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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 1997
REGISTRATION NO. 333-23419
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IRIDIUM WORLD COMMUNICATIONS LTD.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
BERMUDA 4812 52-2025291
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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CLARENDON HOUSE, 2 CHURCH STREET, HAMILTON HM 11, BERMUDA
(441) 295-5950
(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 WORLD COMMUNICATIONS LTD., 1401 H STREET, N.W., WASHINGTON, D.C. 20005
(202) 326-5600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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with copies to:
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<S> <C>
JOHN P. MEAD, ESQ. TIMOTHY E. PETERSON, ESQ.
SULLIVAN & CROMWELL FRIED, FRANK, HARRIS,
125 BROAD STREET SHRIVER & JACOBSON
NEW YORK, NEW YORK 10004 ONE NEW YORK PLAZA
(212) 558-4000 NEW YORK, NEW YORK 10004
(212) 859-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Class A Common Stock, par
value $.01 per share................ 11,500,000 $21.00 $241,500,000 $73,181.82(3)
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(1) Includes 1,500,000 shares issuable upon exercise of options granted to the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for purposes of determining the registration fee.
(3) Previously paid.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO SEPARATE PROSPECTUSES. THE FIRST
PROSPECTUS RELATES TO A PUBLIC OFFERING OF SHARES OF CLASS A COMMON STOCK OF
IRIDIUM WORLD COMMUNICATIONS LTD., PAR VALUE $.01 PER SHARE (THE "CLASS A COMMON
STOCK"), IN THE UNITED STATES AND CANADA (THE "U.S. OFFERING"). THE SECOND
PROSPECTUS RELATES TO A CONCURRENT OFFERING OF CLASS A COMMON STOCK OUTSIDE THE
UNITED STATES AND CANADA (THE "INTERNATIONAL OFFERING"). THE PROSPECTUSES FOR
THE U.S. OFFERING AND THE INTERNATIONAL OFFERING WILL BE IDENTICAL IN ALL
RESPECTS, OTHER THAN THE FRONT COVER PAGE, THE "TAX CONSIDERATIONS" AND
"UNDERWRITING" SECTIONS AND THE BACK COVER PAGE RELATING TO THE INTERNATIONAL
OFFERING. SUCH ALTERNATE PAGES APPEAR IN THIS REGISTRATION STATEMENT IMMEDIATELY
FOLLOWING THE COMPLETE PROSPECTUS FOR THE U.S. OFFERING.
<PAGE> 3
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
PRELIMINARY PROSPECTUS DATED APRIL 25, 1997
PROSPECTUS
10,000,000 SHARES
IRIDIUM WORLD COMMUNICATIONS LTD.
CLASS A COMMON STOCK
---------------------
Of the 10,000,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), of Iridium World Communications Ltd., a Bermuda
company (the "Company"), being offered hereby, 8,000,000 shares are being
offered in the United States and Canada by the U.S. Underwriters (the "U.S.
Offering") and 2,000,000 shares are being offered in a concurrent offering
outside the United States and Canada by the International Managers (the
"International Offering" and, together with the U.S. Offering, the "Offerings").
The public offering price and the underwriting discount per share are identical
for both Offerings. Of the 10,000,000 shares being offered in the Offerings, up
to 1,000,000 shares are being reserved for sale to eligible employees of the
Company and Iridium and persons having business relationships with Iridium. See
"Underwriting." The Company is a member of Iridium LLC, a Delaware (U.S.A.)
limited liability company ("Iridium").
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently anticipated that the initial public offering price
will be between $19 and $21 per share. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
Class A Common Stock has been approved for quotation on the Nasdaq National
Market System ("NNMS") under the symbol "IRIDF," subject to official notice of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
---------------------
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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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
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Total(3)............................... $ $ $
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(1) The Company and Iridium have agreed to indemnify the several Underwriters
against certain liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses payable by Iridium estimated to be $2,000,000.
(3) The Company has granted the U.S. Underwriters and the International Managers
options, exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 1,200,000 and 300,000 shares of Class A Common
Stock, respectively, on the same terms as set forth above, to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
---------------------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them and
subject to the approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Class A Common Stock will be made in New
York, New York on or about , 1997.
---------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
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The date of this Prospectus is , 1997.
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In this Prospectus, reference to "dollars" and "$" are United States
dollars.
"IRIDIUM" is a registered trademark and servicemark of Iridium LLC.
---------------------
The Company intends to furnish its stockholders annual reports containing
audited financial statements of the Company and Iridium and quarterly reports
containing unaudited interim financial information for the Company and Iridium
for the first three fiscal quarters of each fiscal year.
---------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF CLASS A COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
---------------------
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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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. See the Glossary included as
Annex A hereto for the definitions of certain terms used in this Prospectus. On
February 26, 1997, the Company effected a 100 for 1 stock split (the "Stock
Split") of the Company's Class A Common Stock. Unless otherwise indicated all
information contained in this Prospectus reflects the Stock Split and assumes
that the over-allotment options granted to the Underwriters are not exercised.
THE COMPANY AND 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. Launch of the first IRIDIUM satellites is
expected to occur in May 1997, and 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 $1.26 billion, and a conditional commitment to guarantee up to an
additional $350 million of borrowings. 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 World Communications Ltd., a Bermuda company (the "Company"), is a
member of Iridium and is the issuer of the Class A Common Stock offered hereby.
Upon consummation of the Offerings and application of the net proceeds therefrom
to purchase Class 1 Membership Interests in Iridium ("Class 1 Interests"), the
Company is expected to own % of the outstanding Class 1 Interests ( %,
if the Underwriters' over-allotment options are exercised in full). See
"Dilution." The shares of Class A Common Stock are equity securities of the
Company and do not represent interests in Iridium.
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 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
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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.
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 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 service with a relatively small number of
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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 full 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 by 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 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
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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 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. Iridium's strategic
investors have collectively invested, or committed to invest, approximately
$3.24 billion in Iridium, including equity, debt, guarantees, conditional
commitments to provide guarantees and a reserve capital call. These investments
represent more than 74% of Iridium's projected total funding needs through the
end of September 1998, the month Iridium expects to commence commercial
operations, and approximately 65% 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
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expertise of leading telecommunications companies. The Iridium investor team
includes leading telecommunications companies in North America (Motorola, Sprint
and BCE Inc.), Europe (STET and Vebacom) and Asia (DDI in Japan, UCOM in
Thailand and Korea Mobile Telecommunications). 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, 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.
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. Eight
satellites have been produced, seven additional satellites have been assembled
and are in testing and additional satellites are being produced at a rate of
approximately five per month. The initial satellite launch was scheduled to
occur in January 1997, but was postponed following the failure of a Delta II
launch vehicle, the same type of launch vehicle to be used by McDonnell Douglas
for Iridium satellites. Motorola has advised Iridium that it currently expects
to launch the first Iridium satellites in May 1997 and that, subject to certain
assumptions, including that McDonnell Douglas launches commence in May 1997, the
initial launch delay will not result in a delay in the scheduled September 1998
commercial activation date for the IRIDIUM System. See "Risk
Factors -- Potential for Delay and Cost Overruns -- Deployment of Satellites"
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 the Iridium North America
(Tempe, Arizona) and Nippon Iridium Corporation (Matsumoto, Japan) gateway
facilities is substantially complete and the telecommunications equipment is
being installed at both locations. Equipment procurement has commenced for seven
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
four 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 seven 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
7
<PAGE> 10
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.
THE COMPANY
The Company is organized to act as a member of Iridium and to have no other
business. The Company will use the net proceeds from the Offerings to acquire
Class 1 Interests. The purchase price of the Class 1 Interests is expected to be
$ per Class 1 Interest. Upon consummation of the Offerings and
application of the proceeds therefrom to purchase Class 1 Interests, the Company
is expected to own % of the outstanding Class 1 Interests ( % if the
Underwriters' over-allotment options are exercised in full). See "Dilution" and
"Governance of the Company and Relationship with Iridium."
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 global mobile voice and paging services, including:
- Full 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.
8
<PAGE> 11
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, 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.
9
<PAGE> 12
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 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)
(IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- ------------------------------------
<S> <C>
Class 1 Interests................... $1,616
Series A Class 2 Interests(2)....... 43
14 1/2% Senior Subordinated Notes
due 2006(3)....................... 238
Guaranteed Bank Facility(4)......... 750
------
Total.......................... 2,647
Estimated Net Proceeds to Iridium
from the Offerings(5)............. 186
------
Total after Offerings.......... 2,833
Reserve Capital Call(6)............. 243
Conditional Motorola Guarantee
Commitment(7)..................... 350
Additional funding
requirements(8)................... 935
------
Total Pre-operational
Sources...................... $4,361
======
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
- ------------------------------------
<S> <C>
Space System Contract(9)............ $3,450
Terrestrial Network Development
Contract(10)...................... 188
Business support systems and other
expenditures(11).................. 175
Net interest and financing
costs(12)......................... 220
Net expenses and working
capital(12)(13)................... 328
------
Total Pre-operational net
uses......................... $4,361
======
</TABLE>
- ---------------
(1) Assumes that the IRIDIUM System will commence commercial operations in
September 1998. Iridium anticipates total cash needs of $5.0 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."
(2) The Series A Class 2 Interests pay a 14 1/2% in-kind dividend until 2001
and a 14 1/2% cash dividend thereafter. At the time when the Series A Class
2 Interests convert to a cash dividend, there will be 86,056 Series A Class
2 Interests outstanding convertible into 21,239 Class 1 Interests, subject
to customary anti-dilution adjustments.
(3) These Notes were issued with warrants to purchase 66,630 Class 1 Interests
at a price of $.01 per Interest.
(4) As of March 31, 1997, Iridium had drawn $665 million under a $750 million
borrowing facility with a syndicate of banks (the "Guaranteed Bank
Facility"). Borrowings under the Guaranteed Bank Facility are guaranteed by
Motorola. The Guaranteed Bank Facility matures in August 1998. Iridium
expects that it will be able to extend this facility through December 31,
2000. Motorola has conditionally committed to extend its guarantee to that
date if the Guaranteed Bank Facility is so extended. In connection with its
guarantee of the Guaranteed Bank Facility Motorola received a security
interest in substantially all of Iridium's assets. Motorola's compensation
for the $750 million guarantee is in the form of warrants to acquire
additional Class 1 Interests at $.01 per Class 1 Interest. The maximum
number of warrants to be issued as compensation for the $750 million
guarantee will be 150,000 (subject to anti-dilution adjustments) prior to
the commencement of commercial operations. If the Guaranteed Bank Facility
is extended, the yearly warrant compensation proposed by Motorola would be
up to 12,000 warrants to acquire Class 1 Interests at $.01 per Interest for
each $100 million of guarantee
10
<PAGE> 13
commitments, beginning at the commencement of commercial operations (subject to
anti-dilution adjustments). The Class 1 Interests acquired upon exercise of such
warrants must be held for five years from the date of issuance of such
Interests. See "Dilution."
(5) Reflects the application of the estimated net proceeds of the Offerings to
the purchase from Iridium of Class 1 Interests at a price of $ per
Class 1 Interest. Expenses of the Offerings will be borne entirely by
Iridium.
(6) Seventeen of Iridium's investors have made varying reserve capital call
commitments to purchase Class 1 Interests at $1,000 per Class 1 Interest
for an aggregate purchase price of approximately $243 million (the "Reserve
Capital Call"). Iridium is required to exercise the Reserve Capital Call
under certain conditions, including in the event of a prospective funding
shortfall. See "Description of Iridium LLC Limited Liability Company
Agreement -- Capital Contributions; Reserve Capital Call."
(7) Motorola has made a conditional commitment to guarantee up to an additional
$350 million of borrowings under the Guaranteed Bank Facility, for which
Motorola would be compensated with additional warrants to purchase Class 1
Interests at $.01 per Class 1 Interest. The maximum number of warrants to
be issued as compensation for the additional $350 million guarantee, if
implemented, would be 50,000 (subject to anti-dilution adjustments) prior
to commencement of commercial operations. See "Dilution." Iridium is
seeking to amend the Guaranteed Bank Facility to permit such additional
borrowing. If the Guaranteed Bank Facility is extended beyond its August
1998 maturity date, Motorola has proposed additional warrant compensation
beginning at commencement of commercial operations as described in note (4)
above.
(8) Iridium currently expects to satisfy its additional funding requirements
through the incurrence of debt. It is likely that some portion of the
additional debt will need to be guaranteed or to be otherwise supported by
investors, vendors or others and that Iridium will be required to
compensate the guarantors or entities providing such credit support
including, possibly, through the issuance of warrants or other equity which
would be dilutive to the Company and its stockholders. There are currently
no agreements with Motorola or Iridium's other investors or vendors to
provide such credit support. It is possible that some portion of Iridium's
additional funding requirements may be met through the issuance of
additional equity. Although Iridium believes that it will be able to meet
its additional funding requirements, there can be no assurance that such
financing will be available on favorable terms, on a timely basis, or at
all. 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."
(9) As of March 31, 1997, Iridium had incurred $2,284 million of this amount.
(10) As of March 31, 1997, Iridium had incurred $64 million of this amount.
(11) As of March 31, 1997, Iridium had incurred $28 million of this amount.
(12) Based on assumed interest rates and borrowing levels. Actual interest and
financing costs will depend upon applicable interest rates and the amount
and timing of actual borrowings.
(13) Comprised of operating expenses of $587 million and net of interest income
of $13 million and working capital of $248 million.
11
<PAGE> 14
THE OFFERINGS
Class A Common Stock offered by the
Company:
U.S. Offering..................... 8,000,000 shares
International Offering............ 2,000,000 shares
Total.......................... 10,000,000 shares
Class A Common Stock of the Company
to be outstanding immediately after
the Offerings..................... 10,000,000 shares(1)
Iridium Class 1 Interests to be
outstanding immediately after the
Offerings......................... Interests(1)(2)
Use of Proceeds..................... The estimated net proceeds of the
Offerings, including the net proceeds
from any exercise of the Underwriters'
over-allotment options, will be used by
the Company to purchase Class 1
Interests in Iridium pursuant to the
terms of the 1997 Subscription
Agreement described under "Governance
of the Company and Relationship with
Iridium -- 1997 Subscription
Agreement." Iridium will use the
proceeds from such sale of the Class 1
Interests primarily to make milestone
payments under the Space System
Contract and the Terrestrial Network
Development Contract and to a lesser
extent for other general corporate
purposes related to the
commercialization of the IRIDIUM
System. See "Use of Proceeds."
Voting Rights....................... All voting rights with respect to the
affairs of the Company, except as
otherwise required by law, are vested
in the holders of the Class A Common
Stock. See "Governance of the Company
and Relationship with Iridium" and
"Description of Capital Stock."
NASDAQ National Market Symbol....... IRIDF
- ---------------
(1) Assumes the Underwriters' over-allotment options are not exercised. If the
over-allotment options are exercised in full, there will be 11,500,000
shares of Class A Common Stock, and Class 1 Interests, outstanding
immediately following the Offerings. Does not reflect the issuance of shares
of the Company's non-voting Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"), to be issued in connection with the Company's
Global Ownership Program or the application of the proceeds therefrom to
acquire Class 1 Interests. Upon satisfaction of certain conditions, the
shares of Class B Common Stock may be exchanged for shares of Class A Common
Stock. There are no shares of Class B Common Stock outstanding. See
"Governance of the Company and Relationship with Iridium -- Global Ownership
Program" and "Description of Capital Stock."
(2) This amount does not give effect to the issuance of any Class 1 Interests
pursuant to options, warrants or convertible interests or pursuant to the
Reserve Capital Call. See "Dilution."
RISK FACTORS
See "Risk Factors" beginning on page 13 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Common Stock
offered hereby, including that Iridium is a development stage company, has not
generated any revenue from operations to date and does not expect to generate
any revenue from operations until after the IRIDIUM System commences commercial
operations (anticipated to be September 1998).
12
<PAGE> 15
RISK FACTORS
An investment in the Class A Common Stock offered hereby is speculative in
nature and involves a high degree of risk. Because the sole asset of the Company
will be its Class 1 Interests, prospective investors should carefully consider
the following risk factors related to both the Company and Iridium, in addition
to the other information contained elsewhere in this Prospectus, in evaluating
whether to make an investment in the Company prior to purchasing shares in the
Offerings.
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 Class A Common Stock. Through December 31, 1996, Iridium had
realized cumulative net losses of approximately $134 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 March 31, 1997, Iridium had made payments totaling $2,284 million
to Motorola under the Space System Contract and payments totaling $64 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.
SIGNIFICANT ADDITIONAL FUNDING NEEDS
Iridium anticipates total funding requirements of approximately $4.361
billion through September 1998, the month Iridium expects to commence commercial
services, and $5.0 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. As of March 31,
1997, Iridium had equity investments of $1.659 billion with an additional $243
million available in the form of a Reserve Capital Call. Debt investments
equaled $988 million, including the $750 million in borrowings under a $750
million credit facility with a syndicate of banks which is guaranteed by
Motorola (the "Guaranteed Bank Facility"). In addition, Motorola has
conditionally agreed to guarantee up to an additional $350 million of borrowings
under the Guaranteed Bank Facility, bringing the total commitments thereunder to
$1.1 billion. Borrowings under the Guaranteed Bank Facility mature in August
1998. Iridium believes it will be able to amend the Guaranteed Bank Facility to
permit these additional borrowings and to extend its maturity. There can be no
assurance that Iridium will satisfy the terms of Motorola's conditional
commitment to guarantee or that the bank lenders will agree to increase the size
or extend the term of the Guaranteed Bank Facility.
Iridium expects to have sufficient cash after consummation of the Offerings
to meet its anticipated funding requirements through November 1997, assuming
exercise and full funding of the Reserve Capital Call and $1.1 billion of
borrowings under the Guaranteed Bank Facility. The remaining funds needed to
meet Iridium's projected funding requirements are expected to be raised through
additional financings. Iridium is seeking to obtain a senior bank facility in an
amount of approximately $1.5 billion. However, there can be no assurance that
Iridium will secure such a financing or will be able to do so on terms and
conditions acceptable to Iridium and its members or, if such bank financing is
unavailable, that Iridium will be able to obtain financing from an alternative
source. Iridium expects that, in connection with additional debt financings,
guarantees or other forms of credit support are likely to be required and that
compensation, including equity, will likely be required for such guarantees.
There are currently no agreements with Motorola or Iridium's other investors or
vendors to provide such guarantees and there can be no assurance that any of
Iridium's investors, vendors or others will provide such guarantees or credit
support. Additional financing may also need to be obtained through the issuance
of equity or debt securities in the public or private markets. The availability
of such financing is uncertain and is dependent, in part, on market conditions
existing at the time of any proposed financing. Iridium's estimated funding
requirements do not reflect any contingency amounts and therefore
13
<PAGE> 16
those requirements will increase, perhaps substantially, in the event of
unexpected cost increases or schedule delays.
The $243 million Reserve Capital Call is an unsecured obligation of certain
of the members of Iridium and there can be no assurance that all of the
obligated members will meet their Reserve Capital Call obligations or that they
will do so in a timely fashion.
RISK OF HIGHLY LEVERAGED CAPITAL STRUCTURE; RISK OF DEFAULT ON EXISTING
COMMITMENTS
Iridium is a development stage company with a highly leveraged capital
structure and expects to incur substantial additional indebtedness. Iridium
currently has no significant income-producing assets from which to service its
indebtedness. In connection with providing its guarantee of borrowings under the
Guaranteed Bank Facility, Motorola was granted a security interest in
substantially all of Iridium's assets and Iridium agreed not to take specified
actions without Motorola's approval. In connection therewith, Motorola also was
granted the right to appoint an additional director on the Iridium Board of
Directors (the "Iridium Board") and is being compensated in the form of warrants
to purchase Class 1 Interests. See "-- Dilution Risk" and "Dilution." If
Motorola is required to make a payment under its guarantee of the Guaranteed
Bank Facility as a result of certain events of default by Iridium, Motorola, in
most instances, will have the right to elect a majority of the Iridium Board and
each committee thereof other than the Related Party Contracts Committee.
Iridium's current and future debt service requirements could negatively
affect the value of the Class 1 Interests as a result of 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;
(iii) Iridium's greater exposure to adverse economic conditions than competing
companies that are not as highly leveraged; and (iv) the compensation required
to obtain guarantees or other credit support from Iridium members. These factors
could adversely affect Iridium's finances and dilute the interests of members,
including the Company, in Iridium. In addition, the discretion of Iridium's
management with respect to certain business matters will be limited by covenants
that will be contained in future debt instruments. There can be no assurance
that such restrictions 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
future debt agreements that may contain cross-acceleration or cross-default
provisions.
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 the 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
14
<PAGE> 17
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 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 the 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
timely obtain 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 Service 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 in the "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
15
<PAGE> 18
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 delay the generation of revenue
by Iridium and might significantly affect Iridium's ability to attain
profitability. See "Business -- Competition."
Deployment of Satellites
In January 1997 the first launch of IRIDIUM satellites 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 will use 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 Vandenburg 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, and the
launch has not yet occurred. Motorola has informed Iridium that it currently
expects to launch the first Iridium satellites in May 1997 and, based on this
expectation, as well as certain other assumptions, currently believes it can
meet the planned September 1998 commencement of commercial operations. There can
be no assurance, however, that the first launch or succeeding launches will
proceed on that schedule or that the space segment will be operational on
schedule. Motorola has advised Iridium of its position that, because of the
January launch failure and the United States government's action resulting in
the temporary postponement of Delta II launches pending completion of a failure
review analysis, Motorola is in an "excusable delay" under the Space System
Contract, the Operations and Maintenance Contract and the Terrestrial Network
Development Contract. Iridium has notified Motorola that Iridium disagrees with
Motorola's contention. The new launch schedule will be more compressed than the
original schedule, which 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 in-orbit
testing cannot commence until a minimum number of satellites are in their
assigned orbital position. The launch delay will also affect the scheduled
achievement of subsequent milestones under the Space System Contract or of
milestones under the Terrestrial Network Development Contract. Such delays could
in turn delay the commencement of commercial operations. See "Principal
Contracts for the Development of the IRIDIUM System."
Construction and Operation of Gateways
The operation of the IRIDIUM System is also 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 November 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 affect 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."
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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 service, 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 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.
TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS; INABILITY TO FULLY TEST PRIOR TO
SPACE DEPLOYMENT
Integration of Technologies
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 assurances
can be given that the software necessary to Iridium's business that is being
developed or that will have to be
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developed will be completed when required, including integration and testing, or
that such software will function as required.
Prior to commencement of commercial service, 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 the 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."
CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS ON CUSTOMER ACCEPTANCE
Iridium's ability to operate profitably 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
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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 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 of 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 subscriber
equipment of competitive 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 1S-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 must contract
with a third-party supplier to develop, manufacture and deliver the IIU that
will permit protocol translation. While Motorola has identified a third-party
supplier to manufacture and deliver the IIU, contract negotiations are in
preliminary stages and
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there can be no assurance that Motorola will enter a contract with such third
party or 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 service in
September 1998, with roaming agreements covering networks in approximately 150
countries in place by 2002. To date, Iridium has not entered into any roaming
agreements with terrestrial wireless service providers. 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 has any intellectual property rights that
prevent other parties from developing the equipment and systems necessary to
provide interprotocol roaming services.
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 approximately 12 to 15
months. 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.
In January 1997 the first launch of the IRIDIUM Satellites was delayed on
four successive days and then postponed by the U.S. government as a result of
its decision to temporarily postpone launches of the McDonnell Douglas Delta II
launch vehicle (which is the type of launch vehicle that McDonnell Douglas will
use for IRIDIUM Satellites) following a failure of the 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 Vandenburg 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 reworked its launch schedule and, subject to certain assumptions, including
that McDonnell Douglas launches commence in May 1997, currently believes its new
launch schedule will permit Iridium to meet its planned September 1998
commencement of commercial operations. The new launch schedule will be more
compressed than the original schedule, which will put additional pressure on the
in-orbit testing phase, including reduced flexibility in responding to any
problems identified in in-orbit testing, since in-orbit testing cannot commence
until a minimum number of satellites are in their assigned orbital position. The
launch delay could also affect the scheduled achievement of subsequent
milestones under the Space System Contract. Such delays could in turn 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.
