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Exhibit 99.1
CERTAIN FACTORS WHICH MAY AFFECT
FORWARD LOOKING STATEMENTS
The following risk factors should be carefully considered by prospective
investors in Iridium World Communications Ltd., Iridium LLC or Iridium
Operating LLC. Iridium World Communications Ltd. acts as a member of Iridium
LLC and has no other business. The business of Iridium Operating LLC
("Iridium") constitutes substantially all of Iridium LLC's business. The
business of Iridium is discussed below.
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 or an
investment in IWCL, Parent or Iridium. Iridium 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 23, 1998.
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 become profitable.
SIGNIFICANT ADDITIONAL FUNDING NEEDS
Iridium anticipates total cash funding requirements of approximately $4.5
billion through September 23, 1998, the date on which Iridium expects to
commence commercial operations, and $5.5 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.
Based on funds raised or conditionally committed as of March 31, 1998,
Iridium expects to have sufficient cash to meet its anticipated funding
requirements through September 23, 1998, the date on which Iridium expects to
commence commercial operations. Iridium expects to seek 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. There can be no assurance, however,
that conditionally committed funds 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. 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. Iridium currently has no significant income-producing assets
from which to service its indebtedness.
Iridium's current and future debt service requirements could have
important consequences to investors in IWCL, Parent or Iridium, 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
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by covenants contained in its debt instruments. Among other things, such
covenants 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. 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.
POTENTIAL FOR DELAY AND COST OVERRUNS
Iridium's business plan assumes the Iridium System will commence
commercial operations on September 23, 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.
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 delay the generation of
revenue by Iridium and might significantly affect Iridium's ability to pay
interest on, and the principal of, its indebtedness.
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. Iridium closely monitors the progress of
each gateway and currently expects that at least nine and up to 12 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, the China gateway has
only recently commenced equipment procurement and the Middle East-Africa
gateway is significantly behind schedule with its preparations for commercial
operations..
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.
Significant delay in the development, manufacture and sale of phones and
pagers would have a material adverse effect on Iridium. 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. Moreover, there is a risk that demand for
Iridium Services will not materialize in a timely manner.
TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS; INABILITY TO FULLY TEST PRIOR
TO SPACE DEPLOYMENT
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.
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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 will be completed when required, including integration and testing, or
that such software will function as required.
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. There can be no assurance that Motorola 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."
CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS ON CUSTOMER ACCEPTANCE
Iridium's ability to generate sufficient operating revenues 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.
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. 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). In addition, 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. 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 or lower usage of Iridium Services than Iridium
anticipates.
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.
SATELLITE LAUNCH RISKS
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In order for the Iridium System to be fully operational under its current
specifications and timetable, Iridium anticipates the need for Motorola to
successfully launch 5 additional satellites by the end of May 1998. Moreover,
to maintain the system, additional satellites are expected to be launched in
1998 and each successive 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. There can be
no assurance that Iridium's satellites will be successfully deployed in a
timely manner or that launch failures 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.
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.
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
achieve such a useful life.
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). 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 of May 1, 1998, Motorola had experienced the toss of five of the 67
Iridium satellites launched during the development of the Iridium system.
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.
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RISKS ASSOCIATED WITH LICENSING AND SPECTRUM ALLOCATION
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. Iridium, Motorola and the various
gateway owners have made substantial progress in receiving the authorizations
necessary to operate the Iridium System, but a significant number of regulatory
authorizations remain to be obtained, including (1) in each 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, (2) 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 and (3) 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.
COMPETITIVE RISKS
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'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.
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.
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 their gateway territories; 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. In particular, the China gateway and the Middle East-Africa
gateway are substantially behind schedule.
Distribution and Marketing of Iridium Services
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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.
RISKS ASSOCIATED WITH PRINCIPAL SUPPLY CONTRACTS
Space System Contract
Iridium and Motorola are parties to 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. 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.
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.
Operations and Maintenance Contract
Iridium and Motorola are parties to the Operations and Maintenance
Contract, which 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 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.
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.
Terrestrial Network Development Contract
Iridium is also a party to 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 $284 million under the
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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.
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND DEVELOPING MARKETS
Iridium expects that its telecommunications services will be available in
almost every country. As a result, Iridium and its gateway operators and
service providers will be 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.
There can be no assurance that Iridium, its gateway operators or service
providers will not be adversely affected by such multinational risks.
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 (through its
predecessors), a gateway owner, Iridium LLC'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 and the guarantor of Iridium's borrowings under its
Guaranteed Bank Facility.
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 indirect 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. The predecessor of Iridium under those
contracts, 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
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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.
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.
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.
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