect
of the Secured Bank Facility contemplates that the Reserve Capital Call will be
pledged to the lenders under the Secured Bank Facility and that Iridium will be
restricted from exercising the Reserve Capital Call. See "Description of Other
Indebtedness."
LIMITATIONS ON LIABILITY
In accordance with the Delaware Act, Members are generally not liable for
the debts, obligations or liabilities of Iridium. Pursuant to the LLC Agreement,
and in accordance with the Delaware Act, IWCL has waived the limitation on
liability contained in the Delaware Act, provided that IWCL has no liability to
any person, including Iridium, for any debt, obligation or liability of Iridium
until all of the assets and capital of Iridium have first been exhausted in
satisfaction thereof. No Member or Director has any liability for any debts,
obligations or liabilities, whether arising in contract, tort or otherwise, of
any other Member or Director.
Members, Directors and officers of Iridium have only the duties set forth
in the LLC Agreement. The LLC Agreement provides that the duties and obligations
owed to Iridium and to the Members by the directors and officers of Iridium, and
any duties and obligations that may be owed by any Member or by any affiliates
of any Member, are the same as the respective duties and obligations owed to a
corporation organized under the Delaware General Corporation Law by its
directors and officers and any such duties that may be owed to a corporation by
any similarly situated stockholder or affiliate thereof, respectively. The LLC
Agreement also provides that, to the fullest extent permitted by the Delaware
General Corporation Law, a Director shall not be liable to Iridium or the
Members for monetary damages for a breach of fiduciary duty as a Director. Such
limitation does not, however, limit liability of directors (i) for any breach of
the Director's duty of loyalty to Iridium, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for acts relating to certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the Director
derived an improper personal benefit.
The LLC Agreement provides that Iridium will indemnify the Directors,
officers and other persons serving in similar capacities at the request of
Iridium for another entity against all expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any action, suit, or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of Iridium) by reason of the fact that such person was serving in such
capacity, provided that such person acted in good faith
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and in a manner such person reasonably believed to be in or not opposed to the
best interests of Iridium, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe such person's conduct was
unlawful. The LLC Agreement further provides that Iridium will indemnify the
Directors, officers and other persons serving in similar capacities at the
request of Iridium for another entity against expenses (including attorney's
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit by or in the right of Iridium by
reason of the fact that such person was serving in such capacity, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of Iridium, and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to Iridium unless
awarded pursuant to a court order.
ALLOCATIONS OF PROFITS AND LOSSES; TAX MATTERS PARTNER
The profits and losses of Iridium generally are, subject to certain tax
considerations, the Delaware Act and the rights of the Class 2 Members, to be
allocated entirely to the Class 1 Members pro rata in proportion to their
percentage of ownership of all outstanding Class 1 Interests. The LLC Agreement
provides:
Profits. Items of income and gain shall be allocated (i) first to the
Class 2 Members in amounts that match the distributions made to such
Members in accordance with the terms of the Class 2 Interest and (ii)
second to the Class 1 Members pro rata in proportion to their percentage of
ownership of all Class 1 Interests.
Losses. All items of loss, deduction, expense or credit shall be
allocated to the Class 1 Members pro rata in proportion to their percentage
ownership of all Class 1 Interests.
Motorola is the Tax Matters Partner of Iridium. The Tax Matters Partner
acts as the liaison between Iridium and the Members, on the one hand, and the
United States Internal Revenue Service, on the other, in connection with all
administrative and judicial proceedings involving tax controversies regarding
Iridium.
AMENDMENTS TO THE LLC AGREEMENT; MEETINGS
The LLC Agreement may not be changed or amended, nor may the observance of
any provision of the LLC Agreement be waived, without the consent of Class 1
Members holding not less than 66 2/3% of the outstanding Class 1 Interests. This
general approval requirement for amendments to the LLC Agreement is subject to
certain exceptions including, among others:
Iridium Board. The provision of the LLC Agreement granting to the
Members the right to elect members of the Iridium Board may not be amended
without the consent of Class 1 Members holding not less than 95% of the
outstanding Class 1 Interests.
Related Party Contract Committee. The provisions of the LLC Agreement
relating to the Related Party Contract Committee (which reviews and
monitors the principal contracts between Iridium and certain of its
Members) may not be amended without the consent of (i) 66 2/3% of the
Directors serving on the Related Party Contracts Committee and (ii) 66 2/3%
of the non-interested Members.
Capital Contributions. Certain provisions of the LLC Agreement
relating to the circumstances in which a Reserve Capital Call is
automatically triggered may only be amended by the affirmative vote of not
less than 85% of the entire Iridium Board, and other provisions of the LLC
Agreement covering Members' capital contributions may be amended only with
the consent of Iridium and each Member whose rights and obligations
thereunder are directly affected by such amendment.
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Appraisal Rights. The provisions relating to the Member's appraisal
rights may not be amended without the unanimous consent of the Members.
An annual meeting for the Class 1 Members shall be held each year within
120 days after the close of the immediately preceding fiscal year of Iridium. At
such annual meeting each Member shall provide notice to Iridium and the other
Members of the names of any Director or Directors such Member is entitled to
appoint. Special meetings of Members may be called for any purpose stated in the
notice of such special meeting at any time by the Iridium Board, the chairman of
the Board of Directors, the vice chairman and chief executive officer, the
president or the holders of not less than a majority of the Class 1 Interests
outstanding. Notice of any meeting shall be given to all Members entitled to
vote at such meeting and to each Director not less than 10 nor more than 60 days
prior to the date of such meeting. The holders of a majority of the Interests
entitled to vote on a particular item of business, present in person or by
proxy, shall constitute a quorum for purposes of the transaction of such item of
business. Each Member entitled to vote at a meeting of Members or to express
consent or dissent to any action in writing without a meeting may authorize any
person to act for it in such matters by proxy.
Unless otherwise provided by law, any action to be taken by the Members may
be taken without a meeting, without prior notice and without a vote, if consents
in writing, setting forth the action so taken, shall be signed by the Members
having not less than the minimum Interests that would be necessary to authorize
or take such action at a meeting at which all Members entitled to vote thereon
were present and voted and are delivered to Iridium.
GATEWAY RIGHTS AND SPECTRUM ACCESS OBLIGATIONS
The exclusive right to own and operate the various gateway service
territories is assigned to Members pursuant to the LLC Agreement. See "Iridium's
Investors, Number of Class 1 Interests Owned, Percentage Ownership and Principal
Gateway Service Territories" for the present allocation of Gateway Service
Territories. As a condition of the exclusive right to operate in their assigned
territories (including the exclusive right to act as, or select, the service
provider for such territory), each Member that has been assigned a service
territory has agreed (i) to use its best efforts to obtain the necessary
authorizations to provide gateway services in each of the jurisdictions included
in its service territory (the "Gateway Authorizations") and to construct and
operate such gateway on a timely basis consistent with the terms of such
Member's Gateway Authorization Agreement, (ii) to require any service provider
within its service territory to use its best efforts to obtain the necessary
authorizations to act as a service provider and (iii) use its best efforts to
cause the relevant authorities in their respective territories to ratify and
adopt the spectrum allocation and service definitions for LEO's adopted by the
WARC. See "Business -- Space Segment -- Gateways," "Principal Contracts for
Development of the IRIDIUM System -- Gateway Authorization Agreements" and
"Regulation of Iridium."
The gateway and service provider rights of Class 1 Members may be
terminated without compensation if such a member fails to (i) comply with its
obligations regarding Gateway construction and spectrum allocation or (ii)
obtain the necessary Gateway Authorizations within the time periods set forth in
the LLC Agreement. In the event that such rights are terminated in the member's
principal country of operation as a result of the Member's failure to obtain the
relevant Gateway Authorizations, and the Member used its best efforts to obtain
the Gateway Authorizations, such member is entitled to compensation for the loss
of the gateway service territory on the terms specified in the LLC Agreement.
DISSOLUTION; WINDING-UP
The LLC Agreement provides that Iridium shall be dissolved and its affairs
wound-up upon: (i) the adoption of a resolution by not less than 66 2/3% of the
entire Iridium Board that Iridium be dissolved and the approval of such
resolution by the affirmative vote of Class 1 Members holding not less than
66 2/3% of the Class 1 Interests present at a meeting duly called for such
purpose;
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(ii) the death, retirement, resignation, bankruptcy or similar occurrence which
terminates the continued membership of any Member unless the remaining Members
exercise their right under the LLC Agreement to continue the business of Iridium
(such right to be exercised by the affirmative consent of both (a) a majority of
the Iridium Board and (b) a "majority in interest" (as defined in IRS Revenue
Procedure 94-46) of the remaining Members); and (iii) December 31, 2095, subject
to amendment by an affirmative vote of Class 1 Members holding not less than
66 2/3% of the Class 1 Interests.
CERTAIN MATTERS REGARDING RELATIONSHIP OF IWCL AND IRIDIUM
IWCL was formed to act as a member of Iridium. The power and authority to
conduct and manage the business of IWCL is vested in the IWCL Board. The IWCL
Board is comprised of seven members, a majority of whom also are executive
officers of Iridium or one of Iridium's other members. At least two members of
the IWCL Board will at all times be persons not currently employed by or
affiliated with Iridium or Motorola or any other member of Iridium owning more
than five percent of the outstanding Class 1 Interests (the "Independent Company
Directors"). See "Management."
PARTICIPATION IN THE GOVERNANCE OF IRIDIUM
Iridium is governed by the Iridium Board. The members of Iridium may manage
Iridium only through their election of Directors, and have no authority, in
their capacity as members, to act on behalf of Iridium. IWCL has waived the
limitation on liability provided by the Delaware Act. The other members of
Iridium have not waived this limitation and do not have liability with respect
to the debts or obligations of Iridium in excess of their investment in their
interests in Iridium. Notwithstanding IWCL's unlimited liability with respect to
Iridium, the holders of Class A Common Stock will not have liability under
Bermuda law with respect to their shares of Class A Common Stock other than the
possible loss in the value of those shares. See "Description of Iridium LLC
Limited Liability Company Agreement -- Limitations on Liability."
The LLC Agreement provides that IWCL will have certain special membership
rights during the period (the "Special Rights Period") commencing on the first
date that IWCL's Class 1 Interests represent five percent or more of the total
outstanding Class 1 Interests (which occurred upon the consummation of the IWCL
IPO) and ending on the date of delivery by Iridium of notice of the termination
of IWCL's special rights following (i) the sale or other disposition by IWCL of
Class 1 Interests, if, as a result of such sale or other disposition, IWCL's
Class 1 Interests represent less than five percent of the total outstanding
Class 1 Interests or (ii) following the occurrence of a Company Change in
Control. "Company Change of Control" means an event or series of events not
approved either by members of Iridium owning a majority of the Class 1 Interests
or by a majority of the Iridium Board, at a time when IWCL owns Class 1
Interests representing less than 50% of the outstanding Class 1 Interests, as a
result of which (a) any "person" or "group" (as such terms are defined in
Section 12(d) and 14(d) of the Exchange Act) other than Iridium becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 30% of IWCL's outstanding common stock (or
equivalent securities), (b) IWCL consolidates with or merges into another
corporation or conveys, transfers or leases all or substantially all of its
assets to any person, or any corporation consolidates with or merges into IWCL,
in either event pursuant to a transaction in which IWCL's outstanding common
stock is changed into or exchanged for cash, securities or other property, other
than any transaction (i) between IWCL and either Iridium, an affiliate of
Iridium or a wholly-owned subsidiary of Iridium, or (ii) after which the
shareholders who beneficially owned IWCL's common stock immediately before such
transaction beneficially own at least 50% of the outstanding voting stock of the
surviving entity and no person beneficially owns more than 30% of the
outstanding voting stock of the surviving entity, or (c) during any period of
two consecutive years, individuals who at the beginning of such period
constituted IWCL Board (together with any new directors whose election by IWCL
Board or whose
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nomination for election was approved by a vote of 66 2/3% of the members of the
IWCL Board then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the IWCL Board then
in office.
During the Special Rights Period (i) IWCL shall be entitled to designate
two Independent Company Directors as Directors of Iridium, (ii) one Director of
Iridium designated by IWCL shall be elected Vice Chairman of the Iridium Board
and (iii) one Director of Iridium designated by IWCL shall be a member of each
committee of the Iridium Board. Pursuant to the LLC Agreement, IWCL will not be
entitled to appoint more than two Directors to the Iridium Board even if its
ownership interest increases and it would otherwise have been entitled to
additional appointment rights. In addition to any other voting rights which IWCL
may have under the LLC Agreement, under the Delaware Act or otherwise, during
the IWCL Special Rights Period, Iridium may not take any of the following
actions, or permit any of the following actions or events to occur, without the
consent of one of the Directors of Iridium designated by IWCL ("IWCL's Special
Rights Consent"): (i) make any material amendments or modifications to the LLC
Agreement; (ii) approve any business plan of Iridium that would result in any
material change in the purpose of Iridium as set forth in the LLC Agreement or
otherwise change Iridium's business so that it varies materially from the
business purpose contemplated by the LLC Agreement; (iii) acquire, other than in
the ordinary course of business of Iridium, (a) a controlling interest or a
majority of the voting stock or equity of, any corporation or other entity that
would be a Significant Subsidiary (as such term is defined in the rules under
the Securities Act) or (b) any other assets if the aggregate fair market value
thereof is greater than $50 million; (iv) sell, lease (as lessor), exchange or
otherwise dispose of all or substantially all of the assets of Iridium (other
than to a person controlled by Iridium); (v) cause the dissolution and/or
liquidation of Iridium; or (vi) take certain bankruptcy or insolvency related
actions with respect to Iridium.
EXCHANGE RIGHTS OF IRIDIUM MEMBERS
Pursuant to an Interest Exchange Agreement between Iridium and IWCL (the
"Interest Exchange Agreement"), IWCL has agreed that after the Exchange Date
(defined below) and subject to the restrictions on transfer in the LLC Agreement
it will permit holders of Class 1 Interests of Iridium to exchange those
interests for shares of Class A Common Stock at a ratio of one share of Class A
Common Stock for each Class 1 Interest (subject to anti-dilution adjustments).
See "Description of Iridium LLC Limited Liability Company Agreement -- Issuance
of Additional Interests; Restrictions on Transfer; Rights of First Refusal" for
a description of certain restrictions on transfer of the Class 1 Interests
contained in the LLC Agreement. If a holder of Class 1 Interests (a "Class 1
Holder") desires to effect an exchange of all or a portion of its Class 1
Interests it must provide written notice to IWCL and Iridium. No exchange shall
take place unless approved by Iridium, pursuant to authorization of Directors
representing at least 66 2/3% of the Iridium Board. The Exchange Date is the
90th day following the first fiscal quarter in which Iridium has achieved
positive earnings before interest, taxes, depreciation and amortization. In
order to exercise its rights under the Interest Exchange Agreement, a holder of
Class 1 Interests and its affiliates must be in full compliance with the LLC
Agreement and any Gateway Authorization Agreement to which it is a party.
Iridium and IWCL have the right to defer exchanges under the Interest Exchange
Agreement if doing so is in the best interests of Iridium or IWCL in light of
possible or pending financing transactions.
Under the Interest Exchange Agreement, IWCL has agreed that at any time
after the Exchange Date, IWCL will, at the request of Class 1 Holders and
holders of Class A Common Stock acquired under the Interest Exchange Agreement,
representing not less than 2% of the Fully Diluted Class A Shares (defined
below), file with the Commission a registration statement and use its reasonable
best efforts to have that registration statement remain effective for a period
of up to six months, permitting such holders to sell shares of Class A Common
Stock in the manner specified by those
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holders. IWCL has certain rights to defer the filing of a registration statement
or to cause holders to stop distributing securities under an effective
registration statement. Registering holders are required to pay their pro rata
portion of the costs of registration. "Fully Diluted Class A Shares" means all
shares of Class A Common Stock actually outstanding and the aggregate number of
shares of Class A Common Stock issuable under the Interest Exchange Agreement in
exchange for Class 1 Interests at the then applicable exchange rate, whether or
not the Class 1 Interests are then exchangeable. At the request of Iridium,
acting pursuant to authorization of Directors representing at least 66 2/3% of
the Iridium Board, IWCL will take all reasonable steps to register pursuant to
these provisions any other shares of Class A Common Stock acquired under the
Interest Exchange Agreement specified by Iridium.
SHARE ISSUANCE AGREEMENT
IWCL and Iridium have entered into a Share Issuance Agreement governing
offerings of securities by IWCL. IWCL's participation in the Original Offering,
including the issuance of the Warrants, the Warrant Shares and IWCL's obligation
to purchase LLC Interest Warrants, is governed by the Share Issuance Agreement.
The Share Issuance Agreement provides that all net proceeds from the sale of
securities by IWCL will be invested by IWCL in membership interests in Iridium.
IWCL will not issue any securities except pursuant to the Share Issuance
Agreement (or pursuant to warrants, such as the Warrants, issued in accordance
therewith), the Interest Exchange Agreement and the Global Ownership Program
described below. IWCL has agreed that if requested by Iridium it will use its
best efforts to sell securities of IWCL in compliance with all applicable laws
and will cease to do so, if requested by Iridium.
If IWCL sells Class A Common Stock pursuant to the Share Issuance
Agreement, Iridium will issue to IWCL, in exchange for the net proceeds of such
offering, one Class 1 Interest for each share of Class A Common Stock sold by
IWCL (subject to anti-dilution adjustments). If Iridium directs IWCL to issue
securities other than Class A Common Stock, Iridium will issue to IWCL interests
in or securities of Iridium, in exchange for the net proceeds of such offering,
which replicate as nearly as possible, the economic attributes of the securities
sold by IWCL. Iridium has agreed to pay all expenses incurred by IWCL in
connection with any issuance of securities under the Share Issuance Agreement
and to indemnify IWCL and its officers, directors and employees against certain
losses, claims, damages or liabilities. IWCL also has agreed to issue Class A
Common Stock pursuant to the Share Issuance Agreement in connection with the
IRIDIUM Option Plan. Iridium will issue to IWCL one Class 1 Interest for each
share of Class A Common Stock issued by IWCL in connection with the Option Plan
(subject to anti-dilution adjustments).
GLOBAL OWNERSHIP PROGRAM
IWCL and Iridium have commenced a Global Ownership Program which is
designed to offer an equity investment opportunity in IWCL to certain
governmental telecommunication administrations and related entities (the
"Telecom Administrations") as part of a comprehensive program to enhance market
access, improve the competitive standing of the IRIDIUM System and achieve
appropriate regulatory approvals. Under the Global Ownership Program, IWCL will
sell shares of its Class B Common Stock to Telecom Administrations designated
from time to time by Iridium. IWCL has authorized the issuance of up to
2,500,000 shares of Class B Common Stock under the Global Ownership Program. No
shares of Class B Common Stock are outstanding. The Class B Common Stock will be
sold to Telecom Administrations at a price per share equal to $13.33. At the
time of issuance, the purchasers in the Global Ownership Program will only be
required to pay an amount equal to the par value per share of the Class B Common
Stock -- $.01 per share. The balance of the purchase price will be payable
through the withholding of dividends, if any, which would otherwise be payable
on the shares of Class B Common Stock. A purchaser will have the right but not
the obligation to pay the purchase price in cash at any time, except as
otherwise required under Bermuda law (e.g., on winding up). The Class B Common
Stock will be nontransferable until the
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latest of (i) the date on which the full purchase price for the shares has been
paid (through withheld dividends or otherwise), (ii) the date on which certain
specified regulatory approvals have been obtained to the satisfaction of Iridium
and (iii) the date that is one year after the date of issuance of the Class B
Common Stock (the "Transferability Date"). The Class B Common Stock is also
subject to restrictions on transfer under applicable securities laws and the
purchasers will agree not to transfer the Class B Common Stock to a U.S. Person
(as defined). IWCL will have the right to repurchase the Class B Common Stock
from any holder at a price equal to the portion of the purchase price paid
through the date of repurchase, if the specified regulatory approvals applicable
to that holder have not been obtained by a specified date. IWCL and the holder
have the right to cause the Class B Common Stock to be exchanged for Class A
Common Stock at any time after the Transferability Date. The initial exchange
rate will be one share of Class A Common Stock for each share of Class B Common
Stock exchanged and such rate is subject to anti-dilution adjustments. At the
time of issuance of any shares of Class B Common Stock, IWCL will acquire from
Iridium Class 1 Membership Interests at a rate of one Class 1 Interest for each
share of Class B Common Stock issued (subject to anti-dilution adjustments). The
purchase price for the Class 1 Interests will be identical to the proceeds to
IWCL from the issuance of the Class B Common Stock, with all but a nominal
amount deferred and paid through an offset against distributions that would
otherwise be payable on the Class 1 Interests acquired. The LLC Agreement
provides that if any portion of the purchase price for an interest in Iridium is
payable after the issuance of the interest, the Iridium Board may restrict the
rights otherwise incident to the holding of such interest. IWCL may require
Iridium to repurchase Class 1 Interests in an amount corresponding to any Class
B Common Stock repurchased by IWCL. Iridium has agreed to pay or reimburse IWCL
for the payment of all expenses incurred by IWCL in connection with the Global
Ownership Program and to indemnify IWCL and its officers, directors and
employees against certain losses, claims, damages or liabilities.
MANAGEMENT SERVICES AGREEMENT
IWCL and Iridium have entered into a Management Services Agreement pursuant
to which Iridium has agreed to supervise and manage the day-to-day operations of
IWCL and IWCL has agreed to allow Iridium to do so. Iridium will implement or
cause to be implemented all policy decisions relating to the operations of IWCL
approved by the IWCL Board and to conduct or cause to be conducted the ordinary
and usual business and affairs of IWCL. The IWCL Board has the right to give
Iridium written instructions, not inconsistent with the terms of the Management
Services Agreement, with respect to matters arising under the agreement and
Iridium is required to follow such instructions. Among other things, Iridium
will be responsible for administering the following functions of IWCL: treasury,
accounting, legal, tax, insurance, licenses and permits, investor relations,
public relations and securities law compliance and stock listing compliance.
Iridium has no authority under the Management Services Agreement to give any
notice or to approve any matter under the LLC Agreement on behalf of IWCL,
including, but not limited to, IWCL's Special Rights Consent. Iridium also will
advance funds to IWCL, under certain conditions, to enable IWCL to pay any
income tax liability that cannot be satisfied by distributions to IWCL on its
Class 1 Interests. See "Description of Iridium LLC Limited Liability Company
Agreement." Iridium will receive no fees or expense reimbursement for its
services under the Management Services Agreement. The Management Services
Agreement is only terminable with the consent of both Iridium and IWCL, except
that Iridium has the right to terminate the agreement after the occurrence of an
IWCL Change of Control. See "-- Participation in the Governance of Iridium."
DESCRIPTION OF OTHER INDEBTEDNESS
GUARANTEED BANK FACILITY
General. Iridium entered into a Credit Agreement, dated as of August 21,
1996, with Chase Securities Inc. and BZW, the investment banking division of
Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank ("Chase") as
Administrative Agent, Barclays Bank PLC
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("Barclays"), as Documentation Agent, and certain other lenders (including Chase
and Barclays, the "Guaranteed Facility Lenders"), providing for a $750 million
revolving credit facility (the "Guaranteed Bank Facility"). As of June 30, 1997,
Iridium had $660 million in principal amount of borrowings outstanding under the
Guaranteed Bank Facility. On July 21, 1997, Iridium permanently reduced the bank
commitments under the Guaranteed Bank Facility to $655 million.
Motorola Guarantee. Iridium's borrowings under the Guaranteed Bank
Facility are guaranteed by Motorola pursuant to the Motorola Guarantee up to an
aggregate amount of $750 million (inclusive of interest). The Motorola Guarantee
was issued under a guarantee agreement between Motorola and Chase as
Administrative Agent, dated as of August 21, 1996 (the "Guarantee Agreement").
Pursuant to the Motorola MOU, Iridium has agreed that the Guaranteed Bank
Facility (and therefore the Motorola Guarantee) will be permanently reduced by
the net proceeds to Iridium of certain offerings of senior notes of Iridium
prior to or on December 31, 1997 (including the Original Offering), to the
extent the aggregate amount of such net proceeds exceed $650 million (provided
that the Guaranteed Bank Facility is not required to be reduced below $275
million). See "Certain Relationships and Related Transactions of
Iridium -- Motorola Related Matters -- Motorola MOU and Agreement Regarding
Guarantee." Such net proceeds in the case of the Original Offering equaled $95
million (and, as described above, on July 21, 1997, the Guaranteed Bank Facility
was reduced by that amount). A portion of the net proceeds of the Original
Offering will be used to temporarily reduce outstanding borrowings under the
Guaranteed Bank Facility to zero, pending the ultimate use of such proceeds
primarily to make milestone payments in connection with the construction and
deployment of the IRIDIUM System.
The Guarantee Agreement contains covenants by Motorola, including a
requirement to provide notice of defaults relating to Motorola and its
subsidiaries under the Guaranteed Bank Facility, and limitations on mergers,
liens and sale and leaseback transactions, the breach of which would cause an
event of default under the Guaranteed Bank Facility.
Pursuant to the Motorola MOU, Motorola has conditionally agreed that, after
giving effect to any permanent reduction in the Guaranteed Bank Facility
resulting from the proceeds of the Original Offering, Motorola will guarantee up
to an additional $350 million of borrowings made prior to February 28, 1999
under the Guaranteed Bank Facility pursuant to the Motorola Additional Guarantee
at Iridium's option. See "Certain Relationships and Related Transactions of
Iridium -- Motorola Related Matters -- Motorola MOU and Agreement Regarding
Guarantee." Iridium has not requested that the Guaranteed Bank Facility be
increased by the amount of Motorola Additional Guarantee.
Maturity. Borrowings under the Guaranteed Bank Facility mature in August,
1998; provided, however, that as a result of the above-described limitation on
the amount guaranteed under the Motorola Guarantee, the obligations of Iridium
under the Guaranteed Bank Facility will become due if the principal amount of
borrowings thereunder exceeds $745 million. Pursuant to the Motorola MOU,
Motorola has agreed to extend the Motorola Guarantee until after the stated
maturity of the Notes. Based on that agreement, Iridium believes it will be able
to amend the Guaranteed Bank Facility to extend its maturity until after the
stated maturity of the Notes (subject to the automatic acceleration provision
described above relating to borrowings in excess of $745 million, as may be
modified in connection with any increase in the size of the Guaranteed Bank
Facility). It is expected that, in connection with any such extension, the $745
million threshold for automatic acceleration would be reduced to take into
account the $95 million commitment reduction described under "-- Motorola
Guarantee" above. However, there can be no assurance that the Guaranteed
Facility Lenders will agree to any extension.
Ranking. Iridium's obligations to the Guaranteed Facility Lenders under
the Guaranteed Bank Facility are senior unsecured obligations of Iridium and
rank pari passu in right of payment to the Notes. Iridium's obligation under the
Original Agreement Regarding Guarantee to reimburse Motorola for any drawing
under the Guarantee Agreement was secured by a security interest in
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substantially all of the assets of Iridium. Pursuant to the Motorola MOU,
Motorola agreed to release its security interest in Iridium's assets on or prior
to the Issue Date.
Interest. Borrowings under the Guaranteed Bank Facility bear interest, at
the option of Iridium, at the rate of either (i) the Base Rate (generally, the
higher of the Federal Funds Rate as established by the Federal Reserve Bank of
New York, plus .50%, or Chase's prime commercial lending rate) or (ii) an
applicable LIBOR rate (which is based on a formula relating to the London
interbank offered rate for a given interest period) increased to reflect reserve
requirements applicable to borrowings by U.S. banks in U.S. dollars outside of
the U.S., plus 0.25%. In addition, Iridium pays a commitment fee equal to .10%
per annum on any amounts not borrowed under the Guaranteed Bank Facility.
Conditions to Borrowing. Borrowings under the Guaranteed Bank Facility are
subject to certain conditions, including the absence of any default or event of
default and other conditions customary with respect to similar facilities.
Proceeds of any such borrowing must be used by Iridium to finance approved
project costs, including payments to Motorola under the Space System Contract.