China Great Wall is currently scheduled to provide approximately three
launches 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
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with its 3B 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 guidance and control
commands from the Mars 96 spacecraft. In addition, Khrunichev experienced launch
failures in February 1996 and May 1993.
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. Motorola has advised Iridium of its
position that, because of the January Delta II launch failure and the United
States government's action resulting in a postponement of Delta II launches
pending completion of a failure review analysis, Motorola is in an "excusable
delay" under the Space System Contract, the Operations and Maintenance Contract
and the Terrestrial Network Contract. Iridium has notified Motorola that Iridium
disagrees with Motorola's contention. 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 a recent 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. There can be no
assurance that any satellite will actually 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
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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 its 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.
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.
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 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."
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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 (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 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 expects to provide
IRIDIUM Services initially through 11 gateways, although it will be able to
provide IRIDIUM Services with fewer gateways. Each gateway must be licensed by
the jurisdiction in which it is located. Three final and four experimental
licenses to build and operate gateways have been received. The final licenses
permit the gateways to engage in commercial operations. The experimental
licenses permit the gateways to complete construction and to engage in
experimental, but not commercial, operations. Two of the remaining four
unlicensed gateways are under construction in the expectation that they will be
licensed and the other two gateways are seeking licenses. 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 to obtain 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.
Numerous Remaining Individual Country Authorizations. With respect to (6)
above, only seven countries have granted conditional licenses for the use of
IRIDIUM Satellite Services in their country. These countries are the United
States, Venezuela, New Zealand, Taiwan, Thailand, Afghanistan and Micronesia.
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 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
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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.
GLONASS and Radioastronomy 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.
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. 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. 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 radioastronomy 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. 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 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.
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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 both of the other FCC-licensed MSS
applicants -- Loral/Qualcomm Partnership, L.P. (on behalf of Globalstar) and
TRW, Inc. (on behalf of Odyssey). 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."
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 travelling 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
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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.
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
Iridium's 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's service.
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.
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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
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 gateways have indicated that the receipt of regulatory
approvals in portions of their territories by the anticipated commencement of
commercial service in September 1998 is questionable. 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,
the relevant contracts permit Motorola to delay delivery or cancel the
agreement. Several gateways are late in making payments under their contracts.
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 November 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's 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
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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 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 the IRIDIUM Services in their
territories. Failure of the gateway operators and service providers to
adequately fund and implement the marketing of the IRIDIUM Service 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 March 31, 1997, Iridium had paid $2.284
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. Motorola has advised Iridium of its position
that because of the January launch failure and the United States government's
action resulting in a temporary postponement of Delta II launches pending
completion of a failure review analysis, Motorola is in an "excusable delay"
under the Space System Contract, the Operations and Maintenance Contract and the
Terrestrial Network Development Contract. Iridium has notified Motorola that
Iridium disagrees with Motorola's contention. See "Principal Contracts for the
Development of the IRIDIUM System."
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
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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 (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 $178.9 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.
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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 are a variety of pending and anticipated
amendments and interpretations to the principal supply contracts and other
agreements and letters with Motorola which are estimated by Motorola to
approximate an aggregate of $125 million, which amount is reflected in Iridium's
estimates of its funding requirements. Many of the service enhancements
contemplated by these amendments will not be available until after the
commencement of commercial operations. Certain of these enhancements may require
the gateway owners to sign additional agreements with Motorola. There can be no
assurance that these agreements will be executed or approved by the Iridium
Board. Further, there can be no assurance future technological, market or
regulatory developments will not necessitate further 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, is 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.
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.
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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 and a holder of a
security interest in substantially all of Iridium's assets. Although Motorola
does not have any employees who serve as directors on the Company's board, does
not by itself control the board of directors of Iridium, 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
and 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 of the debt of Iridium 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 similar to that of a
creditor through its position as a guarantor of Iridium's outstanding debt and
as the holder of a security interest in substantially all of Iridium's assets.
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 Offerings will be used primarily to make milestone payments to Motorola
under the Space System Contract and the Terrestrial Network Development
Contract. See "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 this conflict of interest will not have
an adverse impact on the allocation of revenues between Iridium and
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the gateway owners or operators by the Iridium Board. 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 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
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<PAGE> 35
terminating the provision of IRIDIUM Service 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, which 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 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.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Class A Common
Stock or Class B Common Stock, and Iridium has never made distributions on its
Class 1 Interests. The Company and Iridium do not currently anticipate paying
any such dividends or distributions until some time following Iridium's
achievement of positive operating cash flow. Cash distributions by Iridium are
expected to be restricted by certain debt covenants, potentially long after the
achievement of positive operating cash flow. The Company's sole asset is its
Class 1 Interests and the Company has no independent means of generating
revenues. See "Dividend Policy" and "-- Development Stage Company; Absence of
Revenues."
Iridium is intended to be treated as a partnership for United States
federal income tax purposes. The Company will be responsible for paying the
United States federal income tax on its distributive share of the income of
Iridium that is effectively connected with the conduct of a trade or business in
the United States. See "Tax Considerations -- United States Federal Income
Taxation -- Taxation of the Company." The
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Company will have no source of funds to pay United States federal income taxes
other than distributions from Iridium. The Iridium LLC Limited Liability Company
Agreement of Iridium requires the Iridium Board, to the extent of legally
available funds, to declare and pay distributions 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. If for any reason Iridium was
unable to comply with this undertaking, the Company would be unable to make
required tax payments to the United States which would likely have a material
adverse effect on the Company.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF CLASS A COMMON STOCK PRICE
Prior to the Offerings there has been no public market for the Class A
Common Stock and there can be no assurance that an active public market for the
Class A Common Stock will develop or continue after the Offerings. The initial
public offering price of the Class A Common Stock will be determined by
negotiation between the Company and the Underwriters. See "Underwriting." The
trading price of the Class A Common Stock could be subject to wide fluctuation
in response to variations in operating results, announcements of the achievement
of objectives or delays in development by Iridium or its competitors, or other
events or factors.
DILUTION RISK
Upon the purchase by the Company of Class 1 Interests with the proceeds
from the Offerings, the Company will realize a substantial dilution in pro forma
net tangible book value per Class 1 Interest. In addition, the Company will
experience dilution in the future as a result of the purchase and sale of Class
1 Interests at prices below the price paid by the Company for its Class 1
Interests. At March 31, 1997 there were outstanding warrants to purchase 116,809
Class 1 Interests at $.01 per Class 1 Interest; options to acquire 19,472 Class
1 Interests at $1,000 per Class 1 Interest issued to executive officers and
managers of Iridium under the Iridium Option Plan; Series A Class 2 Interests
that convert into 12,014 Class 1 Interests without any additional cash
investment; and a currently exercisable warrant to purchase up to the number of
Series M Convertible Class 2 Interests equal to 2.5% of the number of
outstanding Class 1 Membership Interests on the date of exercise, calculated on
a fully diluted basis, at $1,000 per Interest that, when issued, will be
convertible into a like number of Class 1 Interests without the payment of
additional cash consideration. See "Dilution." In addition to the warrants
described above, under guarantee arrangements with Motorola, Iridium has a
continuing obligation to issue comparable warrants to Motorola for so long as
the guarantees of borrowings under the Guaranteed Bank Facility remain in place.
The maximum aggregate warrant compensation Motorola can receive under these
arrangements is warrants to purchase 150,000 Class 1 Interests (subject to
anti-dilution adjustments) at $.01 per Class 1 Interest in respect of the $750
million guarantee through commencement of commercial operations, warrants to
purchase 50,000 Class 1 Interests (subject to anti-dilution adjustments) at $.01
per Class 1 Interest in respect of the $350 million conditional guarantee
through commencement of commercial operations, if such guarantee is issued and
warrants to purchase up to 12,000 Class 1 Interests at $.01 per Class 1 Interest
per year if the Guaranteed Bank Facility is extended beyond its scheduled August
1998 maturity date. Through March 31, 1997, Motorola had earned warrants to
purchase 50,179 Class 1 Interests as compensation for its guarantee. The Class 1
Interests acquired upon exercise of such warrants must be held for five years
from the date of issuance of such Interests. Up to 242,754 Class 1 Interests may
be issued to existing investors in Iridium at a purchase price of $1,000 per
Interest pursuant to the Reserve Capital Call. The Iridium Board has also
authorized the issuance of warrants to purchase up to 122,200 Class 1 Interests
at a purchase price of $.01 per Interest to gateway owners who meet certain
performance criteria.
There will be no immediate dilution to the purchasers of Class A Common
Stock in the Offerings with respect to the Class A Common Stock. However, the
Company has agreed to exchange shares of Class A Common Stock for Class 1
Interests at an exchange rate of shares of Class A Common Stock for each
Class 1 Interest commencing 90 days after Iridium has achieved one full quarter
of positive earnings before interest, taxes, depreciation and amortization. No
exchange shall take place unless approved by Iridium pursuant to authorization
of Directors representing at least 66 2/3% of the Iridium Board. See "Governance
of the Company and Relationship with Iridium -- Exchange Rights of Iridium
Members." Also, the Company has authorized the issuance of up to 2,500,000
shares of Class B Common Stock in the Global Ownership
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Program. These shares of Class B Common Stock will be convertible into Class A
Common Stock on a share for share basis. See "Governance of the Company and
Relationship with Iridium -- Global Ownership Program." In addition, the Company
has agreed that in the future it will issue additional shares of Class A Common
Stock at the direction of Iridium and invest the net proceeds thereof in
exchange for one Class 1 Interest for each shares of Class A Common Stock so
issued. See "Governance of the Company and Relationship with Iridium -- Share
Issuance Agreement."
Iridium needs to raise substantial additional funds to complete the
development and implementation of the IRIDIUM System. A portion of these funds
may be raised through the Reserve Capital Call which would result in the
issuance of up to 242,754 Class 1 Interests at $1,000 per Class 1 Interest. Most
of the balance of Iridium's cash needs is expected to be raised through the
incurrence of debt. In order to attract debt investors, Iridium may need to
offer such investors (and to persons providing guarantees or other forms of
credit support for such debt, if any) the right to acquire Class 1 Interests (or
similar interest) at prices substantially below the $ per Class 1
Interest price to be paid by the Company. Iridium may also decide to sell
additional Class 1 Interests directly to investors and the sale price of such
Interests may be substantially less than the $ per Interest to be paid
by the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Following completion of the Offerings, the only shares of Class A Common
Stock of the Company that will be outstanding will be the 10,000,000 shares
issued in the Offerings (11,500,000 shares if the Underwriters' over-allotment
options are exercised in full). However, the Company has agreed in the Interest
Exchange Agreement that it will exchange shares of Class A Common Stock for
Class 1 Interests at the rate of shares of Class A Common Stock for each Class 1
Interest and to register with the Securities and Exchange Commission those
shares for sale. Pursuant to the Interest Exchange Agreement, the holders of
Class 1 Interests may not exchange their Interests for shares of Class A Common
Stock prior to 90 days after the first fiscal quarter in which Iridium achieves
positive earnings before interest, taxes, depreciation and amortization. No
exchanges shall take place unless approved by Iridium, pursuant to the
authorization of Directors representing at least 66 2/3% of the Iridium Board.
Based upon Class 1 Interests outstanding at the time of completion of the
Offerings, shares of Class A Common Stock would be issuable upon such
exchange. Including all Class 1 Interests which will be issuable in the future
based upon warrants, options and convertible securities outstanding immediately
following completion of the Offerings, an aggregate of shares of Class A
Common Stock would be issuable upon such exchange.
Eligible employees of the Company and Iridium and persons having business
relationships with Iridium who are purchasing reserved shares of Class A Common
Stock in the Offerings have agreed not to sell, offer to sell or otherwise
dispose of any shares of Class A Common Stock without the prior written consent
of Merrill Lynch, Pierce, Fenner & Smith Incorporated for a period of 180 days
after the date of this Prospectus.
Following completion of the Offerings, the Company will issue shares of
Class B Common Stock in the Global Ownership Program. These shares of Class B
Common Stock will be exchangeable for Class A Common Stock on a share for share
basis after the satisfaction of certain conditions, but in no event earlier than
one year after issuance. Following such exchanges, and if registered for resale
with the Securities and Exchange Commission, the Class A Common Stock issuable
on exchange will be freely transferable if held by persons who are not
affiliates. See "Governance of the Company and Relationship with
Iridium -- Global Ownership Program." Issuances of substantial amounts of Class
A Common Stock, or the expectation of such issuances, could adversely affect the
market price of the Class A Common Stock.
RISKS ASSOCIATED WITH INCORPORATION UNDER BERMUDA LAW
The Company is incorporated under the Companies Act 1981 of Bermuda, as
amended from time to time (the "Bermuda Act"). As a result, the rights of
holders of Class A Common Stock will be governed by Bermuda law and the
Company's Memorandum of Association and Bye-Laws. The rights of shareholders
under Bermuda law may differ from the rights of shareholders of companies
incorporated in other jurisdictions. The Company has been advised by its Bermuda
counsel, Conyers, Dill & Pearman, that
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uncertainty exists as to whether courts in Bermuda will enforce judgments
obtained in other jurisdictions (including the United States) against the
Company or officers or directors of the Company under the securities laws of
those jurisdictions or entertain actions in Bermuda against the Company or its
officers or directors under the securities laws of other jurisdictions. There is
no treaty in effect between the United States and Bermuda providing for such
enforcement, and there are grounds upon which Bermuda courts may not enforce
judgments of United States courts. Certain remedies available under the United
States federal securities laws would not be allowed in Bermuda courts as
contrary to that jurisdiction's public policy.
RISK OF LOSS OF MANAGEMENT RIGHTS UPON CHANGE IN CONTROL
Under the Limited Liability Company Agreement of Iridium, the Company has
certain special rights including the right to designate two members of the
Iridium Board, one of whom will act as a Vice Chairman of Iridium, and the right
to approve certain significant transactions involving Iridium. See "Governance
of the Company and Relationship with Iridium -- Participation in the Governance
of Iridium." Iridium will have the right to terminate these special rights
following a Company Change in Control (as defined), which includes circumstances
in which an entity other than Iridium becomes the beneficial owner of more than
30% of the Company's outstanding common stock or in which there is a change in a
majority of the members of the Company's Board of Directors (the "Company
Board") over a two year period that was not approved by a vote of 66 2/3% of the
members of the Company Board then still in office who were directors at the
beginning of the two year period or whose election or nomination for election
was previously so approved. As a result of these provisions, as well as the
risks described below under "-- Risks Related to the Investment Company Act of
1940," holders of Class A Common Stock may effectively be precluded from
replacing a majority of the Company Board, which initially consists of directors
selected by Iridium.
RISKS RELATED TO THE INVESTMENT COMPANY ACT OF 1940
Substantially all of the assets of the Company will consist of Class 1
Interests in Iridium. Under the United States Investment Company Act of 1940
(the "1940 Act"), the Company could be deemed to be an "investment company" if
the Class 1 Interests constitute "investment securities," as defined in the 1940
Act. If the Company were required to be registered as an investment company
under the 1940 Act, there would be a substantial risk that the Company would be
in violation of the 1940 Act because non-United States companies cannot so
register without applying for and receiving an order from the U.S. Securities
and Exchange Commission permitting such registration. Reincorporation under the
laws of a state in the United States would impose substantial tax expense on the
Company. The Company believes that it is not required to register as an
investment company under the 1940 Act. This decision is based upon the Company's
belief that the Class 1 Interests it will hold will not be "securities" for
purposes of the 1940 Act and other U.S. securities laws. This belief is based
upon the Company's role in the affairs of Iridium. There is a risk that a court
could reach a contrary conclusion. This risk would be substantially increased if
there were a Company Change in Control that resulted in the Company losing its
special management rights. See"-- Risk of Loss of Management Rights upon Change
in Control." In addition, because the Class 1 Interests held by the Company
should not, in the view of the Company, be considered securities for purposes of
the U.S. securities laws, the Company believes that it will not have the
protections of such laws with respect to its Class 1 Interests.
TAX CONSEQUENCES RELATED TO PASSIVE FOREIGN INVESTMENT COMPANIES
Special U.S. tax rules apply to U.S. taxpayers who own stock in a "passive
foreign investment company" (a "PFIC"). Although the Company believes that it
will not become a PFIC, there is a risk that in the future it may become a PFIC.
Furthermore, if the Company becomes a PFIC in 1998, it will be deemed to have
been a PFIC in 1997 as well. In such an event, a U.S. shareholder would be
subject at his election either to (i) a current tax on undistributed earnings or
(ii) a tax deferral charge in certain distributions and in gains from a sale of
shares of the Class A Common Stock (taxed as ordinary income).
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THE COMPANY AND IRIDIUM'S STRATEGIC INVESTORS
THE COMPANY
The Company 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. The Company was formed for the purpose of acting as a member
of Iridium. The Company will use the net proceeds of the Offerings to acquire
Class 1 Interests in Iridium. Upon consummation of the Offerings and application
of the proceeds therefrom to the purchase of Class 1 Interests, the Company is
expected to own % of the outstanding Class 1 Interests ( %, if the
Underwriters' over-allotment options are exercised in full). The expenses of the
Offerings, estimated at $ , will be borne entirely by Iridium. The
Company's only asset will be its interest in Iridium and its only activity will
be participating in the management of Iridium.
The following is a chart of Iridium's ownership structure, giving effect to
the Offerings assuming the Underwriters' over-allotment options are not
exercised:
<TABLE>
<S> <C>
Iridium Africa ___%
Iridium Andes Caribe ___%
Iridium Brasil ___%
Iridium Canada ___%
Iridium China ___%
Iridium India ___%
The Company Strategic Iridium Italia ___%
Investors Iridium Middle East ___%
___% ___% Khrunichev ___%
Korea Mobile Telecom ___%
Lockheed Martin ___%
Iridium LLC Motorola ___%
Nippon Iridium ___%
PEWC ___%
Raytheon ___%
Sprint ___%
Thai Satellite ___%
Vebacom Holdings ___%
</TABLE>
The above chart reflects percentage ownership in outstanding Class 1
Interests. For a description of the potential for dilution of the Company's
interest in Iridium see "Dilution."
For additional information on the Company's governance arrangements and its
relationship with Iridium, see "Governance of the Company and Relationship with
Iridium."
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IRIDIUM'S STRATEGIC INVESTORS
Iridium's strategic investors include market leaders in providing wireless
telecommunications services, manufacturing telecommunications and satellite
systems and supplying satellite launch services. Iridium's strategic investors
have collectively invested, or committed to invest, approximately $3.24 billion
in Iridium, including equity, debt, guarantees, conditional commitments to
provide guarantees and the Reserve Capital Call, representing more than 74% of
Iridium's projected total funding needs through the end of September 1998, the
month Iridium expects to commence commercial operations and approximately 65% 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 Inc. in North
America, STET and Vebacom in Europe and DDI (Japan), UCOM (Thailand) and Korea
Mobile Telecommunications 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.
Vebacom, a provider of mobile and satellite communications in Germany, is a
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. Korea Mobile Telecommunications Corporation, a
provider of cellular and paging services, has been allocated the gateway service
territory consisting of North Korea and South Korea. 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 obtaining necessary 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 using the Proton launch vehicle, which is
expected to carry seven IRIDIUM satellites into orbit with each launch. In
addition, Iridium expects that Motorola and Kyocera, two of the world's leading
manufacturers of wireless telephones, will manufacture and sell subscriber
equipment for use with the IRIDIUM System. See "Iridium
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Investors, Number of Class 1 Interests Owned, Percentage Ownership and Principal
Gateway Service Territories."
USE OF PROCEEDS
The net proceeds from the Offerings are estimated to be approximately $188
million ($216.2 million if the Underwriters' over-allotment options are
exercised in full), assuming an initial public offering price of $20 per share
(the midpoint of the estimated public offering price range set forth on the
cover of this Prospectus) and after deducting underwriting discounts. Expenses
of the Offerings, estimated at $2 million, will be borne entirely by Iridium.
The net proceeds of the Offerings will be used by the Company to purchase
Class 1 Interests ( Class 1 Interests, if the Underwriters' over-allotment
options are exercised in full pursuant to the terms of the 1997 Subscription
Agreement described under "Governance of the Company and Relationship with
Iridium -- 1997 Subscription Agreement"). The price per Class 1 Interest in
Iridium will be $ per Interest. See "Dilution" and "Underwriting."
Following application of the net proceeds of the Offerings, the Company is
expected to own % of the outstanding Class 1 Interests ( %, if the
Underwriters' over-allotment options are exercised in full).
Iridium will use the net proceeds from the sale of Class 1 Interests to the
Company 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 related to commercialization of the IRIDIUM System.
See "Prospectus Summary -- Sources and Uses of Funds by Iridium."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Class A Common
Stock or Class B Common Stock, and Iridium has never made distributions on its
Class 1 Interests. The Company and, except as described below, Iridium do not
currently anticipate paying any such dividends or distributions until sometime
following Iridium's achievement of positive operating cash flow.
The Company's only assets will be its Class 1 Interests and the Company has
no independent means of generating revenues. Iridium will pay the Company's
operating expenses, which expenses are not expected to be material. To the
extent permitted by applicable law and agreements relating to indebtedness,
Iridium intends to distribute to its Class 1 Members, including the Company, net
cash, if any, received from its operations, less amounts required to repay
outstanding indebtedness, satisfy other liabilities and fund capital
expenditures and contingencies. The LLC Agreement requires the Iridium Board, 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 United States federal, state and local income tax
liability resulting from allocations of Iridium's income to such Member. Cash
distributions by Iridium are expected to be restricted by certain debt
covenants.
The Company intends to promptly distribute as dividends to its shareholders
the distributions, if any, made to it by Iridium, less any amounts reasonably
required to be retained for payment of taxes, for repayment of any liabilities
and to fund any contingencies. Any dividend declared subsequent to the Offerings
must be declared and paid equally on the outstanding Class A Common Stock and
Class B Common Stock.
39
<PAGE> 42
DILUTION
Purchasers of Class A Common Stock in the Offerings will not experience
significant dilution with respect to the Class A Common Stock of the Company
upon completion of the Offerings. However, the Company will experience immediate
dilution with respect to the Class 1 Interests when it invests the proceeds from
the Offerings in Class 1 Interests. In addition, dilution to new investors with
respect to the Class A Common Stock will occur at any time the holders of Class
1 Interests exchange Class 1 Interests for Class A Common Stock pursuant to the
Interest Exchange Agreement. See "Governance of the Company and Relationship
with Iridium -- Exchange Rights of Iridium Members" and "Shares Eligible for
Future Sale."
The price per Class 1 Interest to be paid by the Company for the Class 1
Interests to be purchased with the proceeds of the Offerings will exceed the
price per Class 1 Interest paid by Iridium's present Class 1 Members. The
following table illustrates the dilution in pro forma net tangible book value on
a per Class 1 Interest basis, assuming that the total net proceeds to the
Company from the Offerings are $188 million and those proceeds are used to
purchase Class 1 Interests at $ per Class 1 Interest. Net tangible
book value per Class 1 Interest is equal to Iridium's total tangible assets less
total liabilities as of December 31, 1996, divided by the number of Class 1
Interests outstanding at that date.
<TABLE>
<S> <C> <C>
Purchase price per Class 1 Interest purchased by the Company with the
proceeds of the Offerings................................................ $
Net tangible book value per Class 1 Interest at December 31, 1996.......... $
Increase in net tangible book value per Class 1 Interest attributable to
the use of the proceeds from the Offerings to purchase Class 1
Interests................................................................
------
Pro forma net tangible book value per Class 1 Interest after the
Offerings................................................................
------
Pro forma dilution per Class 1 Interest to the Company after the
Offerings................................................................ $
======
</TABLE>
The following table summarizes the relative investment in Iridium of the
existing holders of Class 1 Interests and the Company, as adjusted to give
effect to the sale of Class 1 Interests to the Company in connection with the
Offerings (assuming the Underwriters' over-allotment options are not exercised).