Covenants. The Guaranteed Bank Facility contains covenants of Iridium,
including, but not limited to, insurance requirements, limitations on mergers,
consolidations and sales of certain assets, restrictions on certain transactions
with affiliates, limitations on liens, the incurrence of additional indebtedness
and certain restricted payments, and restrictions on Iridium's ability to engage
in any business or make any investments other than in connection with the
commercialization of the IRIDIUM System and related businesses. Through the
Guarantee Agreement, the Guaranteed Bank Facility also imposes covenants on
Motorola.
Events of Default. The Guaranteed Bank Facility contains events of default
for (i) failure to pay principal, interest or other amounts due; (ii) breach by
Iridium or Motorola of its respective covenants; (iii) cross-default to other
indebtedness of Iridium or its subsidiaries or Motorola or certain of its
subsidiaries in excess of specified outstanding amounts; (iv) certain events of
bankruptcy, insolvency or reorganization affecting Iridium or its subsidiaries
or Motorola or certain of its subsidiaries; (v) final judgments against Iridium
or Motorola or certain of their subsidiaries in excess of specified amounts;
(vi) termination, repudiation or unenforceability of the Motorola Guarantee and
defaults under the Guarantee Agreement; and (vii) failure of Motorola to
maintain a direct and indirect ownership interest in Iridium of at least (1) 20%
of the aggregate voting equity interests of Iridium, assuming full exercise of
any warrants or full conversion of any convertible securities issued to Motorola
or any of its subsidiaries (whether or not currently exercisable or convertible)
but not giving effect to the dilutive effect of any sales of equity interests,
or (2) 15% of the aggregate voting equity interests of Iridium. Pursuant to the
Motorola MOU, Iridium is required to use its reasonable efforts to modify the
event of default described in clause (vii) above, prior to December 31, 1997, to
provide that no such event of default would occur if Motorola retained, free and
clear of all liens, at least 13,266,713 Class 1 Interests (as such number may be
adjusted by stock splits, stock dividends, etc.). Certain defaults under the
Guaranteed Bank Facility are subject to specified cure periods.
If any event of default under the Guaranteed Bank Facility is continuing,
Guaranteed Facility Lenders may exercise various remedies under the credit
agreement relating thereto. In addition, after expiration of a grace period and
a giving of prior notice to Motorola, the Guaranteed Facility Lenders may, but
are not obligated to, demand payment from Motorola under the Guarantee
Agreement.
Agreement Regarding Guarantee. In connection with the Motorola Guarantee,
Iridium and Motorola entered into the Original Agreement Regarding Guarantee,
and in connection with the Original Notes offering and the Motorola MOU, Iridium
and Motorola amended and restated the Original Agreement Regarding Guarantee (as
amended and restated, the "Agreement Regarding Guarantee"). Pursuant to the
Agreement Regarding Guarantee, Iridium has agreed to reimburse Motorola for
amounts paid by Motorola under the Guarantee Agreement; provided, that if the
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Guaranteed Bank Facility is accelerated as result of a Motorola-Based Default
(as defined in the Agreement Regarding Guarantee) such reimbursement will be
made on the same terms as provided in the Guaranteed Bank Facility. For further
information regarding the Original Agreement Regarding Guarantee, the Agreement
Regarding Guarantee and the Motorola MOU, including certain covenants of
Iridium, the compensation to Motorola for the Motorola Guarantee and potential
amendments to the Guaranteed Bank Facility and Motorola Guarantee, see "Certain
Relationships and Related Transactions of Iridium."
Chase Securities Inc., an Initial Purchaser, is an affiliate of Chase.
SENIOR SUBORDINATED NOTES
General. The 14 1/2% Senior Subordinated Discount Notes due 2006 (the
"14 1/2% Notes") had an accreted value of approximately $253 million at June 30,
1997 and will fully accrete to an aggregate face value of approximately $480
million on March 1, 2001.
Ranking. The 14 1/2% Notes are unsecured obligations of Iridium and will
be junior in right of payment to the Notes, the Guaranteed Bank Facility and the
expected Secured Bank Facility.
Interest. The 14 1/2% Notes were issued at a discount from their principal
amount and accrete in value until March 1, 2001, at which time cash interest
accrues at a rate of 14 1/2% per annum payable semi-annually.
Maturity and Redemption. The 14 1/2% Notes mature on March 1, 2006. The
14 1/2% Notes may be redeemed at declining premium beginning on March 1, 2001,
at redemption price of 107.5% declining to no premium beginning on March 1,
2004.
Events of Default. Events of default under the 14 1/2% Notes include
payment defaults, and certain events of bankruptcy, under other debt instruments
in excess of $10 million and the termination by Motorola of the Space System
Contract prior to delivery thereunder by Motorola of the Space System (as
defined therein), provided, that such termination has not been contested by
Iridium in accordance with the Space System Contract or by appropriate
proceedings and, if such termination is so contested, within 180 days of such
notice if such termination has not been withdrawn or declare ineffective by any
court or mediator having jurisdiction.
SECURED BANK FACILITY
Commitment Letter -- General. Iridium has obtained a commitment letter,
dated June 16, 1997, from Chase Securities Inc., Chase, Barclays and BZW, the
investment banking division of Barclays (as amended by a letter dated July 11,
1997, from Chase Securities Inc., Chase, Barclays and BZW, the "Commitment
Letter"), to provide a $750 million senior secured interim revolving credit
facility (the "Secured Bank Facility"). Availability of the Secured Bank
Facility is subject to numerous conditions. See "-- Conditions" below.
Accordingly, no assurance can be given that the Secured Bank Facility will be
available to Iridium.
Maturity and Prepayment. The Secured Bank Facility would mature on
December 31, 1998; provided that Iridium may extend the maturity to June 30,
1999 if it can demonstrate by October 31, 1998 that it has sufficient available
funding to meet its business plan through the extended maturity. The Secured
Bank Facility would be subject to mandatory prepayment as a result of certain
debt or equity issuances, asset dispositions, insurance recoveries and certain
other events. Amounts prepaid pursuant to any marketing prepayment provisions
could not be reborrowed.
Ranking and Collateral. Iridium's obligations under the Secured Bank
Facility would be senior obligations of Iridium and would rank, except with
respect to collateral as described below, pari passu in right of payment to the
Notes. In addition, Iridium's obligations under the Secured Bank Facility would
be secured by a pledge of substantially all of Iridium's assets, including the
obligations of certain of Iridium's members pursuant to the Reserve Capital
Call, all of Iridium's rights under the
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Space System Contract and the Operations and Maintenance Contract, as well as
Iridium's rights to access the facilities of gateway providers and all of its
rights, if any, to FCC licenses and other foreign and domestic governmental
authorizations and licenses. As secured debt, the Secured Bank Facility would be
effectively senior to the Notes and other senior indebtedness of Iridium to the
extent of the assets securing the Secured Bank Facility. See "Risk
Factors -- Ranking of the Notes."
The Commitment Letter requires that the membership interests in Iridium, or
in any company to which all or substantially all of Iridium's assets are
transferred, also be pledged as security under the Secured Bank Facility. In
connection with the granting of such security interest, Iridium expects to
contribute all or substantially all of its assets, including those listed above,
to a wholly-owned subsidiary (the "Operating Subsidiary") in exchange for equity
interests in the Operating Subsidiary and the assumption of most of Iridium's
liabilities (including the obligations of Iridium under the Notes). See
"Description of Notes -- Merger and Consolidation." Such equity interests in the
Operating Subsidiary would then be pledged to the lenders under the Secured Bank
Facility.
Interest and Fees. Based on the Commitment Letter, borrowings under the
Secured Bank Facility would bear interest, at the option of Iridium, at either
(i) the Base Rate (generally, the higher of the Federal Funds Rate as
established by the Federal Reserve Bank of New York, plus .5%, or Chase's prime
commercial lending rate) plus 1.5% or (ii) an applicable LIBOR rate (which is
based on a formula relating to the London interbank offered rate for a given
interest period) plus 2.75%. In each case, the interest rate would increase by
.5% on October 1, 1998 and at the end of each subsequent three-month period.
After execution of definitive Secured Bank Facility documents, Iridium would be
required to pay a commitment fee equal to .5% per annum on undrawn portions of
the Secured Bank Facility.
Conditions to Availability. The Secured Bank Facility is subject to
numerous conditions, including the execution of definitive documentation
satisfactory to Chase and Barclays and the other lenders under such Facility,
completion of a satisfactory review of Iridium's marketing and distribution
strategy and insurance requirements. The Commitment Letter further provides that
loans under the Secured Bank Facility would be made available in three stages
based upon satisfaction of certain significant additional conditions, including
achievement of certain technical requirements relating to the IRIDIUM System,
receipt of certain key regulatory approvals and evidence of satisfaction of
minimum financing goals. As a condition to the initial loan under the Secured
Bank Facility, Iridium must have issued or have outstanding $1,875 million
aggregate amount of unsecured debt, of which not more than $350 million may
represent conditional agreement commitments of Motorola to either provide such
financing or guarantees with respect thereto.
Stage 1 of the Secured Bank Facility, expected to become available on or
about January 1, 1998, would provide for loans up to $350 million in aggregate
principal amount. Stage 2 of the Secured Bank Facility, expected to become
available on or about April 1, 1998, would provide for loans in a principal
amount of up to an additional $200 million. Stage 3, expected to become
available on or about August 1, 1998, would provide for loans in a principal
amount of up to an additional $200 million. The three stages are tied to certain
regulatory accomplishments and the timing of specific technical milestones
within various project agreements, including the Space System Contract, the
Terrestrial Network Development Contract, and contracts relating to the IRIDIUM
business support system, the IIU and the control system. While current system
development plans provide for satisfaction of these conditions at or prior to
the time the loans would be required, no assurance can be given as to the timing
of such satisfaction. Delays in the implementation or development of the IRIDIUM
System, or other technical, political or regulatory problems, could have an
adverse effect on the availability of the Secured Bank Facility to pay
obligations as they come due. See "Risk Factors."
Representations and Covenants. The Commitment Letter provides for
representations and covenants customary for similar facilities, including, but
not limited to, a requirement to obtain
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satisfactory insurance, and limitations on mergers, asset dispositions and
acquisitions, liens, incurrence of additional indebtedness, restricted payments,
capital expenditures, scope of business and certain transactions with
affiliates. In addition, the Secured Bank Facility is expected to contain a
total debt to capitalization covenant and a covenant to maintain committed or
available funding sources through the term of the Secured Bank Facility to meet
Iridium's projected capital and operating expenses. The Commitment Letter also
requires restrictions on the utilization of the Reserve Capital Call and
modifications or prepayments of certain other debt instruments.
Events of Default. The Commitment Letter provides that events of default
under the Secured Bank Facility will include: (i) failure to pay interest,
principal or other amounts with respect to the Secured Bank Facility; (ii)
breach by Iridium, Motorola, certain of their subsidiaries, or any other project
party (defined to include all Iridium members) of its obligations under
specified project-related documents; (iii) certain events of bankruptcy,
insolvency or reorganization affecting Iridium, Motorola, certain of their
subsidiaries or certain other project parties; (iv) cross-default to other
indebtedness of Iridium, Motorola or certain of their subsidiaries in excess of
specified amounts; (v) final judgment with respect to Iridium, Motorola or
certain of their subsidiaries in excess of specified amounts; (vi) failure by
Iridium, Motorola, certain of their subsidiaries or certain other project
parties to obtain or maintain necessary telecommunications or other regulatory
approvals; and (vii) failure of Motorola to maintain a specified minimum
ownership interest in Iridium. Certain events specified above will be subject to
cure periods to be specified.
The Secured Bank Facility will be negotiated with Chase and Barclays.
Pursuant to the Motorola MOU, Motorola has requested certain revisions to the
Commitment Letter as a condition to its willingness to support Iridium's effort
to obtain the Secured Bank Facility. There can be no assurance that the Secured
Bank Facility will be obtained, or if obtained, will not contain terms or
conditions different from those discussed in this Prospectus. Such terms and
conditions may be adverse to Iridium.
Chase Securities Inc., an Initial Purchaser, is an affiliate of Chase.
DESCRIPTION OF NOTES
GENERAL
The Series A Original Notes have been, and the Series A Exchange Notes will
be, issued under an Indenture, dated as of July 16, 1997 (the "Series A Note
Indenture"), among the Iridium Parties and State Street Bank and Trust Company,
as trustee (the "Series A Note Trustee"). The Series B Original Notes have been,
and the Series B Exchange Notes will be, issued under an Indenture, dated as of
July 16, 1997 (the "Series B Note Indenture" and, together with the Series A
Note Indenture, the "Indentures") among the Iridium Parties and State Street
Bank and Trust Company, as trustee (the "Series B Note Trustee" and, together
with the Series A Note Trustee, the "Trustees"). A copy of each Indenture has
been filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and will be made available upon request to Iridium at 1575 Eye
Street N.W., Washington, D.C. 20005, Attention: Secretary. The following summary
of the material provisions of the Indentures and the Notes does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indentures, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended (the "Trust Indenture Act"). Capitalized terms used herein and not
otherwise defined have the meanings set forth in the section "-- Certain
Definitions" below; provided, however, that references in this "Description of
Notes" section to "Exchange Notes" shall mean any notes issued in exchange for
the Original Notes pursuant to the Exchange and Registration Rights Agreement.
Principal of, premium and Liquidated Damages, if any, on and interest on
the Notes will be payable, and the Notes may be exchanged or transferred, at the
office or agency of the Issuers in the Borough of Manhattan, the City of New
York, except that, at the option of either Issuer, payment of interest may be
made by check mailed to the registered holders of the Notes at their registered
addresses.
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The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuers may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
As of the Issue Date, Iridium had no Subsidiaries other than Capital and
the Initial Guarantors. Capital is a co-issuer of the Notes. The Initial
Guarantors are Guarantor Subsidiaries (as defined). If Iridium creates or
acquires any Subsidiary in the future, such Subsidiary will be required to
Guarantee the Notes unless such Subsidiary is a Foreign Subsidiary or is
designated by Iridium as an Unrestricted Subsidiary in accordance with the
Indentures. Any Unrestricted Subsidiaries (including Foreign Subsidiaries
designated as such) will not be subject to the restrictive covenants contained
in the Indentures.
TERMS OF THE NOTES
The Series A Original Notes are, and the Series A Exchange Notes will be,
unsecured senior obligations of the Issuers, limited to $300 million aggregate
principal amount, and will mature on July 15, 2005. Each Series A Note bears or
will bear interest at 13% per annum from July 16, 1997 or from the most recent
date to which interest has been paid or provided for, payable semiannually in
arrears on January 15 and July 15 of each year, commencing on January 15, 1998,
to Holders of Series A Notes of record at the close of business on the January 1
or July 1 immediately preceding the applicable interest payment date.
The Series B Original Notes are, and the Series B Exchange Notes will be,
unsecured senior obligations of the Issuers, limited to $500 million aggregate
principal amount, and will mature on July 15, 2005. Each Series B Note bears or
will bear interest at 14% per annum from July 16, 1997 or from the most recent
date to which interest has been paid or provided for, payable semiannually in
arrears on January 15 and July 15 of each year, commencing on January 15, 1998,
to Holders of Series B Notes of record at the close of business on the January 1
or July 1 immediately preceding the applicable interest payment date.
OPTIONAL REDEMPTION
Except as described in the next succeeding paragraph, the Original Notes
are not, and the Exchange Notes will not be, redeemable at the option of the
Issuers prior to July 15, 2002. On and after such date, the Notes of each Series
will be redeemable, at either Issuer's option, in whole or in part, at any time
upon not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder of such Series of Notes, at such Holder's registered
address, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest and Liquidated Damages, if
any, to the redemption date (subject to the right of record Holders of the
applicable Series of Notes on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption), if redeemed during the 12-month period commencing on July 15 of the
years set forth below:
SERIES A NOTE SERIES B NOTE
REDEMPTION REDEMPTION
YEAR PRICE PRICE
-------------------------------------------------- ------------- -------------
2002.............................................. 106.750% 107.500%
2003.............................................. 103.375% 103.750%
2004 and thereafter............................... 100.000% 100.000%
In addition, at any time and from time to time on or prior to July 15,
2000, either Issuer may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of each Series of the Notes with the cash proceeds to
Iridium of one or more Equity Offerings, at a redemption price (expressed as a
percentage of principal amount thereof) of 113.5%, in the case of a redemption
of Series A Notes, or 115.0%, in the case of a redemption of Series B Notes,
plus accrued and unpaid
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interest and Liquidated Damages, if any, to the redemption date (subject to the
right of record Holders of the applicable Series of Notes on the relevant record
date to receive interest due on the relevant interest payment date that is on or
prior to the date of redemption); provided, however, that at least 66 2/3% of
the original aggregate principal amount of the Series A Notes or the Series B
Notes, as the case may be, must remain outstanding after each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the applicable Trustee on a pro rata basis, by lot or
by such other method as the applicable Trustee in its sole discretion deems to
be fair and appropriate, although no Note of $1,000 in original principal amount
or less will be redeemed in part. If any Note is to be redeemed in part only,
the notice of redemption relating to such Note will state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The Indebtedness evidenced by the Original Notes is, and the Indebtedness
evidenced by the Exchange Notes will be, unsecured senior obligations of the
Issuers and will rank senior in right of payment to any existing and future
Subordinated Obligations of the Issuers, and pari passu in right of payment with
all existing and future senior Indebtedness of the Issuers. The Notes will be
effectively subordinated to any Secured Indebtedness of the Issuers to the
extent of the value of the assets securing such Indebtedness.
The indebtedness evidenced by a Subsidiary Guaranty is unsecured senior
Indebtedness of the Guarantor Subsidiary. The payment of a Subsidiary Guaranty
ranks pari passu in right of payment with any existing and future senior
Indebtedness of such Guarantor Subsidiary and is senior in right of payment to
any existing and future Subordinated Obligations of such Guarantor Subsidiary.
Each Subsidiary Guaranty also is effectively subordinated to any Secured
Indebtedness of the Guarantor Subsidiary to the extent of the value of the
assets securing such Indebtedness. See "Risk Factors -- Possible
Unenforceability of Subsidiary Guaranties."
As of June 30, 1997, after giving pro forma effect to the issuance of the
Original Notes and the application of the proceeds therefrom to the permanent
reduction of the Guaranteed Bank Facility, the Issuers and the Initial
Guarantors would have had outstanding $1,455 million in aggregate principal
amount of unsecured senior Indebtedness (including the principal amount of the
Original Notes) and approximately $253 million in aggregate principal amount of
Indebtedness that is subordinated to the Notes. See "Use of Proceeds." As of
June 30, 1997, none of the Iridium Parties had any secured Indebtedness
outstanding. Iridium expects to incur secured Indebtedness in an aggregate
principal amount of $750 million pursuant to the Secured Bank Facility as well
as other secured Indebtedness permitted by the Indentures. See "Description of
Other Indebtedness," "Description of Notes -- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Liens."
SUBSIDIARY GUARANTIES
Roaming and IP (collectively, the "Initial Guarantors"), each a Delaware
limited liability company, provided Subsidiary Guaranties on the Issue Date. In
the event that Iridium acquires or creates a Subsidiary other than a Foreign
Subsidiary, Iridium will cause such Subsidiary (unless such Subsidiary is an
Unrestricted Subsidiary) (together with the Initial Guarantors, the "Guarantor
Subsidiaries") to, jointly and severally, as primary obligors and not merely as
sureties, irrevocably Guarantee on a senior unsecured basis the performance and
punctual payment when due, whether at Stated Maturity, by acceleration or
otherwise, of all obligations of the Issuers under each Indenture and the Notes
issued pursuant thereto, whether for payment of principal of or premium,
interest or Liquidated Damages on the Notes, expenses, indemnification or
otherwise (all such
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obligations guaranteed by the Guarantor Subsidiaries being herein called the
"Guaranteed Obligations"). Iridium may cause any Foreign Subsidiary to execute
and deliver a Subsidiary Guaranty in accordance with the provisions of the
Indentures, in which case such Foreign Subsidiary will be a "Guarantor
Subsidiary" for purposes of the Indentures. The Guarantor Subsidiaries will
agree to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustees or the
Holders in enforcing any rights under the Subsidiary Guarantees. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the applicable Guarantor Subsidiary without rendering
such Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. See "-- Certain Covenants -- Future Guarantor Subsidiaries"
below.
Each Subsidiary Guaranty will be a continuing guarantee and will (a) remain
in full force and effect until payment in full of all the Guaranteed Obligations
covered thereby, (b) be binding upon each Guarantor Subsidiary and (c) inure to
the benefit of and be enforceable by the applicable Trustee, the applicable
Holders and their successors, transferees and assigns.
A Subsidiary Guaranty will be released upon (i) the sale of all of the
Capital Stock, or all or substantially all of the assets, of the applicable
Guarantor Subsidiary (in each case other than to Iridium or a Subsidiary of
Iridium), (ii) the designation by Iridium of the applicable Guarantor Subsidiary
as an Unrestricted Subsidiary, in each case in compliance with the applicable
Indenture or (iii) the reorganization of the applicable Guarantor Subsidiary as
a Foreign Subsidiary.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the Issuers to repurchase all or any part of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date), pursuant to the
offer described below and the other procedures set forth in the Indentures;
provided, however, that notwithstanding the occurrence of a Change of Control,
the Issuers will not be obligated to purchase any Note pursuant to this covenant
to the extent that the Issuers have exercised their rights to redeem such Note
as described under "-- Optional Redemption".
A "Change of Control" means the occurrence of any of the following:
(a) one or more Dispositions which cause the amount of Capital Stock
of Iridium held directly by Motorola to be reduced by more than 50% as
compared to its direct holding of Capital Stock in Iridium as of July 16,
1997 (in each such case without giving effect to any rights, warrants or
options to purchase Capital Stock of Iridium, unless exercised prior
thereto).
(b) the first day on which Iridium fails to own, of record and
beneficially, 100% of the Capital Stock of Capital (other than directors'
qualifying shares);
(c) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by Iridium or its Restricted
Subsidiaries of all or substantially all of the assets of Iridium and its
Restricted Subsidiaries to any Person (other than in connection with the
Asset Drop-Down Transaction (as hereafter defined)); or
(d) the adoption of a plan relating to the liquidation or dissolution
of Iridium or Capital.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
result from (x) the acquisition by IWCL, Motorola or any wholly-owned subsidiary
of Motorola of substantially all the assets of Iridium, (y) the Asset Drop-Down
Transaction or any transfer of assets or merger reversing the Asset-Drop-Down
Transaction, or (z) the merger of Iridium with and into IWCL, Motorola or any
wholly-owned subsidiary of Motorola.
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Within 30 days following any Change of Control, the Issuers will mail a
notice to each Holder with a copy to the Trustees stating, among other things:
(1) that a Change of Control has occurred and that such Holder has the right to
require the Issuers to purchase all or any portion of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount of Notes, plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase (subject to the right of Holders of record on a record date to receive
interest due on the relevant interest payment date); (2) the circumstances and
relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization, each after
giving effect to such Change of Control); (3) the repurchase date (which will be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the instructions determined by the Issuers, consistent with
this covenant, that a Holder must follow in order to have its Notes or any
portion thereof purchased.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached their
obligations described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Initial Purchasers. Management has no present intention and
is not aware that Motorola has any present intention to engage in a transaction
involving a Change of Control, although it is possible that the Issuers or
Motorola would decide to do so in the future. Subject to the limitations
discussed below, the Issuers or Motorola could, in the future, enter into
certain transactions, including dispositions, acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indentures, but that could change the ownership, increase the amount of
indebtedness outstanding at such time or otherwise affect Iridium's capital
structure or credit ratings.
The Guaranteed Bank Facility contains, the Secured Bank Facility is likely
to contain and other future indebtedness of the Issuers may contain prohibitions
of certain events which would constitute a Change of Control or require such
indebtedness to be repurchased, repaid or redeemed upon certain events which
would constitute a Change of Control. Moreover, the exercise by the Holders of
their right to require the Issuers to repurchase the Notes could cause a default
under such indebtedness, even if the Change of Control itself does not, due to
the financial effect of such repurchase on the Issuers. Finally, the Issuers'
ability to pay cash to the Holders upon a repurchase may be limited by the
Issuers' then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any repurchases
required in connection with a Change of Control. The Issuers' failure to
purchase Notes in connection with a Change of Control would result in a default
under the applicable Indenture.
CERTAIN COVENANTS
Each Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) Iridium will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness (including any Acquired
Indebtedness) unless (i) immediately after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
Debt to Cash Flow Ratio would be less than 4.0 to 1.0 and (ii) if such
Indebtedness is Incurred by a Restricted Subsidiary, such Restricted Subsidiary
is a Guarantor Subsidiary. Notwithstanding the foregoing, prior to June 30,
2000, Iridium, Capital and any other Restricted Subsidiary that is a Guarantor
Subsidiary may Incur Indebtedness if immediately after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Debt to Capital Ratio would be less than 65%.
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(b) Notwithstanding the foregoing paragraph (a), Iridium, Capital and any
other Restricted Subsidiary that is a Guarantor Subsidiary may incur the
following Indebtedness:
(i) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or arrangements
to finance the Build-out of the IRIDIUM System; provided, however, that
Indebtedness Incurred pursuant to this clause (i), other than Indebtedness
Incurred pursuant to a Bank Credit Agreement or Vendor Financing Facility,
will not have a Stated Maturity earlier than the Stated Maturity of the
Notes, and will not be mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or be redeemable at the option of the holder
thereof, in whole or in part, prior to the Stated Maturity of the Notes
(other than pursuant to provisions which are substantially similar to those
contained in the Indentures which permit the holders of such Indebtedness
to require the issuer thereof to repurchase or repay such Indebtedness upon
a Change of Control (or an event substantially similar thereto) or to make
an offer to purchase as a result of the occurrence of an Asset Disposition
or receipt of insurance proceeds (or an event substantially similar
thereto));
(ii) After Commercial Activation, Indebtedness under any one or more
Bank Credit Agreements or other agreements or arrangements to finance
working capital requirements of Iridium and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, at the time of the
Incurrence of such Indebtedness and after giving effect thereto, the
aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (ii) and then outstanding does not exceed $950.0 million;
(iii) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or arrangements
that is guaranteed pursuant to the Motorola Additional Guarantee; provided,
however, at the time of Incurrence of such Indebtedness and after giving
effect thereto, the aggregate amount of all Indebtedness incurred pursuant
to this clause (iii) and then outstanding does not exceed $350.0 million;
(iv) Indebtedness owed by Iridium to Capital or any Wholly-Owned
Restricted Subsidiary that is a Guarantor Subsidiary or Indebtedness owed
by Capital or any Wholly-Owned Restricted Subsidiary that is a Guarantor
Subsidiary to Iridium or to Capital or another Wholly-Owned Restricted
Subsidiary that is a Guarantor Subsidiary; provided, however, that upon
either (x) the transfer or other disposition by Capital, such Wholly-Owned
Restricted Subsidiary or Iridium of any Indebtedness so permitted to a
Person other than Iridium, Capital or another Wholly-Owned Restricted
Subsidiary that is a Guarantor Subsidiary or (y) the issuance, sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger, but not including directors' qualifying shares or
interests required to be held by foreign nationals, in each case to the
extent mandated by applicable law) of such Wholly-Owned Restricted
Subsidiary or Capital to a Person other than Iridium, Capital or another
such Wholly-Owned Restricted Subsidiary, the provisions of this clause (iv)
will no longer be applicable to such Indebtedness and such Indebtedness
will be deemed to have been Incurred by the issuer thereof at the time of
such issuance, sale, lease, transfer or other disposition;
(v) Refinancing Indebtedness Incurred to Refinance Indebtedness
Incurred pursuant to the first paragraph of this covenant or pursuant to
clause (i), (ii), (iii), (vii) or (viii) or this clause (v) of this
paragraph;
(vi) Indebtedness consisting of Permitted Interest Rate or Currency
Protection Agreements;
(vii) Indebtedness represented or evidenced by the Notes and the
Exchange Notes, and Indebtedness of the Guarantor Subsidiaries evidenced by
the Subsidiary Guaranties;
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(viii) Indebtedness outstanding on the Issue Date (other than the
Guaranteed Bank Facility and other Indebtedness described in clause (i),
(ii), (iii), (iv) or (vii) of this paragraph);
(ix) Indebtedness consisting of performance and other similar bonds
and reimbursement obligations Incurred in the ordinary course of business
securing the performance of contractual, franchise or license obligations
of Iridium, Capital or a Restricted Subsidiary, or in respect of a letter
of credit obtained to secure such performance; and
(x) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of Iridium, Capital and other Restricted
Subsidiaries that are Guarantor Subsidiaries outstanding on the date of
such Incurrence (without duplication and other than Indebtedness permitted
by clauses (i) through (ix) above or the first paragraph of this covenant)
does not exceed $100.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness Iridium, Capital and the other Restricted Subsidiaries are
permitted to Incur, Iridium, Capital or such Restricted Subsidiary, as the case
may be, will have the right, in Iridium's sole discretion, to classify such item
of Indebtedness at the time of its Incurrence and will only be required to
include the amount and type of such Indebtedness under the clause permitting the
Indebtedness as so classified.
Limitation on Restricted Payments. (a) Iridium will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Note Issuers), except dividends or
distributions payable solely in its Capital Stock and cash to the extent
required to pay for fractional shares of such Capital Stock (other than
Disqualified Stock) or payable to Iridium or another Restricted Subsidiary
(and, if such Restricted Subsidiary has shareholders other than the Note
Issuers or other Restricted Subsidiaries, to its other shareholders on a
pro rata basis or on a basis that results in the receipt by the Note
Issuers or a Restricted Subsidiary of dividends or distributions of equal
or greater value);
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of Iridium or any Restricted Subsidiary held by Persons other
than Iridium or another Restricted Subsidiary;
(iii) purchase, repurchase, redeem, defease, acquire or retire for
value, or otherwise make any principal payment on, any Subordinated
Obligations prior to the scheduled maturity, scheduled repayment or
scheduled sinking fund payment thereof (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation
of satisfying a sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition, or
any purchase, repurchase, redemption or other acquisition or prepayment
thereof in connection with any Refinancing thereof permitted pursuant to
clause (v) of paragraph (b) of the covenant described under "-- Limitation
on Indebtedness"); or
(iv) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement, Investment or payment being
herein referred to as a "Restricted Payment"), if at the time Iridium or
such Restricted Subsidiary makes such Restricted Payment: (1) a Default has
occurred and is continuing (or would result therefrom); (2) Iridium could
not Incur at least $1.00 of additional Indebtedness pursuant to the terms
of the first sentence of paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or (3) the aggregate amount of
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such Restricted Payment and all other Restricted Payments declared or made
subsequent to the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income of Iridium accrued during
the period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which the
Issue Date occurs to the end of the most recent fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, in case such Consolidated Net Income is a
deficit, minus 100% of such deficit); provided, however, that the
aggregate amount calculated pursuant to this clause (A) (if such
aggregate amount is a negative amount) shall be reset to zero on the
first date on which the Notes are assigned an Investment Grade Rating by
both Rating Agencies;
(B) the aggregate Net Cash Proceeds received by Iridium from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Restricted Subsidiary and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Iridium or any
Restricted Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of Iridium is reduced on the
balance sheet of Iridium upon the conversion or exchange (other than by
a Restricted Subsidiary) subsequent to the Issue Date of any
Indebtedness of Iridium convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of Iridium (less the amount of any cash,
or the fair value of any other property or assets of Iridium or any
Restricted Subsidiary, distributed by Iridium upon such conversion or
exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to Iridium or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to Iridium's equity
interest in such Subsidiary) of the fair market value of the net assets
of an Unrestricted Subsidiary (as determined by the Board of Directors
in the manner described in paragraph (c) below) at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum does not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by Iridium or any Restricted Subsidiary
in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Iridium may
(i) subject to clause (vii) below, pay any dividend on Capital Stock
of any class within 60 days after the declaration thereof if, on the date
when the dividend was declared, Iridium could have paid such dividend in
accordance with the foregoing provisions;
(ii) repurchase any Capital Stock from Persons who were formerly
officers, managers or employees of Iridium or any of its Subsidiaries (or
from IWCL in connection with or relating to a repurchase by IWCL of its
Capital Stock from such Persons), provided, however, that the aggregate
amount of all such repurchases made pursuant to this clause (ii) will not
exceed $2.0 million, plus the aggregate cash proceeds received by Iridium
since the Issue Date from the issuance of its Capital Stock to officers,
managers and employees of Iridium or any of its Subsidiaries (or from IWCL
in connection with or relating to such an issuance by IWCL to such
Persons);
(iii) Refinance, and permit its Restricted Subsidiaries to Refinance,
any Indebtedness otherwise permitted to be Refinanced by clause (v) of
paragraph (b) under the covenant described under "-- Limitation on
Indebtedness" above;
(iv) during the period Iridium is treated as a partnership for U.S.
federal income tax purposes and after such period to the extent relating to
the liability for such period, make
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distributions in respect of members' or partners' income tax liability with
respect to Iridium (whether directly incurred or indirectly incurred after
the Asset Drop-Down Transaction) in an amount not to exceed the Tax Amount;
(v) make distributions to IWCL to pay IWCL's ordinary and reasonable
operating expenses related to Iridium, as set forth in an Officers'
Certificate delivered to the Trustees;
(vi) repurchase any Capital Stock pursuant to Section 11.03 of the LLC
Agreement in the event a member of Iridium fails to pay any of the amounts
required by a Reserve Capital Call (see "Description of Iridium LLC Limited
Liability Company Agreement -- Capital Contributions; Reserve Capital
Call");
(vii) make any Restricted Payment by exchange for, or out of the
proceeds of the substantially concurrent sale of, or capital contribution
in respect of, Capital Stock of Iridium (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of Iridium or an
employee stock ownership plan or to a trust established by Iridium or any
of its Subsidiaries for the benefit of their employees);
(viii) make any Restricted Payment pursuant to the Interest Exchange
Agreement, the Share Issuance Agreement, the Master Subscription Agreement
or the Management Services Agreement; and
(ix) make other Restricted Payments in an aggregate amount not to
exceed $10.0 million.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vii),
(viii) and (ix) of the immediately preceding paragraph will be excluded from the
calculation of the aggregate amount of Restricted Payments made since the Issue
Date; provided, however, that the Net Cash Proceeds from the issuance of Capital
Stock pursuant to clauses (ii) and (vii) of the immediately preceding paragraph
will be excluded from the calculation of amounts under clause (B) of the second
preceding paragraph. A dividend or distribution by a Restricted Subsidiary in
respect of its Capital Stock will only be deemed to be a Restricted Payment to
the extent such dividend or distribution is paid to entities other than Iridium
and the Restricted Subsidiaries.
(c) The net proceeds from the issuance of shares of Capital Stock upon
conversion of Indebtedness will be deemed to be an amount equal to (i) the
accreted value of such Indebtedness on the date of such conversion and (ii) the
additional consideration, if any, received by Iridium upon such conversion
thereof, less any cash payment on account of fractional shares. The amount of
all Restricted Payments (other than cash) will be the fair market value
(evidenced by a resolution of the Board of Directors determined in good faith
and set forth in an Officers' Certificate delivered to the Trustees) on the date
of the Restricted Payment of the asset(s) proposed to be transferred by Iridium
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, Iridium will
deliver to the Trustees an Officers' Certificate identifying each Restricted
Payment made by Iridium during such fiscal quarter and stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon Iridium's latest available financial statements.
If Iridium makes a Restricted Payment which, at the time of the making of such
Restricted Payment, would in the good faith determination of Iridium be
permitted under the Indentures, such Restricted Payment will be deemed to have
been made in compliance with the Indentures notwithstanding any subsequent
adjustments made in good faith to Iridium's financial statements affecting
Consolidated Net Income for any period.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Iridium will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions to
Iridium or any Restricted Subsidiary on its Capital Stock or with respect to any
other interest or participation in, or measured
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by, its profits, (ii) pay any Indebtedness owed to Iridium or any Restricted
Subsidiary, (iii) make any loans or advances to Iridium or any Restricted
Subsidiary or (iv) transfer any of its property or assets to Iridium or any
Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement relating
to the Guaranteed Bank Facility or any other agreement in effect at or
entered into on the Issue Date or any encumbrance or restriction imposed
pursuant to the Indentures or the Notes or any agreement relating to the
Secured Bank Facility;
(2) any encumbrance or restriction pursuant to an agreement relating
to any Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person so acquired and its Subsidiaries;
(3) any encumbrance or restriction pursuant to (x) an agreement or
instrument pursuant to Indebtedness which Refinances Indebtedness Incurred
pursuant to an agreement referred to in clause (1) or (2) of this covenant
or this clause (3), or contained in any amendment to an agreement or
instrument referred to in clause (1) or (2) of this covenant or this clause
(3), or (y) Indebtedness Incurred pursuant to clause (i), (ii) or (iii) of
paragraph (b) of the covenant described above under "-- Limitation on
Indebtedness"; provided, however, that the encumbrances and restrictions
contained in any such refinancing agreement, instrument or amendment
referred to in clause (x) above are, taken as a whole, no more restrictive
in any material respect than the encumbrances and restrictions contained in
the predecessor agreements (as determined by the chief financial officer of
Iridium in good faith and evidenced by a certificate filed with the
Trustees);
(4) any encumbrance or restriction contained in security agreements or
mortgages securing Indebtedness, or under any documents providing for
Capital Lease Obligations, of a Restricted Subsidiary which are not
prohibited by the covenant described under "-- Limitation on Liens" to the
extent such encumbrances or restrictions restrict the assignment or
transfer of the property or assets subject to such security agreements or
mortgages, or subject to such Capital Lease Obligations;
(5) any encumbrance or restriction existing under or by reason of
applicable law or regulations;
(6) customary non-assignment provisions of any licensing agreement or
of any lease but only to the extent such provisions restrict the transfer
of the license, lease or the property thereunder;
(7) any encumbrance or restriction contained in contracts for sales of
assets otherwise permitted by the Indenture;
(8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed pursuant to an agreement that has been entered into for
the sale of all or substantially all of the Capital Stock of such
Restricted Subsidiary; provided, however, that after giving effect to such
transaction no Default will have occurred or be continuing, that such
restriction terminates if such transaction is not consummated and that such
consummation or abandonment of such transaction occurs within one year of
the date such agreement was entered into;
(9) any encumbrance or restriction, with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary on the date of the
Indentures, in existence at the time such Person becomes a Restricted
Subsidiary and not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary; and
(10) any restriction on the sale or other disposition of assets or
property securing Indebtedness as a result of a Permitted Lien on such
assets or property.
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Limitation on Sales of Assets and Subsidiary Stock. (a) Iridium will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Disposition unless:
(i) Iridium or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Disposition at least equal
to the fair market value (including the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition,
as determined by the Board of Directors in good faith and evidenced by a
resolution filed with the Trustees;
(ii) at least 80% of the consideration therefor received by Iridium or
such Restricted Subsidiary, as the case may be, consists of cash or
Marketable Securities (provided that an amount equal to the fair value (as
determined in good faith by the Board of Directors as evidenced by a
resolution filed with the Trustees) of assets utilized or to be utilized in
a Related Business and received by Iridium or any Restricted Subsidiary in
connection with any Asset Disposition will be treated as cash solely for
purposes of this clause (ii)) or the assumption of Indebtedness of Iridium
(other than Indebtedness that is a Subordinated Obligation) or the
Restricted Subsidiary, as the case may be, and the release of Iridium or
such Restricted Subsidiary, as the case may be, from all liability on the
Indebtedness assumed; and
(iii) all Net Available Proceeds, less any amounts invested within 180
days of such disposition (or committed by such 180th day for investment
pursuant to a written agreement which commits such investment within 180
days after the date of such agreement) in assets that comply with the
covenant described under "Limitation on Lines of Business", are applied
within 180 days of such Asset Disposition (1) first, to the permanent
repayment or reduction of Indebtedness then outstanding under any Bank
Credit Agreement or Vendor Financing Facility, to the extent such agreement
or facility would require such application or prohibit payments pursuant to
the following clause (2), (2) second, to the extent of remaining Net
Available Proceeds, to make an offer to purchase outstanding Notes at 100%
of the principal amount of the Notes plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of purchase, and, to the extent
required by the terms thereof, any other Indebtedness of Iridium or a
Restricted Subsidiary that ranks pari passu with the Notes at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase and (3)
third, to the extent of any remaining Net Available Proceeds after
application of clauses (1) and (2) above, to the repayment of other
Indebtedness of Iridium or Indebtedness of a Restricted Subsidiary, to the
extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, Iridium and the Restricted Subsidiaries
may use such amounts for any purposes not prohibited by the Indentures.
Notwithstanding the foregoing, (x) these provisions will not apply to any
Asset Disposition which constitutes a transfer, conveyance, sale, lease or
other disposition of all or substantially all of Iridium's or a Guarantor
Subsidiary's properties or assets as described under "-- Merger and
Consolidation" and (y) Iridium will not be required to repurchase or redeem
Notes pursuant to clause (2) above until Net Available Proceeds from all
Asset Dispositions in the aggregate, less any amounts invested within 180
days of such dispositions (or committed by such 180th day for investment
pursuant to a written agreement which commits such investment within 180
days after the date of such agreement) in a Related Business and any
amounts applied pursuant to clause (1) above and any amounts previously
applied pursuant to clause (1), (2) or (3) above, are greater than $10.0
million.
(b) The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers will comply
with the applicable securities laws and regulations and will not be deemed to
have breached their obligations described under this covenant by virtue thereof.
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Limitation on Transactions with Affiliates. (a) Iridium will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate or Related Person of Iridium
(other than Iridium or a Wholly-Owned Restricted Subsidiary) that involves
consideration in excess of $5.0 million (an "Affiliate Transaction") on terms
(i) that, taken as a whole, are less favorable to Iridium or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $10.0 million , are not in writing and have not
been approved either by a majority of the members of the Board of Directors
having no material direct or indirect financial interest in or with respect to
such Affiliate Transaction or by the Related Party Contracts Committee (if
appropriate under Iridium's Bylaws or the LLC Agreement). In addition, if such
Affiliate Transaction is an Asset Disposition involving any Affiliate or Related
Person of Iridium (other than Iridium or a Wholly-Owned Restricted Subsidiary)
for an aggregate consideration in excess of $25.0 million, a fairness opinion to
the effect that such transaction is fair (from a financial point of view) to
Iridium or the Restricted Subsidiary, as applicable, must be obtained from an
Independent Financial Advisor or, with respect to telecommunications-related
matters, a recognized expert in the satellite telecommunications industry.
(b) The provisions of the foregoing paragraph (a) will not apply to:
(i) employee benefit or compensation arrangements entered into in the
ordinary course of business and approved by the Board of Directors;
(ii) transactions solely between or among Iridium and the Restricted
Subsidiaries;
(iii) Restricted Payments permitted by the covenant described under
"-- Limitation on Restricted Payments";
(iv) Investments by IWCL, an Affiliate or Related Person of Iridium or
Capital in the Capital Stock (other than Disqualified Stock) of Iridium or
any Restricted Subsidiary; and
(v) a transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not, taken as a whole,
less favorable to Iridium than the terms of the relevant agreement prior to
such amendment.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Iridium will not, and will not permit any Restricted Subsidiary
to, issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into
Capital Stock of a Restricted Subsidiary to any person other than Iridium,
Capital or a Wholly-Owned Restricted Subsidiary except (i) in a transaction
consisting of a sale of all the Capital Stock of such Restricted Subsidiary and
that complies with the provisions described under "-- Limitation on Sales of
Assets and Subsidiary Stock" to the extent such provisions apply; (ii) if
required, the issuance, transfer, conveyance, sale or other disposition of
directors' qualifying shares or of interests required to be held by foreign
nationals, in each case to the extent mandated by applicable law; (iii) in a
transaction in which, or in connection with which, Iridium or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; (iv) any grant, establishment or exercise of any Lien
permitted under the covenant described under "-- Limitation on Liens"; and (v)
Disqualified Stock of a Restricted Subsidiary Incurred to Refinance Disqualified
Stock of such Restricted Subsidiary; provided, however, that the amounts of the
redemption obligations of such Disqualified Stock may not exceed the amounts of
the redemption obligations of, and such Disqualified Stock will have redemption
obligations no earlier than those required by, the Disqualified Stock being
Refinanced.
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Limitation on Liens. (a) Iridium will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock), whether owned
on the Issue Date or thereafter acquired, unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
obligation for so long as such obligation is so secured. The preceding sentence
will not require Iridium or any Restricted Subsidiary to equally and ratably
secure the Notes if the Lien consists of Permitted Liens.
(b) Any Lien created for the benefit of the Holders of the Series A Notes
or Series B Notes pursuant to the foregoing paragraph (a) will provide by its
terms that such Lien will be automatically and unconditionally released and
discharged upon the earlier of the release and discharge of the Lien which gave
rise to the obligation to secure such Notes and the release and discharge of the
related Indenture.
SEC Reports. Notwithstanding that the Issuers may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Issuers will file with the Commission, and provide the
Trustees and Holders and prospective Holders (upon request) with the annual
reports and the information, documents and other reports which are specified in
Sections 13 and 15(d) of the Exchange Act.
In addition, for so long as any Notes remain outstanding, unless the
Issuers are subject to Section 13 or 15(d) of the Exchange Act, the Issuers will
furnish to the Holders and to prospective investors in the Notes, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
The foregoing will not require Capital or any Guarantor Subsidiary to file,
provide or furnish with or to any Person any report or information separate from
any report or information filed, provided or furnished by Iridium to the extent
Capital or any Guarantor Subsidiary would not be required to do so under Section
13 or 15(d) of the Exchange Act or pursuant to Rule 144A(d)(4) under the
Securities Act.
Future Guarantor Subsidiaries. Iridium will cause each Subsidiary created
or acquired after the Issue Date (other than an Unrestricted Subsidiary or a
Foreign Subsidiary) to execute and deliver to the Trustees supplemental
indentures pursuant to which such Subsidiary will Guarantee payment of the
Notes. Iridium may cause any Foreign Subsidiary to execute and deliver a
Subsidiary Guaranty in accordance with the provisions of the Indentures. Each
Subsidiary Guaranty will be limited to an amount not to exceed the maximum
amount that can be Guaranteed by that Subsidiary without rendering the
Subsidiary Guaranty, as it relates to such Subsidiary, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. In addition, each Indenture will
provide that Issuers will not, and will not permit any of the Guarantor
Subsidiaries to, make any Investment in any Subsidiary that is not a Guarantor
Subsidiary unless either (i) such Investment is permitted by the covenant
described under "-- Limitation on Restricted Payments" or (ii) such Subsidiary
executes and delivers a Subsidiary Guaranty in accordance with the provisions of
such Indenture.
Limitation on Lines of Business. Iridium will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Related Business.
Limitation on Business Activities of Capital. Capital will not hold any
material assets, become liable for any material obligations, engage in any trade
or business, or conduct any business activity, other than the issuance of
Capital Stock to Iridium or any Wholly-Owned Restricted Subsidiary, the
Incurrence of Indebtedness as a co-obligor or guarantor of Indebtedness Incurred
by Iridium, including the Original Notes and the Exchange Notes, if any, that is
permitted to be Incurred by Iridium pursuant to the covenant described under
"-- Limitation on Indebtedness" (provided that the net proceeds of such
Indebtedness are retained by Iridium or loaned to one or more of Iridium's
Restricted Subsidiaries other than Capital), and activities incidental thereto.
Neither Iridium nor any
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Restricted Subsidiary (other than Capital) will engage in any transactions with
Capital in violation of the immediately preceding sentence.
Maintenance of Insurance. Iridium will procure and maintain insurance with
financially sound and reputable insurance companies in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in a business or businesses similar to Iridium and owning properties in
localities where Iridium and the Restricted Subsidiaries operate, including
without limitation in-orbit insurance.
Within 30 days following the Issue Date and within 30 days following any
date on which Iridium renews or obtains insurance, Iridium will deliver to the
Trustees an insurance certificate certifying the amount of insurance then
renewed or obtained and an Officers' Certificate stating that such insurance,
together with any other insurance, complies with the Indentures. In addition,
Iridium will cause to be delivered to the Trustees no less than once each year
an insurance certificate setting forth the amount of insurance then carried,
which insurance certificate will entitle the Trustees to (i) notice of any claim
under any such insurance policy; and (ii) at least 30 days' notice from the
provider of such insurance prior to the cancellation of any such insurance.
In the event that Iridium receives any proceeds of any in-orbit insurance,
such proceeds will constitute "Insurance Proceeds." Promptly following the
receipt of any Insurance Proceeds, Iridium will apply such Insurance Proceeds in
accordance with clause (iii) under the covenant described under "-- Limitation
on Sales of Assets and Subsidiary Stock" (treating such Insurance Proceeds as
Net Available Proceeds thereunder); provided, however, that Insurance Proceeds
will only be required to be so applied to the extent that the aggregate amount
of all Insurance Proceeds received by Iridium exceeds $10.0 million in any
12-month period.
MERGER AND CONSOLIDATION
Neither Iridium nor Capital will consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all its assets to, any Person; provided, however, that each
Indenture provides that Iridium may consolidate with or merge with or into, or
convey, transfer or lease, all or substantially all its assets to, any Person,
if (i) the resulting, surviving or transferee Person (the "Successor Company")
is a Person organized and existing under the laws of the United States of
America, any State thereof, the District of Columbia or the laws of Bermuda and
the Successor Company (if not Iridium) expressly assumes, by an indenture
supplemental thereto, executed and delivered to the applicable Trustee, in form
satisfactory to such Trustee, all the obligations of Iridium under such
Indenture and the Notes issued thereunder; (ii) immediately after giving effect
to such transaction on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or such
Subsidiary at the time of such transaction), no Default under such Indenture has
occurred and is continuing, (iii) immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to the terms of the first sentence of paragraph (a) of the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness";
(iv) immediately after giving effect to such transaction, the Successor Company
has Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of Iridium immediately prior to such transaction; and (v) Iridium has
delivered to such Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction and such supplemental indenture (if any)
comply with such Indenture. The requirements of clause (iii) above shall not
apply where Iridium merges with or into, or conveys, transfers or leases, in one
transaction or a series of transactions, all or substantially all of its assets
to, any Person with no outstanding Indebtedness (other than Indebtedness which
is also Indebtedness of Iridium).
Iridium may within six months of the Issue Date convey or transfer in one
transaction or a series of related transactions, all or substantially all its
assets to a Wholly-Owned Restricted Subsidiary of
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Iridium upon compliance with clauses (i) and (v) of the preceding paragraph (and
without complying with clauses (ii) through (iv), inclusive, of the preceding
paragraph) (the "Asset Drop-Down Transaction").
Each Indenture provides that Iridium will not permit any Guarantor
Subsidiary to consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or substantially all
of its assets to any Person unless: (i) the resulting, surviving or transferee
Person (if not such Subsidiary) is a Person organized and existing under the
laws of the jurisdiction under which such Subsidiary was organized or under the
laws of the United States of America, or any State thereof, the District of
Columbia or the laws of Bermuda, and such Person expressly assumes, by a
guaranty agreement, in a form satisfactory to the related Trustee, all the
obligations of such Subsidiary, if any, under its related Subsidiary Guaranty
(except to the extent it would not otherwise have been required to provide a
Subsidiary Guaranty); (ii) immediately after giving effect to such transaction
on a pro forma basis (and treating any Indebtedness which becomes an obligation
of the resulting, surviving or transferee Person as a result of such transaction
as having been issued by such Person at the time of such transaction), no
Default has occurred and is continuing under such Indenture; and (iii) Iridium
has delivered to such Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
guaranty agreement, if any, complies with the related Indenture.
The Successor Company will be the successor to Iridium and will succeed to,
and be substituted for, and may exercise every right and power of, Iridium,
Capital or any Guarantor Subsidiary, respectively, under the Indentures, the
Notes and the related Subsidiary Guaranty, as applicable, and the predecessor
Company, Capital or Guarantor Subsidiary, respectively (other than in the case
of a lease), will be released from all obligations and covenants under the
Indentures and the Notes or the related Subsidiary Guaranty, as applicable.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of Iridium or Capital,
and therefore it may be unclear whether the foregoing provisions are applicable.
DEFAULTS
An Event of Default is defined in each Indenture as:
(i) a default in any payment of interest or Liquidated Damages, if
any, on any Note issued under such Indenture when due, continued for 30
days;
(ii) a default in the payment of principal of any Note issued under
such Indenture when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise;
(iii) the failure by the Issuers to comply with their obligations
under the covenant described under "Merger and Consolidation" above;
(iv) the failure by the Issuers to comply for 30 days after notice
with any of their obligations under the covenants described under (A)
"-- Change of Control" and (B) "-- Limitation on Indebtedness",
"-- Limitation on Restricted Payments", "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "-- Limitation on Sales of
Assets and Subsidiary Stock", "-- Limitation on Transactions with
Affiliates", "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries", "-- Limitation on Liens", "-- Future Guarantor
Subsidiaries", "Limitation on Lines of Business" and "-- Maintenance of
Insurance" described under "-- Certain Covenants" above (in each case,
other than a failure to purchase Notes issued under such Indenture);
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(v) the failure by the Issuers or any Guarantor Subsidiary to comply
for 60 days after notice with its other agreements contained in the Notes
issued under such Indenture or in such Indenture;
(vi) the failure by the Issuers or any Significant Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders thereof because of
a default, if the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision");
(vii) certain events of bankruptcy, insolvency or reorganization of
the Issuers or a Significant Subsidiary (the "bankruptcy provisions");
(viii) the rendering of any final judgment or decree (not subject to
appeal) in excess of $10.0 million or its foreign currency equivalent (net
of amounts paid within 30 days of any such judgment or decree under any
insurance, indemnity, bond, surety or similar instrument) against Iridium,
Capital or a Significant Subsidiary by a court or other adjudicatory
authority of competent jurisdiction to the extent which Iridium, Capital or
the Significant Subsidiary, as applicable, is not insured by a third Person
and such judgment or decree remains outstanding and is not discharged,
waived or stayed within 30 days after notice (the "judgment default
provision");
(ix) any Subsidiary Guaranty relating to such Indenture or Notes
issued thereunder ceases to be in full force and effect (except as
contemplated by the terms thereof) or any Guarantor Subsidiary denies or
disaffirms its obligations under such Indenture or any such Subsidiary
Guaranty;
(x) termination by Motorola of the Space System Contract prior to
delivery thereunder by Motorola of the Space System (as defined therein),
provided that such termination has not been contested by Iridium in
accordance with the Space System Contract or by appropriate proceedings
and, if such termination is so contested, within 180 days of such notice
such termination has not been withdrawn or declared ineffective by any
recognized court or mediator; or
(xi) termination by Motorola of the Operation and Maintenance
Contract, or Motorola ceases to be the operator of the IRIDIUM System prior
to the Stated Maturity of the Notes in each such case for a period of more
than 30 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv), (v) or (viii) will not constitute an
Event of Default under an Indenture until the Trustee thereunder or the Holders
of 25% in principal amount of the outstanding applicable Notes notify the
Issuers of the default and the Issuers do not cure such default within the time
specified in clauses (iv), (v) and (viii) hereof after receipt of such notice.
If an Event of Default under an Indenture occurs and is continuing, the
applicable Trustee or the Holders of at least 25% in principal amount of the
outstanding applicable Notes by notice to the Note Issuers may declare the
principal of and accrued but unpaid interest on and Liquidated Damages, if any,
on all the Notes issued pursuant to such Indenture to be due and payable. Upon
such a declaration, such principal and interest will be due and payable
immediately. If an Event of Default relating to certain events of bankruptcy,
insolvency or reorganization of the Issuers occurs and is continuing, the
principal of and Liquidated Damages, if any, and interest on all the Notes will
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Holders. Under certain circumstances, the Holders of
a majority in principal amount of the Series A
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Notes or Series B Notes, as the case may be, then outstanding may rescind any
such acceleration with respect to the Notes and its consequences.