<TABLE>
<CAPTION>
CLASS 1 INTEREST CONSIDERATION
--------------------- ------------------------- AVERAGE PRICE PER
INTERESTS PERCENT PAID PERCENT CLASS 1 INTEREST
--------- ------- ------------- ------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing Holders of Class 1
Interests....................... 1,611,147 % $ 1,616 % $ 1,003
The Company.......................
--------- ----- ---------- ------
Total................... 100% 100% $
========= ===== ========= =====
</TABLE>
The following table presents information with respect to the potential
issuances of Class 1 Interests pursuant to outstanding warrants and convertible
interests.
<TABLE>
<CAPTION>
CASH CONSIDERATION
CLASS 1 INTERESTS PAID OR PAYABLE(1)
--------------------- ------------------------
INTERESTS PERCENT PAID PERCENT
--------- ------- ------------ -------
(IN
MILLIONS)
<S> <C> <C> <C> <C>
Existing Holders of Class 1 Interests.............. 1,611,147 % $ %
Holders of Warrants Issued in Connection with Debt
Issuances(2).....................................
Management Options(3)..............................
Series A Class 2 Interests(4)......................
Warrant to acquire Series M Class 2 Interests(5)...
Purchasers in the Offerings........................ -- -- -- --
--------- ----- ------ -----
Total.................................... 100% $ 100%
========= ===== ====== =====
</TABLE>
40
<PAGE> 43
- ---------------
(1) In the case of convertible interests, the cash consideration represents the
cash payment for the interests converted (or the liquidation preference of
Series 2 Interests issued in satisfaction on dividend obligations of Series
2 Interests).
(2) Includes 480,151 warrants issued in connection with the issuance and sale of
Iridium's 14 1/2% Senior Subordinated Notes due 2006 and 150,000 warrants to
be held by Motorola, which is the maximum number of warrants issuable to
Motorola in respect of the $750 million Guaranteed Bank Facility through
commencement of commercial operations. Motorola would also be entitled to
receive warrants to purchase up to 50,000 additional Class 1 Interests at a
price of $.01 per Interest in connection with the possible $350 million
increase in the Guaranteed Bank Facility through commencement of commercial
operations and up to 12,000 warrants per year per $100 million of guaranteed
borrowings if the Guaranteed Bank Facility is extended beyond its scheduled
August 1998 maturity. No warrants with respect to the possible increase in
or extension of the Guaranteed Bank Facility or in respect of any anti-
dilution adjustment are included in the table.
(3) Up to 35,000 Class 1 Interests may be issued pursuant to the Iridium Option
Plan. Options vest pro rata over a five year period. See
"Management -- Iridium Option Plan."
(4) At March 31, 1997 there were 48,680 Series A Class 2 Interests outstanding.
Assuming future dividends are paid in kind through February 28, 2001, there
will be 86,056 Series A Class 2 Interests outstanding at that date. At March
1, 1997, the conversion price was $4,052 per Interest and each Series A
Class 2 Interest was convertible into .2468 Class 1 Interests.
(5) Motorola holds a warrant to acquire Series M Class 2 Interests in Iridium
equal in number to 2.5% of the fully diluted number of Class 1 Interests
outstanding at the time of exercise. The exercise price is $1,000 per Series
M Class 2 Interest. The Series M Class 2 Interests are convertible into an
equal number of Class 1 Interests.
Iridium has also authorized the issuance of up to 122,200 warrants to
acquire Class 1 Interests at a price of $.01 per 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.
Up to 242,754 Class 1 Interests may be issued at a purchase price of $1,000 per
Interest pursuant to the Reserve Capital Call. The Company has authorized the
issuance of up to 2,500,000 shares of Class B Common Stock as part of the Global
Ownership Program. None of such shares have been issued. See "Governance of the
Company and Relationship with Iridium -- Global Ownership Program." The table
does not give effect to any of these contingent issuances.
41
<PAGE> 44
CAPITALIZATION
THE COMPANY
The following table sets forth as of December 31, 1996: (i) the
capitalization of the Company; and (ii) the capitalization of the Company as
adjusted to reflect the issuance and sale by the Company of 10,000,000 shares of
Class A Common Stock in the Offerings at an assumed initial public offering
price of $20 per share (the midpoint of the estimated public offering price
range set forth on the cover page of this Prospectus) and the receipt of the
estimated net proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' Equity:
Class A Common Stock, par value $.01 per share, 20,000,000 shares
authorized; 1,200,000 shares issued and outstanding; 10,000,000 shares
issued and outstanding as adjusted..................................... $ 12 $ 100
Class B Common Stock, par value $.01 per share, 2,500,000 shares
authorized; no shares issued and outstanding........................... --
Subscriptions receivable................................................. (12) --
Additional paid-in capital............................................... -- 187,900
Retained earnings........................................................ -- --
---- ---------
Total stockholders' equity..................................... -- 188,000
---- ---------
Total capitalization..................................................... $ -- $ 188,000
==== =========
</TABLE>
IRIDIUM
The following table sets forth as of December 31, 1996: (i) the
capitalization of Iridium and (ii) the capitalization of Iridium as adjusted to
reflect the issuance and sale by Iridium of Class 1 Interests to the Company in
exchange for the net proceeds of the Offerings to Iridium (estimated to be $186
million).
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Guaranteed Bank Facility............................................ $ 505,000 $ 505,000
Long-term debt due to Members....................................... 230,904 230,904
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, 46,977 interests issued and outstanding................. 46,977 46,977
Series B, 1 interest issued and outstanding....................... -- --
Series C, 75 interests issued and outstanding..................... -- --
Class 1 Interests, 3,000,000 interests authorized, 1,611,147
interests issued and outstanding and interests issued
and outstanding, as adjusted(1)................................... 1,659,625
Deficit accumulated during the development stage.................... (133,840) (133,840)
Adjustment for minimum pension liability............................ (733) (733)
---------- ----------
Total members' equity..................................... 1,572,029
---------- ----------
Total capitalization...................................... $2,307,933 $
========== ==========
</TABLE>
- ---------------
(1) See "Dilution" for a discussion of additional interests issuable pursuant to
options, warrants and the Reserve Capital Call.
42
<PAGE> 45
SELECTED FINANCIAL DATA
THE COMPANY
The following balance sheet data of the Company is derived from the
Company's balance sheet as of December 31, 1996, which has been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the balance sheet
of the Company and notes thereto included herein. The Company has had no
operations to date.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Balance Sheet Data:
Cash............................................................. $ -- $ --
Investment in Iridium LLC........................................ -- 188,000
Total assets..................................................... -- 188,000
Stockholders' equity............................................. -- 188,000
</TABLE>
- ---------------
(1) As adjusted to reflect the issuance and sale by the Company of the
10,000,000 shares of Class A Common Stock offered hereby at an assumed
initial public offering price of $20 per share (the midpoint of the
estimated public offering price range set forth on the cover of this
Prospectus), the receipt of the estimated net proceeds therefrom and the
purchase by the Company of Class 1 Membership Interests at an aggregate
purchase price of $188 million and the repurchase of the 1,200,000 shares of
Class A Common Stock held by Iridium LLC for $12,000. See "Use of Proceeds"
and "Capitalization." Does not reflect the issuance of shares of Class B
Common Stock in connection with the Company's Global Ownership Program or
the application of the proceeds therefrom to acquire Class 1 Interests. See
"Governance of the Company and Relationship with Iridium -- Global Ownership
Program."
IRIDIUM
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 set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Iridium and notes
thereto included herein.
<TABLE>
<CAPTION>
PERIODS PRIOR TO
INITIAL CAPITAL PERIODS FOLLOWING INITIAL
CONTRIBUTION DATE(1) CAPITAL CONTRIBUTION DATE
----------------------------- -------------------------------------------
JAN. 1, 1993 JULY 29, 1993 YEAR ENDED DEC. 31
YEAR ENDED TO TO ---------------------------
DEC. 31, 1992 JULY 28, 1993 DEC. 31, 1993 1994 1995 1996
------------- ------------- ------------- ------- ------- -------
(IN THOUSANDS EXCEPT PER CLASS 1 INTEREST DATA)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Loss Data:
Revenues(2).................... -- -- -- -- -- --
Sales, general and
administrative.............. $ 8,773 $ 5,309 $ 7,141 $17,561 $27,187 $71,404
Interest income................ -- -- 390 4,252 5,226 2,395
Provision for income taxes..... -- -- 173 1,525 1,684 4,589
------- ------- ------- ------- ------- -------
Net loss....................... $ 8,773 $ 5,309 $ 6,924 $14,834 $23,645 $73,598
======= ======= ======= ======= ======= =======
Net loss per Class 1
Interest.................... $ -- $ -- $ 31.91 $ 28.50 $ 20.11 $ 48.23
======= ======= ======= ======= ======= =======
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1996
------------------------------------------ ---------------------------
1992 1993 1994 1995 ACTUAL AS ADJUSTED(3)
------- -------- -------- ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash
equivalents............. -- $ 23,496 $202,391 $ 51,332 $ 1,889 $ 187,889
System under
construction............ -- 275,000 646,000 1,448,000 2,376,884 2,376,884
Total assets............... -- 299,886 851,809 1,505,383 2,434,081 2,620,081
Long-term debt (net of
discount)............... -- -- -- -- 735,904 735,904
Total Members' equity...... $(9,530) 294,308 795,813 1,404,610 1,572,029
</TABLE>
- ---------------
(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) As adjusted to reflect the purchase by the Company of Class 1 Interests,
at a purchase price of $ per Class 1 Interest, with the net proceeds
from the Offerings. Does not reflect the issuance of Class 1 Interests to
the Company in connection with the Company's Global Ownership Program. See
"Governance of the Company and Relationship with Iridium -- Global Ownership
Program."
44
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company will act as a member of Iridium and will have no other
business. The Company's sole asset will be its Class 1 Interests in Iridium and
the Company's results of operations will reflect its proportionate share of the
results of operations of Iridium on an equity accounting basis. In its annual
and quarterly reports, the Company will present separate financial statements
for the Company and Iridium.
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.
LIQUIDITY AND CAPITAL RESOURCES
Funding Requirements
Iridium is a development stage company and as such will require substantial
amounts of continued outside financing to acquire and develop its assets and
commence operations. 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 $178.9 million over the 1996 to 1999 period. 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 are a variety of pending and anticipated
amendments and interpretations to the Space System Contract, the Terrestrial
Network Development Contract and the Operations and Maintenance Contract and
other agreements and letters with Motorola totaling approximately $125 million,
which amount is reflected in Iridium's estimates of its funding requirements.
These amendments and interpretations will affect the price and terms of those
agreements." See "Risk Factors -- Risks Associated with Principal Supply
Contracts -- Amendments to Principal Contracts."
Through March 31, 1997, Iridium has incurred expenditures totaling $2.284
billion to Motorola under the Space System Contract in respect of completed
milestones and payments totaling $64 million under the Terrestrial Network
Development Contract. Based on current estimates and the current planned
schedule, Iridium's expected future cash requirements by year under the
contracts through December 31, 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Space System Contract......................................... $577 $589 --
Terrestrial Network Development Contract...................... 68 56 --
Operations and Maintenance Contract........................... -- 140 $538
</TABLE>
45
<PAGE> 48
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 total funding requirements of approximately $4.361 billion through
September 1998, the month Iridium expects to commence commercial operations, and
$5.0 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 March 31, 1997, Iridium had equity investments of $1.659 billion with
an additional $243 million available in the form of a Reserve Capital Call. Debt
investments and commitments equaled $988 million, including the $750 million
Guaranteed Bank Facility. In addition, Motorola has conditionally agreed to
guarantee up to an additional $350 million of borrowings under the Guaranteed
Bank Facility to bring the total commitments thereunder to $1.1 billion. Iridium
is seeking to, and expects to be able to, amend the Guaranteed Bank Facility to
permit these additional borrowings. There can be no assurance that Iridium will
satisfy the terms of Motorola's conditional commitment to guarantee or that the
bank lenders will agree to increase the size of the Guaranteed Bank Facility.
The Guaranteed Bank Facility matures in August 1998. Motorola has conditionally
committed to extend its guarantee through December 31, 2000. Iridium believes
that it will be able to extend the Guaranteed Bank Facility through that date.
Motorola receives compensation in the form of warrants for its guarantees. See
"Dilution." Motorola has also been granted a security interest in the Company's
assets.
Iridium expects to have sufficient cash after completion of the Offerings
to meet its anticipated cash requirements through November 1997, assuming
exercise and full funding of the Reserve Capital Call and $1.1 billion of
borrowings under the Guaranteed Bank Facility. The remaining funds needed to
meet Iridium's projected funding requirements are expected to be raised through
additional financings. Iridium is seeking to obtain a senior bank facility in an
amount of approximately $1.5 billion. Iridium expects that, in connection with
additional debt financings, guarantees and other credit support from third
parties are likely to be required and that compensation to such third
parties -- including equity -- will likely be required for such guarantees or
other credit support. There are currently no agreements with Motorola or
Iridium's other investors or vendors to provide such guarantees or credit
support. 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 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 do not reflect any contingency amounts and therefore those
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.
Iridium is currently seeking an investor or investors to purchase the South
Pacific gateway service territory and may issue additional Class 1 Interests in
connection therewith. See "Governance of the Company and Relationship with
Iridium -- Share Issuance Agreement."
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
46
<PAGE> 49
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 or 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; Risk
of Default on Existing Commitments."
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 $12.3 million from the initial
capital contribution date to December 31, 1996. During the same period, Iridium
recorded a net loss of $119.0 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 date of delivery in orbit of
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 $2.35 billion through December 31, 1996. 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 December
31, 1996, marketing, general and administrative expenses were approximately
$123.3 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 current interest cost being capitalized during 1995 and 1996 and
will likely have similar results in 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 the 14 1/2% Senior Subordinated
47
<PAGE> 50
Notes during the first five years. Such non-cash interest will be accrued and
such accrual will increase outstanding indebtedness on Iridium's balance sheet.
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. See "Tax
Considerations -- United States Federal Income Taxation."
BUSINESS
The Company will act as a member of Iridium and will have no other
business. The business of Iridium is described below.
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 IRIDIUM satellites is expected to occur in May 1997,
and Iridium expects to commence commercial service in September 1998.
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)
under a fixed price contract, subject to certain adjustments. Each of the 11
gateways will be
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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, with
a CDMA TRC being available after commencement of commercial operations. 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 IIU, being developed by 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 global mobile voice and paging services, including:
- Full 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
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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, 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. 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 "-- The IRIDIUM
System -- 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). 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.
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
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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 ICRS or
IRIDIUM phone (at no charge). 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 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.
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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."
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
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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 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
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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.
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
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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 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."
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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
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."
Under the Space System Contract, Motorola has completed 30 of the 47
contract milestones. Contract milestone 30 -- initial launch of the
satellites -- was scheduled for completion in January 1997, but the launch did
not occur. See "Risk Factors -- Potential for Delay and Cost Overruns." The
remaining 17 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. Eight satellites have been produced, seven additional
satellites have been assembled and are in testing and additional satellites are
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.
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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.
- Nuovo 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 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.
In January 1997 the first launch of IRIDIUM satellites was delayed on four
successive days and postponed following a launch failure involving the McDonnell
Douglas Delta II launch vehicle (which is the type of launch vehicle that
McDonnell Douglas will use 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 Vandenburg 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 is in the process of reworking
its launch schedule and, subject to certain assumptions, including that
McDonnell Douglas launches commence in May 1997, currently believes it can do so
on a basis that will
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permit Iridium to meet its planned September 1998 commencement of commercial
operations. Motorola has advised Iridium of its position that, because of the
United States government's action resulting in the temporary postponement of
Delta II launches following the failure of the Delta II launch vehicle pending
completion of a failure review analysis, Motorola is in an "excusable delay"
under the Space System Contract, the Operations and Maintenance Contract and the
Terrestrial Network Development Contract. Iridium has notified Motorola that
Iridium disagrees with Motorola's contention.
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 under construction 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 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 up to 122,200 warrants to
acquire Class 1 Interests at a price of $.01 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 but one of its 14 gateway service territories to
its equity investors or their affiliates. Iridium expects these gateway service
territories to be served initially through 11 gateways. Iridium 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 a gateway and provide gateway services;
(ii) obtain all required governmental licenses and permits necessary to
construct gateways; (iii) designate IRIDIUM service providers, which may include
the gateway operator; (iv) require compliance by each service provider with
established guidelines; and (v) support Iridium-approved positions at the WRC of
the ITU. See "Principal Contracts for the Development of the IRIDIUM
System -- Gateway Authorization Agreements."
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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 (Matsumoto, 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 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. The Company 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 Satellite Service Limitations 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. Iridium also expects that
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equipment manufacturers other than Motorola and Kyocera will develop and sell
IRIDIUM subscriber equipment. 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.
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 service. 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."
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 by 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 then converts the signal back to the protocol of
the visited network and sends 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
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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 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, 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 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 that the IRIDIUM System will
commence commercial operations in September 1998 as planned. See "Risk
Factors -- Potential for Delay and Cost Overruns."
<TABLE>
<S> <C>
----------------------------------------------------------------------------
1987: - IRIDIUM System conceived by Motorola
- Research and development begins
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1990: - Planned IRIDIUM System announced worldwide
- FCC license application filed
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1991: - Iridium, Inc. incorporated
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1992: - Global MSS spectrum allocated at WARC-92
- Experimental license granted by FCC
- Full scale research and development by Motorola, Lockheed and Raytheon
underway
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C>
----------------------------------------------------------------------------
1994: - IRIDIUM System preliminary design reviews completed
- Additional stock purchase agreements executed covering an additional $798
million in the aggregate
- 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 bank facility established
- Kyocera development of Iridium phones
- Construction of gateways begins
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1997: - First IRIDIUM satellites expected to be launched
- Master control facility expected to be completed
- Significant portion of satellite launches expected to occur
- Gateway construction expected to continue and initial testing to begin
- Prototype phones expected to be available for in-orbit testing
- Significant progress expected in obtaining service providers, roaming
agreements and L-band licenses
- In-orbit testing expected to begin
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------
</TABLE>
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 both of the other two FCC licensed MSS applicants -- Loral/Qualcomm
Partnership, L.P., on behalf of Globalstar, and TRW, on behalf of Odyssey.
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).
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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, hand-held 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 the IRIDIUM service 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.
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.
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 100 and 210 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.
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 car-mounted 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. The Asian Cellular
Satellite ("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 hand-held units. The Asia Pacific Mobile
Telecommunications Satellite ("APMT") has proposed a two-satellite GEO satellite
system covering India, China and certain Southeast Asian nations, offering
mobile telecommunications to dual-mode, hand-held 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 vast-type 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 Asia-Pacific 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
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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 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 travelling 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 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 travelling 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
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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.
EMPLOYEES
As of March 31, 1997, Iridium had approximately 202 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. 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 72,016 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 1401 H
Street, N.W., Suite 800, Washington, D.C. 20005.
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
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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 stations; and (iii) the licenses in each country for the
IRIDIUM subscriber equipment and service. 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 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
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. See "Prospectus
Summary -- Progress to Date." Three final and four experimental licenses to
build and operate gateways have been received. The final licenses permit the
gateways to engage in commercial operations. Two of the remaining four
unlicensed gateways are under construction in the expectation that they will be
licensed. 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.
To date, seven administrations have granted conditional licenses for the
provision of IRIDIUM Satellite Services in their respective countries. The seven
countries are the United States, Venezuela, New Zealand, Taiwan, Thailand,
Afghanistan and Micronesia. 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.
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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
the 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, some gateway operators have indicated that the receipt of
some regulatory approvals in portions of their territories may be delayed beyond
the anticipated commencement of commercial operations in September 1998.
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.
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.
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 protect it from interference from
future systems. Once the request is published, administrations that have
previously engaged in 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
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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
"Regulation of Iridium -- 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.
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. Applications for authorizations for gateway, subscriber, and TT&C
facilities are in varying stages of processing in other countries 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. 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.
Countries in Europe are approaching frequency assignments and licensing
issues on a regional basis. CEPT, an organization of forty-three countries in
greater Europe, is in the process of adopting decisions regarding the frequency
assignment plan and the authorization process which it will recommend that
member countries follow. These recommendations are voluntary but many European
countries -- especially EU members -- are expected to follow these
recommendations.
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These draft decisions currently give Iridium the opportunity to obtain the
spectrum it needs to operate initially in Europe, provided it can meet certain
milestones. 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 meet all the milestones or will receive all the spectrum it needs to
operate in Europe.
IRIDIUM mobile subscriber equipment in many countries must be type accepted
in accordance with national, regional and/or internationally-recognized
standards relating to unwanted emissions, network controls, etc. The GMPCS MOU
also contemplates the establishment of such standards. 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 world-wide regulatory
approval for the IRIDIUM service, 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 the IRIDIUM service on a timely basis. See "Risk Factors -- Risks
Associated with Principal Supply Contracts -- Amendments to Principal
Contracts."
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 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. 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 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
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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.
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
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.
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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 government has indicated that CALEA imposes requirements on the IRIDIUM
System similar to the requirements that the government has requested to be
implemented by the cellular industry. Discussions with the 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 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 Sates 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 Proton launch vehicle. Motorola has also
applied for, and expects the near-term grant of, the 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.
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 systems are the only Big
LEO systems that have been 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 Iridium 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: Mobile Communications Holdings, Inc. ("MCHI,"
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also known as "Ellipsat"); Constellation Communications, Inc. ("Constellation");
and American Mobile Satellite Corporation ("AMSC"). MCHI and Constellation
recently submitted updated financial information to the FCC. 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. If these appeals are successful or
if the FCC approves of the recently submitted financial information, the FCC
could grant licenses to MCHI and Constellation. While such a result would not
have an immediate impact on the amount of spectrum assigned to the IRIDIUM
System, it could prevent Iridium from being assigned more spectrum in the 1.6
GHz MSS band in the future.
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
signalling 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, 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, Iridium and Odyssey
submitted requests for country code resources, as well.
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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.
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.
Capitalized terms used in the following summary that are defined in the
contracts have the meanings assigned to them in 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. Certain
planned additional contracts or contract amendments are currently under
negotiation with Motorola and other vendors, relating to system and service
capabilities. 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).
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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 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
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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, 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. As part of the security
interest granted to Motorola in conjunction with Motorola's $750 million
guarantee of the borrowings under the Guaranteed Bank Facility. Iridium has
agreed that it will not request such a transfer so long as the guarantee is
outstanding.
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
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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.
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
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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 $26 million in this circumstance rather
than $46 million. Moreover, the effect of damage to satellites by acts of third
parties is to be disregarded 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 $178.9 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
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the development of new or enhanced system or service capabilities. In 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.
Pending Amendments
As a result of technological developments, changes in the product mix of
the IRIDIUM service, and scheduling adjustments, there are a variety of pending
amendments to the Space System Contract, the Terrestrial Development Contract,
the Operations and Maintenance Contract and the IBSS Contract. These amendments
will increase the price and may change the terms of those agreements. The
changes are likely to include delivery dates for some items and features that
are beyond the date Iridium expects to commence commercial operations.
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.
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
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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 Board of Directors of
Iridium 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
THE COMPANY
Set forth below is information concerning each director, director nominee
and executive officer of the Company, including each individual's principal
occupation and employment. The current members of the Company Board have been
elected by Iridium and will hereafter be elected at the annual general meeting
or at any special meeting of shareholders. The exclusive right to elect members
of the Company Board is vested with the holders of Class A Common Stock. The
next annual meeting of shareholders is scheduled for April 1998. Unless
otherwise indicated, each executive officer holds office until a successor is
duly elected and qualified. There are no family relationships among executive
officers or directors of the Company. See "Risk Factors -- Company Change in
Control."