Subject to the provisions of each Indenture relating to the duties of the
Trustee thereunder, in case an Event of Default occurs and is continuing, such
Trustee will be under no obligation to exercise any of the rights or powers
under such Indenture at the request or direction of any of the relevant Holders
unless such Holders have offered to such Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right to
receive payment of principal, premium and Liquidated Damages, if any, or
interest when due, no Holder may pursue any remedy with respect to an Indenture
or the related Notes unless (i) such Holder has previously given the applicable
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the Series A Notes or Series B Notes, as the case may
be, then outstanding have requested the applicable Trustee to pursue the remedy,
(iii) such Holders have offered the applicable Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the applicable Trustee
has not complied with such request within 60 days after the receipt of the
request and the offer of security or indemnity and (v) the Holders of a majority
in principal amount of the Series A Notes or Series B Notes, as the case may be,
then outstanding have not given the applicable Trustee a direction inconsistent
with such request within such 60-day period. Subject to certain restrictions,
the Holders of a majority in principal amount of the Series A Notes or Series B
Notes, as the case may be, then outstanding are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the applicable Trustee or of exercising any trust or power conferred on the
applicable Trustee. The applicable Trustee, however, may refuse to follow any
direction that conflicts with law or the applicable Indenture or that such
Trustee determines is unduly prejudicial to the rights of any other Holder
thereunder or that would involve such Trustee in personal liability. Prior to
taking any action under an Indenture, the applicable Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
Each Indenture provides that if a Default occurs and is continuing under
such Indenture and is known to the applicable Trustee, such Trustee must mail to
each Holder thereunder notice of such Default within the earlier of 90 days
after it occurs or 30 days after it is known to a Trust Officer or written
notice of it is received by such Trustee. Except in the case of a Default in the
payment of principal of, premium and Liquidated Damages, if any, or interest on
any Note, the applicable Trustee may withhold notice if and so long as a
committee of its Trust Officers in good faith determines that withholding notice
is in the interests of the applicable Holders. In addition, the Note Issuers are
required to deliver to each Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default under the applicable Indenture that occurred during the previous year.
The Issuers also are required to deliver to each Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults under the applicable Indenture, their status and what action
the Issuers are taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, each Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Series A Notes
or Series B Notes, as the case may be, then outstanding and any past default and
its consequences or compliance with any provisions may be waived with the
consent of the Holders of a majority in principal amount of the Series A Notes
or Series B Notes, as the case may be, then outstanding. However, without the
consent of each Holder of an outstanding Series A Note or Series B Note, as the
case may be, affected, no amendment may (i) reduce the amount of Notes whose
Holders must consent to an amendment or waiver, (ii) reduce the rate of or
extend the time for payment of interest or Liquidated Damages on any such Note,
(iii) reduce the principal of or extend the Stated Maturity of any such Note,
(iv) reduce the premium payable upon the redemption of any such Note or change
the time at which any such Note
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may be redeemed as described under "Optional Redemption" above, (v) make any
such Note payable in money other than that stated in such Note, (vi) impair the
right of any Holder to receive payment of principal of and premium, Liquidated
Damages and interest on such Holder's Notes on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with respect to
such Holder's Notes, (vii) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions or (viii) make any
change in any related Subsidiary Guaranty that would adversely affect the
Holders.
Without the consent of any Holder, the Issuers and each Trustee may amend
the applicable Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of either Issuer under such Indenture (as contemplated under
"-- Merger and Consolidation" in connection with the Asset Drop-Down Transaction
or otherwise), to provide for uncertificated Series A Notes or Series B Notes,
as the case may be, in addition to or in place of certificated Series A Notes or
Series B Notes, as the case may be (provided that such uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that such uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add further Guarantees with respect to such Notes, to release
Guarantor Subsidiaries when permitted by such Indenture, to secure such Notes,
to add to the covenants of the Issuers for the benefit of the Holders of such
Notes or to surrender any right or power conferred upon the Issuers, to make any
change that does not adversely affect the rights of any Holder of such Notes or
to comply with any requirement of the Commission in connection with the
qualification of such Indenture under the Trust Indenture Act.
The consent of the Holders is not necessary under either Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment.
After an amendment under an Indenture becomes effective, the Issuers are
required to mail to the applicable Holders a notice briefly describing such
amendment. However, the failure to give such notice to all such Holders, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the applicable
Indenture. Upon any transfer or exchange, the applicable registrar and Trustee
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuers may require a Holder to pay any taxes
required by law or permitted by the applicable Indenture. The Issuers are not
required to transfer or exchange any Note selected for redemption or to transfer
or exchange any Note for a period of 15 days prior to a selection of Notes to be
redeemed. The Notes will be issued in registered form and the registered holder
of a Note will be treated as the owner of such Note for all purposes.
DEFEASANCE
The Issuers at any time may terminate all their obligations under the
Series A Notes or the Series B Notes, as the case may be, and the related
Indenture ("legal defeasance"), except for certain obligations, including those
respecting the defeasance trust and obligations to register the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes. The Issuers at
any time may terminate their obligations under the covenants described under
"-- Subsidiary Guaranties," "-- Change of Control," "-- Certain Covenants," the
operation of the cross acceleration provision, the bankruptcy default provisions
with respect to Subsidiaries and the judgment default provision described under
"-- Defaults" above and the limitations contained in clauses (ii), (iii) and
(iv) under "-- Merger and Consolidation" above ("covenant defeasance"). If the
Issuers exercise their legal defeasance
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option or their covenant defeasance option, each Guarantor Subsidiary will be
released from all of its obligations with respect to its Subsidiary Guaranty.
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect to Significant Subsidiaries only), (viii), (ix), (x) or (xi) under
"Defaults" above or because of the failure of Iridium to comply with clause
(ii), (iii) or (iv) under "-- Merger and Consolidation" above.
Defeasance options with respect to the Notes may be exercised to any
redemption date or the applicable maturity date. In order to exercise either
defeasance option, the Note Issuers must irrevocably deposit in trust (the
"defeasance trust") with the applicable Trustee money or Government Securities
for the payment of principal, premium and Liquidated Damages, if any, and
interest on the Notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to such Trustee of an
Opinion of Counsel to the effect that holders of the Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law).
NO LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or member of Iridium or
Capital, as such, will have any liability for any obligations of the Issuers or
any Guarantor Subsidiary under the Notes or the Indentures or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver will not constitute a waiver of liabilities under the federal
securities laws if it is the view of the Commission that such a waiver would be
against public policy.
CONCERNING THE TRUSTEES
State Street Bank and Trust Company is the Series A Note Trustee under the
Series A Note Indenture and Series B Note Trustee under the Series B Note
Indenture and has been appointed by the Issuers as Registrar and Paying Agent
with regard to each Series of Notes.
GOVERNING LAW
Each Indenture provides that it and the Notes thereunder will be governed
by, and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such Person merges with or
into or consolidates with or becomes a Restricted Subsidiary of such specified
Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, which Indebtedness or Lien was not Incurred in
anticipation of, and was outstanding prior to, such merger, consolidation or
acquisition.
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"Affiliate" of any Person means any other Person, directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specific Person. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of Voting
Stock, by contract or otherwise; provided, however, that beneficial ownership of
10% or more of the Voting Stock of a Person will be deemed to be control. The
terms "controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, (a) no individual will be an Affiliate of Iridium
solely by reason of his or her being a director, officer or employee of IWCL,
Iridium or any Subsidiary of either and (b) none of the Restricted Subsidiaries
will be Affiliates of Iridium.
"Agreement Regarding Guarantee" means the Agreement Regarding Guarantee
between Iridium and Motorola, dated as of August 21, 1996, as amended and
restated as of July 11, 1997, and as further amended from time to time.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition (collectively, any "disposition") by Iridium or any Restricted
Subsidiary (including any disposition by means of a consolidation, merger or
similar transaction) but excluding a disposition by a Restricted Subsidiary to
Iridium or a Wholly-Owned Restricted Subsidiary or by Iridium to a Wholly-Owned
Restricted Subsidiary of (i) shares of Capital Stock of a Restricted Subsidiary,
(ii) all or substantially all of the assets of Iridium or any Restricted
Subsidiary representing a division or line of business or (iii) other assets or
rights of Iridium or any of its Restricted Subsidiaries other than a disposition
(a) in the ordinary course of business, (b) that constitutes a Restricted
Payment which is permitted under the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" above, (c) that is subject to
the provisions set forth in the first, second or third paragraph under
"-- Merger and Consolidation" above, or (d) that constitutes the grant,
establishment or exercise of any Lien permitted pursuant to "-- Certain
Covenants -- Limitations on Liens" above; provided, however,that a transaction
described in clauses (i), (ii) and (iii) will constitute an Asset Disposition
only to the extent that the aggregate consideration for all such transfers,
conveyances, sales, leases or other dispositions exceeds $10.0 million in any
12-month period.
"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the applicable Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness (or scheduled
redemption or similar payment with respect to Disqualified Stock) multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credit agreements or similar arrangements)
between Iridium and/or any Subsidiary and one or more banks or other financial
institutions providing financing for the business of Iridium and its
Subsidiaries. The Guaranteed Bank Facility will be, and the Secured Bank
Facility (when executed and delivered by all the parties thereto) will be, Bank
Credit Agreements.
"Board of Directors" means the Board of Directors of Iridium or any
committee thereof duly authorized to act on behalf of such Board.
"Build-out" means the construction, acquisition, improvement, operation and
development (including all costs related thereto) of the IRIDIUM System up to
the occurrence of Commercial Activation and the construction, acquisition,
improvement and development (including all costs related thereto) thereafter of
contemplated enhancements to the IRIDIUM System described in this Prospectus.
See "Business -- IRIDIUM Services."
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"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by a
Capital Lease Obligation will be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof will be the
date of the last scheduled payment of rent or any other amount due under the
relevant lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Capital Stock" of any Person means (i) in the case of a corporation,
corporate stock issued by such Person, (ii) in the case of an association or
business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock issued by such Person, (iii)
in the case of a partnership, partnership interests (whether general or limited)
issued by such Person, (iv) in the case of a limited liability company,
membership interests issued by such Person, (v) any other interest or
participation that confers on another Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person, and
(vi) any rights (other than debt securities convertible into, or exchangeable
for, Capital Stock), warrants or options to purchase any of the foregoing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Activation" means the date on which Iridium commences generally
available commercial service on the IRIDIUM System.
"Commission" means the Securities and Exchange Commission and any successor
agency.
"Consolidated Cash Flow" of Iridium means for any period the Consolidated
Net Income of Iridium and the consolidated Restricted Subsidiaries for such
period increased by (i) Consolidated Interest Expense of Iridium and the
consolidated Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of Iridium and the consolidated Restricted Subsidiaries for
such period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of Iridium and the consolidated Restricted
Subsidiaries for such period (including any depreciation of any asset that
represents depreciation in respect of previously capitalized interest), plus
(iv) other non-cash charges of Iridium and the consolidated Restricted
Subsidiaries for such period deducted from consolidated revenues in determining
Consolidated Net Income for such period, minus (v) non-cash items of Iridium and
the consolidated Restricted Subsidiaries for such period which increased
consolidated revenues in determining Consolidated Net Income for such period,
minus (vi) the consolidated amortization expense related to payments made by
Iridium and the Restricted Subsidiaries to Motorola pursuant to the Operations
and Maintenance Contract included in the income statement of Iridium and the
consolidated Restricted Subsidiaries for such period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP or, so long as such Person is treated as a partnership or
other pass through entity for United States federal income tax purposes, the Tax
Amount paid by such Person during such period.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of
Indebtedness discounts; (ii) any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities; (iii) fees with respect to
Interest Rate or Currency Protection Agreements; (iv) Preferred Stock dividends
of such Person (other than with respect to Disqualified Stock) declared and paid
or payable; (v) accrued Disqualified Stock dividends of such Person and all
Restricted Subsidiaries of such
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Person, whether or not declared or paid; (vi) interest on Indebtedness
Guaranteed by such Person; (vii) the portion of any rental obligation allocable
to interest expense; and (viii) capitalized interest.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its consolidated Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there is excluded therefrom (to the extent
not already excluded therefrom) (i) the net income (or loss) of any Person
acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (ii) the net income (but not the net loss) of any Restricted
Subsidiary of such Person which Restricted Subsidiary is subject to restrictions
which prevent the payment of dividends or the making of distributions to such
Person, but only to the extent of such restrictions, (iii) the net income (or
loss) of any Person that is not a Restricted Subsidiary (including any
Unrestricted Subsidiary) except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (iv) gains or losses on Asset Dispositions by Iridium or any
Restricted Subsidiary, (v) all extraordinary gains and losses, (vi) the
cumulative effect of changes in accounting principles in the year of adoption of
such changes, (vii) non-cash gains or losses resulting from fluctuations in
currency exchange rates, and (viii) the tax effect of any of the items described
in clauses (i) through (vii) above; provided further, however, that for purposes
of any determination pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," there will be deducted from the
consolidated net income of Iridium and the Restricted Subsidiaries for such
period an amount equal to the Tax Amount paid by Iridium during such period.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its consolidated Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP, less amounts attributable to
Disqualified Stock of such Person; provided, however, that, with respect to
Iridium, adjustments following the date of the Indenture to the accounting books
and records of Iridium in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of Iridium by another Person will not be given effect to.
"Debt to Capital Ratio" means on any date of determination for Iridium and
its Restricted Subsidiaries, on a consolidated basis, the ratio (expressed as a
percentage) of Outstanding Indebtedness on such date to Total Invested Capital
on such date.
"Debt to Cash Flow Ratio" means on any date of determination (the
"Determination Date") for Iridium and its Restricted Subsidiaries, on a
consolidated basis, the ratio of Outstanding Indebtedness on the Determination
Date to Consolidated Cash Flow for the four most recently completed fiscal
quarters immediately preceding the Determination Date (the "Measurement Period")
determined on a pro forma basis as if any Indebtedness to be Incurred had been
Incurred and the proceeds thereof had been applied on the first day of the
Measurement Period; provided, however, that in making such computations, (i) the
Consolidated Interest Expense attributable to interest on any proposed
Indebtedness bearing a floating interest rate will be computed on a pro forma
basis as if the rate in effect on such Determination Date had been the
applicable rate for the entire Measurement Period, (ii) the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility will be computed based upon the average daily balance of such
Indebtedness during such Measurement Period, (iii) in the event Iridium or any
of its Restricted Subsidiaries has made asset dispositions or acquisitions of
assets not in the ordinary course of business (including acquisitions of other
Persons by merger, consolidation or purchase of Capital Stock) or has repaid
Indebtedness or Incurred additional Indebtedness during or after such
Measurement Period, such computation will be made on a pro forma basis as if the
asset dispositions, acquisitions, repayment or incurrence had taken place on the
first day of such Measurement Period, (iv) the net proceeds of the Indebtedness
to be Incurred will be deemed to have been applied on the first day of such
Measurement Period to acquire direct obligations of the United States government
having a maturity most closely approximating the maturity of the
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Indebtedness to be incurred (or Indebtedness incurred during or after such
Measurement Period); provided, however, that the adjustment in this clause (iv)
will not be made if, and to the extent, that application of such net proceeds
has otherwise been fully reflected in the computation, and (v) the actual
application of the net proceeds of Indebtedness Incurred during or after such
Measurement Period will be given pro forma effect as if such application had
taken place on the first day of such Measurement Period.
"Default" means an event that is, or after the passing of time or the
giving of notice or both would be, an Event of Default.
"Disposition" means (i) the sale, transfer or other conveyance by Motorola
or any of its Subsidiaries (other than to a wholly owned subsidiary of Motorola)
of (a) Iridium's membership interests or (b) equity interests in any entity (an
"intermediate entity") which owns, directly or indirectly, Iridium's membership
interests or (ii) the issue and sale by any such intermediate entity of its
equity securities to one or more third parties if and to the extent the proceeds
of such issue and sale are distributed by such intermediate entity to Motorola
or any of its Subsidiaries.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock, or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the earlier of the Stated Maturity of the Notes or the date
on which no Notes remain outstanding. Disqualified Stock does not include any
Capital Stock that is not otherwise Disqualified Stock if by its terms the
holders have the right to require the issuer to repurchase such stock upon a
Change of Control (or upon events substantially similar to a Change of Control).
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Equity Offering" means an offering made on a primary basis of Capital
Stock (other than Disqualified Stock) of IWCL or Iridium that results in Net
Cash Proceeds to IWCL or Iridium, as the case may be, provided, however, if any
such offering is an offering of the Capital Stock of IWCL only the Net Cash
Proceeds thereof that are contributed to Iridium will be taken into
consideration for the purposes of this definition.
"Event of Default" has the meaning set forth under "-- Defaults" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Exchange Notes" as used in this "Description of Notes" section means any
notes issued in exchange for Original Notes pursuant to the Registration Rights
Agreement, including the Series A Exchange Notes and the Series B Exchange Notes
covered by this Prospectus.
"Existing Affiliate Agreements" means (i) the Space System Contract, (ii)
the Terrestrial Network Development Contract, (iii) the Operations and
Maintenance Contract, (iv) the Agreement Regarding Guarantee, (v) the Master
Subscription Agreement, (vi) the Interest Exchange Agreement, (vii) the Share
Issuance Agreement, (viii) the Management Services Agreement, (ix) the Motorola
MOU and any subordination agreement contemplated thereunder, (x) the agreement
or agreements among Iridium, Motorola and other parties thereto providing for
the development, manufacture and sale of individual subscriber equipment to be
used in the IRIDIUM System, which
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agreement or agreements will be executed and delivered after the Issue Date as a
condition to borrowings under the Secured Bank Facility and (xi) any other
agreements with Affiliates or related Person of Iridium, existing on the Issue
Date and listed on a schedule to the Indentures.
"Foreign Subsidiary" means, with respect to any Person, any Subsidiary of
such Person which is incorporated or otherwise organized under the laws of any
jurisdiction other than the United States of America, any state thereof or the
District of Columbia and substantially all of whose consolidated assets are
located primarily outside of the United States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission. All ratios and computations based on GAAP contained in the Indenture
will be computed in conformity with GAAP.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted Average Life to maturity of not more than one year
from the date of Investment therein.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person (the
"primary obligor") through an agreement enforceable by or for the benefit of the
holder of such Indebtedness and any such obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness, or (iv) to act as a co-obligor with such Person on its
Indebtedness (and "Guaranteed" and "Guaranteeing" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person will not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Guaranteed Bank Facility" means Iridium's $750 million borrowing facility
with a syndicate of banks, as amended from time to time.
"Holders" means the registered holders from time to time of Series A Notes
or Series B Notes, as the case may be.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence", "Incurred" and
"Incurring" have meanings correlative to the foregoing); provided, however, that
a change in GAAP that results in an obligation of such Person that exists at
such time becoming Indebtedness will not be deemed an Incurrence of such
Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount will be deemed an Incurrence of Indebtedness.
Notwithstanding the foregoing, Iridium may elect to treat all or any portion of
revolving credit debt of Iridium or a Subsidiary as being Incurred from and
after any date beginning the date the revolving credit commitment is extended to
Iridium or a Subsidiary, by furnishing notice thereof to the Trustee, and any
borrowings or
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reborrowings by Iridium or a Subsidiary under such commitment up to the amount
of such commitment designated by Iridium as Incurred will not be deemed to be
new Incurrences of Indebtedness by Iridium or such Subsidiary; provided,
however, that in such event the undrawn portion of any such revolving credit
debt will be deemed to be outstanding Indebtedness until such time as the
commitment thereunder is terminated. The accretion of principal of a
non-interest bearing or other discount security will not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including any such obligations Incurred in connection with
the acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue by more than 30 days or which are being
contested in good faith), (v) every Capital Lease Obligation of such Person,
(vi) all Receivables Sales of such Person, together with any obligation of such
Person to pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith, (vii) all obligations to
redeem or repurchase outstanding Disqualified Stock issued by such Person,
(viii) all Attributable Indebtedness, (ix) every obligation under Interest Rate
or Currency Protection Agreements of such Person, (x) every obligation of the
type referred to in clauses (i) through (ix) of another Person secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the fair market value of such property or assets and the amount of the
obligation so secured and (xi) every obligation of the type referred to in
clauses (i) through (x) of another Person and all dividends of another Person
the payment of which, in either case, such Person has Guaranteed. The "amount"
or "principal amount" of Indebtedness at any time of determination as used
herein represented by (a) any Indebtedness issued at a price that is less than
the principal amount at maturity thereof, will be the amount of the liability in
respect thereof determined in accordance with GAAP, (b) any Receivables Sale,
will be the amount of the unrecovered capital or principal investment of the
purchaser (other than Iridium or a Wholly-Owned Restricted Subsidiary) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, will be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, will be determined
in accordance with the definition thereof and (e) any Permitted Interest Rate or
Currency Protection Agreement, will be zero. In no event will Indebtedness
include any liability for taxes. For purposes of determining any particular
amount of Indebtedness, Guarantees or Liens with respect to letters of credit
supporting Indebtedness otherwise included in the determination of a particular
amount will not be included. The term "Indebtedness" does not include any
obligations of Iridium or any Restricted Subsidiary (x) under the Space System
Contract, the Operations and Maintenance Contract or the Terrestrial Network
Development Contract (including any agreed upon deferrals of payment obligations
thereunder) or (y) in respect of amounts owing to gateway operators and other
service providers in connection with the clearinghouse system to be established
and operated by Iridium as described under "Business -- The IRIDIUM
System -- Business Support Systems") in this Prospectus.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Board of Directors, qualified to perform the task for which it
has been engaged and disinterested and independent with respect to the Note
Issuers and their Subsidiaries and Affiliates.
"Interest Exchange Agreement" means the Interest Exchange Agreement among
Iridium and IWCL, dated June 9, 1997, as amended from time to time.
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"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Indebtedness issued
by, any other Person, including any payment on a Guarantee of any obligation of
such other Person, but excluding any loan, advance or extension of credit to an
employee of Iridium or any Restricted Subsidiary in the ordinary course of
business, accounts receivable and other commercially reasonable extensions of
trade credit. A delay in the purchase of any of Iridium's Capital Stock under a
purchase or similar agreement will not be deemed to be an Investment by Iridium
in the purchaser.
"Investment Grade Rating" means a rating equal to or higher than "Baa3" (or
the equivalent) by Moody's Investors Service, Inc. (or any successor to the
rating agency business thereof) and "BBB-" (or the equivalent) by Standard &
Poor's Ratings Group (or any successor to the rating agency business thereof).
"IRIDIUM System" means Iridium's global mobile wireless communications
system as described in this Prospectus.
"Issue Date" means the date on which the Original Notes were first issued
and delivered.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
Sale and Leaseback Transaction).
"Management Services Agreement" means the Management Services Agreement
between Iridium and IWCL, dated as of June 9, 1997, as amended from time to
time.
"Marketable Securities" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of Iridium) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc. or "A-1"
or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than
seven days for Government Securities entered into with an Eligible Institution;
and (vi) any fund investing exclusively in investments of the types described in
clauses (i) through (v) above.
"Master Subscription Agreement" means the Agreement between Iridium and
IWCL, dated as of June 30, 1997 and as may be amended from time to time,
pursuant to which IWCL has agreed to sell shares of its Class B Common Stock in
connection with the Global Ownership Program. See "Certain Matters Regarding
Relationship of IWCL and Iridium -- Global Ownership Program."
"Motorola Additional Guarantee" means the commitment by Motorola pursuant
to the Motorola MOU to guarantee up to an additional $350 million of
Indebtedness (inclusive of principal and
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interest), under the Guaranteed Bank Facility or another credit agreement on
identical terms, in excess of the Motorola Guarantee.
"Motorola MOU" means the Memorandum of Understanding, dated as of July 11,
1997, between Iridium and Motorola, as amended from time to time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Marketable Securities received (including by way of sale or discounting
of a note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiror of Indebtedness
or other obligations relating to such properties or assets) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of funds
from a foreign subsidiary to Iridium or another Subsidiary of Iridium) required
to be accrued as a liability as a consequence of such Asset Disposition, (ii)
all payments made by such Person or its Restricted Subsidiaries on any
Indebtedness which is secured by such assets in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of such
Lien, or in order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person or joint ventures as a result of such
Asset Disposition, (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary thereof, as the case may be, after such
Asset Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the Board
of Directors, in its reasonable good faith judgment evidenced by a resolution
filed with the Trustee; provided, however, that any reduction in such reserve
within twelve months following the consummation of such Asset Disposition will
be treated for all purposes of the Indentures and the Notes as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction, and (v) any consideration for an Asset Disposition
(which would otherwise constitute Net Available Proceeds) that is required to be
held in escrow pending determination of whether a purchase price adjustment will
be made, but amounts under this clause (v) will become Net Available Proceeds at
such time and to the extent such amounts are released to such Person.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuers
by first class mail, postage prepaid, to each Holder at his address appearing in
the applicable note register on the date of the Offer offering to purchase up to
the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the applicable Indenture).
Unless otherwise required by applicable law, the Offer will specify an
expiration date (the "Expiration Date") of the Offer to Purchase which will be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Issuers will notify each Trustee in writing at least 15
Business Days (or such shorter period as is acceptable to such Trustee) prior to
the mailing of the Offer of the Issuers' obligation to make an Offer to
Purchase, and the Offer will be mailed by the Issuers or, at the Issuers'
request, by the applicable Trustee in the name and at the expense of the
Issuers. The Offer will contain information concerning the business of Iridium
and its Subsidiaries which Iridium in good faith believes will enable such
holders to make an informed decision with respect to the Offer to Purchase
(which at a
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minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
applicable Trustee pursuant to each Indenture (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
description of material developments in Iridium's business subsequent to the
date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring Iridium to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring Iridium to make the
Offer to Purchase and (iv) any other information required by applicable law to
be included therein). The Offer will contain all instructions and materials
necessary to enable such holders to tender Notes pursuant to the Offer to
Purchase.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, the
Secretary or any Assistant Secretary of Iridium.
"Officers' Certificate" means a certificate signed by two Officers.
"Operations and Maintenance Contract" means the IRIDIUM System Operations
and Maintenance Contract between Iridium and Motorola, dated as of July 29,
1993, as amended from time to time.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the applicable Trustee. The counsel may be an employee of or
counsel to Iridium or such Trustee.
"Outstanding Indebtedness" means the aggregate consolidated principal
amount (or accreted value, in the case of any Indebtedness issued at a discount)
of Indebtedness of Iridium and its Restricted Subsidiaries, on a consolidated
basis, outstanding as of the date of determination.
"pari passu", when used with respect to the ranking of any Indebtedness of
any Person in relation to other Indebtedness of such Person, means that each
such Indebtedness (a) either (i) is not subordinated in right of payment to any
other Indebtedness of such Person or (ii) is subordinate in right of payment to
the same Indebtedness of such Person as is the other and is so subordinate to
the same extent and (b) is not subordinate in right of payment to the other or
to any Indebtedness of such Person as to which the other is not so subordinate.