The following table sets forth information concerning the executive
officers and directors of the Company as of April 16, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------ --- -------------------------------------
<S> <C> <C>
Edward F. Staiano......................... 60 Chief Executive Officer and Director
Roy Grant................................. 40 Chief Financial Officer
Wayne Morgan.............................. 53 Secretary
F. Thomas Tuttle.......................... 54 Assistant Secretary
Alberto Finol............................. 62 Deputy Chairman and Director
Ulf Bohla................................. 53 Director
Robert W. Kinzie.......................... 63 Director
Yoshiharu Yasuda.......................... 56 Director
</TABLE>
Messrs. Richard L. Lesher and William A. Schreyer have agreed to serve as
Directors of the Company upon consummation of the Offerings.
EDWARD F. STAIANO -- Chief Executive Officer and Director. Vice Chairman
and Chief Executive Officer of Iridium since January 2, 1997 and Director of
Iridium since October 1994. 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. Dr. Staiano has served as the Chief Executive Officer and
Director of the Company since March 1997.
ROY GRANT -- Chief Financial Officer. Vice President and Treasurer of
Iridium since November 1996. 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. Mr. Grant has served as Chief Financial Officer of the Company
since April 1997.
WAYNE MORGAN -- Secretary. Mr. Morgan has been employed as a corporate
manager by Codan Services Ltd. In Bermuda since August 1996. Prior thereto, Mr.
Morgan served Johnson & Higgins (Bermuda) Limited from 1980 to 1996 in a number
of positions including Vice President and Manager of Support Services, Senior
Vice President, Client Account Management and Senior Vice President, Principal
Branch Manager. Prior to joining Johnson & Higgins, Mr. Morgan was the Deputy
Accountant General for the Government of Bermuda from 1975 to 1980. Mr. Morgan
has served as the Secretary of the Company since December 1996.
F. THOMAS TUTTLE -- Assistant Secretary. Vice President, General Counsel
and Secretary of Iridium since April 1996. Mr. Tuttle has been employed by
Iridium as Assistant Secretary since January 1994 and as Deputy General Counsel
since November 1993. 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 Communications Satellite
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Corporation ("COMSAT Corporation"). Mr. Tuttle has served as the Assistant
Secretary of the Company since December 1996.
ALBERTO FINOL -- Deputy Chairman and Director. Director of Iridium since
July 1993; member of the Iridium Board Compensation Committee, the Iridium Board
Banking and Financing Committee and the Iridium Board 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
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. Mr. Finol has served as a Director of the Company
since December 1996.
ULF BOHLA -- Director. Director of Iridium since October 1994; member of
the Iridium Board Banking and Financing Committee and the Iridium Board Related
Party Contracts Committee. Mr. Bohla has been the Chief Executive Officer of
Vebacom GmbH since July 1, 1994. 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. Mr. Bohla has served as a Director of the
Company since December 1996.
ROBERT W. KINZIE -- Director. Chairman of the Iridium Board since October
1991 and Chief Executive Officer of Iridium from October 1991 to January 1,
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. Mr. Kinzie has served as a Director
of the Company since December 1996.
RICHARD L. LESHER -- Director Nominee. Mr. Lesher has served as the
President of the Chamber of Commerce of the United States, the world's largest
business organization, since 1975. Mr. Lesher will be appointed Independent
Company Director to Iridium upon consummation of the Offerings. Mr. Lesher has
accepted his appointment to serve as a Director of the Company, effective upon
consummation of the Offerings.
WILLIAM A. SCHREYER -- Director Nominee. 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. Mr. Schreyer will be appointed Independent Company
Director to Iridium upon consummation of the Offerings. Mr. Schreyer has
accepted his appointment to serve as a Director of the Company, effective upon
consummation of the Offerings.
YOSHIHARU YASUDA -- Director. Director of Iridium since January 1996;
member of the Iridium Board Banking and Financing Committee, the Iridium Board
Compensation Committee and the Iridium Board Related Party Contracts Committee.
Mr. Yasuda has been Vice President of Nippon Iridium (Bermuda) Ltd. 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 employed by
the Sanwa Research Institute. Mr. Yasuda has served as a Director of the Company
since December 1996.
Executive Compensation
Currently, all executive officers of the Company (other than Mr. Morgan)
are executive officers of Iridium, are compensated by Iridium and receive no
compensation from the Company.
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Director Compensation
Directors of the Company currently receive no fees for their services as
such. In connection with their appointment, each of Messrs. Lesher and Schreyer
will receive $20,000 per year plus $2,500 for each regular quarterly meeting
attended of the Company Board, or any committee meeting of the Iridium Board
held concurrently therewith, $500 for any extraordinary or telephonic meeting
attended, and reimbursement for ordinary expenses incurred in connection with
such attendance. In addition, Iridium will grant each of Messrs. Lesher and
Schreyer options to purchase 1,000 shares of Class 1 Interests of Iridium at the
market price at the time of grant.
Indemnification; Limitation of Liability
Bermuda law permits a company to indemnify its directors and officers,
except for any act of dishonesty. The Company has provided in its Bye-Laws that
the directors and officers of the Company will be indemnified and secured
harmless to the full extent permitted by law out of the assets of the Company
from and against all actions, costs, charges, losses, damages and expenses
incurred by reason of any act done, concurred in or omitted in or about the
execution of their duties or supposed duties, other than in the case of any
fraud or dishonesty. In addition, the Company has provided in its Bye-Laws that
each shareholder of the Company agrees to waive any claim or right of action,
individually or in the right of the Company, against any director or officer of
the Company on account of any action taken by such director or officer, or the
failure of such director or officer to take any action, in the performance of
his duties with or for the Company, other than with respect to any matter
involving any fraud or dishonesty on behalf of such director or officer.
Bermuda law also permits the Company to purchase insurance for the benefit
of its directors and officers against any liability incurred by them for the
failure to exercise the requisite care, diligence and skill in the exercise of
their powers and the discharge of their duties, or indemnifying them in respect
of any loss arising or liability incurred by them by reason of negligence,
default, breach of duty or breach of trust.
At present, there is no pending material litigation or proceeding involving
a director or officer of the Company where indemnification will be required or
permitted. In addition, the Company is not aware of any threatened material
litigation or proceeding that may result in a claim for such indemnification.
IRIDIUM
The following table sets forth information concerning the executive
officers and directors of Iridium as of April 16, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- -------------------------------------------------------
<S> <C> <C>
Edward F. Staiano................... 60 Vice Chairman of the Board and Chief Executive Officer
O. Bruce Dale....................... 54 Vice President -- Network Operations
Mark Gercenstein.................... 45 Vice President -- Business Operations
Roy Grant........................... 40 Vice President and Treasurer
Dale F. Hogg........................ 54 Vice President -- Human Resources
Francis Latapie..................... 55 Vice President -- Government Affairs
Leo Mondale......................... 38 Senior Vice President -- Marketing & Strategic Planning
Larry G. Rands...................... 56 Vice President -- Engineering
F. Thomas Tuttle.................... 54 Vice President, General Counsel & Secretary
Robert N. Beury, Jr................. 43 Assistant Secretary and Deputy General Counsel
Robert W. Kinzie(1)................. 63 Chairman of the Board
Hasan M. Binladin(4)................ 49 Director (designated by Iridium Middle East)
Ulf Bohla(1)(4)..................... 53 Director (designated by Vebacom)
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)
</TABLE>
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<PAGE> 86
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ---- -------------------------------------------------------
<S> <C> <C>
Edward Gams(1)...................... 49 Director (designated by Motorola)
Ludwig Hoffman(4)................... 52 Director (designated by Vebacom)
Kazuo Inamori(4).................... 65 Director (designated by Nippon Iridium)
S. H. Khan(4)....................... 58 Director (designated by Iridium India)
Anatoli I. Kiselev(4)............... 58 Director (designated by Khrunichev)
George S. Medawar(1)(3)(4).......... 63 Director (designated by Iridium Africa)
John F. Mitchell(3)................. 69 Director (designated by Motorola)
Jung L. Mok(3)(4)................... 47 Director (designated by Korea Mobile
Telecommunications)
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)............ 52 Director (designated by Sprint)
Sribhumi Sukhanetr(1)(3)(4)......... 64 Director (designated by Thai Satellite)
Tao-Tsun Sun(2)(4).................. 47 Director (designated by Pacific Electric Wire & Cable)
Yoshiharu Yasuda(1)(3)(4)........... 56 Director (designated by Nippon Iridium)
Wang Mei Yue(3)(4).................. 55 Director (designated by Iridium China)
</TABLE>
- ---------------
(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
Messrs. Richard L. Lesher and William A. Schreyer have agreed to serve as
the Independent Company Directors to the Iridium Board upon consummation of the
Offerings.
Set forth below is information concerning each director, director nominee
and executive officer of Iridium, 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
EDWARD F. STAIANO -- Vice Chairman and Chief Executive Officer of Iridium
since January 2, 1997 and Director since October 1994; 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.
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.
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
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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 and Treasurer of Iridium since November 1996.
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.
LEO MONDALE -- 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 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.
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.
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 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. 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
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President of COMSAT General Corporation. Prior to joining COMSAT Corporation in
1966, Mr. Kinzie was an economist with the FCC from 1962 to 1965.
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 Vebacom GmbH since July 1, 1994. 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 1976.
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 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.
LUDWIG HOFFMAN -- Director of Iridium since October 1996; member of the
Related Party Contracts Committee. Dr. Hoffmann has been the Chief Executive
Officer of VEBA Telecom GmbH since July 1996. From January 1996 to July 1996,
Dr. Hoffmann was head of the Telecommunication Division of VEBA AG. From 1992
until joining VEBA, Dr. Hoffmann was the founder and head of the network systems
division of Siemens AG. From 1990 to 1992, Dr. Hoffmann was the head of
marketing and distribution for debis Systemhaus GmbH, part of Daimler Benz AG.
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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.
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, Securities Trading Corporation of India Ltd., India Growth Fund
Inc., Air India Ltd. and Indian Airlines Ltd., 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.
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 Korea Mobile
Telecommunications 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
Corporate Vice President of Motorola and has been with Motorola for 24 years. He
is currently the Corporate 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).
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<PAGE> 90
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 Contracts
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.
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.
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 he served as Vice
Chairman of the Board at Conic Investment Co. Ltd.
RICHARD L. LESHER -- Independent Company Director Nominee. Mr. Lesher will
be appointed Independent Company Director, effective upon consummation of the
Offerings, and appointed to the Audit, Compensation and Related Party Contracts
Committees. 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.
WILLIAM A. SCHREYER -- Independent Company Director Nominee. Mr. Schreyer
will be appointed Independent Company Director, effective upon consummation of
the Offerings, and appointed to the Banking and Financing and Related Party
Contracts Committees. 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.
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Director Compensation
Directors currently receive no fees for their services as such.
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
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION OPTIONS/SARS PAYOUT COMPENSATION
- ------------------------------ ---- -------- -------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert W. Kinzie
Chairman & Former Chief
Executive Officer........... 1996 $372,194 $117,669 $1,596(b) 1,200 -- $ 7,819(c)
Jerrold D. Adams
Former President & Chief
Operating Officer........... 1996 301,772 98,010 -- 1,000 -- 4,500(d)
Paul V. Daverio
Former Chief Financial
Officer..................... 1996 234,236 46,580 -- 600 -- 4,500(d)
Leo Mondale
Vice President -- Marketing
& Strategic Planning........ 1996 220,561 100,000 -- 600 -- 4,500(d)
Mark Gercenstein
Vice President -- Business
Operations.................. 1996 201,692 62,909 -- 600 -- 4,500(d)
</TABLE>
- ---------------
(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 awards for performance in Fiscal
Year 1995 were determined by the Compensation Committee of the Board of
Directors 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 -- $577,090, 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). The Compensation Committee of
the Board of Directors permitted Mr. Adams to receive the amount in his Iridium
Long Range Incentive
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<PAGE> 92
Plan account ($569,806) and permitted him to retain his vested options to
purchase 217 Class 1 Interests 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 the Company 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 160 Class 1 Interests
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).
On January 2, 1997, Edward F. Staiano became Chief Executive Officer and
Vice Chairman of the Board of Directors. 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 10,000 Class 1 Interests of Iridium at a price of
$1,000 per Interest. The options vest, pro rata, over a period of five years.
Vested options may be exercised at any time after a public offering. Dr.
Staiano's options will continue to vest even if his employment is terminated by
Iridium, other than for cause, so long as he is not retained or employed by a
competitor. Dr. Staiano does not receive an annual bonus or participate in
Iridium's retirement plans.
Option Grants
The following table sets forth the options granted for the fiscal year
ended December 31, 1996 for each named executive officer.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE
TOTAL AT ASSUMED ANNUAL
NUMBER OF OPTIONS/SARS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OF OPTION TERM
OPTIONS/SARS IN FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED YEAR (S/SH) DATE 5%($) 10%($)
- ----------------------- ------------ ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Kinzie....... 1,200 12.3 $ 1,000 12/31/05 $754,670 $1,912,490
Jerrold D. Adams....... 1,000 10.3 $ 1,000 12/31/05 628,890 1,593,740
Paul V. Daverio........ 600 6.2 $ 1,000 12/31/05 377,335 956,245
Leo Mondale............ 600 6.2 $ 1,000 12/31/05 377,335 956,245
Mark Gercenstein....... 600 6.2 $ 1,000 12/31/05 377,335 956,245
</TABLE>
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.
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<PAGE> 93
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SAR
AT FISCAL YEAR-END AT FISCAL YEAR END
SHARE ACQUIRED ----------------------------- ----------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------- --------------- --------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Kinzie..... -- $-- -- 1,200 -- $--
Jerrold D. Adams..... -- -- -- 1,000 -- --
Paul V. Daverio...... -- -- -- 600 -- --
Leo Mondale.......... -- -- -- 600 -- --
Mark Gercenstein..... -- -- -- 600 -- --
</TABLE>
Compensation Committee Interlocks and Insider Participation
Iridium's Compensation Committee determines the compensation of Iridium's
executive officers consistent with guidelines established by the Board of
Directors. 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. See "Certain Relationships and Related
Transactions of Iridium." Messrs. Mitchell and Finol serve as the Chairman and
Deputy Chairman of the Company, respectively.
Pension Plan
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
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<PAGE> 94
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, 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 the Company 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 Board of Directors. 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, DC 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 10,000 Class 1 Interests of Iridium at a price of
$1,000 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
plan covers 35,000 Class 1 Interests and options covering 19,472 Class 1
Interests had been granted at an exercise price of $1,000 per Class 1 Interest
as of March 31, 1997. Under the plan, option awards are made from time to time
by the Compensation Committee of the Iridium Board. The right to exercise the
options vests, pro rata, over a period of five years. Once vested an option may
be exercised at any time after a public offering. The plan was established in
April 1996 and all options granted to date have an exercise price of $1,000 per
Class 1 Interest. Except for Dr. Staiano, a participant whose employment with
Iridium is terminated by Iridium ceases to vest in additional options under the
plan. There are exceptions for death, retirement, and certain other situations.
See "Governance of the Company and Relationship with Iridium -- Exchange Rights
of Iridium Members."
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<PAGE> 95
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 the date of this Prospectus (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 compensation table under "Management" above) as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(1)
- ------------------------------------------------------ -------------------------- -------------------
<S> <C> <C>
Motorola, Inc. ....................................... 540,496(2) 28.2%
1303 East Algonquin Rd.
Schaumburg, IL 60196
Nippon Iridium (Bermuda) Limited...................... 210,000 13.03
c/o NIPPON IRIDIUM CORPORATION
Ichibancho FS Building 8
Ichibancho Chiyoda-ku
Tokyo 102 Japan
Vebacom Holdings, Inc. ............................... 165,705 10.28
c/o VEBACOM GmbH
Am Bonneshof 35
D-40474 Dusseldorf Germany
All Directors and Executive Officers as a Group(3).... 501 *
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange 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 Prospectus 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 353,779 Class 1
Interests held directly and indirectly by Motorola. Such number also
includes 70,000 Class 1 Interests held by Iridium Canada (a 33.3% owned
indirect subsidiary of Motorola) and 70,000 Class 1 Interests held by
Iridium India Telecom (a 20% owned indirect subsidiary of Motorola) with
respect to which Motorola may be deemed to possess voting or dispositive
power through various provisions and agreements affecting voting and
disposition of such Class 1 Interests. In addition, such number includes
46,717 Class 1 Interests issuable in respect of the warrant to purchase
Series M Class 2 Interests. Such warrant provides that Motorola may acquire
Series M Class 2 Interests in Iridium equal to 2.5% of the fully diluted
number of Class 1 Interests outstanding at the time of exercise. The Series
M Class 2 Interests are convertible into an equal number of Class 1
Interests.
(3) Up to 35,000 Class 1 Interests may be issued pursuant to the Iridium Option
Plan. As of the date of this Prospectus, options covering an aggregate of
501 Class 1 Interests had been granted to Iridium's executive officers and
directors. Such options will become exercisable immediately upon
consummation of the Offerings.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF IRIDIUM
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.
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<PAGE> 96
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 24% of the Class 1 Interests in
Iridium. Iridium's Board of Directors and 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. In addition, Motorola has guaranteed Iridium's borrowings
under the Guaranteed Bank Facility. In connection with providing its guarantee
of borrowings under the Guaranteed Bank Facility, Motorola was granted a
security interest in substantially all of Iridium's assets, Iridium agreed not
to take specified actions without Motorola's approval, and Motorola also was
granted the right to appoint an additional Director on the Iridium Board of
Directors (the "Iridium Board") and is being compensated in the form of warrants
to purchase Class 1 Interests. See "Risk Factors -- Dilution Risk" and
"Dilution." If the Guaranteed Bank Facility is increased by $350 million,
Motorola will receive additional warrants to purchase Class 1 Interests and
other concessions including increased Iridium Board representation. If the
Guaranteed Bank Facility is extended beyond its August 1998 maturity date,
Motorola will receive additional warrants in respect of guaranteed borrowings.
Motorola holds a warrant to acquire 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 warrant, calculated on a fully diluted basis, at a price of
$1,000 per Interest, subject to antidilution adjustments.
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; Risk of Default on
Existing Commitments" 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 Iridium's Board of Directors 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."
Iridium Services Deutschland, an affiliate of Vebacom Holdings, Inc.
("Vebacom"), a holder of approximately 10% 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 13% of the Class 1 Interests, was
allocated the Japan gateway service territory. Each of Vebacom and Nippon
Iridium Corporation have entered into gateway Authorization Agreements, pursuant
to which they, or their affiliates, will operate their respective Gateway
service territory and provide gateway services. In addition, Vebacom and Nippon
Iridium Corporation will serve as a service provider to their respective gateway
territory and, as such, will be entitled to payments associated with sales of
IRIDIUM Services.
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<PAGE> 97
Kyocera, an affiliate of Nippon Iridium Corporation, a holder of
approximately 13% 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 the Company are, or have been within the past
year, executive officers of suppliers of Iridium. See "Management."
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.
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:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OWNERSHIP(2)
CLASS 1 --------------------
INTERESTS AS PRINCIPAL GATEWAY
INVESTOR OWNED(1) ACTUAL ADJUSTED(3) SERVICE TERRITORY(4)
- ------------------------------ --------- ------ ----------- ---------------------------------
<S> <C> <C> <C> <C>
The Company................. -- --
Africa Corporation.......... 40,000 2.48 Africa (excluding Morocco and
Egypt) and Turkey
Iridium Canada, Inc......... 70,000(7) 4.35 North America(5)
Iridium China (Hong Kong)
Ltd. .................... 70,000 4.35 China, Mongolia, Hong Kong and
Macau
Iridium India Telecom
Limited.................. 70,000 4.35 Indian Subcontinent
Iridium Italia S.p.A. ...... 74,000 4.59 Certain countries in Europe
including Belgium, Denmark,
France, Greece, Italy,
Luxembourg, the Netherlands and
Switzerland(6)
Iridium Middle East
Corporation.............. 80,000 4.97 Middle East, Morocco, Egypt and
Central Asia
Iridium Brasil Ltda. ....... 37,663 2.34 South America and Caribbean(6)
Iridium Andes -- Caribe..... 58,000 3.60 South America and Caribbean(6)
Khrunichev State Research
and Production Center.... 70,000(7) 4.35 Russia and eight other republics
of the Commonwealth of
Independent States
Korea Mobile Telecom
Communications
Corporation.............. 70,000(2) 4.35 North Korea and South Korea
</TABLE>
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<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF OWNERSHIP(2)
CLASS 1 --------------------
INTERESTS AS PRINCIPAL GATEWAY
INVESTOR OWNED(1) ACTUAL ADJUSTED(3) SERVICE TERRITORY(4)
- ------------------------------ --------- ------ ----------- ---------------------------------
<S> <C> <C> <C> <C>
Motorola, Inc............... 353,779(2) 21.94 North America(5), Mexico(8) and
Central America, South America
and Caribbean(6)
Nippon Iridium (Bermuda)
Limited.................. 210,000 13.03 Japan
Pacific Electric Wire &
Cable Co., Ltd. ......... 70,000 4.35 Indonesia, Brunei, Papua New
Guinea, the Philippines and
Taiwan
Sprint Iridium, Inc. ....... 70,000 4.35 North America(5)
Thai Satellite
Telecommunications Co.,
Ltd. .................... 70,000 4.35 Southeast Asia
Vebacom Holdings, Inc. ..... 165,705 10.28 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.............. 20,000 1.23 Not Applicable
Raytheon Company............ 12,000 0.74 Not Applicable
</TABLE>
- ---------------
(1) Represents each investor's direct holdings of outstanding Class 1 Interests,
excluding Class 1 Interests issuable upon exercise of outstanding warrants
and conversion of outstanding convertible securities.
(2) The percentages do not give effect to any Class 1 Interests that the Company
may have acquired or will acquire as a result of the application of the
proceeds from the sale of shares of the Company's non-voting Class B Common
Stock, par value $.01 per share (the "Class B Common Stock") pursuant to the
Global Ownership Program. See "The Company -- Global Ownership Program."
(3) As adjusted to reflect the issuance and sale of 10,000,000 shares of Class A
Common Stock offered hereby at an assumed initial public offering price of
$20 per share (the midpoint of the estimated public offering price range set
forth on the cover of this Prospectus) and the application of the estimated
net proceeds therefrom to the purchase by the Company of approximately Class
1 Interests at a price per Class 1 Interest of $ . See "Use of
Proceeds" and "Capitalization."
(4) Iridium's South Pacific gateway service territory, which includes Australia
and New Zealand, has not yet been allocated.
(5) The North American gateway service territory, principally consisting of the
United States and Canada, is shared by Iridium Canada, Motorola and Sprint.
(6) 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.
(7) Khrunichev State Research and Production Space Center, Korea Mobile
Telecommunications Corporation and Sprint Iridium, Inc. each own 13,230
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.
(8) It is anticipated that the Mexican gateway service territory initially will
be served by the North American gateway equipment.
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<PAGE> 99
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.
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 four countries and regions -- 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. See
"Business -- Status of IRIDIUM System Development and Implementation." 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.
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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.
KOREA MOBILE TELECOMMUNICATIONS CORPORATION 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.
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, 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.
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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<PAGE> 101
VEBACOM HOLDINGS, INC., a wholly owned subsidiary of Vebacom GmbH, which is
indirectly owned by VEBA AG. VEBA AG, 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.
GOVERNANCE OF THE COMPANY AND RELATIONSHIP WITH IRIDIUM
The power and authority to conduct and manage the business of the Company
is vested in the Board of Directors of the Company (the "Company Board"). Upon
consummation of the Offerings, the Company Board will be comprised of seven
members, a majority of whom also will be executive officers of Iridium or one of
Iridium's other members. At least two members of the Company 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
"Description of Capital Stock" and "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. The Company has waived
the limitation on liability provided by the Delaware Limited Liability Company
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 the Company'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 Company was formed to act as a special-purpose member of Iridium. The
LLC Agreement provides that the Company will have certain special membership
rights during the period (the "Company Special Rights Period") commencing on the
first date that the Company's Class 1 Interests represent five percent or more
of the total outstanding Class 1 Interests (which will occur on the consummation
of the Offerings) and ending on the date of delivery by Iridium of notice of the
termination of the Company's special rights following (i) the sale or other
disposition by the Company of Class 1 Interests, if, as a result of such sale or
other disposition, the Company'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 the Company 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 Securities Exchange
Act of 1934
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<PAGE> 102
(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 the Company's outstanding common stock (or
equivalent securities), (b) the Company 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 the
Company, in either event pursuant to a transaction in which the Company's
outstanding common stock is changed into or exchanged for cash, securities or
other property, other than any transaction (i) between the Company and either
Iridium, an affiliate of Iridium or a wholly-owned subsidiary of Iridium, or
(ii) after which the shareholders who beneficially owned the Company'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 the Company Board (together with any new directors whose
election by the Company Board or whose nomination for election was approved by a
vote of 66 2/3% of the members of the Company 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 Company Board then in office.