"Permitted Liens" means:
(i) Prior to Commercial Activation, Liens to secure up to $750 million
in principal amount of Indebtedness permitted to be incurred pursuant to
paragraph (b)(i) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness";
(ii) After Commercial Activation, Liens to secure up to $1.7 billion
in principal amount of Indebtedness (inclusive of the Indebtedness secured
by the Liens described in clause (i) above and any secured Indebtedness
which refinanced such Indebtedness) permitted to be Incurred pursuant to
the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness";
(iii) Liens in favor of Holders of the Notes, the holders of the
Exchange Notes and the Trustees;
(iv) Liens in favor of the Issuers or a Wholly-Owned Restricted
Subsidiary;
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by means of
a merger or consolidation with or into such Person or a Subsidiary of such
Person, other than any property delivered pursuant to the Space System
Contract or the Operations and Maintenance Contract; provided, however,
that such Liens are not created, incurred or assumed in connection with, or
in contemplation of, such
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acquisition; provided further, however, that the Liens may not extend to
any other property owned by such Person or any of its Subsidiaries;
(vi) other than in connection with Indebtedness, any Lien arising in
the ordinary course of business (a) to secure payments of workers'
compensation, unemployment insurance, pension or other social security or
retirement benefits, or to secure the performance of bids, tenders, leases,
progress payments, contracts (other than for the payment of money) or to
secure public or statutory obligations of Iridium or any Restricted
Subsidiary, or to secure surety or appeal bonds to which Iridium or any
Restricted Subsidiary is a party, (b) imposed by law dealing with
materialmen's, mechanics', workmen's, repairmen's, warehousemen's
landlords', vendors' or carriers' Liens created by law, or deposits or
pledges which are not yet due or, if due, the validity of which is being
contested in good faith by Iridium or any Restricted Subsidiary by
appropriate proceedings promptly instituted and diligently conducted and
against which Iridium has established appropriate reserves in accordance
with GAAP, (c) rights of financial institutions to set off and chargeback
arising by operation of law, (d) rights, if any, of gateway operators and
other service providers to setoff and chargeback arising under agreements
between Iridium and any such Person in respect of clearinghouse services
provided by Iridium to such Person, and (e) similar Liens;
(vii) servitudes, licenses, easements, encumbrances, restrictions,
rights-of-way and rights in the nature of easements or similar charges
which will not in the aggregate materially adversely impair the use of the
subject property by Iridium or a Restricted Subsidiary;
(viii) zoning and building by-laws and ordinances, municipal bylaws
and regulations, and restrictive covenants, which do not materially
interfere with the use of the subject property by Iridium or a Restricted
Subsidiary;
(ix) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(x) Liens existing on the Issue Date;
(xi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as will
be required in conformity with GAAP will have been made therefor;
(xii) any interest in or title of a lessor to any property subject to
a Capital Lease Obligation which is permitted under the Indenture; and
(xiii) Liens incurred in the ordinary course of business of the
Issuers and the Restricted Subsidiaries with respect to obligations that do
not exceed $10.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by Iridium and the Restricted Subsidiaries.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of
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assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Rating Agencies" means Standard & Poor's Rating Group and Moody's
Investors Service, Inc. or any successor to the respective credit rating
businesses thereof.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than (x) any sale
of Receivables by such Person as to which (i) such Person is neither directly or
indirectly liable (as guarantor or otherwise) nor provides credit support of any
kind and (ii) the purchaser of such Receivables has no recourse to any assets or
property of such Person or (y) in connection with a disposition of the business
operations of such Person relating thereto or a disposition of defaulted
Receivables for purpose of collection and not as a financing arrangement.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" will have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Iridium or any Restricted Subsidiary existing on the Issue Date
or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that except in the case
of a Refinancing of the Guaranteed Bank Facility after any extension thereof (as
contemplated in the Motorola MOU) (i) such Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus accrued and unpaid
interest and fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced and (iv) in the event the Indebtedness
being Refinanced constitutes a Subordinated Obligation, the Refinancing
Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being Refinanced; provided further, however, that Refinancing
Indebtedness will not include Indebtedness of Issuers or a Restricted Subsidiary
that Refinances Indebtedness of an Unrestricted Subsidiary.
"Registration Statement" means the registration statement to be filed after
the Issue Date by the Iridium Parties with the Commission with respect to the
offer to exchange the Original Notes for another series of notes of the Issuers
with substantially identical terms to the Notes (including the Registration
Statement of which this Prospectus forms a part).
"Related Business" means the business of developing, owning, engaging in
and dealing with all or any part of the business of the provision of
telecommunications services and businesses and (i) reasonably related extensions
thereof, including but not limited to the manufacture, purchase, ownership,
operation, leasing, licensing, financing and selling of, and generally dealing
in or with, communications satellites, earth stations, gateways, ground
infrastructure and subscriber equipment, used or intended for use with
telecommunications services and businesses and (ii) any other activities that
are reasonably related to the provision of telecommunications services and
businesses.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Capital Stock of such Person
or (b) 5% or more of the combined voting power of the Voting Stock of such
Person.
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"Restricted Subsidiary" means any Subsidiary of Iridium, whether existing
on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired by Iridium or a Restricted Subsidiary whereby
Iridium or such Restricted Subsidiary transfers such property to a Person and
Iridium or such Restricted Subsidiary leases it from such Person, with respect
to any Person.
"Secured Indebtedness" means any Indebtedness of either Issuer secured by a
Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative
meaning.
"Share Issuance Agreement" means the Share Issuance Agreement between
Iridium and IWCL, dated as of June 9, 1997, as amended from time to time.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act as in effect on the Issue Date.
"Space System Contract" means the Iridium Space System Contract between
Iridium and Motorola, dated as of July 29, 1993, as amended from time to time.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of either Issuer (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. Iridium's 14 1/2% Senior Subordinated Notes due 2006 will be
Subordinated Obligations.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person or
(ii) any other Person (other than a corporation) in which such Person, or one or
more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries of such Person, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Subsidiary Guaranty" means any Guarantee of the Series A Notes or the
Series B Notes, as the case may be, which may from time to time be executed and
delivered pursuant to the terms of the applicable Indenture. Each such
Subsidiary Guaranty will be in the form prescribed in the applicable Indenture.
"Tax Amount" means the aggregate amount of tax distributions required to be
made by Iridium to its members under the LLC Agreement. Notwithstanding anything
to the contrary, Tax Amount will not include taxes resulting from Iridium's
reorganization as or change in the status to a corporation.
"Terrestrial Network Development Contract" means the Terrestrial Network
Development Contract between Iridium and Motorola, entered into in June 1995, as
amended from time to time.
"Total Invested Capital" means, as of any date of determination, the sum of
(a) Total Pro Forma Consolidated Indebtedness as of such date and (b) $1.982
billion plus the aggregate proceeds received by Iridium or any Restricted
Subsidiary in respect of the issuance of Capital Stock of Iridium, including the
fair value of property other than cash (as determined in good faith by the Board
of Directors in a resolution filed with the Trustee), less any redemptions of,
or dividends or other distributions on, Capital Stock of Iridium (other than any
Tax Amount or any dividend or distribution in Capital Stock) made after the
Issue Date and on or prior to the date of determination.
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"Total Pro Forma Consolidated Indebtedness" means, as of any date of
determination, after giving effect to any Indebtedness to be Incurred by Iridium
and its Restricted Subsidiaries on a consolidated basis on such date and the
application of the proceeds therefrom, the aggregate amount of Outstanding
Indebtedness as of such date determined on a consolidated basis in accordance
with GAAP and which would appear on the consolidated balance sheet of Iridium.
"Unrestricted Subsidiary" means (i) any Subsidiary of Iridium designated as
such by the Board of Directors as set forth below where (a) neither Iridium nor
any of its other Subsidiaries (other than another Unrestricted Subsidiary) (1)
provides credit support for, or Guarantee of, any Indebtedness of such
Subsidiary or any Subsidiary of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (2) is directly or
indirectly liable for any Indebtedness of such Subsidiary or any Subsidiary of
such Subsidiary, or (3) has any obligation to make additional Investments (other
than Permitted Investments) in such Subsidiary or any Subsidiary of such
Subsidiary (other than, with respect to clauses (1) and (2) above, in the case
of any Indebtedness of Iridium or any Restricted Subsidiary, the proceeds of
which were received by Iridium or a Restricted Subsidiary, that is permitted
under the covenant described in "-- Certain Covenants -- Limitation on
Indebtedness" as to which the Unrestricted Subsidiary provides a Guarantee) and
(b) such Subsidiary and each Subsidiary of such Subsidiary has at least one
director on its board of directors that is not a director or executive officer
of Iridium or any Restricted Subsidiary, and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary to
be an Unrestricted Subsidiary by filing a resolution to such effect with the
Trustees unless such Subsidiary or any Subsidiary of such Subsidiary owns any
Capital Stock or Indebtedness of, or owns or holds any Lien (other than a
Permitted Lien) on any property of, Iridium or any other Subsidiary of Iridium
which is not a Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary; provided, however, that either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) immediately after giving
effect to such designation, Iridium could incur an additional $1.00 of
Indebtedness pursuant to the first sentence of paragraph (a) under the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" above; and
provided further, however, that Iridium could make a Restricted Payment in an
amount equal to the greater of the fair market value and the book value of such
Subsidiary pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" and such amount is thereafter
treated as a Restricted Payment for the purpose of calculating the aggregate
amount available for Restricted Payments thereunder. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary by filing a
resolution to such effect with the applicable Trustee, provided that,
immediately after giving effect to such designation, Iridium could incur an
additional $1.00 of Indebtedness pursuant to the first sentence of paragraph (a)
under the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness" above and such Subsidiary (as well as each of Iridium and the
other Guarantor Subsidiaries) complies with the covenant described under
"-- Certain Covenants -- Future Guarantor Subsidiaries" as if such Subsidiary
were a newly created Subsidiary. Notwithstanding the foregoing, neither Capital
nor any of its Subsidiaries may be Unrestricted Subsidiaries.
"Vendor Financing Facility" means any agreements between Iridium and/or any
Subsidiary of Iridium and one or more vendors or lessors of equipment to Iridium
and/or any Subsidiary (or any affiliate of any such vendor or lessor) providing
financing for the acquisition by Iridium or any such Subsidiary of equipment or
services from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly-Owned Restricted Subsidiary" means, with respect to Iridium, a
Restricted Subsidiary of Iridium all of the outstanding Capital Stock or other
ownership interests of which (other than Capital Stock constituting directors'
qualifying shares or interests held by directors or shares or
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interests required to be held by foreign nationals, in each case to the extent
mandated by applicable law) are owned by Iridium or by one or more Wholly-Owned
Restricted Subsidiaries of Iridium, or by Iridium and one or more Wholly-Owned
Restricted Subsidiaries of Iridium.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The following summary of the material provisions of the Exchange and
Registration Rights Agreement does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Exchange and Registration Rights Agreement. A copy of the Exchange and
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part and is available upon request to
Iridium at 1575 Eye Street N.W., Washington, D.C. 20005, Attention: Secretary.
The Iridium Parties and the Initial Purchasers entered into the Exchange
and Registration Rights Agreement on July 16, 1997, in connection with the
issuance of the Original Notes. Pursuant to the Exchange and Registration Rights
Agreement, the Iridium Parties agreed to (i) file with the Commission on or
prior to 15 days after the Issue Date an Exchange Offer Registration Statement
relating to the Registered Exchange Offer and (ii) use their reasonable efforts
to cause the Exchange Offer Registration Statement to be declared effective
under the Securities Act no later than 52 days after the Issue Date (provided
that if the 52nd day is not a business day, the first business day thereafter)
and to consummate the Registered Exchange Offer no later than 82 days after the
Issue Date (provided that if the 82nd day is not a business day, the first
business day thereafter). As soon as practicable after the effectiveness of an
Exchange Offer Registration Statement, the Issuers are required to offer to the
holders of Transfer Restricted Securities of each Series who are not prohibited
by any law or policy of the Commission from participating in the Registered
Exchange Offer the opportunity to exchange their Transfer Restricted Securities
for a new issue of notes that are identical in all material respects to the
Notes of the Series being exchanged (except that the such notes will not contain
terms with respect to transfer restrictions). Pursuant to the Exchange and
Registration Rights Agreement the Iridium Parties have agreed to use their
reasonable efforts to keep the Registered Exchange Offer open for not less than
20 business days (or longer, if required by applicable law or otherwise extended
by an Iridium Party at its option) after the date notice of the Registered
Exchange Offer is mailed to the holders of the Original Notes.
The Registration Statement of which this Prospectus is a part is an
Exchange Offer Registration Statement within the meaning of the Exchange and
Registration Rights Agreement, and the Exchange Offer constitutes a Registered
Exchange Offer within the meaning of the Exchange and Registration Rights
Agreement. The sole purpose of the Exchange Offer is to fulfill the obligations
of the Iridium Parties with respect to the Exchange and Registration Rights
Agreement. Each party tendering Original Notes for exchange under the Exchange
Offer agrees that the acceptance of such Original Notes by the Issuers and the
issuance of Exchange Notes in exchange therefor shall constitute performance in
full by the Iridium Parties of their obligations under the Exchange and
Registration Rights Agreement and that the Iridium Parties shall have no further
obligations or liabilities thereunder (except in the limited case of any
obligation relating to a Shelf Registration Statement, as discussed herein).
If (i) because of any change in law or applicable interpretations thereof
by the Staff of the Commission, the Issuers determine upon the advice of their
outside counsel that they are not permitted to effect the Exchange Offer as
contemplated by the Exchange and Registration Rights Agreement, (ii) any
Original Notes validly tendered pursuant to the Exchange Offer are not exchanged
for Exchange Notes within 30 days (such period to be extended if the
above-referenced 20 business day period is extended pursuant to applicable law)
after the commencement of the Exchange Offer, (iii) any Initial Purchaser so
requests within 90 days after the consummation of the Exchange Offer with
respect to Original Notes that were not eligible to be exchanged for Exchange
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Notes in the Exchange Offer and are then held by it following the consummation
of the Exchange Offer, (iv) any applicable law or interpretations do not permit
any holder of Original Notes to participate in the Exchange Offer, (v) any
Holder that participates in the Exchange Offer notifies Iridium within 10 days
after the consummation of the Exchange Offer that it did not receive freely
transferable Exchange Notes in exchange for validly tendered Original Notes or
(vi) the Issuers so elect, then the Iridium Parties will file with the
Commission a Shelf Registration Statement on the terms set forth in the Exchange
and Registration Rights Agreement to cover resales of Transfer Restricted
Securities from time to time by such holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement and who agree in writing to be bound by all provisions of
the Exchange and Registration Rights Agreement (including certain
indemnification obligations). For purposes of the foregoing, "Transfer
Restricted Securities" means each Original Note until (i) the date on which such
Original Note has been exchanged for a freely transferable corresponding
Exchange Note in the Exchange Offer, (ii) the date on which such Original Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, or (iii) the date on which
such Original Note is distributed to the public pursuant to Rule 144 under the
Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act.
Unless the Registered Exchange Offer would not be permitted by applicable
law or a policy of the Commission, the Iridium Parties are required pursuant to
the Exchange and Registration Rights Agreement to commence the Registered
Exchange Offer and to use their reasonable efforts to consummate the Registered
Exchange Offer within 30 days (such period to be extended if the
above-referenced 20 business day period is extended pursuant to applicable law)
after the effective date of the Exchange Offer Registration Statement. If
applicable, the Iridium Parties will use their reasonable efforts to file the
Shelf Registration Statement with the Commission as promptly as practicable (but
in no event later than the later of (i) 150 days after the Issue Date and (ii)
60 days after such filing obligation arises as specified in the Exchange and
Registration Rights Agreement), and thereafter will use their reasonable efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act by the Commission on or prior to 60 days after such filing is
made, and to keep the Shelf Registration Statement effective for a period of two
years after the Issue Date or for a period of one year in the event the Shelf
Registration Statement is requested by the Initial Purchasers. If (a) Iridium
Parties fail to file any of the registration statements required by the Exchange
and Registration Rights Agreement on or before the date specified for such
filing, (b) any of such registration statements is not declared effective by the
Commission on or prior to the relevant date specified for such effectiveness
(the "Effectiveness Target Date"), or (c) Iridium Parties fail to consummate the
Registered Exchange Offer within 30 days (such period to be extended if the
above referenced 20 business day period is extended pursuant to applicable law)
of the Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Exchange and Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Iridium Parties will be obligated to pay liquidated damages
to each holder of Notes constituting Transfer Restricted Securities, with
respect to the first 15-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of such Notes held by such holder. Such damages, together with damages
accrued by Iridium pursuant to the next succeeding sentence, are collectively
referred to herein as "Liquidated Damages". The amount of the Liquidated Damages
will increase by an additional $.10 per week per $1,000 principal amount of such
Notes with respect to each subsequent 30-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50
per week per $1,000 principal amount of such Notes. All accrued Liquidated
Damages will be paid to the Holder in the same manner as interest payments on
the Notes on semi-annual payment dates which correspond
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to interest payment dates for the Notes. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer is required to make the representations
specified in the Exchange and Registration Rights Agreement, including
representations that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the Original Notes or Exchange
Notes, (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of an Iridium Party or, if such holder is an affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (iv) if such holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of the Exchange Notes, and (v) if such holder is a broker-dealer,
that it will receive Exchange Notes for its own account in exchange for Original
Notes that were acquired as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "The Exchange Offer."
Holders of Original Notes will be required to make certain representations
to the Iridium Parties in order to participate in the Exchange Offer and will be
required to deliver information to be used in connection with the Shelf
Registration Statement in order to have their Original Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth in the preceding paragraphs. A holder who sells
Original Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Exchange and Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations). Notwithstanding the foregoing, no holder of
Transfer Restricted Securities shall be entitled to receive any Liquidated
Damages with respect to such Transfer Restricted Securities, if a holder of such
Transfer Restricted Securities was, at any time while a Registered Exchange
Offer (including the Exchange Offer) was pending, eligible to exchange, and did
not validly tender, such Transfer Restricted Securities for freely transferable
corresponding Exchange Notes in such Registered Exchange Offer.
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TAX CONSIDERATIONS
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is general summary of the U.S. federal income tax
consequences of the ownership and disposition of Notes. The summary is limited
to holders who hold Notes as "capital assets" and whose "functional currency" is
the U.S. dollar and does not cover holders subject to special rules, including
insurance companies, tax-exempt organizations, financial institutions, person
subject to the alternative minimum tax, broker-dealers, or holders who hold
Notes in a hedging transaction or as part of a straddle or conversion
transaction. The summary does not address state or local taxes.
A U.S. Holder is a beneficial owner of a Note that is (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate the
income of which is subject to United States federal income tax without regard to
its source or (iv) a trust if a United States court is able to exercise primary
supervision over administration of the trust and one or more United States
fiduciaries have authority to control all substantial decisions of the trust. A
Non-U.S. Holder is a beneficial owner of a Note that is not a United States
person for United States federal income tax purposes.
This summary is for general informational purposes only, and is based upon
the tax laws of the United States as in effect on the date of this Prospectus,
which are subject to change. The tax treatment of a holder may vary depending
upon the particular situation of the holder. Each holder should consult its own
advisor as to the United States or other tax consequences of the ownership and
disposition of the Notes.
EXCHANGE OFFER
The exchange of Original Notes for Exchange Notes pursuant to the
Registered Exchange Offer should not be a taxable exchange. As a result, (i) a
Holder should not recognize taxable income or loss as a result of exchanging
Original Notes for Exchange Notes pursuant to the Exchange Offer; (ii) the
holding period of the Exchange Notes should include the holding period of the
Original Notes exchanged therefore; and (iii) the adjusted tax basis of the
Exchange Notes should be the same as the adjusted tax basis of the Original
Notes exchanged therefor immediately before such exchange.
U.S. HOLDERS
Payments of Interest
Interest on a Note, other than interest that is not "qualified stated
interest," will be taxable to a U.S. Holder as ordinary United States source
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A qualified stated interest payment is generally
any one of a series of stated interest payments on a Note that is
unconditionally payable at least annually at a single fixed rate (with certain
exceptions for lower rates paid during some periods) applied to the outstanding
principal amount of the Note.
Original Issue Discount
General. Each Original Note was issued with original issue discount ("OID")
in an amount equal to the excess of the Note's stated redemption price at
maturity (as defined below) over its issue price. The "stated redemption price
at maturity" of a Note is the total of all payments provided by the Note that
are not payments of qualified stated interest. Generally, the issue price of a
Note is the first price at which a substantial amount of Notes were sold to the
public (excluding sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). Under these rules, the amount of OID with respect to a Series B
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Note is equal to the excess of the principal amount of the Series B Note over
its issue price. The amount of OID with respect to the Series A Notes was
computed as follows: Because the Series A Notes were offered to the Initial
Purchasers together with IWCL Warrants, each Series A Note was treated as having
been issued as part of an investment unit for federal income tax purposes,
consisting of the Series A Note and Warrants. Under Treasury Regulations, the
Issuers were required to allocate the issue price between the Series A Notes and
the Warrants based upon their relative fair market values on the issue date, and
then use this allocation to determine the amount of the OID with respect to the
Series A Notes. This allocation is not binding on the Internal Revenue Service
("IRS"). However, the holder of a Unit must use the Issuer's allocation unless
the holder discloses on its federal income tax return for the year in which the
Units are acquired that it plans to use an allocation that is inconsistent with
the Issuers' allocation. If a holder acquires a Unit at a price different from
that upon which the Issuers' allocation is based, such holder may be treated as
having acquired its Series A Note for an amount greater than or less than the
amount allocated to the Series A Note by the Issuers, resulting in "acquisition
premium," "bond premium" or "market discount" as described below.
U.S. Holders of Notes must generally include OID in income calculated on a
constant-yield method before the receipt of cash attributable to such income,
and generally will have to include in income increasingly greater amounts of OID
over the life of the Note. The amount of OID includible in income by a U.S.
Holder of a Note is the sum of the daily portions of OID with respect to the
Note for each day during the taxable year or portion of the taxable year on
which the U.S. Holder holds such Note ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. Accrual periods with respect to a
Note may be of any length selected by the U.S. Holder and may vary in length
over the time of the Note as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or principal on the Note occurs
on either the final or first day of an accrual period. The amount of OID
allocable to an accrual period equals the excess of (a) the product of the
Note's adjusted issue price at the beginning of the accrual period and such
Note's yield to maturity (determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the accrual period)
over (b) the sum of the payments of qualified stated interest on the Note
allocable to the accrual period. The "adjusted issue price" of a Note at the
beginning of any accrual period is the issue price of the Note increased by (x)
the amount of accrued OID for each prior accrual period and decreased by (y) the
amount of any payments previously made on the Note that were not qualified
stated interest payments. For purposes of determining the amount of OID
allocable to an accrual period, if an interval between payments of qualified
stated interest on the Note contains more than one accrual period, the amount of
qualified stated interest payable at the end of the interval (including any
qualified stated interest that is payable on the first day of the accrual period
immediately following the interval) is allocated pro rata on the basis of
relative lengths to each accrual period in the interval, and the adjusted issue
price at the beginning of each accrual period in the interval must be increased
by the amount of any qualified stated interest that has accrued prior to the
first day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is the difference between (x) the amount payable at the
maturity of the Note (other than any payment of qualified stated interest) and
(y) such Note's adjusted issue price as of the beginning of the final accrual
period.
Acquisition Premium. A U.S. Holder that purchases a Note for an amount less
than or equal to the sum of all amounts payable on such Note after the purchase
date other than payments of qualified stated interest but in excess of its
adjusted issue price (as determined above under " -- Original Issue
Discount -- General") (any such excess being "acquisition premium") and that
does not make the election described below under " -- Election to Treat All
Interest as Original Issue Discount" shall reduce the daily portions of OID by a
fraction, the numerator of which is the excess of the U.S. Holder's adjusted
basis in the Note immediately after its purchase over the
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adjusted issue price of the Note, and the denominator of which is the excess of
the sum of all amounts payable on the Note after the purchase date, other than
payments of qualified stated interest, over the Note's adjusted issue price.
Market Discount. A Note will be treated as purchased at a market discount
(a "Market Discount Note") if (i) the amount for which a U.S. Holder purchased
the Note is less than the Note's issue price (as determined above under
" -- Original Issue Discount -- General") and (ii) the Note's "revised issue
price" exceeds the amount for which the U.S. Holder purchased the Note by at
least 1/4 of 1 percent of such Note's stated redemption price at maturity or
revised issue price, respectively, multiplied by the number of complete years to
the Note's maturity. If such excess is not sufficient to cause the Note to be a
Market Discount Note, then such excess constitutes "de minimis market discount"
and such Note is not subject to the rules discussed in the following paragraphs.
The Code provides that, for these purposes, the "revised issue price" of a Note
generally equals its issue price, increased by the amount of any OID that has
accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Note. Alternatively, a U.S. Holder of
a Market Discount Note may elect to include market discount in income currently
over the life of the Note. Such an election shall apply to all debt instruments
with market discount acquired by the electing U.S. Holder on or after the first
day of the first taxable year to which the election applies. This election may
not be revoked without the consent of the IRS.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the U.S. Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A U.S. Holder of a Market
Discount Note that does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Note in an amount not exceeding the accrued market discount on
such Note until the maturity or disposition of such Note.
Election to Treat all Interest as Original Issue Discount. A U.S. Holder
may elect to include in gross income all interest that accrues on a Note using
the constant-yield method described above under the heading "-- Original Issue
Discount -- General", with the modifications described below. For purposes of
this election, interest includes stated interest, OID, de minimis original issue
discount, market discount, de minimis market discount and unstated interest, as
adjusted by any amortizable bond premium (described below under "-- Notes
Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal its cost to the
electing U.S. Holder, the issue date of the Note will be the date of its
acquisition by the electing U.S. Holder, and no payments on the Note will be
treated as payments of qualified stated interest. This election will generally
apply only to the Note with respect to which it is made and may not be revoked
without the consent of the IRS. If this election is made with respect to a Note
with amortizable bond premium, then the electing U.S. Holder will be deemed to
have elected to apply amortizable bond premium against interest with respect to
all debt instruments with amortizable bond premium (other than debt instruments
the interest on which is excludible from gross income) held by the electing U.S.
Holder as of the beginning of the taxable year in which the Note with respect to
which the election is made is acquired or thereafter acquired. The deemed
election with respect to amortizable bond premium may not be revoked without the
consent of the IRS.
If the election to apply the constant-yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing U.S. Holder
will be treated as having made the election discussed above under "-- Original
Issue Discount -- Market Discount" to include market discount
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in income currently over the life of all debt instruments held or thereafter
acquired by such U.S. Holder.
Notes Purchased at a Premium
A U.S. Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium",
in which case the amount required to be included in the U.S. Holder's income
each year with respect to interest on the Note will be reduced by the amount of
amortizable bond premium allocable (based on the Note's yield to maturity) to
such year. Any election to amortize bond premium shall apply to all bonds (other
than bonds the interest on which is excludible from gross income) held by the
U.S. Holder at the beginning of the first taxable year to which the election
applied or thereafter acquired by the U.S. Holder, and is irrevocable without
the consent of the Service. See also "-- Original Issue Discount -- Election to
Treat All Interest as Original Issue Discount".
Purchase, Sale and Retirement of the Notes
A U.S. Holder's tax basis in a Note will generally be the price paid for
such Note (as determined, in the case of the Units, by allocating a portion of
the price paid for a Unit to the Series A Note and the balance of the Warrant as
described above), increased by the amount of any OID or market discount included
in the U.S. Holder's income with respect to the Note and the amount, if any, of
income attributable to de minimis original issue discount and de minimis market
discount included in the U.S. Holder's income with respect to the Note, and
reduced by (i) the amount of any payments that are not qualified stated interest
payments, and (ii) the amount of any amortizable bond premium applied to reduce
interest on the Note.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. Except to the extent described
above under "-- Original Issue Discount -- Market Discount," or attributable to
accrued but unpaid interest, gain or loss recognized on the sale or retirement
of a Note will be capital gain or loss. Under recently enacted legislation, an
individual U.S. Holder is generally subject to a maximum capital gains rate of
28% for Notes held for more than one year and the maximum capital gains rate for
an individual U.S. Holder is reduced to 20% for Notes held in excess of 18
months.
NON-U.S. HOLDERS
A Non-U.S. Holder of Notes will not be subject to U.S. federal income tax
on interest paid with respect to, or gains realized on the sale or other
disposition of, Notes, unless (i) such interest or gain is effectively connected
with the conduct by the holder of a trade or business in the United States (and
is attributable to a permanent establishment maintained in the United States by
such Non-U.S. Holder, if an applicable income tax treaty so requires as a
condition for such Non-U.S. Holder to be subject to U.S. taxation on a net
income basis in respect of interest from or gain from the sale of Notes, in
which case the Non-U.S. Holder generally will be subject to tax in respect of
such interest or gains in the same manner as a U.S. Holder, or (ii) in the case
of gain realized by an individual holder, the holder is present in the United
States for 183 days or more during the taxable year of the sale and certain
other conditions are met. Effectively connected income realized by a corporate
Non-U.S. Holder may also, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Subject to the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest, including
OID, by the Issuers or any of their paying agents to a Non-U.S. Holder will
not be subject to United States federal withholding tax if, in the case of
interest or OID, such income is subject to U.S. federal income tax as
described above or (a) the beneficial owner of the Note does not actually
or construc-
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tively own 10% or more of the total combined voting power of all classes of
stock or membership interests of the Issuers entitled to vote, (b) the
beneficial owner of the Note is not a controlled foreign corporation that
is related to the Issuers through stock ownership, and (c) either (A) the
beneficial owner of the Note certifies to the Note issuers or their agent,
under penalties of perjury, that it is not a United States Holder and
provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Note certifies to the Issuers or their agent under penalties of
perjury that such statement has been received from the beneficial owner by
it or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof; and
(ii) a Non-U.S. Holder will not be subject to United States federal
withholding tax on any gain realized on the sale or exchange of Notes.