During the Company Special Rights Period (i) the Company shall be entitled
to designate two Independent Company Directors as Directors of Iridium, (ii) one
Director of Iridium designated by the Company shall be elected Vice Chairman of
the Iridium Board and (iii) one Director of Iridium designated by the Company
shall be a member of each committee of the Iridium Board. Pursuant to the LLC
Agreement, the Company 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 the Company may have under the LLC Agreement,
under the Delaware Limited Liability Company Act or otherwise, during the
Company 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 the Company (the
"Company'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 of 1933) 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 and Share Issuance Agreement (the
"Exchange Agreement"), the Company 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 shares 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 the Company 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 after 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
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.
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<PAGE> 103
Under the Exchange Agreement, the Company has agreed that at any time after
the Exchange Date, the Company will, at the request of Class 1 Holders and
holders of Class A Common Stock acquired under the Exchange Agreement,
representing not less than 5% of the Fully Diluted Class A Shares (defined
below), file 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 holders. The Company 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 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, the Company will
take all reasonable steps to register pursuant to these provisions any other
shares of Class A Common Stock acquired under the Exchange Agreement specified
by Iridium.
1997 SUBSCRIPTION AGREEMENT
The Company and Iridium have entered into a 1997 Share Issuance Agreement
pursuant to which the Company is making the Offerings. The 1997 Share Issuance
Agreement provides that the Company will use the net proceeds from the Offerings
to acquire Class 1 Interests from Iridium at a purchase price of $ per
Interest. Iridium has agreed to reimburse the Company for all costs and expenses
it incurs in the Offerings. Iridium has also agreed to indemnify the Company and
each of its officers, directors and employees against any losses, claims,
damages or liabilities to which the Company or such officer, director or
employee may become subject except to the extent that any such loss, damage or
liability arises out of or is based upon an intentional act or omission of an
indemnified party which was contrary to any written instruction or request of
Iridium or which amounted to willful misconduct on the part of any officer,
director, employee or agent of the Company who is not also a full-time employee
of Iridium.
SHARE ISSUANCE AGREEMENT
The Company and Iridium have entered into a Share Issuance Agreement
governing primary offerings of securities by the Company in the future. The
Share Issuance Agreement provides that all net proceeds from the sale of
securities by the Company will be invested by the Company in membership
interests in Iridium. The Company will not issue any securities except pursuant
to the Share Issuance Agreement, the Exchange Agreement and the Global Ownership
Program described below. The Company has agreed that if requested by Iridium it
will use its best efforts to sell securities of the Company in compliance with
all applicable laws and will cease to do so, if requested by Iridium.
If the Company sells Class A Common Stock pursuant to the Share Issuance
Agreement, Iridium will issue to the Company, in exchange for the net proceeds
of such offering, one Class 1 Membership Interest for each share of Class A
Common Stock sold by the Company. If Iridium directs the Company to issue
securities other than Class A Common Stock, Iridium will issue to the Company
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 the Company. Iridium has agreed to pay all expenses incurred
by the Company in connection with any issuance of securities under the Share
Issuance Agreement and to indemnify the Company and its officers, directors and
employees against certain losses, claims, damages or liabilities.
GLOBAL OWNERSHIP PROGRAM
The Company and Iridium have commenced a Global Ownership Program which is
designed to offer an equity investment opportunity in the Company 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, the
Company will sell shares of its Class B Common Stock to Telecom Administrations
designated from time to time by Iridium. The Class B Common Stock will be
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<PAGE> 104
sold to Telecom Administrations at a price per share equal to $ ( % of
the initial public offering price for the Class A Common Stock set forth on the
cover page of this Prospectus which corresponds to the relationship between the
$1,000 per Class 1 Interest paid by the Company to Iridium for Class 1 Interests
purchased with the proceeds from the Global Ownership Program and the
$ per Class 1 Interest paid with the proceeds of the Offerings). 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 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 the Company 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). The Company 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. The Company 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, the Company will
acquire from Iridium Class 1 Membership Interests at a rate of one Class 1
Interest for each shares of Class B Common Stock issued ($1,000 divided by the
price per share of Class B Common Stock). The purchase price for the Class 1
Interests will be identical to the proceeds to the Company 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. The Company may require Iridium to repurchase
Class 1 Interests in an amount corresponding to any Class B Common Stock
repurchased by the Company. Iridium has agreed to pay or reimburse the Company
for the payment of all expenses incurred by the Company in connection with the
Global Ownership Program and to indemnify the Company and its officers,
directors and employees against certain losses, claims, damages or liabilities.
MANAGEMENT SERVICES AGREEMENT
The Company and Iridium are parties to a Management Services Agreement
pursuant to which Iridium has agreed to supervise and manage the day-to-day
operations of the Company and the Company has agreed to allow Iridium to do so.
Iridium will implement or cause to be implemented all policy decisions relating
to the operations of the Company approved by the Company Board and to conduct or
cause to be conducted the ordinary and usual business and affairs of the
Company. The Company 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 the Company: 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 the Company,
including, but not limited to the Company's Special Rights Consent. See
"Governance of the Company and Relationship with Iridium" and "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 the Company, except that Iridium has the right to terminate
the agreement after the occurrence of a Company Change of Control. See
" -- Participation in the Governance of Iridium."
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DESCRIPTION OF CAPITAL STOCK
The following discussion is based upon the advice of Conyers, Dill &
Pearman, Bermuda counsel for the Company.
The Company was incorporated as an exempted company under the Companies Act
1981 of Bermuda, as amended from time to time (the "Bermuda Act"), and the
rights of its shareholders, including those persons who will become shareholders
of the Company in connection with the Offerings, are governed by Bermuda law and
the Company's Memorandum of Association and Bye-Laws. The following is a summary
of certain provisions of Bermuda law and the Company's organizational documents.
This summary is not a comprehensive description of such laws and documents and
is qualified in its entirety by appropriate reference to Bermuda law and to the
organizational documents of the Company. Reference is made to the Company's
Memorandum of Association and Bye-Laws, copies of which have been filed as
exhibits 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 the Memorandum of Association and Bye-Laws.
The authorized capital of the Company consists of 100,000,000 shares of
Class A Common Stock and 2,500,000 shares of Class B Common Stock. Prior to the
consummation of the Offerings there will be 1,200,000 shares of Class A Common
Stock outstanding, all of which are held by Iridium, and no shares of Class B
Common Stock outstanding. In connection with the Offerings, the Company will
repurchase and cancel the shares of Class A Common Stock held by Iridium at par
value ($.01 per share). Upon consummation of the Offerings the only shares of
Class A Common Stock outstanding will be the shares of Class A Common Stock
issued in the Offerings. See "Shares Eligible for Future Sale."
COMMON STOCK
Voting Rights
Under Bermuda law, questions brought before a general meeting of
shareholders are decided by a majority vote of shareholders present at the
meeting and entitled to vote (or by such majority as the Bermuda Act or the
Bye-Laws of the Company prescribe), each shareholder owning shares entitled to
vote having one vote, irrespective of the number of shares held, unless a poll
is requested. The Company's Bye-Laws provide that, subject to the provisions of
the Bermuda Act, any questions proposed for the consideration of the
shareholders will be decided by a simple majority of the votes cast, with each
shareholder that is entitled to vote and present, in person or by proxy,
entitled to one vote. If a poll is requested, each shareholder that is entitled
to vote and present in person or by proxy has one vote for each share of stock
entitled to vote on such question. A poll may only be requested under the
Company's Bye-Laws by (i) the chairman of the meeting, (ii) at least three
shareholders present in person and entitled to vote or represented by proxy,
(iii) any shareholder or shareholders, present in person or by proxy, holding
between them not less that 10% of the total voting rights of all shareholders
having the right to vote at such meeting or (iv) a shareholder or shareholders
present in person or by proxy holding voting shares in the Company on which an
aggregate sum has been paid-up equal to not less than 10% of the total sum
paid-up on all such voting shares. The holders of Class A Common Stock are
entitled to one vote per share. The holders of Class B Common Stock have no
voting rights, except as required by Bermuda law in connection with matters
involving a variation in terms of the Class B Common Stock.
Dividend Rights
Under Bermuda law, a company may pay such dividends as are declared from
time to time by its board of directors unless there are reasonable grounds for
believing that the company is or would, after the payment, be unable to pay its
liabilities as they become due or that the realizable value of its assets would
thereby be less than the aggregate of its liabilities and issued share capital
and share premium accounts. See "Dividend Policy." Each share of Class A Common
Stock and Class B Common Stock is entitled to dividends if, as and when
dividends are declared by the Company Board. Any dividend declared and payable
in cash, capital stock or other property must be paid equally on a
share-for-share basis on the Class A Common Stock and the Class B Common Stock,
except as described below. Dividends and distributions payable in shares of
Class A
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Common Stock may only be paid on Class A Common Stock, and dividends and
distributions payable in shares of Class B Common Stock may only be paid on
Class B Common Stock. If a dividend or distribution payable in shares of Class A
Common Stock is made on the Class A Common Stock, a simultaneous and equivalent
dividend or distribution in shares of Class B Common Stock must be made on the
Class B Common Stock. If a dividend or distribution payable in shares of Class B
Common Stock is made on Class B Common Stock, a simultaneous and equivalent
dividend or distribution in shares of Class A Common Stock must be made on the
Class A Common Stock.
Conversion Rights
The Class A Common Stock is not convertible. Each share of Class B Common
Stock is exchangeable into one share of Class A Common Stock on the terms set by
the Company Board. The shares of Class B Common Stock to be issued in connection
with the Company's Global Ownership Program are the only shares of Class B
Common Stock authorized. The exchange rights set by the Company Board for such
shares of Class B Common Stock are described under "Governance of the Company
and Relationship with Iridium -- Global Ownership Program."
Preemptive Rights
Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock have preemptive rights to purchase any shares of the Company's
capital stock.
Transfer Restrictions
Shares of Class A Common Stock are not subject to restrictions on transfer
under the Company's Memorandum of Association and Bye-Laws. Shares of Class B
Common Stock are subject to any transfer restrictions set by the Company Board.
The shares of Class B Common Stock issued in connection with the Company's
Global Ownership Program are the only shares of Class B Common Stock authorized.
The transfer restrictions set by the Company Board on such shares of Class B
Common Stock are described under "Governance of the Company and Relationship
with Iridium -- Global Ownership Program."
Registrar and Transfer Agent
will act as registrar and transfer agent with respect to the
Class A Common Stock.
Rights in Liquidation
Under Bermuda law, in the event of liquidation, dissolution or winding-up
of a company, after satisfaction in full of all claims of creditors and subject
to the preferential rights accorded to any series of preferred stock, the
proceeds of such liquidation, dissolution or winding-up are distributed pro rata
among the holders of common stock in accordance with the Company's Bye-Laws. The
holders of the Class A Common Stock and the holders of the Class B Common Stock
are entitled to participate equally on a share-for-share basis in all
distributions to holders of common stock in any liquidation, dissolution or
winding-up of the Company.
Meetings of Shareholders
Under Bermuda law, a company is required to convene at least one general
shareholders' meeting per calendar year. Bermuda law provides that a special
general meeting may be called by the board of directors of a company and must be
called upon the request of shareholders holding not less than 10% of the paid-up
capital of the company carrying the right to vote. Bermuda law also requires
that shareholders be given at least five days' advance notice of a general
meeting but the accidental omission of notice to any person does not invalidate
the proceedings at a meeting. The Bye-Laws of the Company provide that the
president or the chairman or any two directors or any director and the secretary
may convene a special general meeting of the Company whenever in their judgment
such a meeting is necessary. Under the Bye-Laws of the Company, at least ten
days' notice of the annual general meeting and at least five days' notice of any
special general meeting must be given to each shareholder entitled to vote
thereat, unless it is agreed that the meeting has been
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properly called by (i) in the case of an annual general meeting, all of the
shareholders entitled to attend and vote at such meeting or (ii) in the case of
a special general meeting, shareholders holding at least 95% of the shares given
the right to attend and vote at such meeting.
Under Bermuda law, the number of shareholders constituting a quorum at any
general meeting of shareholders is determined by the Bye-laws of a company. The
Company's Bye-Laws provide that the presence of two persons present in person
and representing in person or by proxy in excess of 50% of the total issued
voting shares in the Company throughout the meeting shall constitute a quorum.
Access to Books and Records and Dissemination of Information
Members of the general public have the right to inspect the public
documents of a company available at the office of the Registrar of Companies in
Bermuda. These documents include the company's Certificate of Incorporation, its
Memorandum of Association (including its objects and powers) and any alteration
to the company's Memorandum of Association. The shareholders have the additional
right to inspect the Bye-Laws of the Company, minutes of general meetings and
the Company's audited financial statements, which must be presented at the
annual general meeting. The register of shareholders of a company is also open
to inspection by shareholders without charge and to members of the general
public on the payment of a fee. A company is required to maintain its share
register in Bermuda but may, subject to the provisions of the Bermuda Act,
establish a branch register outside Bermuda. A company is required to keep at
its registered office a register of its directors and officers which is open for
inspection for not less than two hours in each day by members of the public
without charge. Bermuda law does not, however, provide a general right for
shareholders to inspect or obtain copies of any other corporate records.
Election or Removal of Directors
Under Bermuda law and the Company's Bye-Laws, directors are elected at the
annual general meeting or at any special general meeting called for the purpose
and shall hold office for such term as the shareholders may determine, or in the
absence of such determination, until the next annual general meeting or until
their successors are elected or appointed, unless they are earlier removed or
resign.
Under Bermuda law and the Bye-Laws of the Company, a director may be
removed at a special general meeting of shareholders specifically called for
that purpose, provided that the director was served with at least 14 days'
notice. The director has a right to be heard at the meeting. Any vacancy created
by the removal of a director at a special general meeting may be filled at such
meeting by the election of another director in his or her place or, in the
absence of any such election, by the Company Board.
Amendment of Memorandum of Association and Bye-Laws
Bermuda law provides that the Memorandum of Association of a company may be
amended by a resolution passed at a general meeting of shareholders of which due
notice has been given. An amendment to the Memorandum of Association other than
an amendment which alters or reduces a company's share capital as provided in
the Bermuda Act, also requires the approval of the Bermuda Minister of Finance,
who may grant or withhold approval at his discretion. The Bye-Laws of the
Company provide that no Bye-Law shall be rescinded, altered or amended and no
new Bye-Law shall be made unless it has been approved by a resolution of the
Company Board and by a resolution of the shareholders.
Under Bermuda law, the holders of an aggregate or not less than 20% in par
value of a company's issued share capital have the right to apply to a court of
appropriate jurisdiction in Bermuda (a "Bermuda Court") for an annulment of any
amendment of the Memorandum of Association adopted by shareholders at any
general meeting, other than an amendment which alters or reduces a company's
share capital as provided in the Bermuda Act. Where such an application is made,
the amendment becomes effective only to the extent that it is confirmed by the
Bermuda Court. An application for amendment of the Memorandum of Association
must be made within 21 days after the date on which the resolution altering the
Company's Memorandum of Association is passed and may be made on behalf of the
persons entitled to make the application by one or
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more of their number as they may appoint in writing for the purpose. No such
application may be made by persons voting in favor of the amendment.
Appraisal Rights and Shareholder Suits
Under Bermuda law, in the event of an amalgamation of two Bermuda
companies, a shareholder who is not satisfied that fair value has been paid for
his shares may apply to a Bermuda Court to appraise the fair value of his
shares. The amalgamation of a company with another company requires the
amalgamation agreement to be approved by the board of directors and by a meeting
of the holders of shares of the amalgamating company of which they are directors
and of the holders of each class of such shares. Under Bermuda law, an
amalgamation also requires the consent of the Bermuda Minister of Finance, who
may grant or withhold consent at his discretion.
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda Courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong done to the company where the act complained of is alleged to
be beyond the corporate power of the company or is illegal or would result in
the violation of the company's Memorandum of Association or Bye-Laws.
Furthermore, consideration would be given by a Bermuda Court to acts that are
alleged to constitute a fraud against the minority shareholders or, for
instance, where an act requires the approval of a greater percentage of the
company's shareholders than those who actually approved it.
When the affairs of a company are being conducted in a manner oppressive or
prejudicial to the interests of some part of the shareholders, one or more
shareholders may apply to a Bermuda Court for an order regulating the company's
conduct of affairs in the future or ordering the purchase of the shares by any
shareholder, by other shareholders or by the company.
CERTAIN PROVISIONS OF BERMUDA LAW
The Company has been designated as a non-resident under the Exchange
Control Act of 1972 (the "Control Act") by the Bermuda Monetary Authority (the
"Authority") whose permission for the issue of shares of Class A Common Stock of
the Company has been obtained. This designation allows the Company to engage in
transactions in currencies other than the Bermuda dollar. Approvals or
permissions received from the Authority do not constitute a guarantee by the
Authority as to the performance or creditworthiness of the Company.
Prior to the Offering, this Offering Memorandum will be filed with the
Registrar of Companies in Bermuda in accordance with Bermuda law.
In granting such permission and in accepting this Prospectus for filing,
neither the Authority nor the Registrar of Companies in Bermuda accepts any
responsibility for the financial soundness of the Company or the correctness of
any of the statements made or opinions expressed in this Offering Memorandum.
The transfer of shares between persons regarded as resident outside Bermuda
for exchange control purposes and the issue of shares after the completion of
the Offering to or by such persons may be effected without specific consent
under the Control Act and regulations thereunder. Issues and transfers of shares
involving any person regarded as resident in Bermuda for exchange control
purposes require specific prior approval under the Control Act.
Non-Bermuda owners of the Company's shares of Class A Common Stock are not
restricted in the exercise of the rights to hold or vote their shares. Because
the Company has been designated as a non-resident for Bermuda exchange control
purposes, the Company is permitted to engage in transactions in all currencies
other than the Bermuda dollar and there are no restrictions on its ability to
transfer funds (other than funds denominated in Bermuda dollars) in and out of
Bermuda or to pay dividends to United States residents who are holders of the
Company's Class A Common Stock.
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In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an applicant
acting in a special capacity (for example as a trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such trust.
The Company will take no notice of any trust applicable to any of its
shares whether or not it had notice of such trust.
As an "exempted company," the Company is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-Bermudians, but
as an exempted company the Company may not participate in certain business
transactions including: (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years); (ii) the taking of mortgages on land in
Bermuda to secure an amount in excess of $50,000 without the consent of the
Minister of Finance of Bermuda; (iii) the acquisition of securities created or
issued by, or any interest in any local company or business, other than certain
types of Bermuda government securities of another "exempted" company,
partnership or other corporation resident in Bermuda but incorporated abroad; or
(iv) the carrying on of business of any kind in Bermuda, except in furtherance
of the business of the Company carried on outside Bermuda or under a license
granted by the Minister of Finance of Bermuda.
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 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 the LLC Agreement.
Terms used herein and not otherwise defined shall have the meanings ascribed to
them in the LLC Agreement.
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 29, 1996. Iridium, Inc., a Delaware corporation and the predecessor of
Iridium, was formed on June 14, 1993. 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 the Company, is entitled to appoint one director to
the Iridium Board for each 70,000 Class 1 Interests owned. Class 1 Members,
other than the Company, may aggregate their Class 1 Interests and appoint one
director for each 70,000 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
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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 Iridium Employee
Share 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 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 THE COMPANY IN THE GOVERNANCE OF IRIDIUM
The LLC Agreement provides that the Company will have certain special
membership rights during the Company Special Rights Period. See "The
Company -- The Company's Participation in the Governance of Iridium." During the
Company Special Rights Period (i) the Company shall be entitled to designate two
Independent Company Directors as Directors of Iridium, (ii) one Director of
Iridium designated by the Company shall be elected Vice Chairman of the Iridium
Board and (iii) one Director of Iridium designated by the Company shall be a
member of each committee of the Iridium Board. Pursuant to the LLC Agreement,
the Company 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 the Company may have under the LLC Agreement, under the
Delaware Limited Liability Company Act or otherwise, during the Company 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 the Company: (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 of 1933) 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.
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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 3,000,000 Class 1 Interests, 50,000 Series M Class 2 Interests
and 300,000 additional Class 2 Interests. At March 31, 1997 there were 1,611,147
Class 1 Interests and 48,680 Class 2 Interests issued and outstanding. There are
three series of Class 2 Interests outstanding.
Class 1 Interests. Upon consummation of the Offerings and application
of the net proceeds therefrom to the purchase of Class 1 Interests, there
will be Class 1 Interests outstanding. 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. See "Dilution."
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. 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
$4,052. 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 March 1, 1997, each Series A Class 2 Interest was
convertible into .2468 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 March 31, 1997 there are 48,680 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 Contracts
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 share, 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
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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 $1,000, but
is subject to antidilution adjustments from time to time. 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.
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 distributions 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 the Company) 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
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purchase, any number 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.
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 242,754 additional Class 1 Interests at
a purchase price of $1,000 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 $100 per Interest.
The Class 1 Interests acquired by the Company will not be subject to a
Reserve Capital Call.
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, the Company has waived the limitation
on liability contained in the Delaware Act, provided that the Company 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
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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 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 (the "IRS"), 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 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
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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.
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 each of the various gateway service
territories is assigned to Members pursuant to the LLC Agreement. See "Iridium's
Investors, Present 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 -- Marketing and Distribution -- Gateway Owners and Operators,"
"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 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
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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; (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.
TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Class
A Common Stock under United States federal income tax laws and Bermuda laws. The
discussion does not deal with all possible tax consequences relating to the
Company's operations or to an investment in the Class A Common Stock. In
particular, the discussion does not address the tax consequences under state,
local and other (e.g, non-United States federal and non-Bermuda) tax laws.
Accordingly, each prospective investor should consult his or her tax advisor
regarding the tax consequences of an investment in the Class A Common Stock. The
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Prospectus, all of which are subject to change.
BERMUDA LAW
In the opinion of Conyers, Dill & Pearman, Bermuda counsel to the Company,
the following discussion correctly describes certain tax consequences to the
Company with respect to the Offerings and with respect to ownership of shares of
Class A Common Stock under Bermuda law.
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its shareholders other than
shareholders ordinarily resident in Bermuda. The Company is not subject to stamp
or other similar duty on the issue, transfer or redemption of its shares of
Class A Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares, debentures or
other obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a general summary of the U.S. federal income tax
consequences of the ownership and disposition of shares of Class A Common Stock
by a "U.S. Holder," as defined below. The summary is limited to holders who hold
shares of Class A Common Stock 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, persons subject to the alternative minimum tax, broker-dealers, an
owner of 10% or more of the voting power or value of the shares of the Company,
or holders who hold shares of Class A Common Stock in a hedging transaction or
as part of a straddle or conversion transaction. The summary does not address
state or local taxes.
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As used herein, the term "U.S. Holder" means any holder who is either (i)
an individual who is a citizen or a resident of the United States, (ii) a
partnership or corporation organized under the laws of the United States or any
state thereof, or (iii) an estate or trust that is subject to United States
federal income taxation without regard to the source of its income. All terms
used and not defined herein have the meaning ascribed to them under the Internal
Revenue Code of 1986, as amended (the "Code").
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
tax advisor as to the United States, Bermuda or other tax consequences of the
ownership and disposition of shares of Class A Common Stock.
TAXATION OF THE COMPANY
Iridium is intended to be treated as a partnership for United States
federal income tax purposes. As a Class 1 Member of Iridium, the Company will be
subject to United States federal income tax on its distributive share of the
income of Iridium that is effectively connected with the conduct of a trade or
business in the United States, without regard to whether any distribution has
been received from Iridium. The Company's share of Iridium's effectively
connected income may also under certain circumstances be subject to "branch
profits tax" at a 30% rate. The Company's ability to use its distributive share
of Iridium's net operating losses may be limited under Section 382 of the Code
as a result of subsequent issuances of Company stock. However, the Company
believes that it would not be materially affected by such a limitation.
OWNERSHIP AND DISPOSITION OF SHARES
Taxation of Dividends and Stock Distributions
U.S. Holders. Distributions by the Company with respect to its Class A
Common Stock will be includible in the gross income of a U.S. Holder as ordinary
dividend income to the extent paid out of current or accumulated earnings and
profits of the Company, as determined for United States federal income tax
purposes. Dividends will not be eligible for the dividends received deduction
generally allowed to U.S. Holders who are corporations.
Any dividends paid in foreign currency will be includible in the income of
a U.S. Holder in a U.S. dollar amount calculated by reference to the prevailing
market exchange rate in effect on the date the dividends become includible in
the U.S. Holder's income. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date that the dividend becomes
includible in the U.S. Holder's income to the date that the foreign currency is
converted into U.S. dollars will be treated as ordinary income or loss.
If less than 25% of the Company's gross income for the 3 years preceding
the year in which a dividend is declared (or for the portion of the three-year
period during which the Company has been in existence, if shorter) was
effectively connected with the conduct of a U.S. trade or business, the dividend
generally will constitute foreign source "passive income" (or in the case of
certain holders, "financial services income") for U.S. foreign tax credit
purposes. If 25% or more of the Company's gross income for such period was
"effectively connected" income, the dividend will be United States source in the
same proportion that the Company's "effectively connected" income for such
period bears to the Company's total gross income for the period, and the
remainder will constitute foreign source "passive income" (or in the case of
certain holders, "financial services income") for U.S. foreign tax credit
purposes.
Distributions of additional shares of Class A Common Stock to U.S. Holders
with respect to shares of Class A Common Stock that are part of a pro rata
distribution to all shareholders of the Company generally will not be subject to
U.S. federal income tax.
Non-U.S. Holders. Dividends paid to a holder of shares that is not a U.S.
Holder (a "Non-U.S. Holder") in respect of the Class A Common Stock will not be
subject to United States federal income tax unless such dividends are
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder (and are attributable to a permanent
establishment maintained in the United States by such
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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 United States taxation on a net income
basis in respect of income from the Class A Common Stock), in which case the
Non-U.S. Holder generally will be subject to tax in respect of such dividends in
the same manner as a U.S. Holder. Any such effectively connected dividends
received by a non-United States corporation 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.
If such dividends are not subject to U.S. federal income tax as described
above, that portion of the dividends received by a Non-U.S. Holder that is
attributable to the conduct by the Company of a trade or business within the
United States will be subject to a 30% withholding tax if, for the 3-year period
ending with the close of the Company's taxable year preceding the declaration of
such dividends, or for such part of that period as the Company was in existence,
25% or more of the company's gross income was effectively connected with the
conduct of a trade or business within the United States. The Company believes
that dividends paid to Non-U.S. Holders will not be subject to the withholding
tax described above.
Taxation of Capital Gains
Except as discussed below under "Passive Foreign Investment Company Rules,"
gain or loss (in an amount equal to the difference between such U.S. Holder's
adjusted tax basis in the shares of Class A Common Stock (determined in U.S.
dollars) and the U.S. dollar amount realized) will be recognized by a U.S.
Holder on the sale or other disposition of shares of Class A Common Stock and
will be subject to U.S. federal income tax as capital gain or loss. Capital gain
or loss will be treated as long-term capital gain or loss if the U.S. Holder's
holding period for the shares of Class A Common Stock is more than one year.
U.S. Holders who are individuals are currently taxed on long-term capital gains
at a maximum rate of 28%, while ordinary income may be subject to U.S. federal
income tax at a rate as high as 39.6%. Capital losses may be used to offset
long-term capital gains, and up to $3,000 of any net capital loss may be used to
offset ordinary income. U.S. Holders which are corporations are taxed on capital
gains at the same rate as ordinary income, which can be as high as 35%, and may
not offset ordinary income by any net capital losses. Capital gain recognized by
a U.S. Holder on a sale or other disposition of Shares generally will be treated
as U.S. source income.
A Non-U.S. Holder of shares of Class A Common Stock will not be subject to
U.S. federal income tax (including taxes imposed by withholding) on gains
realized on the sale or other disposition of shares of Class A Common Stock,
unless (i) such gain is effectively connected with the conduct by the holder of
a trade or business in the United States 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.
Passive Foreign Investment Company Rules
Under the passive foreign investment company ("PFIC") rules, a foreign
corporation will generally be a PFIC in any taxable year of the foreign
corporation in which either at least 75 percent of its gross income is "passive
income" or at least 50 percent of its assets are "passive assets." For purposes
of the PFIC tests, passive income generally includes interest, dividends, rents
and royalties (other than rents and royalties derived in the active conduct of a
trade or business and not derived from a related person), annuities and gains
from the sale or disposition of assets that produce passive income, and passive
assets generally include assets producing or held for the production of such
income.
Because Iridium has substantial temporary investments in securities, it is
likely that at least 75 percent of the Company's gross income for 1997 will be
passive income for purposes of the PFIC income test. Under the PFIC rules,
however, a foreign corporation will not be considered a PFIC in the first year
in which it has gross income (the start-up year) if (i) no predecessor of such
corporation was a PFIC, (ii) it is established to the satisfaction of the
Internal Revenue Service that such corporation will not be a PFIC for either of
the first two years following the start-up year and (iii) such corporation is
not in fact a PFIC for either of the first two years
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following the start-up year. Under this exception to PFIC classification, the
Company does not expect that it will be a PFIC for 1997.
Moreover, based on the manner in which Iridium currently intends to operate
its business in future years, the Company does not expect to be a PFIC for any
future year. However, since the determination of whether the shares of Class A
Common Stock constitute shares of a PFIC must be made annually based upon the
composition of the income and assets of the Company, Iridium and any corporation
in which the Company or Iridium holds a 25-percent-or-more interest, there can
be no assurance that the shares of Class A Common Stock will not be considered
shares of a PFIC for any taxable year. Furthermore, if the Company were
determined to be a PFIC in 1998, the start-up exception outlined in the previous
paragraph would be inapplicable and the Company would be considered a PFIC for
1997 as well.
Generally, if a share of Class A Common Stock were treated as stock of a
PFIC for any taxable year during which a U.S. Holder held such share, the entire
gain recognized by such U.S. Holder on a sale or other disposition of the share
would be allocated ratably over the U.S. Holder's holding period for the share.
The amounts allocated to the taxable year of the sale or other disposition and
to any year before the Company became a PFIC would be taxed as ordinary income.
The amount allocated to each other taxable year would be subject to tax at the
highest applicable ordinary income rate in effect for such taxable year, and an
interest charge would be imposed on the amount allocated to such taxable year.
All such tax and interest would be included in the U.S. Holder's U.S. federal
income tax liability for the taxable year in which the sale or other disposition
took place. Further, any distribution in respect of shares of Class A Common
Stock in excess of 125 percent of the average of the annual distributions on
shares of Class A Common Stock received by the U.S. Holder during the preceding
three years or the U.S. Holder's holding period, whichever is shorter, would be
subject to taxation as described above.
The special PFIC tax rules described above will not apply to a U.S. Holder
if (i) the U.S. Holder elects to have the Company treated as a "qualified
electing fund" (a "QEF election") for each taxable year during the U.S. Holder's
holding period in which the Company is a PFIC and (ii) the Company provides
certain information necessary to enable the U.S. Holder to make a QEF election.
The Company presently intends to provide upon request of any U.S. Holder the
information necessary to make a QEF election.
A U.S. Holder that makes a QEF election generally will be currently taxable
on its pro rata share of the Company's ordinary earnings and net capital gain
(at ordinary and capital gain rates, respectively) for each taxable year of the
Company, regardless of whether or not distributions were received. However, a
U.S. Holder that makes a QEF election covering each taxable year of the Company
during the U.S. Holder's holding period in which the Company is a PFIC will not
be currently taxable on its pro rata share of the Company's undistributed
ordinary earnings and net capital gain in any year in which the Company is not a
PFIC.
If a U.S. Holder is taxed on its pro rata share of the Company's ordinary
earnings and net capital gain, the U.S. Holder's basis in shares of Class A
Common Stock will be increased to reflect taxed but undistributed income.
Distributions that have been taxed previously will result in a corresponding
reduction of basis in shares of Class A Common Stock and will not be taxed again
as a distribution to the U.S. Holder.
A U.S. Holder who owns shares of Class A Common Stock during any year in
which the Company is a PFIC must file Internal Revenue Service Form 8621.
Backup Withholding
A U.S. Holder may be subject to United States "backup withholding" at the
rate of 31% with respect to dividends paid or the proceeds of a sale, exchange
or redemption of shares of Class A Common Stock, unless such holder (i) is a
corporation or is otherwise exempt or (ii) provides an accurate taxpayer
identification number, certifies that it is not subject to backup withholding
and otherwise complies with applicable backup withholding rules.
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SHARES ELIGIBLE FOR FUTURE SALE
Following completion of the Offerings, the only shares of Class A Common
Stock of the Company that will be outstanding will be the 10,000,000 shares
issued in the Offerings (11,500,000 shares if the Underwriters' over-allotment
options are exercised in full). These shares may be freely transferred if held
by persons who are not affiliates of the Company. Subject to certain
limitations, the Company has agreed in the Interest Exchange Agreement that it
will exchange shares of Class A Common Stock for Class 1 Interests at the rate
of shares of Class A Common Stock for each Class 1 Interest and to register with
the Securities and Exchange Commission those shares for sale. Based upon Class 1
Interest outstanding at the time of completion of the Offerings, shares of
Class A Common Stock would be issuable upon such exchange. Including all Class 1
Interests which will be issuable in the future based upon warrants, options and
convertible securities outstanding immediately following completion of the
Offerings, shares of Class A Common Stock would be issuable upon such exchange.
Pursuant to the Interest Exchange Agreement, the holders of Class 1 Interests
may not exchange their Interests for shares of Class A Common Stock prior to 90
days after the first fiscal quarter in which Iridium achieves positive earnings
before interest, taxes, depreciation and amortization. No exchanges shall take
place unless approved by Iridium, pursuant to authorization of directors
representing at least 66 2/3% of the Iridium Board. Thus, these Class 1
Interests will not be exchangeable for Class A Common Stock until some time in
1999, at the earliest. Eligible employees of the Company and Iridium and persons
having business relationships with Iridium who are purchasing reserved shares of
Class A Common Stock in the Offerings have agreed not to sell, offer to sell or
otherwise dispose of any shares of Class A Common Stock without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated for a
period of 180 days after the date of this Prospectus. Following completion of
the Offerings, the Company will issue shares of Class B Common Stock in the
Global Ownership Program. These shares of Class B Common Stock will be
exchangeable for Class A Common Stock after the satisfaction of certain
conditions, but in no event earlier than one year after issuance. Following such
exchanges, and if registered for resale with the Securities and Exchange
Commission as provided in the Exchange Agreement, the Class A Common Stock
issuable on exchange will be freely transferable. See "Governance of the Company
and Relationship with Iridium -- Global Ownership Program." Issuances of
substantial amounts of Class A Common Stock, or the expectation of such
issuances, could adversely affect the market price of the Class A Common Stock.
UNDERWRITING
Subject to the terms and conditions set forth in a U.S. purchase agreement
(the "U.S. Purchase Agreement") among the Company, Iridium and each of the
Underwriters named below (the "U.S. Underwriters"), and concurrently with the
sale of 2,000,000 shares of Class A Common Stock to the International Managers
(as defined below), the Company has agreed to sell to each of the U.S.
Underwriters, and each of the U.S. Underwriters severally has agreed to purchase
from the Company, the number of shares of Class A Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Goldman, Sachs & Co.......................................................
---------
Total........................................................... 8,000,000
=========
</TABLE>
118
<PAGE> 121
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Donaldson, Lufkin & Jenrette Securities Corporation and Goldman, Sachs & Co. are
acting as representatives (the "U.S. Representatives") of the U.S. Underwriters.
The Company and Iridium have also entered into a purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with certain underwriters outside the
United States and Canada (collectively, the "International Managers" and,
together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch
International, Donaldson, Lufkin & Jenrette Securities Corporation and Goldman
Sachs International are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 8,000,000
shares of Class A Common Stock to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers have severally agreed to purchase from
the Company, an aggregate of 2,000,000 shares of Class A Common Stock. The
initial public offering price per share of Class A Common Stock and the
underwriting discount per share of Class A Common Stock are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement,
the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such Agreement if any of the shares of Class A Common Stock
being sold pursuant to such Agreement are purchased. Under certain
circumstances, the commitments of non-defaulting U.S. Underwriters or
International Managers (as the case may be) may be increased. The purchase of
shares of Class A Common Stock by the U.S. Underwriters is conditioned upon the
purchase of shares of Class A Common Stock by the International Managers, and
vice versa.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell shares
of Class A Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or sell shares of Class A Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, and the International Managers and any
dealer to whom they sell shares of Class A Common Stock will not offer to sell
or sell shares of Class A Common Stock to U.S. persons or to Canadian persons or
to persons they believe intend to resell to U.S. persons or Canadian persons,
except in the case of transactions pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company and Iridium that the U.S.
Underwriters propose initially to offer the shares of Class A Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share of Class A Common Stock. The U.S. Underwriters
may allow, and such dealers may reallow, a discount not in excess of $
per share of Class A Common Stock on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
At the request of the Company, the U.S. Underwriters have initially
reserved up to 1,000,000 shares of Class A Common Stock for sale at the initial
public offering price set forth on the cover page of this Prospectus to eligible
employees of the Company and Iridium and persons having business relationships
with Iridium. The number of shares of Class A Common Stock available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the Underwriters to the general public on the same basis as other shares
offered hereby. Individuals purchasing reserved shares have agreed not to sell,
offer to sell or otherwise dispose of any shares of Class A Common Stock for a
period of 180 days after the date of this Prospectus.
119
<PAGE> 122
The Company has agreed not to, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of the Class A Common Stock or any
securities convertible into or exchangeable or exercisable for Class A Common
Stock or file any registration statement under the Securities Act of 1933, as
amended, with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Class A Common
Stock, whether any such swap or transaction is to be settled by delivery of
Class A Common Stock or other securities, in cash or otherwise, without the
prior written consent of Merrill Lynch, for a period of 180 days after the date
of this Prospectus. The foregoing restriction does not apply to the shares of
Class A Common Stock to be sold in the Offerings or under the Company's Global
Ownership Program or the Iridium Option Plan. See "Governance of the Company and
Relationship with Iridium -- Exchange Rights of Iridium Members" and "Shares
Eligible for Future Sale" for a discussion of certain limitations on the rights
of holders of Interests in Iridium to exchange such Interests for shares of
Class A Common Stock.
The Company has granted an option to the U.S. Underwriters, exercisable
within 30 days after the date of this Prospectus, to purchase up to 1,200,000
additional shares of Class A Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The U.S. Underwriters may exercise this option only to cover over-allotments, if
any, made on the sale of the Class A Common Stock offered hereby. To the extent
that the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of Class A Common Stock proportionate to such Underwriter's initial
amount reflected in the foregoing table. The Company also has granted an option
to the International Managers, exercisable within 30 days after the date of this
Prospectus, to purchase up to an aggregate of 300,000 additional shares of Class
A Common Stock to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Class A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Class A Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Class A Common Stock, they may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, Iridium nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Class A Common
Stock. In addition, neither the Company, Iridium nor any of the Underwriters
makes any representation that the Representatives will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
120
<PAGE> 123
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company, Iridium and the
Representatives. Among the factors that will be considered in determining the
initial public offering price, in addition to prevailing market conditions, are
price-earnings ratios of publicly traded companies that the Representative
believes to be comparable to the Company and Iridium, certain financial
information of the Company and Iridium, the history of, and the prospects for,
the Company and Iridium and the industry in which Iridium competes, an
assessment of the Company and Iridium management, its past and present
operations, the prospects for, and timing of, future revenues of the Company and
Iridium, the present state of the Company's and Iridium's development, and the
above factors in relation to market values and various valuation measures of
other companies engaged in activities similar to the Company and Iridium. There
can be no assurance given as to the liquidity of the trading market for the
Class A Common Stock or that an active public market will develop for the Class
A Common Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price. If an
active public market for the Class A Common Stock does not develop, the market
price and liquidity of the Class A Common Stock may be adversely affected.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market System under the symbol "IRIDF," subject to official notice of
issuance.
The U.S. Underwriters and the International Managers have informed the
Company that they do not intend to confirm sales of the Class A Common Stock
offered hereby to any accounts over which they exercise discretionary authority.
The Company and Iridium have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, commercial and investment banking services
to the Company and its affiliates, including Iridium and Motorola, for which
such Underwriters or their affiliates have received or will receive fees and
commissions.
VALIDITY OF THE CLASS A COMMON STOCK
The validity of the Class A Common Stock offered hereby and certain other
matters will be passed on for the Company and the Underwriters by Conyers Dill &
Pearman, Hamilton, Bermuda, special Bermuda Counsel to the Company. The Company
and Iridium are being represented by Sullivan & Cromwell, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Fried, Frank,
Harris, Shriver & Jacobson, a partnership including professional corporations,
New York, New York.
EXPERTS
The balance sheet of Iridium World Communications Ltd. as of December 31,
1996 and 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 from June 14, 1991 (inception) through October 31,
1996 have been included herein and in the Registration Statement of which this
Prospectus forms a part in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
121
<PAGE> 124
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Class A Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is hereby made to such Registration
Statement and the exhibits thereto. Statements contained in this Prospectus
regarding the contents of any contract or other documents are not necessarily
complete; with respect to each such contract or document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description matter involved, and each such statement shall be deemed qualified
in its entirety by such reference. A copy of the Registration Statement,
including the exhibits thereto, may be inspected without charge at the principal
office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549; at its
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and its New York Regional Office, 7 World Trade Center, New York, New
York, 10048. Copies of such material may be obtained from the public reference
section of the Commission, Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission. Additionally, the Company will be subject to the
public reporting requirements of the Securities Exchange Act, as amended (the
"Exchange Act"), and thus will file with the Commission periodic reports
pursuant to Section 13(d) and proxy statements pursuant to Section 14 of the
Exchange Act. These filings may also be inspected at or obtained from the
Commission. In addition, the Commission maintains a World Wide Web site on the
Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission through the Electronic Data Gathering, Analysis and
Retrieval System.
122
<PAGE> 125
ANNEX A
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
FDMA/TDMA.................. Frequency Division Multiple Access/Time Division
Multiple Access
"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
"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
"GMPCS".................... Global Mobile Personal Communication Services
A-1
<PAGE> 126
"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 by
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 among the satellites in the IRIDIUM
satellite constellation
"IRIDIUM Satellite
Services".................. the satellite-based voice, data and facsimile
services to be offered by Iridium
"IRIDIUM Services"......... the voice, data, facsimile and paging services to
be offered by Iridium
"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 of 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"......... 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
"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
A-2
<PAGE> 127
"phone".................... a handset that can be used to provide IRIDIUM voice
services
"primary".................. in the context of spectrum allocation, an
allocation to 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 242,754 Class 1
Interests at $1,000 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
"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
A-3
<PAGE> 128
"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
A-4
<PAGE> 129
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Audited Financial Statements:
IRIDIUM WORLD COMMUNICATIONS LTD.
Independent Auditors' Report.......................................................... F-2
Balance Sheet as of December 31, 1996................................................. F-3
Notes to Financial Statement.......................................................... F-4
IRIDIUM LLC
Independent Auditors' Report.......................................................... F-5
Consolidated Balance Sheets as of December 31, 1995 and 1996.......................... F-6
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-7
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-8
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-9
Notes to Consolidated Financial Statements............................................ F-10
</TABLE>
F-1
<PAGE> 130
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Iridium World Communications Ltd.:
We have audited the accompanying balance sheet of Iridium World
Communications Ltd. (a development stage company) as of December 31, 1996. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Iridium World Communications Ltd.
(a development stage company) as of December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG PEAT MARWICK LLP
Washington, D.C.
March 10, 1997
F-2
<PAGE> 131
IRIDIUM WORLD COMMUNICATIONS LTD.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE DATA)
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Total assets.......................................................................... $ --
====
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities........................................................................... $ --
Stockholder's equity:
Class B Common Stock, non-voting, par value $0.01; authorized 2,500,000 shares; none
issued or outstanding............................................................ --
Class A Common Stock, voting, par value $0.01; authorized 20,000,000 shares;
1,200,000 subscribed; none issued or outstanding................................. 12
Subscription receivable............................................................. (12)
Retained earnings................................................................... --
----
Total stockholder's equity.................................................. --
----
Total liabilities and stockholder's equity.................................. $ --
====
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE> 132
IRIDIUM WORLD COMMUNICATIONS LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENT
1. ORGANIZATION AND BUSINESS
Iridium World Communications Ltd. (the "Company") was incorporated under
the laws of Bermuda on December 12, 1996. The Company is wholly owned by Iridium
LLC ("Iridium"), a limited liability company, which has subscribed to purchase
1,200,000 shares of $0.01 par value Class A Common Stock for an aggregate
purchase price of $12,000. The Company plans to file a registration statement
with the Securities and Exchange Commission in order to register its Class A
Common Stock for sale in an initial public offering (the "Offering"). The net
proceeds from the Offering will be invested in Iridium Class 1 Interests, at
which time the outstanding shares of Class A Common Stock subscribed to by
Iridium will be retired, and the Company will become a member of Iridium.
Iridium is devoting substantially all of its present efforts to
constructing, developing and marketing the IRIDIUM Communications System.
Iridium's planned principal operations, to manage the operation of the IRIDIUM
Communications System, have not commenced and, accordingly, Iridium is
considered a development stage limited liability company. As the Company's
planned investment in Iridium will constitute its only asset, the Company is
also considered a development stage company.
Since its inception on December 12, 1996 through December 31, 1996, the
Company has not entered into any transactions or incurred any expenses.
2. COMMON STOCK
Concurrent with the Offering, the Company and Iridium intend to execute an
Interest Exchange Agreement (the "Agreement") that will allow holders of Class 1
Interests in Iridium to exchange those interests, subject to the restrictions on
transfer in the Iridium Limited Liability Company Agreement, for shares of Class
A Common Stock in the Company at a pre-determined ratio of Class A Shares for
each Class 1 Interest, subject to anti-dilution adjustments. The Agreement will
permit exchanges of Class 1 Interests commencing 90 days after Iridium has
achieved one full quarter of positive earnings before interest, taxes,
depreciation and amortization. No exchange shall take place unless approved by
Iridium pursuant to authorization of Directors representing at least 66 2/3% of
the Iridium Board of Directors.
The Company and Iridium have commenced a Global Ownership Program which is
designed to offer up to an aggregate of 2,500,000 shares of the Company's Class
B Common Stock at a purchase price of $1,000 per share to certain governmental
telecommunication administrations and related entities as part of a
comprehensive program to enhance market access, improve the competitive standing
of the IRIDIUM System and achieve appropriate regulatory approvals. Class B
Common Stock is convertible to Class A Common Stock on a one-for-one basis,
subject to anti-dilution adjustments, once certain conditions are met, including
full payment for the shares. The proceeds generated from each sale of Class B
Common Stock will be used to purchase Class 1 Interests in Iridium. As of
December 31, 1996, no shares of Class B Common Stock have been issued under this
program.
The Company and Iridium have also executed a Share Issuance Agreement which
provides that all net proceeds from future primary offerings of securities by
the Company will be invested in Class 1 Interests in Iridium.