Recently proposed IRS Treasury regulations (the "Proposed Regulations")
would provide alternative methods for satisfying the certification requirement
described in clause (i)(c) above. The Proposed Regulations also would require,
in the case of Notes held by a foreign partnership, that (x) the certification
described in clause (i)(c) above be provided by the partners rather than by the
foreign partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A look-through rule
would apply in the case of tiered partnerships. There can be no assurance that
the Proposed Regulations will be adopted or as to the provisions that they will
include if and when adopted in temporary or final form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note made within the United States to,
and the accrual of OID on an Original Issue Discount Note with respect to a
non-corporate United States person, and "backup withholding" at the rate of 31%
will apply to such payments if the holder or beneficial owner fails to provide
an accurate taxpayer identification number in the manner required by United
States law and applicable regulations, if there has been notification from the
Service of a failure by the holder or beneficial owner to report all interest
required to be shown on its federal income tax returns or, in certain
circumstances, if the holder or beneficial owner fails to comply with applicable
certification requirements. Certain corporations and persons that are not United
States persons may be required to establish their exemption from information
reporting and backup withholding by certifying their status on Internal Revenue
Service Forms W-8 or W-9.
In general, payment of the proceeds from the sale of Notes to or through a
United States office of a broker is subject to both United States backup
withholding and information reporting unless the holder or beneficial owner
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption. United States information reporting and backup
withholding generally will not apply to a payment made outside the United States
of the proceeds of a sale of Notes through an office outside the United States
of a non-United States broker. However, United States information reporting
requirements (but not backup withholding) will apply to a payment made outside
the United States of the proceeds of a sale of Notes through an office outside
the United States of a broker that is a United States person, that derives 50%
or more of its gross income for a specified three-year period from the conduct
of a trade or business in the United States, or that is a "controlled foreign
corporation" as to the United States, unless the broker has a documentary
evidence in its files that the holder or beneficial owner is a non-United States
person or the holder or beneficial owner otherwise establishes an exemption.
Amounts withheld under the backup withholding rules may be credited against
a holder's tax liability, and a holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the United States Internal Revenue Service.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for existing Notes where
such existing Notes were acquired as a result of market-making activities or
other trading activities. The Issuers have agreed that, for a period of up to
180 days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1998, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
None of the Iridium Parties will receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer for the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Iridium Parties will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Iridium Parties have agreed to pay all
expenses incident to the Exchange Offer (including the reasonable expenses of
one counsel for the Holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the Holders of the Notes (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF THE SECURITIES
The validity of the Exchange Notes and the Guarantee of the Initial
Guarantors offered hereby will be passed on for the Iridium Parties by Sullivan
& Cromwell, New York, New York.
EXPERTS
The consolidated financial statements of Iridium LLC as of December 31,
1996 and 1995, and for each of the years in the three-year period ended December
31, 1996, and for the period June 14, 1991 (Inception) through December 31, 1996
have been included herein and in the Registration Statement of which this
Prospectus forms a part in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
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GLOSSARY
Aeronautical
Mobile-Satellite Route
Service ("AMS(R)S")...... aviation communications services for safety and
non-safety purposes
"AMPS"..................... Advanced Mobile Phone Service -- a transmission
protocol used by some cellular operators primarily
in the Americas
"antenna beams"............ tightly focused radio beams transmitted by the
IRIDIUM satellites
"Big LEO".................. LEO MSS systems operating in the bands 1610-1626.5
MHZ/2483.5-2500 MHZ
"bps"...................... bytes per second
"CDMA"..................... Code Division Multiple Access -- a transmission
protocol used by some cellular networks that is
derived from spread spectrum techniques of the
military
"clearinghouse
functions"................. expected to be performed by Iridium, clearinghouse
functions will include preparation of master
billing tapes, administration of the subscriber
numbering plan and settlement activities
"coordination"............. the process of negotiation and agreement between
ITU member nations by which cases of potential
harmful interference by services duly authorized by
ITU member nations are resolved
"co-rotating orbital
planes".................... immediately adjacent orbital paths
"cross-link antennas"...... antennas used by the satellites to communicate with
one another
"dB"....................... decibel -- a unit used to express relative
difference in power
"earth terminals".......... land based units which communicate with the IRIDIUM
satellite constellation
"excusable delay".......... has the meaning assigned thereto in the Space
System Contract
"ELVs"..................... expendable launch vehicles
"FCC"...................... the United States Federal Communications Commission
"feeder links"............. communications links between gateways and
satellites used to relay message data; these links
use the K-Band on the IRIDIUM System; sometimes
referred to as "gateway links"
FDMA/TDMA.................. Frequency Division Multiple Access/Time Division
Multiple Access -- a transmission protocol used by
some cellular networks
"gateways"................. terrestrial interconnection points between the
IRIDIUM satellite constellation and PSTNs
"gateway links"............ communications links between gateways and
satellites used to relay message data; these links
use the K-Band on the IRIDIUM System; sometimes
referred to as "feeder links"
"GEO"...................... geostationary earth orbit
"GHz"...................... gigahertz -- one billion cycles per second
"global roaming"........... the ability to travel worldwide, subject to certain
limitations, and receive and make telephone calls
from a handheld mobile phone
181
188
"GMPCS".................... Global Mobile Personal Communication Services
"GMSS"..................... Global Mobile Satellite Services
"GSM"...................... Global System for Mobile Communications -- a
transmission protocol used by cellular networks
including most of Europe and parts of Asia
"ICRS"..................... Iridium Cellular Roaming Service
"IIU"...................... Iridium Interoperability Unit being developed under
the direction of Motorola to permit system
management information, including customer
authentication and location, to be relayed between
systems using different protocols
"Inmarsat"................. the International Maritime Satellite Organization
"Intelsat"................. the International Telecommunications Satellite
Organization
"intersatellite links"..... communications links among the satellites in the
IRIDIUM satellite constellation
"IRIDIUM Satellite
Services".................. the satellite-based voice, data, facsimile and
paging services to be offered by Iridium
"IRIDIUM Services"......... the voice, data, facsimile and paging services to
be offered by Iridium
"IS-41".................... International Standard-41 -- a transmission
protocol used by cellular networks including most
of North America and South America
"ITU"...................... International Telecommunication Union
"landline"................. terrestrially-based telephone line
"LEO" (low earth orbit).... earth orbit at a relatively low (e.g., 780
kilometers) altitude
"link margin".............. the amount (usually expressed in dB) by which a
received signal exceeds a predetermined lower limit
for desired message quality
"LLC Agreement"............ the agreement, dated as of July 29, 1996, entered
into by the investors in Iridium, and pursuant to
which Iridium is organized
"main mission antennas".... the antennas used by IRIDIUM satellites to
communicate with subscriber equipment (phased array
antennas)
"master control
facility".................. the primary facility from which the IRIDIUM
constellation of satellites and the IRIDIUM System
are managed
"MEO"...................... medium earth orbit
"MHZ"...................... megahertz -- one million cycles per second
"MSS"...................... mobile satellite services
"multi-mode phone"......... a phone designed to operate both with a terrestrial
wireless system and with the IRIDIUM System;
Motorola is designing a multi-mode phone which,
through the use of interchangeable TRCs will work
with various different terrestrial wireless
networks
"MXU"...................... multiplex units which contain numerous channels to
be used for communications between a terrestrial
telephone system and the IRIDIUM satellite
constellation
182
189
"near polar orbit"......... a flight path which generally follows the earth's
longitudinal lines and crosses both poles during
each orbit
"Operations and Maintenance
Contract"................ the Operations and Maintenance Contract, effective
July 1993, between Iridium and Motorola, as amended
from time to time
"orbital plane"............ generally, the flight path of a satellite
"phone".................... a handset that can be used to provide IRIDIUM voice
services
"primary".................. in the context of spectrum allocation, an
allocation to a service that is granted protection
from harmful interference from stations of a
secondary service
"protocol"................. technical standard used by a wireless
communications system permitting communications,
user authentication and billing
"PSTN"..................... public switched telephone network
"Reserve Capital Call"..... the contractual commitment by 17 of Iridium's
investors to purchase up to 18,206,550 Class 1
Interests at $13.33 per Interest
"secondary"................ in the context of spectrum allocation, an
allocation to a service that (i) cannot cause
harmful interference to stations of primary or
permitted services to which frequencies are already
assigned or to which frequencies may be assigned at
a later date and (ii) cannot claim protection from
harmful interference from stations of a primary or
permitted service to which frequencies are already
assigned or may be assigned at a later date
"service provider"......... the retail link in the IRIDIUM System distribution
chain -- IRIDIUM service providers are expected to
market IRIDIUM Services to, provide services for,
and ultimately bill the consumers of, IRIDIUM
Services. Gateway operators may or may not act as
service providers
"SIM Card"................. a subscriber identity module which, when inserted
into a phone, will permit the phone to identify a
subscriber to the IRIDIUM System
"space segment"............ the space-related portion of the IRIDIUM System
which will consist of a constellation of 66
operational low earth orbit satellites and related
ground infrastructure
"Space System Contract".... the Space System Contract, effective as of July 29,
1993, between Iridium and Motorola, as amended from
time to time
"spectrum"................. the radio frequency spectrum
"system control
facilities"................ facilities for controlling the operation of the
IRIDIUM System
"tail charge".............. the cost charged by local telephone systems for
connecting a telephone call
"TDMA"..................... Time Division Multiple Access -- a transmission
protocol used by some terrestrial wireless networks
"telemetry"................ the science of automatic measurement and
transmission of data from remote sources for
recording and analysis
183
190
"Terrestrial Network
Development Contract".... the Terrestrial Network Development Contract,
entered into in June 1995, between Iridium and
Motorola, as amended from time to time
"TRCs"..................... Terrestrial Radio Cassettes being designed by
Motorola for use with multi-mode phones to permit
those phones to operate with one or more
terrestrial wireless protocols
"TT&C"..................... tracking, telemetry and command
"user links"............... communications links between subscriber equipment
and the IRIDIUM satellite constellation
"WRC-92/WRC-95"............ the 1992/1995 World Administrative Radio Conference
"WRCs"..................... World Radiocommunication Conferences (formerly
known as World Administrative Radio
Conferences -- WARCs)
"$"........................ United States Dollars
184
191
INDEX TO FINANCIAL STATEMENTS
PAGES
-----
IRIDIUM LLC
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... F-3
Consolidated Statements of Loss for the years ended December 31, 1994, 1995 and 1996
and for the period from June 14, 1991 (Inception) through December 31, 1996........ F-4
Consolidated Statements of Members' Equity (Deficit) for the period from June 14,
1991 (Inception) through December 31, 1991, the year ended December 31, 1992, the
seven months ended July 29, 1993, the five months ended December 31, 1993, and the
years ended December 31, 1994, 1995 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996, and the period from June 14, 1991 (Inception) through December 31, 1996...... F-6
Notes to Consolidated Financial Statements........................................... F-7
Unaudited Condensed Consolidated Balance Sheet as of June 30, 1997................... F-20
Unaudited Condensed Consolidated Statements of Loss for the six months ended June 30,
1996 and 1997 and for the period from June 14, 1991 (Inception) through June 30,
1997............................................................................... F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1997 and for the period from June 14, 1991 (Inception) through
June 30, 1997...................................................................... F-22
Notes to Unaudited Condensed Consolidated Financial Statements....................... F-23
- ---------------
NOTE - Iridium Capital Corporation ("Capital") was formed and capitalized by
Iridium LLC on June 16, 1997. Iridium Roaming LLC ("Roaming") was formed
by Iridium LLC on June 15, 1997. Iridium IP LLC ("IP") was formed by
Iridium LLC on February 28, 1997. Roaming and IP have no assets,
liabilities (actual or contingent) or operations, except as covered in
the consolidated financial statements of Iridium LLC. Other than with
respect to the Notes, none of Capital, Roaming or IP has any significant
assets, liabilities (actual or contingent) or operations. See Note 8 to
the unaudited condensed consolidated financial statements.
F-1
192
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Members
Iridium LLC:
We have audited the accompanying consolidated balance sheets of Iridium LLC
and subsidiary (a development stage limited liability company) as of December
31, 1996 and 1995, and the related consolidated statements of loss, members'
equity (deficit), and cash flows for each of the years in the three-year period
ended December 31, 1996, and for the period from June 14, 1991 (inception)
through December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Iridium LLC
and subsidiary (a development stage limited liability company) as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996, and for the
period from June 14, 1991 (inception) through December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG PEAT MARWICK LLP
Washington, D.C.
February 28, 1997, except as to Note 12
which is as of May 9, 1997
F-2
193
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT INTEREST DATA)
AS OF DECEMBER 31, 1995 AND 1996
1995 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 51,332 $ 1,889
Due from affiliates........................................... -- 3,476
Prepaid expenses and other current assets..................... 873 7,154
---------- ----------
Total current assets.................................. 52,205 12,519
Property and equipment -- net (Note 4).......................... 1,264 2,065
System under construction (Note 8).............................. 1,448,000 2,376,884
Other assets.................................................... 3,914 42,613
---------- ----------
Total assets.......................................... $1,505,383 $2,434,081
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 4,969 $ 17,937
Accounts payable to Member (Note 8)........................... 90,186 100,563
---------- ----------
Total current liabilities............................. 95,155 118,500
Guaranteed bank facility (Note 5)............................... -- 505,000
Long-term debt due to Members (Note 6).......................... -- 230,904
Other liabilities (Note 9)...................................... 5,618 7,648
---------- ----------
Total liabilities..................................... 100,773 862,052
---------- ----------
Commitments and Contingencies (Notes 1, 3, 5, 8, 9 and 11)
Members' equity (Notes 1, 3, 5, 6, 8, 9 and 12):
Class 2 Interests, 50,000 interests authorized for Series M;
an aggregate of 300,000 interests authorized for Series A,
Series B and Series C
Series M, Convertible, no interests issued or
outstanding.............................................. -- --
Series A, Redeemable, Convertible, no and 46,977 interests
issued and outstanding; liquidation value of $46,977 as
of December 31, 1996..................................... -- 46,977
Series B, Redeemable, no and 1 interest issued and
outstanding.............................................. -- --
Series C, Redeemable, no and 75 interests issued and
outstanding.............................................. -- --
Class 1 Interests, 225,000,000 interests authorized;
110,326,200 and 120,836,025 interests issued and
outstanding; 9,132,150 and no interests subscribed but
unissued................................................... 1,465,917 1,659,625
Deficit accumulated during the development stage.............. (60,242) (133,840)
Adjustment for minimum pension liability (Note 9)............. (1,065) (733)
---------- ----------
Total Members' equity................................. 1,404,610 1,572,029
---------- ----------
Total liabilities and Members' equity................. $1,505,383 $2,434,081
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
194
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS EXCEPT INTEREST DATA)
PERIOD FROM
YEAR ENDED DECEMBER 31, JUNE 14, 1991
---------------------------------------- (INCEPTION) THROUGH
1994 1995 1996 DECEMBER 31, 1996
----------- ----------- ------------ -------------------
Operating expenses
Sales, general and
administrative (Notes 5, 8, 9
and 11)...................... $ 17,561 $ 27,187 $ 71,404 $ 138,132
Other income
Interest income................. 4,252 5,226 2,395 12,263
----------- ----------- ------------ --------------
Loss before provision for income
taxes........................... 13,309 21,961 69,009 125,869
Provision for income taxes (Note
7).............................. 1,525 1,684 4,589 7,971
----------- ----------- ------------ --------------
Net loss.......................... $ 14,834 $ 23,645 $ 73,598 $ 133,840
============ ============ ============= ==============
Preferred dividend requirement
(Note 3)........................ -- -- 3,652
----------- ----------- ------------
Net loss applicable to Class 1
Interests....................... $ 14,834 $ 23,645 $ 77,250
============ ============ =============
Net loss per Class 1 Interest..... $ 0.38 $ 0.27 $ 0.64
============ ============ =============
Weighted average interests used in
computing net loss per Class 1
Interest........................ 39,040,275 88,162,875 120,115,575
============ ============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
195
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT INTEREST DATA)
ALL SERIES, CLASS 2 DEFICIT ADJUSTMENT
INTERESTS CLASS 1 INTERESTS ACCUMULATED FOR
------------------- ------------------------ DURING THE MINIMUM
NUMBER OF NUMBER OF DEVELOPMENT PENSION
INTERESTS AMOUNT INTERESTS AMOUNT STAGE LIABILITY TOTAL
--------- ------- ----------- ---------- ------------ ---------- ----------
Inception June 14, 1991......... -- $ -- -- $ -- $ -- $ -- $ --
Net loss........................ -- -- -- -- (757) -- (757)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1991...... -- -- -- -- (757) -- (757)
Net loss........................ -- -- -- -- (8,773) -- (8,773)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1992...... -- -- -- -- (9,530) -- (9,530)
Net loss........................ -- -- -- -- (5,309) -- (5,309)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, July 29, 1993.......... -- -- -- -- (14,839) -- (14,839)
Class 1 Interests subscribed,
July 29, 1993................. -- -- 60,000,000 -- -- -- --
Subscribed Class 1 Interests
issued for cash at $13.33 per
interest...................... -- -- -- 324,167 -- -- 324,167
Costs of raising equity......... -- -- -- (8,096) -- -- (8,096)
Net loss........................ -- -- -- -- (6,924) -- (6,924)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1993...... -- -- 60,000,000 316,071 (21,763) -- 294,308
Class 1 Interests subscribed.... -- -- 59,458,350 -- -- -- --
Subscribed Class 1 Interests
issued for cash at $13.33 per
interest...................... -- -- -- 518,202 -- -- 518,202
Costs of raising equity......... -- -- -- (1,863) -- -- (1,863)
Net loss........................ -- -- -- -- (14,834) -- (14,834)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1994...... -- -- 119,458,350 832,410 (36,597) -- 795,813
Subscribed Class 1 Interests
issued for cash at $13.33 per
interest...................... -- -- -- 633,514 -- -- 633,514
Costs of raising equity......... -- -- -- (7) -- -- (7)
Net loss........................ -- -- -- -- (23,645) -- (23,645)
Adjustment for minimum pension
liability..................... -- -- -- -- -- (1,065) (1,065)
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1995...... -- -- 119,458,350 1,465,917 (60,242) (1,065) 1,404,610
Class 1 Interests subscribed.... -- -- 1,377,675 -- -- -- --
Subscribed Class 1 Interests
issued for cash at $13.33 per
interest...................... -- -- -- 140,131 -- -- 140,131
Class 2 Interests issued for
cash at $1,000 per interest... 43,401 43,325 -- -- -- -- 43,325
Series A, Class 2 Interests
issued in dividends........... 3,652 3,652 -- (3,652) -- -- --
Costs of raising equity......... -- -- -- (251) -- -- (251)
Warrants to purchase Class 1
Interests issued in connection
with 14.5% Senior Subordinated
Notes......................... -- -- -- 31,761 -- -- 31,761
Warrants to purchase Class 1
Interests issued in connection
with debt guarantee........... -- -- -- 25,719 -- -- 25,719
Net loss........................ -- -- -- -- (73,598) -- (73,598)
Adjustment for minimum pension
liability..................... -- -- -- -- -- 332 332
-------- ------- ----------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1996...... 47,053 $46,977 120,836,025 $1,659,625 $ (133,840) $ (733) $1,572,029
======== ======= =========== ========== =========== ========= ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
196
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
JUNE 14, 1991
YEAR ENDED DECEMBER 31, (INCEPTION)
--------------------------------- THROUGH
1994 1995 1996 DECEMBER 31, 1996
--------- --------- --------- -----------------
Cash Flows From Operating Activities:
Net loss.............................. $ (14,834) $ (23,645) $ (73,598) $ (133,840)
Adjustments to reconcile net loss to
net cash used in operating
activities --
Depreciation and amortization...... 832 751 674 2,305
Expense recognized from warrants
issued in connection with debt
guarantee........................ -- -- 25,719 25,719
Changes in assets and liabilities:
Increase in prepaid expenses and
other current assets.......... (105) (171) (6,281) (7,154)
Increase in due from
affiliates.................... -- -- (3,476) (3,476)
Increase in other assets......... (188) (1,633) (14,079) (16,373)
Increase in accounts payable and
accrued expenses.............. 1,549 1,586 12,968 17,937
Increase (decrease) in accounts
payable to member............. (2,998) 186 377 563
Increase in other liabilities.... 1,867 1,940 2,362 6,915
--------- --------- --------- -----------
Net cash used in operating
activities.................. (13,877) (20,986) (55,334) (107,404)
--------- --------- --------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment... (2,034) (493) (1,475) (4,370)
Additions to system under
construction....................... (321,000) (762,000) (890,757) (2,248,757)
--------- --------- --------- -----------
Net cash used in investing
activities.................. (323,034) (762,493) (892,232) (2,253,127)
--------- --------- --------- -----------
Cash Flows From Financing Activities:
Net proceeds from issuance of Class 1
and Class 2 Interests.............. 516,339 633,514 183,205 1,649,128
Gross proceeds from issuance of senior
subordinated notes and warrants.... -- -- 238,453 238,453
Borrowings under bank line of
credit............................. -- -- 505,000 505,000
Deferred financing costs.............. (533) (1,094) (28,535) (30,161)
--------- --------- --------- -----------
Net cash provided by financing
activities.................. 515,806 632,420 898,123 2,362,420
--------- --------- --------- -----------
Increase (decrease) in cash and cash
equivalents........................... 178,895 (151,059) (49,443) 1,889
Cash and Cash Equivalents, beginning of
period................................ 23,496 202,391 51,332 --
--------- --------- --------- -----------
Cash and Cash Equivalents, end of
period................................ $ 202,391 $ 51,332 $ 1,889 $ 1,889
========== ========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
197
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium LLC ("Iridium") is devoting its present efforts to developing and
commercializing a global wireless system -- the IRIDIUM(R) communications system
(the "IRIDIUM System") -- that will enable subscribers to send and receive
telephone calls virtually anywhere in the world -- all with one phone, one phone
number and one customer bill.
Iridium, Inc. was incorporated on June 14, 1991. Iridium, Inc. operated as
a wholly-owned subsidiary of Motorola, Inc. ("Motorola") until July 29, 1993. On
July 29, 1993, Iridium, Inc. closed on, and had its first capital draw under, a
private placement of shares of Common Stock, subscribed to by U. S. and foreign
investors. A second private placement of shares of Common Stock was closed in
August 1994. A third private placement was closed in March 1996. Pursuant to
these private placements and four supplemental placements with certain
additional investors, the investors have invested approximately $1.62 billion in
common equity of Iridium (and could invest up to approximately $1.86 billion in
common equity if a reserve capital call is exercised in full by Iridium). All
Common Stock was sold pursuant to stock purchase agreements, some of which
provided, among other things, for the allocation of gateway service territories
to certain investors.
Iridium was formed as a limited liability company, under the terms and
conditions of the limited liability agreement ("LLC Agreement"), pursuant to the
provisions of the Delaware Limited Liability Company Act on July 29, 1996. Also
on July 29, 1996, Iridium, Inc. was merged with and into Iridium, with Iridium
as the surviving entity. Concurrent with the merger, all shares of Common Stock
of Iridium, Inc. were exchanged for Class 1 Membership Interests (the "Class 1
Interests") in Iridium.
Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the IRIDIUM System. The
scheduled date for delivery of the $3.45 billion space segment is in 1998.
Iridium plans to begin its commercial operations in the second half of 1998.
The IRIDIUM System is subject to regulation by the Federal Communications
Commission ("FCC") and by foreign administrations and regulatory bodies. On
January 31, 1995, Motorola obtained a license from the FCC to construct, launch
and operate the IRIDIUM System, subject to certain conditions.
The successful completion of the IRIDIUM System is subject, in part, to
raising additional funds. Iridium currently anticipates total capital
requirements of approximately $4.4 billion through September 1998, the expected
date of commencement of commercial operations. Iridium has raised equity
totaling $1.659 billion, and long-term and guaranteed bank facility commitments
totaling $0.988 billion. Iridium has commenced negotiations for an expanded
guaranteed bank facility for an additional $350 million. In addition, Iridium
has the right to exercise a reserve capital call up to $243 million in
additional Class 1 Interests from its members (see Note 3). The remaining funds,
approximately $1.5 billion, are expected to be raised through additional
financings of debt and/or equity as Iridium will have no source of revenues,
other than insignificant amounts of interest income, until 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Iridium LLC
and its wholly-owned subsidiary, Iridium World Communications Ltd. ("IWCL"). All
significant intercompany transactions have been eliminated.
F-7
198
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior to July 29, 1993, Iridium was a wholly-owned subsidiary of Motorola.
As a result of three private placements of equity and four supplemental private
placements with certain additional equity investors, Motorola's direct and
indirect Class 1 Interest in Iridium has been reduced to approximately 24% as of
December 31, 1996 before considering unexercised warrants held by Motorola.
DEVELOPMENT STAGE ENTERPRISE
Iridium is devoting substantially all of its present efforts to
constructing, developing and marketing the IRIDIUM System. Its planned principal
operations, to manage the operation of the IRIDIUM System, have not commenced.
ACCOUNTING ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reported periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Iridium considers short-term, highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash equivalents.
Cash and cash equivalents include cash in banks and investments in reverse
repurchase agreements maturing overnight with Citibank, N.A. and Crestar Bank.
Such investments are recorded at cost, which approximates the market value.
PROPERTY AND EQUIPMENT
Property and equipment is carried at historical cost less accumulated
depreciation and amortization. Depreciation and amortization is calculated using
the straight-line method over the following estimated useful lives:
Office equipment and furniture............................................. 5 years
Computer equipment......................................................... 5 years
Software................................................................... 3 years
Company vehicles........................................................... 5 years
SYSTEM UNDER CONSTRUCTION
System under construction includes all costs incurred related to the
construction of the space and ground components of the IRIDIUM System.
Depreciation expense will be recognized on a satellite-by-satellite basis
commencing with the date of delivery in orbit of each satellite.
Interest costs incurred during the construction of the IRIDIUM System are
capitalized. Total interest cost incurred and capitalized for the year ended
December 31, 1996 was approximately $28,127,000. Interest paid for the year
ended December 31, 1996 was approximately $1,485,000. No interest was incurred,
paid or capitalized for the years ended December 31, 1994 and 1995.
During 1996, Iridium adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of" ("Statement 121"). Statement 121 requires that
long-lived assets to be held and used be reviewed by Iridium for impairment
whenever events of changes in circumstances indicate that the carrying
F-8
199
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of an asset may not be recoverable. An impairment loss is recognized when
the undiscounted net cash flows associated with the asset are less than the
asset's carrying amount. Impairment losses, if any, are measured as the excess
of the carrying amount of the asset over its estimated fair market value. The
adoption of Statement 121 did not have a material impact on Iridium's results of
operations for the year ended December 31, 1996.
MEMBER INTEREST-BASED COMPENSATION
During 1996, Iridium adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-based Compensation" ("Statement 123"), which
encourages, but does not require, the recognition of member interest-based
employee compensation at fair value. Iridium has elected to continue to account
for member interest-based employee compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Accordingly, compensation cost
for options to purchase Class 1 Interests granted to employees is measured as
the excess, if any, of the fair value of Class 1 Interests at the date of the
grant over the exercise price an employee must pay to acquire the interest.
Warrants or options to purchase member interests granted to other than
employees as consideration for goods or services rendered are recognized at fair
market value.
EQUITY ISSUANCE COSTS
Iridium classifies all costs incurred in connection with the issuance of
equity as a reduction of members' equity. These costs include fees paid to
investment bankers, attorneys and others in connection with the issuance of
equity.
DEFERRED FINANCING COSTS
All costs incurred in connection with securing debt financing have been
deferred and are amortized over the terms of the related debt. Costs for future
debt financing are also deferred and are included in other non-current assets in
the accompanying consolidated balance sheets. Total deferred financing costs are
approximately $1,628,000 and $30,200,000 at December 31, 1995 and 1996,
respectively.