F-4
<PAGE> 133
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
F-5
<PAGE> 134
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT INTEREST DATA)
AS OF DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
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 and 9):
Class 2 Interests, authorized 50,000 interests for Series M;
authorized an aggregate of 300,000 interests for Series A,
Series B and Series C
Series M, Convertible, no interests issued and 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, authorized 3,000,000 interests; 1,471,016 and
1,611,147 interests issued and outstanding; 121,762 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
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 135
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS EXCEPT INTEREST DATA)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JUNE 14, 1991
---------------------------------- (INCEPTION) THROUGH
1994 1995 1996 DECEMBER 31, 1996
-------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
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............... $ 28.50 $ 20.11 $ 48.23
======== ========== ==========
Weighted average interests used in computing
net loss per Class 1 Interest............. 520,537 1,175,505 1,601,541
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 136
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(IN THOUSANDS EXCEPT INTEREST DATA)
<TABLE>
<CAPTION>
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
--------- ------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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................................ -- -- 800,000 -- -- -- --
Subscribed Class 1 Interests issued
for cash at $1,000 per interest..... -- -- -- 324,167 -- -- 324,167
Costs of raising equity............... -- -- -- (8,096) -- -- (8,096)
Net loss.............................. -- -- -- -- (6,924) -- (6,924)
-------- ------- --------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1993............ -- -- 800,000 316,071 (21,763) -- 294,308
Class 1 Interests subscribed.......... -- -- 792,778 -- -- -- --
Subscribed Class 1 Interests issued
for cash at $1,000 per interest..... -- -- -- 518,202 -- -- 518,202
Costs of raising equity............... -- -- -- (1,863) -- -- (1,863)
Net loss.............................. -- -- -- -- (14,834) -- (14,834)
-------- ------- --------- ---------- ------------ ---------- ----------
BALANCE, December 31, 1994............ -- -- 1,592,778 832,410 (36,597) -- 795,813
Subscribed Class 1 Interests issued
for cash at $1,000 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............ -- -- 1,592,778 1,465,917 (60,242) (1,065) 1,404,610
Subscribed Class 1 Interests issued
for cash at $1,000 per interest..... -- -- 18,369 140,131 -- -- 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 1,611,147 $1,659,625 $ (133,840) $ (733) $1,572,029
======== ======= ========= ========== ============ ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 137
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 14, 1991
YEAR ENDED DECEMBER 31, (INCEPTION)
--------------------------------- THROUGH
1994 1995 1996 DECEMBER 31, 1996
--------- --------- --------- -----------------
<S> <C> <C> <C> <C>
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
========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 138
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 -- 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 in Iridium.
Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the Iridium Communications
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 Communications 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 Communications System, subject to
certain conditions.
The successful completion of the Iridium Communications 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. All
significant intercompany transactions have been eliminated.
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,
F-10
<PAGE> 139
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Communications System. Its
planned principal operations, to manage the operation of the Space 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:
<TABLE>
<S> <C>
Office equipment and furniture.............................................. 5 years
Computer equipment.......................................................... 5 years
Software.................................................................... 3 years
Company vehicles............................................................ 5 years
</TABLE>
SYSTEM UNDER CONSTRUCTION
System under construction includes all costs incurred related to the
construction of the space and ground components of the Iridium Communications
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
Communications 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 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
F-11
<PAGE> 140
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-12
<PAGE> 141
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
3,000,000 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
70,000 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 70,000 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 242,754 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. 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, 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 0.2468 Class 1 Interest. 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
F-13
<PAGE> 142
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
LIMITATIONS ON LIABILITY
Members are generally not liable for the debts, obligations or liabilities
of Iridium.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996, consists of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
F-14
<PAGE> 143
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 warrants to
Motorola to purchase up to 150,000 Class 1 Interests in Iridium. As
consideration for its guarantee, Motorola earns 82,500 warrants for each year
the $750 million guarantee is outstanding, but in no event more than 150,000
warrants over the term of the guarantee. Warrants earned are issued to Motorola
on a quarterly basis. Each warrant entitles Motorola to purchase one Class 1
Interest at an exercise price of $.01 per interest, 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 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.
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 0.13877 Class 1 Interest, 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 interest, 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.
F-15
<PAGE> 144
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Iridium's provision for income taxes for the years ended December 31, 1994,
1995, and 1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C> <C>
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
====== ====== ======
</TABLE>
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.
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):
<TABLE>
<CAPTION>
1994 1995 1996
------ ---- ----
<S> <C> <C> <C>
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
====== ==== ====
</TABLE>
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.
F-16
<PAGE> 145
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
1997................................................................ $ 652,000
1998................................................................ 514,000
----------
$1,166,000
==========
</TABLE>
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 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 Class 1 Interests to Motorola. The warrants, if
issued, have an exercise price of $.01 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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
1997................................................................. $ 68,000
1998................................................................. 46,900
--------
$114,900
========
</TABLE>
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
F-17
<PAGE> 146
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
1997................................................................ $ --
1998................................................................ 120,000
1999................................................................ 537,000
2000................................................................ 558,000
2001 and thereafter................................................. 1,685,000
----------
$2,900,000
----------
</TABLE>
GATEWAY OWNERS INCENTIVES
Iridium has agreed to issue warrants to purchase 4,000 Class 1 Interests to
each gateway owner whose specified gateway activities are completed on schedule,
and warrants to purchase 100 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 be issued to all
gateway owners. The warrants will have terms identical to those issued to
Motorola under the Guarantee Agreement (see Note 5).
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
F-18
<PAGE> 147
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 $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):
<TABLE>
<CAPTION>
1994 1995 1996
--------------------- --------------------- ---------------------
NON- NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ===== =======
</TABLE>
F-19
<PAGE> 148
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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%
</TABLE>
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 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, 35,000 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):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
<S> <C> <C>
Net loss.......................... As reported....................... $ (73,598)
Pro forma......................... (74,172)
Net loss per Class 1 Interest..... As reported....................... $ 48.23
Pro forma......................... 48.59
</TABLE>
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.
F-20
<PAGE> 149
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes Iridium's Option Plan:
<TABLE>
<CAPTION>
WEIGHTED
INTERESTS AVERAGE
UNDER EXERCISE
OPTION PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1995................................. -- --
Granted..................................................... 9,730 $1,000
Exercised................................................... -- --
Forfeited................................................... -- --
-------- ------
Outstanding at December 31, 1996................................. 9,730 $1,000
-------- ------
Options exercisable at December 31, 1996......................... --
--------
Weighted-average fair value at date of grant of options granted
during the year ended December 31, 1996........................ $ 487.40
--------
Weighted-average remaining contractual life (in years)........... 9.39
</TABLE>
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):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Guaranteed bank facility....................................... $505,000 $505,000
Long-term debt due to Members.................................. 230,904 230,904
</TABLE>
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, 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):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
-------------------------------------------------------------------------- ------
<S> <C>
1997............................................................... $1,858
1998............................................................... 1,880
1999............................................................... 156
------
$3,894
======
</TABLE>
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.
F-21
<PAGE> 150
================================================================================
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 OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF CLASS A COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY OR IRIDIUM SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 13
The Company and Iridium's Strategic
Investors.................................. 37
Use of Proceeds.............................. 39
Dividend Policy.............................. 39
Dilution..................................... 40
Capitalization............................... 42
Selected Financial Data...................... 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 45
Business..................................... 48
Regulation of Iridium........................ 66
Principal Contracts for the Development of
the IRIDIUM System......................... 74
Management................................... 81
Interest Ownership of Certain Beneficial
Owners and Management...................... 93
Certain Relationships and Related
Transactions of Iridium.................... 93
Iridium's Investors, Number of Class 1
Interests Owned, Percentage Ownership and
Principal Gateway Service Territories...... 95
Governance of the Company and Relationship
with Iridium............................... 99
Description of Capital Stock................. 103
Description of Iridium LLC Limited Liability
Company Agreement.......................... 107
Tax Considerations........................... 114
Shares Eligible for Future Sale.............. 118
Underwriting................................. 118
Validity of the Class A Common Stock......... 121
Experts...................................... 121
Available Information........................ 122
Glossary..................................... A-1
Index to Financial Statements................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
================================================================================
================================================================================
10,000,000 SHARES
IRIDIUM WORLD
COMMUNICATIONS LTD.
CLASS A COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
, 1997
================================================================================
<PAGE> 151
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
PRELIMINARY PROSPECTUS DATED APRIL 25, 1997
PROSPECTUS
10,000,000 SHARES
IRIDIUM WORLD COMMUNICATIONS LTD.
CLASS A COMMON STOCK
Of the 10,000,000 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), of Iridium World Communications Ltd., a Bermuda
company (the "Company"), being offered hereby, 2,000,000 shares are being
offered outside of the United States and Canada by the International Managers
(the "International Offering") and 8,000,000 shares are being offered in a
concurrent offering in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering" and, together with the International Offering, the
"Offerings"). The public offering price and the underwriting discount per share
are identical for both Offerings. Of the 10,000,000 shares being offered in the
Offerings, up to 1,000,000 shares are being reserved for sale to eligible
employees of the Company and Iridium and persons having business relationships
with Iridium. See "Underwriting." The Company is a member of Iridium LLC, a
Delaware (U.S.A.) limited liability company ("Iridium").
Prior to the Offerings, there has been no public market for the Class A
Common Stock. It is currently anticipated that the initial public offering price
will be between $19 and $21 per share. See "Underwriting" for a discussion of
the factors considered in determining the initial public offering price. The
Class A Common Stock has been approved for quotation on the Nasdaq National
Market System ("NNMS") under the symbol "IRIDF," subject to official notice of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
---------------------
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.
<TABLE>
<CAPTION>
======================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
======================================================================================================
<S> <C> <C> <C>
Per Share........................ $ $ $
- ------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
======================================================================================================
</TABLE>
(1) The Company and Iridium have agreed to indemnify the several Underwriters
against certain liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deducting expenses payable by Iridium estimated to be $2,000,000.
(3) The Company has granted the International Managers and the U.S. Underwriters
options, exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 300,000 and 1,200,000 shares of Class A Common
Stock, respectively, on the same terms as set forth above, solely to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them and
subject to the approval of certain legal matters by counsel for the Underwriters
and certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of certificates for the shares will be made in New York,
New York on or about , 1997.
---------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN SACHS INTERNATIONAL
---------------
The date of this Prospectus is , 1997.
<PAGE> 152
TAX CONSIDERATIONS
The following discussion is a summary of certain anticipated tax
consequences of the operations of the Company and of an investment in the Class
A Common Stock under United States federal income tax laws and Bermuda laws. The
discussion does not deal with all possible tax consequences relating to the
Company's operations or to an investment in the Class A Common Stock. In
particular, the discussion does not address the tax consequences under state,
local and other (e.g., non-United States federal, non-Bermuda) tax laws.
Accordingly, each prospective investor should consult his or her tax advisor
regarding the tax consequences of an investment in the Class A Common Stock. The
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Prospectus, all of which are subject to change.
BERMUDA LAW
In the opinion of Conyers, Dill & Pearman, Bermuda counsel to the Company,
the following discussion correctly describes certain tax consequences to the
Company with respect to the Offerings and with respect to ownership of shares of
Class A Common Stock under Bermuda law.
At the date hereof, there is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or its shareholders other than
shareholders ordinarily resident in Bermuda. The Company is not subject to stamp
or other similar duty on the issue, transfer or redemption of its shares of
Class A Common Stock.
The Company has obtained an assurance from the Minister of Finance of
Bermuda under the Exempted Undertaking Tax Protection Act 1966 that, in the
event there is enacted in Bermuda any legislation imposing tax computed on
profits or income or computed on any capital assets, gain or appreciation or any
tax in the nature of estate duty or inheritance tax, such tax shall not be
applicable to the Company or to its operations, or to the shares, debentures or
other obligations of the Company until March 28, 2016 except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or any real property or leasehold
interests in Bermuda owned by the Company. No reciprocal tax treaty affecting
the Company exists between Bermuda and the United States.
As an exempted company, the Company is liable to pay in Bermuda a
registration fee based upon its authorized share capital and the premium on its
issued shares at a rate not exceeding $25,000 per annum.
UNITED STATES FEDERAL INCOME TAXATION
General
The following is a general summary of the U.S. federal income tax
consequences of the ownership and disposition of Shares by a "U.S. Holder," as
defined below. The summary is limited to holders who hold shares of Class A
Common Stock 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, persons subject to
the alternative minimum tax, broker-dealers, an owner of 10% or more of the
voting power or value of the shares of the Company, or holders who hold shares
of Class A Common Stock in a hedging transaction or as part of a straddle or
conversion transaction. The summary does not address state or local taxes.
As used herein, the term "U.S. Holder" means any holder who is either (i)
an individual who is a citizen or a resident of the United States, (ii) a
partnership or corporation organized under the laws of the United States or any
state thereof, or (iii) an estate or trust that is subject to United States
federal income taxation without regard to the source of its income. A "Non-U.S.
Holder" is any beneficial owner of the Class A Common Stock that is not a United
States person for United States federal income tax purposes. All terms used and
not defined herein have the meaning ascribed to them under the Internal Revenue
Code of 1986, as amended (the "Code").
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
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may vary depending upon the particular situation of the holder. Each holder
should consult its own tax advisor as to the United States, Bermuda or other tax
consequences of the ownership and disposition of Shares.
TAXATION OF THE COMPANY
Iridium is intended to be taxed as a partnership for United States federal
income tax purposes. As a Class 1 Member of Iridium, the Company will be subject
to United States federal income tax on its distributive share of the income of
Iridium that is effectively connected with the conduct of a trade or business in
the United States, without regard to whether any distribution has been received
from Iridium. The Company's share of Iridium's effectively connected income may
also under certain circumstances be subject to "branch profits tax" at a 30%
rate. The Company's ability to use its distributive share of Iridium's net
operating losses may be limited under Section 382 of the Code as a result of
subsequent issuances of Company stock. However, the Company believes that it
would not be materially affected by any such limitation.
OWNERSHIP AND DISPOSITION OF SHARES
Taxation of Dividends and Stock Distributions
U.S. Holders. Distributions by the Company with respect to its Class A
Common Stock will be includible in the gross income of a U.S. Holder as ordinary
dividend income to the extent paid out of current or accumulated earnings and
profits of the Company, as determined for United States federal income tax
purposes. Dividends will not be eligible for the dividends-received deduction
generally allowed to U.S. Holders who are corporations.
Any dividends paid in foreign currency will be includible in the income of
a U.S. Holder in a U.S. dollar amount calculated by reference to the prevailing
market exchange rate in effect on the date the dividends become includible in
the U.S. Holder's income. Generally, any gain or loss resulting from currency
exchange fluctuations during the period from the date that the dividend becomes
includible in the U.S. Holder's income to the date that the foreign currency is
converted into U.S. dollars will be treated as ordinary income or loss.
If less than 25% of the Company's gross income for the 3 years preceding
the year in which a dividend is declared (or for the portion of the 3-year
period during which the Company has been in existence, if shorter) was
effectively connected with the conduct of a U.S. trade or business, the dividend
generally will constitute foreign source "passive income" (or in the case of
certain holders, "financial services income") for U.S. foreign tax credit
purposes. If 25% or more of the Company's gross income for such period was
"effectively connected" income, the dividend will be United States source in the
same proportion that the Company's "effectively connected" income for such
period bears to the Company's total gross income for the period, and the
remainder will constitute foreign source "passive income" (or in the case of
certain holders, "financial services income") for U.S. foreign tax credit
purposes.
Distributions of additional Shares to U.S. Holders with respect to Shares
that are part of a pro rata distribution to all shareholders of the Company
generally will not be subject to U.S. federal income tax.
Non-U.S. Holders. Dividends paid to a holder of shares that is not a U.S.
Holder (a "Non-U.S. Holder") in respect of the Class A Common Stock will not be
subject to United States federal income tax unless such dividends are
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder (and are 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 United States taxation on a net income basis in respect of
income from the Class A Common Stock), in which case the Non-U.S. Holder
generally will be subject to tax in respect of such dividends in the same manner
as a U.S. Holder. Any such effectively connected dividends received by a
non-United States corporation 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.
If such dividends are not subject to U.S. federal income tax as described
above, that portion of the dividends received by a Non-U.S. Holder that is
attributable to the conduct by the Company of a trade or business within the
United States will be subject to a 30% withholding tax if, for the 3-year period
ending with
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the close of the Company's taxable year preceding the declaration of such
dividends, or for such part of that period as the Company was in existence, 25%
or more of the company's gross income was effectively connected with the conduct
of a trade or business within the United States. The Company believes that
dividends paid to Non-U.S. Holders will not be subject to the withholding tax
described above.
Taxation of Capital Gains
U.S. Holders. Except as discussed below under "Passive Foreign Investment
Company Rules," gain or loss (in an amount equal to the difference between such
U.S. Holder's adjusted tax basis in the Shares (determined in U.S. dollars) and
the U.S. dollar amount realized) will be recognized by a U.S. Holder on the sale
or other disposition of Shares and will be subject to U.S. federal income tax as
capital gain or loss. Capital gain or loss will be treated as long-term capital
gain or loss if the U.S. Holder's holding period for the Shares is more than one
year. U.S. Holders who are individuals are currently taxed on long-term capital
gains at a maximum rate of 28%, while ordinary income may be subject to U.S.
federal income tax at a rate as high as 39.6%. Capital losses may be used to
offset long-term capital gains, and up to $3,000 of any net capital loss may be
used to offset ordinary income. U.S. Holders which are corporations are taxed on
capital gains at the same rate as ordinary income, which can be as high as 35%,
and may not offset ordinary income by any net capital losses. Capital gain
recognized by a U.S. Holder on a sale or other disposition of Shares generally
will be treated as U.S. source income.
A Non-U.S. Holder of Shares will not be subject to U.S. federal income tax
(including taxes imposed by withholding) on gains realized on the sale or other
disposition of Shares, unless (i) such gain is effectively connected with the
conduct by the holder of a trade or business in the United States 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.
Non-U.S. Holders. A Non-U.S. Holder will not be subject to United States
federal income tax in respect of gain recognized on a sale or other disposition
of the Class A Common Stock unless (i) the gain is effectively connected with a
trade or business of the Non-U.S. Holder 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 United States taxation on a
net income basis in respect of gain from the sale or other disposition of the
Class A Common Stock) or (ii) in the case of a Non-U.S. Holder who is an
individual, such holder is present in the United States for 183 or more days in
the taxable year of the sale and certain other conditions apply. Effectively
connected gains 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.
Passive Foreign Investment Company Rules
Under the passive foreign investment company ("PFIC") rules, a foreign
corporation will generally be a PFIC in any taxable year of the foreign
corporation in which either at least 75 percent of its gross income is "passive
income" or at least 50 percent of its assets are "passive assets." For purposes
of the PFIC tests, passive income generally includes interest, dividends, rents
and royalties (other than rents and royalties derived in the active conduct of a
trade or business and not derived from a related person), annuities and gains
from the sale or disposition of assets that produce passive income, and passive
assets generally include assets producing or held for the production of such
income.
Because Iridium has substantial temporary investments in securities, it is
likely that at least 75 percent of the Company's gross income for 1997 will be
passive income for purposes of the PFIC income test. Under the PFIC rules,
however, a foreign corporation will not be considered a PFIC in the first year
in which it has gross income (the start-up year) if (i) no predecessor of such
corporation was a PFIC, (ii) it is established to the satisfaction of the
Internal Revenue Service that such corporation will not be a PFIC for either of
the first two years following the start-up year and (iii) such corporation is
not in fact a PFIC for either of the first two years following the start-up
year. Under this exception to PFIC classification, the Company does not expect
that it will be a PFIC for 1997.
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Moreover, based on the manner in which Iridium currently intends to operate
its business in future years, the Company does not expect to be a PFIC for any
future year. However, since the determination of whether the Shares constitute
shares of a PFIC must be made annually based upon the composition of the income
and assets of the Company, Iridium and any corporation in which the Company or
Iridium holds a 25-percent-or-more interest, there can be no assurance that the
Shares will not be considered shares of a PFIC for any taxable year.
Furthermore, if the Company were determined to be a PFIC in 1998, the start-up
exception outlined in the previous paragraph would be inapplicable and the
Company would be considered a PFIC for 1997 as well.
Generally, if a Share were treated as stock of a PFIC for any taxable year
during which a U.S. Holder held such Share, the entire gain recognized by such
U.S. Holder on a sale or other disposition of the Share would be allocated
ratably over the U.S. Holder's holding period for the Share. The amounts
allocated to the taxable year of the sale or other disposition and to any year
before the Company became a PFIC would be taxed as ordinary income. The amount
allocated to each other taxable year would be subject to tax at the highest
applicable ordinary income rate in effect for such taxable year, and an interest
charge would be imposed on the amount allocated to such taxable year. All such
tax and interest would be included in the U.S. Holder's U.S. federal income tax
liability for the taxable year in which the sale or other disposition took
place. Further, any distribution in respect of Shares in excess of 125 percent
of the average of the annual distributions on Shares received by the U.S. Holder
during the preceding three years or the U.S. Holder's holding period, whichever
is shorter, would be subject to taxation as described above.
The special PFIC tax rules described above will not apply to a U.S. Holder
if (i) the U.S. Holder elects to have the Company treated as a "qualified
electing fund" (a "QEF election") for each taxable year during the U.S. Holder's
holding period in which the Company is a PFIC and (ii) the Company provides
certain information necessary to enable the U.S. Holder to make a QEF election.
A U.S. Holder that makes a QEF election generally will be currently taxable
on its pro rata share of the Company's ordinary earnings and net capital gain
(at ordinary and capital gain rates, respectively) for each taxable year of the
Company, regardless of whether or not distributions were received. However, a
U.S. Holder that makes a QEF election covering each taxable year of the Company
during the U.S. Holder's holding period in which the Company is a PFIC will not
be currently taxable on its pro rata share of the Company's undistributed
ordinary earnings and net capital gain in any year in which the Company is not a
PFIC.
If a U.S. Holder is taxed on its pro rata share of the Company's ordinary
earnings and net capital gain, the U.S. Holder's basis in shares of Class A
Common Stock will be increased to reflect taxed but undistributed income.
Distributions that have been taxed previously will result in a corresponding
reduction of basis in shares of Class A Common Stock and will not be taxed again
as a distribution to the U.S. Holder.
A U.S. Holder who owns shares of Class A Common Stock during any year in
which the Company is a PFIC must file Internal Revenue Service Form 8621.
Backup Withholding
In general, information reporting requirements will apply to dividend
payments (or other taxable distributions) in respect of the Class A Common Stock
made within the United States 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 Internal Revenue Service of a failure by
the holder or beneficial owner to report all interest or dividends 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.
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In general, payment of the proceeds from the sale of the Class A Common
Stock 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 the Class A Common Stock
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 the Class A Common Stock 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 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.
UNDERWRITING
Subject to the terms and conditions set forth in an international purchase
agreement (the "International Purchase Agreement") among the Company, Iridium
and each of the Underwriters named below (the "International Managers"), and
concurrently with the sale of 8,000,000 shares of Class A Common Stock to the
U.S. Underwriters (as defined below), the Company has agreed to sell to each of
the International Managers, and each of the International Managers severally has
agreed to purchase from the Company, the number of shares of Class A Common
Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch International...............................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Goldman Sachs International...............................................
---------
Total........................................................... 2,000,000
========
</TABLE>
Merrill Lynch International, Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman Sachs International are acting as representatives (the
"International Representatives") of the International Managers.
The Company and Iridium have also entered into a purchase agreement (the
"U.S. Purchase Agreement," and, together with the International Purchase
Agreement, the "Purchase Agreements") with certain underwriters in the United
States and Canada (collectively, the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters"), for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Donaldson, Lufkin & Jenrette
Securities Corporation and Goldman, Sachs & Co. are acting as representatives
(the "U.S. Representatives" and, together with the International
Representatives, the "Representatives"). Subject to the terms and conditions set
forth in the U.S. Purchase Agreement, and concurrently with the sale of
2,000,000 shares of Class A Common Stock to the International Managers pursuant
to the International Purchase Agreement, the Company has agreed to sell to the
U.S. Underwriters, and the U.S. Underwriters have severally agreed to purchase
from the Company, an aggregate of 8,000,000 shares of Class A Common Stock. The
initial public offering price per share of Class A Common Stock and the
underwriting discount per share of Class A Common Stock are identical under the
International Purchase Agreement and the U.S. Purchase Agreement.