During October 1995, Iridium withdrew an intended public offering of
certain subordinated debt financing. Accordingly, Iridium wrote off
approximately $3,200,000 of deferred costs associated with the intended
financing. Such costs are included in operating expenses in the accompanying
consolidated statement of loss for the year ended December 31, 1995.
INCOME TAXES
Iridium, Inc. was subject to federal, state and local income taxes
directly. As a result of the merger of Iridium, Inc. with and into Iridium,
Iridium became a limited liability company. As a limited liability company,
Iridium is no longer subject to U. S. federal income tax directly. Rather, each
Class 1 member is subject to U.S. federal income taxation based on its ratable
portion of Iridium's income or loss. However, Iridium's primary operations are
in the District of Columbia, which does not recognize the limited liability
status for tax purposes. Accordingly, Iridium is subject to District of Columbia
franchise taxes directly. Iridium recognizes its provision for income taxes
under the asset and liability method. Under the asset and liability method,
deferred tax assets and deferred tax liabilities are recognized for the future
tax consequences attributable to differences between the
F-9
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using tax rates expected to apply to taxable income in the years in which these
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
NET INCOME (LOSS) PER CLASS 1 INTEREST
Net income (loss) per Class 1 and Class 1 equivalent interest is calculated
by dividing net income (loss), after considering required dividends on Class 2
Interests, by the weighted average number of Class 1 and Class 1 equivalent
interests, to the extent dilutive, during the period. Class 1 equivalent
interests are comprised of options and warrants and convertible Class 2
Interests. Due to the losses incurred during the years ended December 31, 1994,
1995 and 1996, the impact of the Class 1 equivalent interests is anti-dilutive
and is not presented.
RECLASSIFICATIONS
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
3. MEMBERS' EQUITY
CLASSES OF MEMBERSHIP INTERESTS
The members' interests in Iridium are divided into two classes: Class 1
Interests, which represent the common equity, and Class 2 Interests, which
represent the preferred equity. The LLC Agreement authorizes Iridium to issue
225,000,000 Class 1 Interests, 50,000 Series M Class 2 Interests, and 300,000
additional Class 2 Interests. A description of each of the classes of membership
interests follows:
Class 1 Interests. Subject to the rights of holders of any series of
Class 2 Interests, all voting rights of the members are vested in the Class
1 Interests. Each member is entitled to appoint one Director for each
5,250,000 Class 1 Interests owned. Class 1 members may aggregate any or all
of their Class 1 Interests with other Class 1 members and appoint one
Director for each 5,250,000 Class 1 Interests owned in the aggregate. The
members may manage Iridium only through their designated Directors and have
no authority, in their capacity as members, to act on behalf of or bind
Iridium.
The LLC Agreement contains a reserve capital call provision under
which certain members have agreed to purchase additional Class 1 Interests.
If the Board elects to exercise this option, Iridium could raise up to an
additional $243 million for 18,206,550 Class 1 Interests.
Series M Class 2 Interests. Motorola owns a warrant to purchase
Series M Class 2 Interests in an amount that is convertible into 2.5% of
the outstanding Class 1 Interests at the time of exercise of the warrant
(calculated on a fully diluted basis) at a price of $1,000 per Series M
Class 2 Interest. Each Series M Class 2 Interest is currently convertible
into 75 Class 1 Interests. The initial Series M Conversion Price is $13.33,
but is subject to anti-dilution adjustments from time to time. Dividends on
Series M Class 2 Interests are cumulative and accrue at the rate of 8% per
annum. No Series M Class 2 Interests are outstanding.
Series A Class 2 Interests. The Series A Class 2 Interests are
convertible preferred interests that pay dividends at a rate of 14 1/2% per
annum. Dividends on the Series A Class 2 Interests are payable, either in
kind or in cash, at the option of Iridium, through February 28,
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2001. Commencing March 1, 2001, dividends on the Series A Class 2 Interests
are payable only in cash. Dividends on the Series A Class 2 Interests
accrue whether or not they have been declared and whether or not there are
profits or other funds of Iridium legally available for the payment of such
dividends. No dividend may be declared and paid on the Class 1 Interests
unless all accrued dividends on the Series A Class 2 Interests have been
paid in full. The Series A Class 2 Interests are convertible to Class 1
Interests at any time at the option of the holder. Currently each Series A
Class 2 Interest may be converted into 18.51 Class 1 Interests. The Series
A Class 2 Interests are redeemable, at the option of Iridium at anytime
after March 1, 2001, subject to a premium if redeemed prior to March 1,
2005.
Series B and Series C Class 2 Interests. In connection with
Motorola's guarantee of Iridium's $750 million credit facility (the
"Guarantee Agreement") (See Note 5), Iridium issued to Motorola one Series
B Class 2 Interest and 75 Series C Class 2 Interests. The Series B Class 2
Interest and Series C Class 2 Interests do not pay any dividends. The
Series B Class 2 Interest entitles Motorola to one seat on the Board of
Directors in addition to Directors it may appoint as the owner of Class 1
Interests and Series M Class 2 Interests. The Series C Class 2 Interests
entitle Motorola to appoint a majority of the Board of Directors in the
event of certain events of default by Iridium. The Series B and Series C
Class 2 Interests are redeemable at the option of Iridium at $.01 per
interest upon the later of (i) the termination or expiration of the
Guarantee Agreement and (ii) the reimbursement of any payments made by
Motorola pursuant to the Guarantee Agreement.
The LLC Agreement provides that Iridium may merge or consolidate with one
or more limited liability companies, corporations, or similar entities, provided
that the transaction is approved by the Board of Directors and Class 1 members
holding not less than 66 2/3% of the outstanding Class 1 Interests. In the event
of a merger, members who hold interests and do not vote in favor of, or consent
in writing to, the merger are entitled to appraisal and repurchase rights of
their interests as specified in the LLC Agreement.
DIVIDEND AND LIQUIDATION RIGHTS
Class 1 members are entitled to receive dividends, as and when declared by
the Board of Directors, in its discretion. Class 2 members are entitled to
receive dividends, if any, in accordance with the terms of the relevant series
of Class 2 Interests, as and when declared by the Board of Directors. The Class
2 Interests rank senior to the Class 1 Interests as to dividends and
distributions upon the liquidation, dissolution and winding-up of Iridium.
The LLC Agreement requires the Iridium Board of Directors, to the extent of
legally available funds, to declare and pay a dividend sufficient to assure that
each non-U.S. Class 1 Member receives an amount at least equal to the amount of
such member's U.S. federal, state and local income tax liability resulting from
allocations of Iridium's taxable income to such member.
The LLC Agreement contains significant restrictions on the ability of a
member to transfer any interests in Iridium, including but not limited to the
conditions that: (i) a majority of the Directors approve the transfer, and (ii)
the transfer not result in any member beneficially owning, or having the right
to beneficially own, more than 45% of the outstanding Class 1 Interests.
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LIMITATIONS ON LIABILITY
Members are generally not liable for the debts, obligations or liabilities
of Iridium. IWCL, which will become a member of Iridium upon the consummation of
a pending public equity offering, has waived this limitation on liability.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996, consists of the
following (in thousands):
1995 1996
------- -------
Office equipment and furniture................................... $ 1,977 $ 3,113
Trade show booth................................................. 722 826
Company vehicles................................................. 30 --
Leasehold improvements........................................... 168 405
------- -------
2,897 4,344
Less accumulated depreciation and amortization................... (1,633) (2,279)
------- -------
Property and equipment, net...................................... $ 1,264 $ 2,065
======== ========
5. GUARANTEED BANK FACILITY
On August 21, 1996, Iridium entered into a $750 million credit agreement
with a group of banks led by Chase Manhattan Bank, NA and Barclays Bank, PLC. On
the same date Iridium entered into the Guarantee Agreement whereby Motorola
agreed to guarantee the entire $750 million commitment amount. The credit
agreement provides that Iridium may elect to borrow amounts at the then current
short-term Eurodollar rate plus 1/4% or at the then current Prime Rate of Chase
Manhattan Bank. Iridium also pays a commitment fee of 1/10 of 1% on any unused
portion of the $750 million credit facility. Interest rates on the guaranteed
bank facility ranged from 5.75% to 5.94% during 1996. The credit agreement
expires on August 20, 1998.
Under the Guarantee Agreement, Iridium is required to issue up to 150,000
warrants to Motorola to purchase up to 11,250,000 Class 1 Interests in Iridium.
As consideration for its guarantee, Motorola earns up to 82,500 warrants to
purchase up to 6,187,500 Class 1 Interests for each year the $750 million
guarantee is outstanding, but in no event warrants to purchase more than
11,250,000 Class 1 Interests over the term of the guarantee. Warrants earned are
issued to Motorola on a quarterly basis. Each warrant entitles Motorola to
purchase 75 Class 1 Interests at an exercise price of $.01 per warrant, subject
to anti-dilution adjustments. The warrants may be exercised five years from date
of issuance and expire ten years from date of issuance. As of December 31, 1996,
Motorola has earned 29,836 warrants to purchase 2,237,700 Class 1 Interests in
accordance with the Guarantee Agreement. For the year ended December 31, 1996,
Iridium recognized $25,719,000 as an expense to reflect the fair market value of
the warrants earned by Motorola. Motorola has also been granted a security
interest in all of Iridium's assets.
Subsequent to December 31, 1996, Iridium, Motorola and a group of banks
commenced negotiations for an expansion of the guaranteed bank facility by $350
million under similar terms and conditions for borrowings and the guarantee by
Motorola as the existing $750 million facility.
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT DUE TO MEMBERS
During 1996, Iridium sold units to certain of its members and their
affiliates; each unit consisting of $1,000 principal amount at maturity 14 1/2%
Senior Subordinated Discount Notes due 2006 (the "Notes") and one warrant to
purchase 10.40775 Class 1 Interests, for aggregate proceeds to Iridium of
approximately $238,453,000. The Notes are unsecured and are subordinate to all
senior debt of Iridium. The Notes fully accrete to an aggregate face value of
$480,150,000 on March 1, 2001 and mature on March 1, 2006. Each Note accrues
cash interest at a rate of 14 1/2% per annum, payable semi-annually commencing
on September 1, 2001. The Notes will be subject to redemption, at the option of
Iridium, at any time on or after March 1, 2001. The warrants entitle the holder
to purchase Class 1 Interests at an exercise price of $.01 per warrant, are
exercisable on March 1, 2001 and expire on March 1, 2006. Iridium recognized the
estimated fair market value of these warrants of $31,761,000 as an addition to
members' equity.
7. INCOME TAXES
From inception through July 29, 1996, Iridium, Inc. was subject to U. S.
federal and state and local income taxes directly, and accordingly, recognized
provisions for income taxes for U. S. federal and for all state and local
jurisdictions. Subsequent to the merger of Iridium, Inc. into a limited
liability company, Iridium is no longer subject to U.S. federal income tax
directly; however, Iridium is subject to District of Columbia franchise taxes.
Iridium's provision for income taxes for the years ended December 31, 1994,
1995, and 1996 consists of the following (in thousands):
1994 1995 1996
------ ------ ------
Current -- Federal..................................... $1,142 $1,258 $3,435
-- State and Local............................. 383 426 1,154
Deferred -- Federal..................................... -- -- --
-- State and Local............................. -- -- --
------ ------ ------
$1,525 $1,684 $4,589
====== ====== ======
The primary reconciling differences between income tax expense and the
amount of tax benefit that would be expected to result by applying the Federal
statutory rate of 35% to the loss before income taxes for the years ended
December 31, 1994 and 1995 and the period from January 1, 1996 to July 29, 1996
(the date of the merger of Iridium, Inc. into Iridium) relate primarily to the
capitalization for tax purposes of certain start-up expenditures, and state and
local taxes. The capitalization of start-up expenditures resulted in Iridium's
only significant deferred tax asset of $19,944,000 at December 31, 1995, for
which a 100% valuation allowance was established. Subsequent to the date of the
merger of Iridium, Inc. into Iridium, Iridium recognizes deferred taxes for
those jurisdictions for which Iridium is taxed directly, resulting in a deferred
tax asset for capitalized start-up expenditures of $4,774,000 at December 31,
1996, for which a 100% valuation allowance has been established.
During the years ended December 31, 1994, 1995, and 1996, Iridium made
income tax payments of approximately $1,430,000, $849,000 and $5,746,000,
respectively.
F-13
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. TRANSACTIONS WITH MEMBERS
SUPPORT AGREEMENT
Under a Support Agreement, Motorola provides certain general and
administrative support to Iridium. On a cost reimbursable basis, Motorola has
provided payroll processing and related benefits to Iridium employees, processed
payments to certain contractors providing support to Iridium, and provided other
administrative support. The amounts and nature of such costs for the years ended
December 31, 1994, 1995 and 1996 consist of the following (in thousands):
1994 1995 1996
------ ---- ----
Stock issuance costs............................... $2,612 $ -- $ --
Fixed assets, net.................................. 35 -- --
------ ---- ----
Total capitalized........................ 2,647 -- --
------ ---- ----
Payroll and related costs.......................... 428 -- --
Travel............................................. 35 -- 8
Consulting......................................... 493 603 826
Other.............................................. 229 1 18
------ ---- ----
Total expense............................ 1,185 604 852
------ ---- ----
Total.................................... $3,832 $604 $852
====== ===== =====
As of December 31, 1995, and 1996, Iridium's balance payable to Motorola
under the Support Agreement was approximately $186,000 and $563,000,
respectively.
SPACE SYSTEM CONTRACT
Iridium has a Space System Contract with Motorola to design, develop,
produce and deliver the Space Segment component of the Iridium Communications
System. Under this fixed priced contract, Motorola will construct the space
vehicles and place them into low-earth orbits for a contract price of $3.45
billion (subject to certain adjustments). The scheduled date of commencement of
commercial operations is September 1998. For the years ended December 31, 1994,
1995, and 1996, Iridium incurred $371 million, $802 million, and $836 million,
respectively, under the Space System Contract. Such costs are capitalized as
system under construction in the accompanying consolidated balance sheets. As of
December 31, 1995 and 1996, Iridium's balance payable to Motorola under the
Space System Contract was $90 million and $100 million, respectively.
The aggregate fixed and determinable portion of all remaining obligations
under the Space System Contract is as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------------ ----------
1997............................................................... $ 652,000
1998............................................................... 514,000
----------
$1,166,000
==========
TERRESTRIAL NETWORK DEVELOPMENT CONTRACT
During 1995, Iridium entered into a Terrestrial Network Development
Contract ("TNDC") with Motorola for an original amount of $160 million. Under
the TNDC, Motorola is designing and developing the terrestrial gateway hardware
and software. The payments under the original contract are tied to the
completion of milestones specified in the contract. During 1996, Iridium and
Motorola
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amended the TNDC. Under the amendment, Motorola will provide additional services
and support under the TNDC in exchange for an additional $18.9 million. In lieu
of a cash payment for the $18.9 million, Iridium may, at its election, issue
5,545 warrants to purchase an aggregate of 415,875 Class 1 Interests to
Motorola. The warrants, if issued, have an exercise price of $.01 per warrant
and may be exercised beginning March 1, 2001 and expire on March 1, 2006.
Certain of Iridium's members will own the individual gateways and will have no
obligation to Iridium for any of the amounts due to Motorola under the TNDC. For
the year ended December 31, 1996, Iridium incurred $64 million under the TNDC.
Such costs are capitalized as system under construction in the accompanying
consolidated balance sheets.
The aggregate fixed and determinable portion of all remaining obligations
under the TNDC, assuming that all obligations are settled in cash, is as follow
(in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------------- --------
1997................................................................ $ 68,000
1998................................................................ 46,900
--------
$114,900
=========
OPERATIONS AND MAINTENANCE CONTRACT
To provide for the operations and maintenance of the space segment upon
completion of the Space System Contract, Iridium has entered into the Operations
and Maintenance Contract ("O&M") with Motorola. This contract obligates Motorola
for a period of five years after completion of the final milestone under the
Space System Contract to operate the Space System, and to exert its best efforts
to monitor, upgrade and replace hardware and software of the space segment
(including the individual space vehicles) at specified levels, in exchange for
specified quarterly payments. Such payments are expected to begin in 1998 and to
aggregate approximately $2.9 billion. During 1996, Iridium entered into a
two-year option agreement to extend the O&M contract with Motorola after the
completion of the initial five-year term. If such option is exercised, Iridium
will be obligated to make quarterly payments expected to aggregate an additional
$1.3 billion. Assuming that commercial operations commence in September 1998,
the aggregate fixed and determinable portion of all obligations under the O&M is
expected to be as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------------ ----------
1997............................................................... $ --
1998............................................................... 120,000
1999............................................................... 537,000
2000............................................................... 558,000
2001 and thereafter................................................ 1,685,000
----------
$2,900,000
==========
GATEWAY OWNERS INCENTIVES
Iridium has agreed to issue warrants to purchase 300,000 Class 1 Interests
to each gateway owner whose specified gateway activities are completed on
schedule, and warrants to purchase 7,500 Class 1 Interests for each $1 million
of cumulative Iridium service revenue generated within 15 months of commercial
activation, but in no event will more than an aggregate of 122,200 warrants to
purchase an aggregate of 9,165,000 Class 1 Interests be issued to all gateway
owners. The
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrants will have terms identical to those issued to Motorola under the
Guarantee Agreement (see Note 5). As of December 31, 1996, no such warrants had
been issued.
9. EMPLOYEE BENEFITS
Iridium has adopted a comprehensive performance incentive and retirement
benefit package. The performance incentive program became effective in 1993,
while the various retirement plans became effective on February 1, 1994.
INCENTIVE PROGRAMS
Iridium has established short- and long-term incentive plans primarily
based on employee performance. Effective December 31, 1995, Iridium terminated
the long-term incentive plan. The remaining liability of the long-term incentive
plan is approximately $2,426,000 as of December 31, 1996 and is expected to be
paid in 1999. Under these plans, Iridium incurred expenses of approximately
$1,100,000, $1,300,000, and $1,252,000 for the years ended December 31, 1994,
1995, and 1996, respectively.
401(K) EMPLOYEE RETIREMENT SAVINGS PLAN
Iridium adopted a 401(k) employee retirement savings plan in 1994 covering
all employees. Iridium makes matching contributions to this qualified plan on
behalf of participating employees up to 3% of employees' compensation. Employee
contributions to the plan vest immediately. Iridium contributions vest ratably
over a seven-year period, including service credit for any prior employment with
Motorola. Under this plan, Iridium has incurred expenses of approximately
$87,000, $161,000 and $288,000 during the years ended December 31, 1994, 1995
and 1996, respectively.
RETIREMENT PLANS
All employees of Iridium are covered by a non-contributory defined benefit
retirement plan. Vesting in plan benefits generally occurs after five years.
Benefits under the plan are based on years of credited service (including any
prior employment with Motorola), age at retirement and the average earnings over
the last four years. The plan is funded annually in accordance with the Employee
Retirement Income Security Act of 1974.
In early 1995, Iridium adopted a non-qualified defined benefit plan
covering employees earning in excess of the maximum amounts which may be
considered under the qualified plan, excluding those executives participating in
the supplemental executive plans described below, who also participate in the
qualified defined benefit plan.
SUPPLEMENTAL EXECUTIVE PLANS
Iridium maintains a non-qualified defined benefit plan for selected senior
officers. During 1994 and 1995, one senior executive officer was covered by a
separate plan and a second plan was added for three additional executive
officers in early 1995. Vesting in these plans generally occur upon the
attainment of age 55 with five years of service. Benefits under these plans are
based on average annual compensation prior to retirement. Iridium has also
agreed to provide for the payment of certain taxes associated with plan
benefits. The supplemental executive plans are not funded. The net periodic
pension cost recognized under the plans was approximately $698,000, $1,256,000
and $1,925,000 for the years ended December 31, 1994, 1995, and 1996,
respectively. In addition, Iridium recorded an additional minimum pension
liability adjustment of ($1,065,000) and
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$332,000 for the years ended December 31, 1995 and 1996, respectively, for its
non-qualified plans. The additional minimum pension liability is included as a
reduction to members' equity.
SUMMARY OF DEFINED BENEFIT PLANS
Pension cost for the qualified and non-qualified defined benefit plans in
total for the years ended December 31, 1994, 1995 and 1996, are as follows (in
thousands):
1994 1995 1996
--------------------- --------------------- ---------------------
NON- NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- --------- --------- ---------
Service Cost................... $ 272 $ 294 $ 372 $ 377 $ 789 $ 438
Interest cost on projected
benefit obligation........... 54 24 70 246 133 339
Actual return on assets........ (34) -- (66) -- (82) 51
Amortization of transition
obligation................... 17 71 19 238 19 238
--------- --------- --------- --------- --------- ---------
Net periodic cost.............. $ 309 $ 389 $ 395 $ 861 $ 859 $ 1,066
======= ======= ======= ======= ======= =======
The following table describes the funded status of the plans at December
31, 1995 and 1996 (in thousands). The actuarial calculations were determined by
Iridium's consulting actuaries:
1995 1996
--------------------- ---------------------
NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- ---------
Accumulated present value of obligations:
Accumulated benefit obligation, including
vested benefits........................... $ (1,158) $ (2,209) $ (1,828) $ (2,746)
======== ======== ======== ========
Projected benefit obligation for service
rendered to date.......................... $ (1,602) $ (4,404) $ (2,554) $ (5,179)
Plan assets at fair value.................... 1,186 -- 1,931 --
--------- --------- --------- ---------
Projected benefit obligation in excess of
plan assets............................... (416) (4,404) (623) (5,179)
Unrecognized transition obligation........... 339 2,598 320 2,360
Unrecognized net (gain) loss................. (122) 662 (227) 609
--------- --------- --------- ---------
Accrued pension cost......................... (199) (1,144) (530) (2,210)
Adjustment required to recognize minimum
liability................................. -- (1,065) -- (733)
--------- --------- --------- ---------
Pension liability............................ $ (199) $ (2,209) $ (530) $ (2,943)
======== ======== ======== ========
Actuarial assumptions:
Discount rate................................ 7% 7% 7.5% 7.5%
Long-term rate of return..................... 8% 8% 8% 8%
Salary increases............................. 5% 5% 5% 5%
OPTION PLAN
On January 1, 1996, Iridium adopted an Option Plan. Under the terms of the
Option Plan, certain key employees were granted, at the discretion of the Board
of Directors, options to purchase Class 1 Interests. At the date of grant, each
employee has the option to purchase in cash all granted
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IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of options, subject to a five-year vesting period, or defer the exercise
of such option over a ten-year period, subject to earlier termination clauses.
As of December 31, 1996, 2,625,000 Class 1 Interests have been reserved for
issuance under the Option Plan. As permitted by Statement 123, Iridium applies
the intrinsic value method in accounting for compensation cost under this plan.
Accordingly, as all options to acquire Class 1 Interests have been granted at an
exercise price equal to the fair market value as of the date of grant, no
compensation cost has been recognized under this plan in the accompanying
consolidated financial statements. Had compensation cost been determined
consistent with the fair value method of Statement 123, Iridium's net loss would
have been increased to the pro forma amount indicated below (in thousands except
per interest data):
YEAR ENDED
DECEMBER 31, 1996
-----------------
Net loss......................... As reported...................... $ (73,598)
Pro forma........................ (74,172)
Net loss per Class 1 Interest.... As reported...................... $ 0.64
Pro forma........................ 0.65
During 1996, the fair value of options granted are estimated on the dates
of the grants using the Black-Scholes Option Pricing Model with the following
weighted-average assumptions: dividend yield of 0.0%, expected volatility of
45%, risk-free interest rate of 6.7%, and expected life of five years. The
effects on compensation cost as determined under Statement 123 on net loss in
1996 may not be representative of the effects on pro forma net income (loss) for
future periods.
The following table summarizes Iridium's Option Plan:
WEIGHTED
INTERESTS AVERAGE
UNDER EXERCISE
OPTION PRICE
--------- --------
Outstanding at December 31, 1995............................... -- --
Granted................................................... 729,750 $13.33
Exercised................................................. -- --
Forfeited................................................. -- --
--------- --------
Outstanding at December 31, 1996............................... 729,750 $13.33
--------- --------
Options exercisable at December 31, 1996....................... --
---------
Weighted-average fair value at date of grant of options granted
during the year ended December 31, 1996...................... $ 6.50
---------
Weighted-average remaining contractual life (in years)......... 9.39
---------
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of Iridium's financial instruments as of December 31, 1996 (in thousands):
CARRYING FAIR
AMOUNT VALUE
-------- --------
Guaranteed bank facility..................................... $505,000 $505,000
Long-term debt due to Members................................ 230,904 230,904
The fair value of Iridium's long-term debt is estimated based on the
current rates offered to Iridium for similar debt. The carrying amounts of cash
and cash equivalents, short-term investments,
F-18
209
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
due from affiliates and accounts payable and accrued expenses approximate their
fair market value as of December 31, 1996 and 1995 because of the relatively
short duration of these accounts.
11. OPERATING LEASE COMMITMENTS
Iridium leases its corporate headquarters office space and certain office
equipment under non-cancelable operating lease agreements expiring through 1999.
The corporate headquarters office lease is for a term of five years, which may
be extended at Iridium's election for an additional five years. Future minimum
payments under all operating lease arrangements are as follows (in thousands):
YEAR ENDING DECEMBER 31, AMOUNT
-------------------------------------------------------------------------- ------
1997............................................................... $1,858
1998............................................................... 1,880
1999............................................................... 156
------
$3,894
======
The office lease agreement also requires Iridium to pay operating expenses,
which are estimated at $400,000 annually. Rent expense for the years ended
December 31, 1994, 1995, and 1996 was approximately $793,000, $1,025,000, and
$1,194,000, respectively.
12. SUBSEQUENT EVENTS
On April 16, 1997, the Limited Liability Company Agreement was amended to
increase the authorized number of Class 1 Interests from 3,000,000 to
225,000,000. On May 9, 1997, Iridium effected a 75 for 1 subdivision of its
Class 1 Interests whereby each existing Class 1 Interest was subdivided into 75
Class 1 Interests. All interest and per interest data appearing in the
consolidated financial statements and notes thereto have been retroactively
adjusted for the subdivision.
F-19
210
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT INTEREST DATA)
AS OF JUNE 30, 1997
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 106,419
Due from affiliates........................................................... 10,269
Prepaid expenses and other current assets..................................... 9,321
-----------
Total current assets.................................................. 126,009
Property and equipment -- net................................................... 3,959
System under construction....................................................... 2,708,325
Other assets.................................................................... 96,252
-----------
Total assets.......................................................... $ 2,934,545
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................................... $ 38,748
Accounts payable to member.................................................... 189,000
-----------
Total current liabilities............................................. 227,748
Guaranteed bank facility........................................................ 660,000
Long-term debt due to Members................................................... 253,337
Other liabilities............................................................... 6,327
-----------
Total liabilities..................................................... 1,147,412
-----------
Commitments and Contingencies
Members' equity:
Class 2 Interests, 50,000 interests authorized for Series M; an aggregate of
300,000 interests authorized for Series A, Series B and Series C:
Series M, convertible, no interest issued and outstanding.................. --
Series A, redeemable, convertible, 37,194 interests issued and outstanding;
liquidation value of $37,194.............................................. 37,194
Series B, redeemable, 1 interest issued and outstanding.................... --
Series C, redeemable, 75 interests issued and outstanding.................. --
Class 1 Interests, 225,000,000 interests authorized; 141,219,150 interests
issued and outstanding..................................................... 1,968,366
Deficit accumulated during the development stage.............................. (217,694)
Adjustment for minimum pension liability...................................... (733)
-----------
Total Members' equity................................................. 1,787,133
-----------
Total liabilities and Members' equity................................. $ 2,934,545
==========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-20
211
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS EXCEPT INTEREST DATA)
PERIOD FROM
SIX MONTHS ENDED JUNE 30, JUNE 14, 1991
--------------------------- (INCEPTION) THROUGH
1996 1997 JUNE 30, 1997
------------ ------------ -------------------
Operating expenses
Sales, general and administrative............. $ 18,731 $ 84,468 $ 222,600
Other income
Interest income............................... 1,715 614 12,877
------------ ------------ --------------
Loss before provision for income taxes.......... 17,016 83,854 209,723
Provision for income taxes...................... 487 -- 7,971
------------ ------------ --------------
Net loss........................................ $ 17,503 $ 83,854 $ 217,694
============ ============ ==============
Preferred dividend requirement.................. 839 3,607
------------ ------------
Net loss applicable to Class 1 Interests........ $ 18,342 $ 87,461
============ ============
Net loss per Class 1 Interest................... $ 0.15 $ 0.71
============ ============
Weighted average interests used in computing net
loss per Class 1 Interest..................... 118,729,176 123,625,227
============ ============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-21
212
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED JUNE PERIOD FROM
30, JUNE 14, 1991
----------------------- (INCEPTION) THROUGH
1996 1997 JUNE 30, 1997
---------- ---------- -------------------
Cash Flows From Operating Activities:
Net loss......................................... $ (17,503) $ (83,854) $ (217,694)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization................. 287 603 2,908
Expense recognized from warrants issued in
connection with debt guarantee.............. -- 35,266 60,985
Changes in assets and liabilities:
Decrease (increase) in prepaids and other
current assets........................... 483 (2,167) (9,321)
Decrease in due from affiliates............. -- (6,793) (10,269)
Increase in other assets.................... (9,282) (16,643) (33,016)
Increase in accounts payable and accrued
expenses................................. 4,294 20,811 38,748
Increase (decrease) in other liabilities.... 6,418 (1,321) 5,594
---------- ---------- ---------------
Net cash used in operating activities.... (15,303) (54,098) (162,065)
---------- ---------- ---------------
Cash Flows From Investing Activities:
Purchases of property and equipment.............. (603) (2,422) (6,792)
Additions to system under construction........... (376,000) (224,566) (2,472,760)
---------- ---------- ---------------
Net cash used in investing activities.... (376,603) (226,988) (2,479,552)
---------- ---------- ---------------
Cash Flows From Financing Activities:
Net proceeds from issuance of Class 1 and Class 2
Interests..................................... 175,167 263,691 1,912,813
Gross proceeds from issuance of senior
subordinated notes and warrants............... 201,720 -- 238,453
Borrowings under bank line of credit............. -- 230,000 815,478
Payments under bank line of credit............... -- (75,000) (155,478)
Deferred financing costs......................... (5,466) (33,075) (63,230)
---------- ---------- ---------------
Net cash provided by financing
activities............................. 371,421 385,616 2,748,036
---------- ---------- ---------------
Increase (decrease) in cash and cash equivalents... (20,485) 104,530 106,419
Cash and Cash Equivalents, beginning of period..... 51,332 1,889 --
---------- ---------- ---------------
Cash and Cash Equivalents, end of period........... $ 30,847 $ 106,419 $ 106,419
========== ========== ===============
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-22
213
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Iridium LLC ("Iridium") is devoting its present efforts to developing and
commercializing a global wireless telephony system -- the IRIDIUM(R)
communications system (the "IRIDIUM System") -- that will enable subscribers to
send and receive telephone calls virtually anywhere in the world -- all with one
phone, one phone number and one customer bill.
2. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of Iridium LLC as of June 30, 1997, and the results of their operations
for the six month periods ended June 30, 1997 and 1996, and the period from June
14, 1991 (inception) through June 30, 1997, and their cash flows for the six
month period ended June 30, 1997 and 1996, and the period from June 14, 1991
(inception) through June 30, 1997. These condensed consolidated financial
statements are unaudited, and do not include all related footnote disclosures.
The results of operations for the six months ended June 30, 1997 are not
necessarily indicative of the results of operations expected in the future,
although the Company will continue to be a development stage limited liability
company and anticipates a net loss for the year. These financial statements
should be read in conjunction with Iridium LLC's audited consolidated financial
statements and footnotes thereto included in the registration statement on Form
S-1 (333-23419, 23419-01), dated June 9, 1997.
3. MEMBERS' EQUITY
On April 16, 1997, the Limited Liability Company Agreement of Iridium was
amended to increase the authorized number of Class 1 Interests from 3,000,000 to
225,000,000. On May 9, 1997, Iridium effected a 75 for 1 subdivision of its
Class 1 Membership Interests whereby each existing Class 1 Interest was
subdivided into 75 Class 1 Interests. All interest and per interest data
appearing in the unaudited condensed consolidated financial statements and notes
thereto have been retroactively adjusted for the subdivision.
On May 9, 1997, Iridium entered into a definitive agreement with South
Pacific Iridium Holdings Limited ("SPI"), an affiliate of P.T. Bakrie
Communications Corporation ("Bakrie"), pursuant to which SPI agreed to acquire
from Iridium 7,500,000 Class 1 Interests at $13.33 per interest. The transaction
closed on May 30, 1997 with 40% of the total purchase price paid on that date,
10% payable on November 15, 1997 and 50% on May 15, 1998. In connection with its
investment in Iridium, SPI has been allocated the South Pacific gateway service
territory.
On June 13, 1997, Iridium World Communications Ltd. ("IWCL"), a
wholly-owned subsidiary of Iridium as of that date, consummated an initial
public offering (the "Offering") of 12,000,000 shares of its Class A Common
Stock which resulted in proceeds of approximately $225 million to IWCL (expenses
of the Offering were paid by Iridium). Pursuant to the 1997 Subscription
Agreement between Iridium and IWCL, such proceeds were used to purchase
12,000,000 Class 1 Interests in Iridium. Upon consummation of the Offering, all
of the outstanding shares of IWCL held by Iridium were retired, and IWCL became
a member of Iridium.
Iridium declared approximately $3,607,000 and $839,000 in-kind dividends to
holders of Series A Class 2 Membership Interests during the six month periods
ended June 30, 1997 and 1996, respectively.
F-23
214
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUPPLEMENTAL CASH FLOW INFORMATION
During the six months ended June 30, 1997 and 1996, $32,032,000 and
$4,905,000, respectively, of interest expense was incurred and capitalized to
the system under construction. Interest paid was $7,931,000 during the six
months ended June 30, 1997, and no amounts were paid for interest during the six
months ended June 30, 1996.
There were no income taxes paid during the six months ended June 30, 1997,
and the amount paid for income taxes was $892,000 during the six months ended
June 30, 1996.
5. TRANSACTION WITH MEMBER
TERRESTRIAL NETWORK DEVELOPMENT CONTRACT
As a result of technological developments, changes in the desired product
mix and features of the IRIDIUM services, the addition of enhanced system
capabilities, and scheduling adjustments, Iridium entered into an amendment to
the Terrestrial Network Development Contract ("TNDC") with Motorola, Inc.
("Motorola"), effective July 15, 1997. Aggregate payments under the TNDC, as so
amended, are expected to be approximately $270 million.
GUARANTEED BANK FACILITY
In accordance with the Agreement Regarding the Guarantee between Iridium
and Motorola, pursuant to which Motorola guaranteed Iridium's obligations under
the Guaranteed Bank Facility, an additional 40,912 warrants to purchase
3,068,400 Class 1 Interests were earned by Motorola during the six months ended
June 30, 1997. Iridium recognized $35,266,000 as expense during the six months
ended June 30, 1997 to reflect the fair market value of the warrants earned by
Motorola.
On July 21, 1997, Iridium permanently reduced the commitment of the bank
lenders in the Guaranteed Bank Facility from $750 million to $655 million. As a
result of the reduction, the maximum number of warrants Motorola may earn as
compensation for their guarantee of that facility prior to commercial activation
(assumed to be in September 1998) is 140,862 warrants to purchase approximately
10,565,000 Class 1 interests.
6. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("Statement 128"). Statement 128 supersedes
Accounting Principles Board Opinion No. 15, "Earnings per Share" ("APB 15") and
its related interpretations, and promulgates new accounting standards for the
computation and manner of presentation of Iridium's loss per Class 1 Interest
data. Iridium is required to adopt the provisions of Statement 128 for the year
ending December 31, 1997. Earlier application is not permitted; however, upon
adoption of Statement 128 Iridium will be required to restate previously
reported annual and interim loss per Class 1 Interest data in accordance with
the provisions of Statement 128. Iridium does not believe that the adoption of
Statement 128 will have a material effect on the computation or manner of
presentation of its loss per Class 1 Interest data as currently or previously
presented under APB 15.
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. Iridium is required to adopt the
provisions of Statement 130 for the year ending December 31, 1998. Earlier
F-24
215
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
application is permitted; however, upon adoption of Statement 130 Iridium will
be required to reclassify previously reported annual and interim financial
statements. Iridium believes that the disclosure of comprehensive income in
accordance with the provisions of Statement 130 will materially affect the
manner of presentation of its financial statements as currently and previously
reported.
7. SUBSEQUENT EVENTS
On July 16, 1997, Iridium and Iridium Capital Corporation ("Capital"), a
wholly owned subsidiary of Iridium, completed an offering (the "High Yield
Offering") of (i) 300,000 units, each consisting of $1,000 principal amount of
13% Senior Notes due 2005, Series A, and one IWCL Warrant representing the right
to purchase 5.2 shares of Class A Common Stock of IWCL, and (ii) $500 million
aggregate principal amount of 14% Senior Notes due 2005, Series B. The aggregate
net proceeds received were approximately $745 million. Interest on the Series A
Notes and Series B Notes is payable in cash semi-annually on January 15(th) and
July 15(th) of each year, commencing on January 15, 1998. The notes are
redeemable at the option of Iridium, in whole or in part, at any time on or
after July 15, 2002. The Series A and Series B Notes mature on July 15, 2005.
The IWCL Warrants represent, in aggregate, the right to purchase 1,560,000
shares of Class A Common Stock of IWCL. The exercise price of each IWCL Warrant
is $20.90 per share, exercisable at any time on or after one year from the date
of original issuance, and expires on July 15, 2005. Concurrent with the issuance
of the IWCL Warrants in the High Yield Offering, Iridium issued to IWCL
1,560,000 LLC Interest Warrants, each exercisable for one Class 1 Interest at an
exercise price of $20.90 per LLC Interest Warrant. The LLC Interest Warrants are
designed to be exercised upon the exercise of the IWCL Warrants.
Iridium has received a commitment letter from Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and BZW, the investment banking division
of Barclays Bank PLC, for a Secured Bank Facility in a principal amount up to
$750 million, to be secured by substantially all of Iridium's assets and by the
Reserve Capital Call, defined as the contractual commitment by 17 of Iridium's
investors to purchase up to 18,206,550 Class 1 Interests at $13.33 per interest.
Borrowings under the Secured Bank Facility would mature on December 31, 1998,
subject to Iridium's right to extend such maturity until June 30, 1999 if it can
demonstrate by October 31, 1998 that it has sufficient available or committed
financing for its projected capital and operating expenses under its business
plan through such extended maturity. The availability of the Secured Bank
Facility is subject to significant conditions, including the execution of
satisfactory definitive documentation, technical conditions relating to the
IRIDIUM System, conditions relating to regulatory approvals and conditions
relating to other financing sources.
8. IRIDIUM SUBSIDIARIES
Iridium's 13% Senior Notes due 2005 and 14% Senior Notes due 2005 are
co-issued by Iridium Capital Corporation ("Capital") and are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by Iridium Roaming LLC and Iridium IP LLC (together with Capital, the "Iridium
Subsidiaries"). Each of the Iridium Subsidiaries is a wholly-owned subsidiary of
Iridium and, as of August 15, 1997, Iridium had no subsidiaries other than the
Iridium Subsidiaries. The following is summarized financial information of the
Iridium Subsidiaries as of June 30, 1997 and for the period from inception of
each Iridium Subsidiary through June 30, 1997. Full financial statements of the
Iridium Subsidiaries are not presented because management believes they are not
material to investors.
F-25
216
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1997
--------------
Current assets................................................................. $0
Total assets................................................................... 0
Current liabilities............................................................ 0
Total liabilities.............................................................. 0
FOR THE PERIOD FROM
INCEPTION THROUGH
JUNE 30, 1997(1)
--------------------
Net revenues.............................................................. $0
Cost of services.......................................................... 0
Net loss.................................................................. 0
- ---------------
(1) Capital was formed and capitalized by Iridium on June 16, 1997 (subscribed
capital of $100). Iridium Roaming LLC was formed by Iridium on June 15,
1997. Iridium IP LLC was formed by Iridium on February 28, 1997.
F-26
217
IRIDIUM LLC
IRIDIUM CAPITAL CORPORATION
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
[IRIDIUM LOGO] (R)
The Exchange Agent for the Exchange Offer is
STATE STREET BANK AND TRUST COMPANY
Facsimile Transmissions:
(617) 664-5371
(Eligible Institutions Only)
By Registered or Certified Mail By Hand or Overnight Delivery
Corporate Trust Department Corporate Trust Department, Fourth Floor
Post Office Box 778 Two International Plaza
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02102-0078
New York Drop Location
State Street Bank and Trust Company, N.A.
61 Broadway
Concourse Level, Corporate Trust Window
New York, New York 10006
FOR INFORMATION CALL:
(800) 531-0368
UNTIL 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
218
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Capital, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of Capital. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Certificate of Incorporation and by-laws of Capital provide for indemnification
of the directors and officers of such entities to the full extent permitted by
the Delaware General Corporation Law.
Pursuant to the LLC Agreement, Iridium has agreed to indemnify any person
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action brought by
Iridium), in which such person is made a party by reason of his being or having
been a director or officer of Iridium or is or was serving at the request of
Iridium as a manager, director, officer, employee fiduciary or agent of another
limited liability company or of a corporation, partnership, joint venture, trust
or other enterprise, if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
Iridium and, with respect to any criminal action or proceeding had no reasonable
cause to believe such person's conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------------------------------------------------------------
3.1 Limited Liability Company Agreement of Iridium LLC, dated as of July 29,
1996, as amended: Incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form S-1 of Iridium World Communications Ltd.
("IWCL") and Iridium LLC (Registration Nos. 333-23419 and 333-23419-01) (the
"Form S-1").
3.2 Articles of Incorporation of Iridium Capital Corporation.**
3.3 By-Laws of Iridium Capital Corporation.**
3.4 Limited Liability Company Agreement of Iridium Roaming LLC.**
3.5 Limited Liability Company Agreement of Iridium IP LLC.**
4.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium
Capital Corporation's 13% Senior Notes due 2005, Series A and 13% Senior
Notes due 2005, Series A/EN.**
4.2 Indenture dated as of July 16, 1997 relating to Iridium LLC's and Iridium
Capital Corporation's 14% Senior Notes due 2005, Series B and 14% Senior
Notes due 2005, Series B/EN.**
4.3 Forms of Series A Note and Series A/EN Note: contained in an exhibit to
Exhibit 4.1.**
4.4 Forms of Series B Note and Series B/EN Note: contained in an exhibit to
Exhibit 4.2.**
219
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------------------------------------------------------------
5.1 Opinion of Sullivan & Cromwell.*
10.1 Form of Interest Exchange Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.2 of the Form S-1.
10.2 Form of Management Services Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.3 of the Form S-1.
10.3 Form of 1997 Subscription Agreement between IWCL and Iridium LLC:
Incorporated by Reference to Exhibit 10.4 to the Form S-1.
10.4 Space System Contract between Iridium LLC and Motorola, Inc. effective July
29, 1993, as amended and conformed on January 14, 1997: Incorporated by
reference to Exhibit 10.6 to the Form S-1.+
10.5 Communications System Operations & Maintenance Contract between Iridium LLC
and Motorola, Inc. effective July 29, 1993, as amended and conformed on
January 14, 1997: Incorporated by reference to Exhibit 10.7 of the Form S-1.+
10.6 Terrestrial Network Development Contract between Iridium LLC and Motorola,
Inc. effective January 1, 1993, as amended and conformed on January 14, 1997:
Incorporated by reference to Exhibit 10.8 of the Form S-1.+
10.7 Amendment No. 3 to the Terrestrial Network Development Contract between
Iridium LLC and Motorola, Inc. effective June 20, 1997.++***
10.8 Support Agreement between Iridium LLC and Motorola, Inc.: Incorporated by
reference to Exhibit 10.9 of the Form S-1.
10.9 Agreement, executed as of December 16, 1996, between Andersen Consulting LLC
and Iridium LLC relating to the development of business support systems.:
Incorporated by reference to Exhibit 10.10 of the Form S-1.+
10.10 14 1/2% Senior Subordinated Discount Notes Due 2006 of Iridium: Incorporated
by reference to Exhibit 10.11 to the Form S-1.
10.11 Form of Warrant issued in respect of 14 1/2% Senior Subordinated Discount
Notes: Incorporated by referenced to Exhibit 10.13 to the Form S-1.
10.12 Warrant to purchase Series M Class 2 Interests dated July 29, 1993, as
amended: Incorporated by reference to Exhibit 10.13 to the Form S-1.
10.13 Form of Gateway Authorization Agreement: Incorporated by reference to Exhibit
10.14 to the Form S-1.
10.14 Guaranteed Bank Facility: Incorporated by reference to Exhibit 10.15 to the
Form S-1.
10.15 Waiver No. 1 to Credit Agreement, dated as of June 25, 1997.**
10.16 Motorola Agreement regarding Guarantee: Incorporated by reference to Exhibit
10.16 to the Form S-1.
10.17 Amended and Restated Agreement regarding Guarantee.**
10.18 Memorandum of Understanding with Motorola, Inc.**
10.19 Form of Share Issuance Agreement between IWCL and Iridium LLC: Incorporated
by reference to Exhibit 10.17 to the Form S-1.
10.20 Purchase Agreement in respect of Units and Series B Notes, dated July 11,
1997.**
10.21 Iridium LLC Senior Secured Interim Credit Facility Commitment Letter, dated
June 16, 1997.**
220
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------------------------------------------------------------
10.22 Amendment to Senior Secured Interim Credit Facility Commitment Letter, dated
July 10, 1997.**
10.23 Iridium LLC Senior Secured Interim Credit Facility Summary of Indicative
Terms and Conditions.**
10.24 Unit Agreement, dated as of July 16, 1997.**
10.25 Exchange and Registration Rights Agreement: contained in an annex to Exhibit
10.20.**
10.26 Iridium Option Plan: Incorporated by reference to Exhibit 10.5 to the Form
S-1.+++
10.27 Iridium LLC Selected Senior Officers' Supplementary Retirement Plan.**+++
10.28 Agreement between Mr. Staiano and Iridium LLC.*+++
11 Statement re Computation of Per Share Earnings.*
12 Statement Regarding Computation of Ratios.*
21 Subsidiaries of the Registrants.**
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Sullivan & Cromwell: contained in Exhibit 5.1
25.1 Statement on Form T-1 of Eligibility of Trustee Respecting the Series A
Indenture.*
25.2 Statement on Form T-1 of Eligibility of Trustee Respecting the Series B
Indenture.*
99.1 Form of Letter of Transmittal and Notice of Guaranteed Delivery.*
99.2 Form of Letter to Clients.*
99.3 Form of Letter to Nominees.*
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Confidential treatment previously granted in connection with the Form S-1.
++ Confidential treatment to be sought.
+++ Management Compensation Plan.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
The Registrants hereby undertake:
(1) To file, during any period in which they offer or sells
securities, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
221
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Washington, District of Columbia, on August 15, 1997.
IRIDIUM LLC
By: /s/ ROBERT W. KINZIE
-----------------------------------
Robert W. Kinzie
Chairman
IRIDIUM ROAMING LLC
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
acting chief executive officer
IRIDIUM IP LLC
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
acting chief executive officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities on the dates indicated.
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
* Chairman Iridium LLC August 15, 1997
- ---------------------------------------------
Robert W. Kinzie
* Vice Chairman and Chief August 15, 1997
- --------------------------------------------- Executive Officer of Iridium
Edward F. Staiano LLC; acting chief executive
officer of Iridium Roaming
LLC and Iridium IP LLC
/s/ ROY GRANT Vice President-Chief August 15, 1997
- --------------------------------------------- Financial Officer of Iridium
Roy Grant LLC; acting chief financial
officer of Iridium Roaming
LLC and Iridium IP LLC
* Vice Chairman of Iridium LLC August 15, 1997
- ---------------------------------------------
Richard L. Lesher
* Director August 15, 1997
- ---------------------------------------------
Hasan M. Binladin
* Director August 15, 1997
- ---------------------------------------------
Ulf Bohla
223
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
* Director August 15, 1997
- ---------------------------------------------
Gordon J. Comerford
* Director August 15, 1997
- ---------------------------------------------
Atilano de Oms Sobrinho
* Director August 15, 1997
- ---------------------------------------------
Robert A. Ferchat
* Director August 15, 1997
- ---------------------------------------------
Alberto Finol
* Director August 15, 1997
- ---------------------------------------------
Edward Gams
Director August 15, 1997
- ---------------------------------------------
Kazuo Inamori
* Director August 15, 1997
- ---------------------------------------------
Georg Kellinghusen
* Director August 15, 1997
- ---------------------------------------------
S. H. Khan
Director August 15, 1997
- ---------------------------------------------
Anatoli I. Kiselev
* Director August 15, 1997
- ---------------------------------------------
George S. Medawar
* Director August 15, 1997
- ---------------------------------------------
John F. Mitchell
* Director August 15, 1997
- ---------------------------------------------
Jung L. Mok
* Director August 15, 1997
- ---------------------------------------------
Giuseppe Morganti
* Director August 15, 1997
- ---------------------------------------------
J. Michael Norris
* Director August 15, 1997
- ---------------------------------------------
Yusai Okuyama
* Director August 15, 1997
- ---------------------------------------------
John M. Scanlon
* Director August 15, 1997
- ---------------------------------------------
Theodore H. Schell
* Director August 15, 1997
- ---------------------------------------------
William A. Schreyer
224
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
* Director August 15, 1997
- ---------------------------------------------
Sribhumi Sukhanetr
* Director August 15, 1997
- ---------------------------------------------
Tao-Tsun Sun
* Director August 15, 1997
- ---------------------------------------------
Yoshiharu Yasuda
* Director August 15, 1997
- ---------------------------------------------
Wang Mei Yue
*By: /s/ F. THOMAS TUTTLE Director August 15, 1997
- ---------------------------------------------
F. Thomas Tuttle
Attorney in Fact
225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Washington, District of Columbia, on August 15, 1997.
IRIDIUM CAPITAL CORPORATION
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
Chairman
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
/s/ EDWARD F. STAIANO Chairman and Chief August 15, 1997
- --------------------------------------------- Executive Officer
Edward F. Staiano
/s/ ROY GRANT Chief Financial Officer August 15, 1997
- ---------------------------------------------
Roy Grant
/s/ ROBERT W. KINZIE Director August 15, 1997
- ---------------------------------------------
Robert W. Kinzie
226
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------- ------------
3.1 Limited Liability Company Agreement of Iridium LLC, dated as of July
29, 1996, as amended: Incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form S-1 of Iridium World Communications
Ltd. ("IWCL") and Iridium LLC (Registration Nos. 333-23419 and
333-23419-01) (the "Form S-1")........................................
3.2 Articles of Incorporation of Iridium Capital Corporation.**...........
3.3 By-Laws of Iridium Capital Corporation.**.............................
3.4 Limited Liability Company Agreement of Iridium Roaming LLC.**.........
3.5 Limited Liability Company Agreement of Iridium IP LLC.**..............
4.1 Indenture dated as of July 16, 1997 relating to Iridium LLC's and
Iridium Capital Corporation's 13% Senior Notes due 2005, Series A and
13% Senior Notes due 2005, Series A/EN.**.............................
4.2 Indenture dated as of July 16, 1997 relating to Iridium LLC's and
Iridium Capital Corporation's 14% Senior Notes due 2005, Series B and
14% Senior Notes due 2005, Series B/EN.**.............................
4.3 Forms of Series A Note and Series A/EN Note: contained in an exhibit
to Exhibit 4.1.**.....................................................
4.4 Forms of Series B Note and Series B/EN Note: contained in an exhibit
to Exhibit 4.2.**.....................................................
5.1 Opinion of Sullivan & Cromwell.*......................................
10.1 Form of Interest Exchange Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.2 of the Form S-1.............
10.2 Form of Management Services Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.3 of the Form S-1.............
10.3 Form of 1997 Subscription Agreement between IWCL and Iridium LLC:
Incorporated by Reference to Exhibit 10.4 to the Form S-1.............
10.4 Space System Contract between Iridium LLC and Motorola, Inc. effective
July 29, 1993, as amended and conformed on January 14, 1997:
Incorporated by reference to Exhibit 10.6 to the Form S-1.+...........
10.5 Communications System Operations & Maintenance Contract between
Iridium LLC and Motorola, Inc. effective July 29, 1993, as amended and
conformed on January 14, 1997: Incorporated by reference to Exhibit
10.7 of the Form S-1.+................................................
10.6 Terrestrial Network Development Contract between Iridium LLC and
Motorola, Inc. effective January 1, 1993, as amended and conformed on
January 14, 1997: Incorporated by reference to Exhibit 10.8 of the
Form S-1.+............................................................
10.7 Amendment No. 3 to the Terrestrial Network Development Contract
between Iridium LLC and Motorola, Inc. effective June 20,
1997.++***............................................................
10.8 Support Agreement between Iridium LLC and Motorola, Inc.: Incorporated
by reference to Exhibit 10.9 of the Form S-1..........................
227
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------- ------------
10.9 Agreement, executed as of December 16, 1996, between Andersen
Consulting LLC and Iridium LLC relating to the development of business
support systems.: Incorporated by reference to Exhibit 10.10 of the
Form S-1.+............................................................
10.10 14 1/2% Senior Subordinated Discount Notes Due 2006 of Iridium:
Incorporated by reference to Exhibit 10.11 to the Form S-1............
10.11 Form of Warrant issued in respect of 14 1/2% Senior Subordinated
Discount Notes: Incorporated by referenced to Exhibit 10.13 to the
Form S-1..............................................................
10.12 Warrant to purchase Series M Class 2 Interests dated July 29, 1993, as
amended: Incorporated by reference to Exhibit 10.13 to the Form S-1...
10.13 Form of Gateway Authorization Agreement: Incorporated by reference to
Exhibit 10.14 to the Form S-1.........................................
10.14 Guaranteed Bank Facility: Incorporated by reference to Exhibit 10.15
to the Form S-1.......................................................
10.15 Waiver No. 1 to Credit Agreement, dated as of June 25, 1997.**........
10.16 Motorola Agreement regarding Guarantee: Incorporated by reference to
Exhibit 10.16 to the Form S-1.........................................
10.17 Amended and Restated Agreement regarding Guarantee.**.................
10.18 Memorandum of Understanding with Motorola, Inc.**.....................
10.19 Form of Share Issuance Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.17 to the Form S-1............
10.20 Purchase Agreement in respect of Units and Series B Notes, dated July
11, 1997.**...........................................................
10.21 Iridium LLC Senior Secured Interim Credit Facility Commitment Letter,
dated June 16, 1997.**................................................
10.22 Amendment to Senior Secured Interim Credit Facility Commitment Letter,
dated July 10, 1997**.................................................
10.23 Iridium LLC Senior Secured Interim Credit Facility Summary of
Indicative Terms and Conditions.**....................................
10.24 Unit Agreement, dated as of July 16, 1997.**..........................
10.25 Exchange and Registration Rights Agreement: contained in an annex to
Exhibit 10.20.**......................................................
10.26 Iridium Option Plan: Incorporated by reference to Exhibit 10.5 to the
Form S-1.+++..........................................................
10.27 Iridium LLC Selected Senior Officers' Supplementary Retirement
Plan.**+++............................................................
10.28 Agreement between Mr. Staiano and Iridium LLC.*+++....................
11 Statement re Computation of Per Share Earnings.*......................
12 Statement Regarding Computation of Ratios.*...........................
21 Subsidiaries of the Registrants.**....................................
23.1 Consent of KPMG Peat Marwick LLP.*....................................
23.2 Consent of Sullivan & Cromwell: contained in Exhibit 5.1..............
25.1 Statement on Form T-1 of Eligibility of Trustee Respecting the Series
A Indenture.*.........................................................
228
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ---------------------------------------------------------------------- ------------
25.2 Statement on Form T-1 of Eligibility of Trustee Respecting the Series
B Indenture.*.........................................................
99.1 Form of Letter of Transmittal and Notice of Guaranteed Delivery.*.....
99.2 Form of Letter to Clients.*...........................................
99.3 Form of Letter to Nominees.*..........................................
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Confidential treatment previously granted in connection with the Form S-1.
++ Confidential treatment to be sought.
+++ Management Compensation Plan.