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In the International Purchase Agreement and the U.S. Purchase Agreement,
the several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Class A Common Stock being sold
pursuant to each such Agreement if any of the shares of Class A Common Stock
being sold pursuant to such Agreement are purchased. Under certain
circumstances, the commitments of non-defaulting International Managers or U.S.
Underwriters (as the case may be) may be increased. The purchase of shares of
Class A Common Stock by the International Managers is conditioned upon the
purchase of shares of Class A Common Stock by the U.S. Underwriters, and vice
versa.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") providing for the
coordination of their activities. The Underwriters are permitted to sell shares
of Class A Common Stock to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International Managers and
any dealer to whom they sell shares of Class A Common Stock will not offer to
sell or sell shares of Class A Common Stock to persons who are U.S. or Canadian
persons or to persons they believe intend to resell to persons who are U.S. or
Canadian persons, and the U.S. Underwriters and any dealer to whom they sell
shares of Class A Common Stock will not offer to sell or sell shares of Class A
Common Stock to non-U.S. persons or to non-Canadian persons or to persons they
believe intend to resell to non-U.S. persons or non-Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
The International Representatives have advised the Company and Iridium that
the International Managers propose initially to offer the shares of Class A
Common Stock to the public at the initial public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share of Class A Common Stock. The
International Managers may allow, and such dealers may reallow, a discount not
in excess of $ per share of Class A Common Stock on sales to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
Each International Manager has agreed that (i) it has not offered or sold,
and, for a period of six months following consummation of the Offerings, will
not offer or sell, to persons in the United Kingdom, other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied with and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the shares of Class A Common Stock in,
from or otherwise involving the United Kingdom and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of shares of Class A Common Stock to
a person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or is a person to
whom such document may otherwise lawfully be issued or passed on.
At the request of the Company, the U.S. Underwriters have initially
reserved up to 1,000,000 shares of Class A Common Stock for sale at the initial
public offering price set forth on the cover page of this Prospectus to eligible
employees of the Company and Iridium and persons having business relationships
with Iridium. The number of shares of Class A Common Stock available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares which are not so purchased will be offered
by the Underwriters to the general public on the same basis as other shares
offered hereby. Individuals purchasing reserved shares have agreed not to sell,
offer to sell or otherwise dispose of any shares of Class A Common Stock for a
period of 180 days after the date of this Prospectus.
The Company has agreed not to, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of the Class A Common Stock or any
securities convertible into or exchangeable or exercisable for Class A Common
Stock or file any registration statement
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under the Securities Act of 1933, as amended, with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Class A Common Stock, whether any such swap or
transaction is to be settled by delivery of Class A Common Stock or other
securities, in cash or otherwise, without the prior written consent of Merrill
Lynch, for a period of 180 days after the date of this Prospectus. The foregoing
restriction does not apply to the shares of Class A Common Stock to be sold in
the Offerings or under the Company's Global Ownership Program or the Iridium
Option Plan. See "Governance of the Company and Relationship with
Iridium -- Exchange Rights of Iridium Members" and "Shares Eligible for Future
Sale" for a discussion of certain limitations on the rights of holders of
Interests in Iridium to exchange such Interests for shares of Class A Common
Stock.
The Company has granted an option to the International Managers,
exercisable within 30 days after the date of this Prospectus, to purchase up to
300,000 additional shares of Class A Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Mangers may exercise this option only to cover
over-allotments, if any, made on the sale of the Class A Common Stock offered
hereby. To the extent that the International Managers exercise this option, each
International Manager will be obligated, subject to certain conditions, to
purchase a number of additional shares of Class A Common Stock proportionate to
such International Manager's initial amount reflected in the foregoing table.
The Company also has granted an option to the U.S. Underwriters, exercisable
within 30 days after the date of this Prospectus, to purchase up to an aggregate
of 1,200,000 additional shares of Class A Common Stock to cover over-allotments,
if any, on terms similar to those granted to the International Managers.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Class A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of the Class A Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offerings, i.e., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Class A Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Class A Common Stock, they may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, Iridium nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Class A Common
Stock. In addition, neither the Company, Iridium nor any of the Underwriters
makes any representation that the Representatives will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
Prior to the Offerings, there has been no public market for the shares of
Class A Common Stock of the Company. The initial public offering price will be
determined through negotiations among the Company, Iridium and the
Representatives. Among the factors that will be considered in determining the
initial public offering price, in addition to prevailing market conditions, are
price-earnings ratios of publicly traded
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companies that the Representative believes to be comparable to the Company and
Iridium, certain financial information of the Company and Iridium, the history
of, and the prospects for, the Company and Iridium and the industry in which
Iridium competes, an assessment of the Company and Iridium management, its past
and present operations, the prospects for, and timing of, future revenues of the
Company and Iridium, the present state of the Company's and Iridium's
development, and the above factors in relation to market values and various
valuation measures of other companies engaged in activities similar to the
Company and Iridium. There can be no assurance given as to the liquidity of the
trading market for the Class A Common Stock or that an active public market will
develop for the Class A Common Stock or that the Class A Common Stock will trade
in the public market subsequent to the Offerings at or above the initial public
offering price. If an active public market for the Class A Common Stock does not
develop, the market price and liquidity of the Class A Common Stock may be
adversely affected.
The Class A Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "IRIDF," subject to official notice of
issuance.
The International Managers and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of the Class A Common Stock
offered hereby to any accounts over which they exercise discretionary authority.
The Company and Iridium have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters or their affiliates have provided from time to
time, and may provide in the future, commercial and investment banking services
to the Company and its affiliates, including Iridium and Motorola, for which
such Underwriters or their affiliates have received or will receive fees and
commissions.
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================================================================================
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 OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES OF CLASS A COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY OR IRIDIUM SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................... 3
Risk Factors................................. 13
The Company and Iridium's Strategic
Investors.................................. 37
Use of Proceeds.............................. 39
Dividend Policy.............................. 39
Dilution..................................... 40
Capitalization............................... 42
Selected Financial Data...................... 43
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 45
Business..................................... 48
Regulation of Iridium........................ 66
Principal Contracts for the Development of
the IRIDIUM System......................... 74
Management................................... 81
Interest Ownership of Certain Beneficial
Owners and Management...................... 93
Certain Relationships and Related
Transactions of Iridium.................... 93
Iridium's Investors, Number of Class 1
Interests Owned, Percentage Ownership and
Principal Gateway Service Territories...... 95
Governance of the Company and Relationship
with Iridium............................... 99
Description of Capital Stock................. 103
Description of Iridium LLC Limited Liability
Company Agreement.......................... 107
Tax Considerations........................... 114
Shares Eligible for Future Sale.............. 118
Underwriting................................. 118
Validity of the Class A Common Stock......... 121
Experts...................................... 121
Available Information........................ 122
Glossary..................................... A-1
Index to Financial Statements................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
================================================================================
================================================================================
10,000,000 SHARES
IRIDIUM WORLD
COMMUNICATIONS LTD.
CLASS A COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN SACHS INTERNATIONAL
, 1997
================================================================================
<PAGE> 161
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION(S)
The following are the estimated expenses in connection with the
distribution of the securities being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 73,182
NASD Filing Fee.......................................................... 24,650
Printing and Engraving Expenses.......................................... *
Accounting Fees and Expenses............................................. *
Attorneys' Fees and Expenses............................................. *
Transfer Agent's and Registrar's Fees.................................... *
Blue Sky Fees and Expenses (including attorneys' fees)................... *
NASDAQ Listing Fees...................................................... 50,000
Miscellaneous............................................................ *
----------
Total.......................................................... $2,000,000
==========
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bermuda law permits a company to indemnify its directors and officers,
except for any act of dishonesty. The Company has provided in its Bye-Laws that
the directors and officers of the Company will be indemnified and secured
harmless to the full extent permitted by law out of the assets of the Company
from and against all actions, costs, charges, losses, damages and expenses
incurred by reason of any act done, concurred in or omitted in or about the
execution of their duties or supposed duties, other than in the case of any
fraud or dishonesty. In addition, the Company has provided in its Bye-Laws that
each shareholder of the Company agrees to waive any claim or right of action,
individually or in the right of the Company, against any director or officer of
the Company on account of any action taken by such director or officer, or the
failure of such director or officer to take any action, in the performance of
his duties with or for the Company, other than with respect to any matter
involving any fraud or dishonesty on behalf of such director or officer.
Bermuda law also permits the Company to purchase insurance for the benefit
of its directors and officers against any liability incurred by them for the
failure to exercise the requisite care, diligence and skill in the exercise of
their powers and the discharge of their duties, or indemnifying them in respect
of any loss arising or liability incurred by them by reason of negligence,
default, breach of duty or breach of trust.
In the 1997 Share Issuance Agreement, Iridium has agreed to indemnify the
Company and each of its officers, directors and employees against any loss,
claims, damages or liabilities to which the Company or such officers, directors
or employees may become subject except to the extent that any such loss, damage
or liability arises out of or is based upon an intentional act or omission of an
indemnified party which was contrary to any written instruction or request of
Iridium or which amounted to a willful misconduct on the part of any officer,
director, employee or agent of the Company who is not also a full time employee
of Iridium.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Iridium, Inc. (predecessor company to Iridium LLC) sold shares of its
Common Stock, Preferred Stock and Units (as defined below) without registration
under the Securities Act of 1933 as follows:
(1) On July 19, 1993, Iridium, Inc. entered into a Stock Purchase
Agreement (the "1993 Stock Purchase Agreement") with China Great Wall
Industry Corporation, Iridium Africa Corporation, Iridium Canada, Inc.,
Iridium Middle East Corporation, Khrunichev Enterprise, Lockheed
Corporation, Motorola, Inc., Muidiri Investments BVI, Ltd., NIPPON IRIDIUM
Corporation, Raytheon Company,
II-1
<PAGE> 162
Sprint Corporation, STET -- Societa Finanziaria Telefonica per Azioni, and
Thai Satellite Telecommunications Co., Ltd. (collectively, the "Initial
Investors") providing for the purchase and sale of 800,000 shares of
Iridium, Inc.'s Common Stock for a cash consideration of $1,000 per share
and giving Iridium, Inc. the option to require the purchasers to purchase
up to an additional 80,000 shares of Common Stock for a cash consideration
of $1,000 per share. The 1993 Stock Purchase Agreement also provided
certain parties, including Infrastructure Leasing & Financial Services
Limited ("IL&FS"), options to acquire up to 80,000 shares of Common Stock
from Iridium, Inc. at a purchase price of $1,000 per share. The sales
contemplated by the 1993 Stock Purchase Agreement were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
(2) In connection with the sale of Common Stock by Iridium, Inc.
described in (1) above, on July 29, 1993, Motorola was granted a Warrant to
purchase Series M Convertible Preferred Stock of Iridium, Inc. in an amount
equal to 2.5% of the Common Stock at the time of exercise of the Warrant at
a price of $1,000 per share plus certain adjustment factors. The Warrant
was issued in consideration of Motorola's efforts in creating and
developing the concept of the IRIDIUM System and Iridium, Inc.'s technical
and business plans. The issuance of the Warrant was exempt under Section
4(2) of the Securities Act of 1933.
(3) On August 1, 1994, IL&FS exercised its option under a 1993 Stock
Purchase Agreement to acquire 40,000 shares of Common Stock at a purchase
price of $1,000 per share. The exercise of this option and the sale of such
shares were exempt under Section 4(2) of the Securities Act of 1933.
(4) On August 15, 1994, Iridium, Inc. entered into a Stock Purchase
Agreement (the "1994 Stock Purchase Agreement") with China Great Wall
Industry Corporation, Iridium Canada, Inc., Khrunichev State Research and
Production Space Center, Motorola, Inc., NIPPON IRIDIUM Corporation,
Pacific Electric Wire & Cable Co., Ltd., STET -- Societa Finanziaria
Telefonica per Azioni, Sprint Corporation and Thai Satellite
Telecommunications Co., Ltd. providing for the purchase and sale of 463,500
shares of Common Stock at a purchase price of $1,000 per share. The sales
contemplated by the 1994 Stock Purchase Agreement were exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
(5) On August 31, 1994, Iridium, Inc. entered into a Stock Purchase
Agreement with VEBA Telecom GmbH providing for the purchase and sale of up
to 89,278 shares of Common Stock at a purchase price of $1,000 per share
plus an interest adjustment payment and gave Iridium, Inc. an option to
require the purchaser to purchase up to an additional 12,754 shares of
Common Stock at a purchase price of $1,000 per share. The sale of shares
pursuant to this Stock Purchase Agreement was exempt under Section 4(2) of
the Securities Act of 1933.
(6) On September 15, 1994, Iridium, Inc. entered into a Stock Purchase
Agreement with IL&FS providing for the purchase and sale of 30,000 shares
of Common Stock at a purchase price of $1,000 per share. The sale
contemplated by this Stock Purchase Agreement was exempt under Section 4(2)
of the Securities Act of 1933.
(7) On September 19, 1994, Iridium, Inc. entered into a Stock Purchase
Agreement with Iridium SudAmerica Corporation providing for the purchase
and sale of 100,000 shares of Common Stock at a purchase price of $1,000
per share plus an interest adjustment payment and gave Iridium, Inc. the
option to require the purchaser to purchase up to an additional 10,000
shares of Common Stock at a purchase price of $1,000 per share. The sale of
shares pursuant to this Stock Purchase Agreement was exempt under Section
4(2) of the Securities Act of 1933.
(8) On September 19, 1994, Iridium, Inc. entered into a Stock Purchase
Agreement with Korea Mobile Telecommunications Corporation providing for
the purchase and sale of 70,000 shares of Common Stock at a purchase price
of $1,000 per share plus an interest adjustment payment and gave Iridium,
Inc. the option to require the purchaser to purchase up to an additional
10,000 shares of Common Stock at a purchase price of $1,000 per share. The
sale of shares pursuant to this Stock Purchase Agreement was exempt under
Section 4(2) of the Securities Act of 1933.
II-2
<PAGE> 163
(9) On February 16, 1996, Iridium, Inc. entered into a Securities
Purchase Agreement with BCE Mobile Communications Inc., The Inamori
Foundation, Iridium Andes Caribe, Ltd., Iridium Brasil Ltda., Khrunichev
State Research and Production Space Center, Korea Mobile Telecommunications
Corporation, Motorola, Inc., Raytheon Company, Sprint Corporation,
STET -- Societa Finanziaria Telefonica per Azioni, Thai Satellite
Telecommunications Co., Ltd. and VEBA Telecom Beteiligungs GmbH providing
for the purchase and sale of: 43,325 shares of 14 1/2% Cumulative
Convertible Preferred Stock at a purchase price of $1000 per share; 18,369
shares of Common Stock at a purchase price of $1000 per share; and 480,151
Units, each consisting of a $1000 Principal Amount of Maturity 14 1/2%
Senior Subordinated Discount Notes due 2006 and one warrant to purchase
.13877 shares of Common Stock, at a purchase price of $496.62 per Unit (for
an aggregate price of $300,146,856). The sale of Common Stock, Preferred
Stock and Units contemplated by the Securities Purchase Agreement was
exempt under Section 4(2) of the Securities Act of 1933.
The issuance of shares of Common Stock provided for in the Stock Purchase
Agreements referred to in items (1) through (8) above took place pursuant to
capital draw schedules provided for in those agreements. The issuance of Common
Stock, Preferred Stock and Units provided for in the Securities Purchase
Agreement referred to in item (9) above took place pursuant to a capital draw
schedule provided for in such agreement. As of July 29, 1996, an aggregate of
1,611,147 shares had been issued under these Stock Purchase Agreements and the
Securities Purchase Agreement (for an aggregate cash consideration of
$1,659,343,000) and no shares remain to be issued pursuant to the capital draw
schedules.
On July 29, 1996, Iridium, Inc. was merged with and into Iridium (the
"Merger"). As a result of the Merger, all shares of Preferred Stock and Common
Stock of Iridium, Inc. were surrendered and Members were issued Interests in
Iridium. The issuance of Interests in the Merger was exempt under Section 4(2)
of the Securities Act of 1933.
ITEM 16. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------------------- --------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of U.S. Underwriting Agreement.***
1.2 -- Form of International Underwriting Agreement.***
3.1 -- Memorandum of Association of Iridium World Communications
Ltd.**
3.2 -- Bye-Laws of Iridium World Communications Ltd.**
4.1 -- Form of Class A Common Stock Certificate.***
5.1 -- Opinion of Conyers Dill & Pearman.***
10.1 -- Limited Liability Company Agreement of Iridium LLC, dated as
of July 29, 1996, as amended.**
10.2 -- Form of Interest Exchange Agreement, between the Company and
Iridium LLC.*
10.3 -- Form of Management Services Agreement between the Company
and Iridium LLC.*
10.4 -- Form of 1997 Subscription Agreement between the Company and
Iridium LLC.*
10.5 -- Iridium Option Plan.***
10.6 -- Space System Contract between Iridium LLC and Motorola, Inc.
effective July 29, 1993, as amended and conformed on January
14, 1997.+**
10.7 -- Communications System Operations & Maintenance Contract
between Iridium LLC and Motorola, Inc. effective July 29,
1993, as amended and conformed on January 14, 1997.+**
</TABLE>
II-3
<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------------------- --------------------------------------------------------------------------
<C> <S> <C>
10.8 -- Terrestrial Network Development Contract between Iridium LLC
and Motorola, Inc. effective January 1, 1993, as amended and
conformed on January 14, 1997.+**
10.9 -- Support Agreement between Iridium and Motorola.**
10.10 -- Agreement, executed as of December 16, 1996, between
Andersen Consulting, LLP and Iridium relating to the
development of business support systems.+*
10.11 -- 14 1/2% Senior Subordinated Discount Notes Due 2006 of
Iridium (contained in Exhibit 10.1).**
10.12 -- Form of Warrant issued in respect of 14 1/2% Senior
Subordinated Discount Notes (contained in Exhibit 10.1).**
10.13 -- Warrant to purchase Series M Class 2 Interests dated July
29, 1993, as amended (contained in Exhibit 10.1).**
10.14 -- Form of Gateway Authorization Agreement.**
10.15 -- Guaranteed Bank Facility.**
10.16 -- Motorola Agreement regarding Guarantee.**
10.17 -- Form of Share Issuance Agreement between the Company and
Iridium LLC.*
11.1 -- Statement re Computation of Per Share Earnings**
23.1 -- Consent of KPMG Peat Marwick LLP.*
23.2 -- Consent of Conyers Dill & Pearman (contained in Exhibit
5.1).***
24.1 -- Power of Attorney.*
27.1 -- Financial Data Schedule**
99.1 -- Consent of Richard L. Lesher*
99.2 -- Consent of William A. Schreyer*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by Amendment.
+ Confidential treatment requested.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
II-4
<PAGE> 165
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Washington, D.C., on April 25, 1997.
IRIDIUM WORLD COMMUNICATIONS LTD.
By: /s/ ROBERT W. KINZIE
------------------------------------
Robert W. Kinzie
Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
* Chief Executive Officer and April 25, 1997
- --------------------------------------------- Director
Edward F. Staiano
/s/ ROY GRANT Chief Financial Officer and April 25, 1997
- --------------------------------------------- Chief Accounting Officer
Roy Grant
* Deputy Chairman and Director April 25, 1997
- ---------------------------------------------
Alberto Finol
Director April , 1997
- ---------------------------------------------
Ulf Bohla
/s/ ROBERT W. KINZIE Director April 25, 1997
- ---------------------------------------------
Robert W. Kinzie
* Director April 25, 1997
- ---------------------------------------------
Yoshiharu Yasuda
/s/ ROY GRANT Authorized Representative in April 25, 1997
- --------------------------------------------- the United States
Roy Grant
*By: /s/ ROBERT W. KINZIE April 25, 1997
- ---------------------------------------------
Robert W. Kinzie
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ---------- -----------------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of U.S. Underwriting Agreement.***
1.2 -- Form of International Underwriting Agreement.***
3.1 -- Memorandum of Association of Iridium World Communications Ltd.**
3.2 -- Bye-Laws of Iridium World Communications Ltd.**
4.1 -- Form of Class A Common Stock Certificate.***
5.1 -- Opinion of Conyers Dill & Pearman.***
10.1 -- Limited Liability Company Agreement of Iridium LLC, dated as of July
29, 1996, as amended.**
10.2 -- Form of Interest Exchange Agreement, between the Company and Iridium
LLC.*
10.3 -- Form of Management Services Agreement between the Company and Iridium
LLC.*
10.4 -- Form of 1997 Subscription Agreement between the Company and Iridium
LLC.*
10.5 -- Iridium Option Plan.***
10.6 -- Space System Contract between Iridium LLC and Motorola, Inc.
effective July 29, 1993, as amended and conformed on January 14,
1997.+**
10.7 -- Communications System Operations & Maintenance Contract between
Iridium LLC and Motorola, Inc. effective July 29, 1993, as amended
and conformed on January 14, 1997.+**
10.8 -- Terrestrial Network Development Contract between Iridium LLC and
Motorola, Inc. effective January 1, 1993, as amended and conformed on
January 14, 1997.+**
10.9 -- Support Agreement between Iridium and Motorola.**
10.10 -- Agreement, executed as of December 16, 1996, between Andersen
Consulting, LLP and Iridium relating to the development of business
support systems.+*
10.11 -- 14 1/2% Senior Subordinated Discount Notes Due 2006 of Iridium
(contained in Exhibit 10.1).**
10.12 -- Form of Warrant issued in respect of 14 1/2% Senior Subordinated
Discount Notes (contained in Exhibit 10.1).**
10.13 -- Warrant to purchase Series M Class 2 Interests dated July 29, 1993,
as amended (contained in Exhibit 10.1).**
10.14 -- Form of Gateway Authorization Agreement.**
10.15 -- Guaranteed Bank Facility.**
10.16 -- Motorola Agreement regarding Guarantee.**
10.17 -- Form of Share Issuance Agreement between the Company and Iridium
LLC.*
11.1 -- Statement re Computation of Per Share Earnings.**
23.1 -- Consent of KPMG Peat Marwick LLP.*
23.2 -- Consent of Conyers Dill & Pearman (contained in Exhibit 5.1).***
24.1 -- Power of Attorney.*
27.1 -- Financial Data Schedule**
99.1 -- Consent of Richard L. Lesher*
99.2 -- Consent of William A. Schreyer*
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
*** To be filed by Amendment.
+ Confidential treatment requested.
<PAGE> 1
Exhibit 10.2
FORM OF
INTEREST EXCHANGE AGREEMENT
Dated as of May [ ], 1997
Between
IRIDIUM WORLD COMMUNICATIONS LTD.
And
IRIDIUM LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
EXCHANGE RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.01 General Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.02 Notice Required for Exercise
of Exchange Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.03 Iridium Board Authorization
Required for Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.04 Exchange; Allocation of Iridium
Board Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.05 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.06 Distributions with Respect to
Class 1 Membership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.07 Adjustment of Exchange Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.08 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.09 Sale by Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.10 Company Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III
EXCHANGE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V
PROCEDURE FOR REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.01 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5.02 Registration of Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.03 Deferral Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.04 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.05 Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI
RULE 144 INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VII
EQUAL TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VIII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.01 Indemnification by Iridium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 8.02 Indemnification by Registering Holders . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.03 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.04 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IX
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.01 Representations and Warranties
of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.02 Representations, Warranties and
Agreements of the Holders and
the Registering Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE X
EFFECTIVENESS OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE XI
ASSIGNABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.01 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.03 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.04 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.05 Governing Law; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.06 Amendments to the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.07 Jurisdiction and Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . 32
Annexes
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Annex A Letter of Representations
Annex B Restricted Securities Certificate
Annex C Notice of Exchange Authorization
Annex D Registration Notice
</TABLE>
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<PAGE> 5
INTEREST EXCHANGE AGREEMENT
INTEREST EXCHANGE AGREEMENT, dated as of May , 1997, between IRIDIUM
WORLD COMMUNICATIONS LTD. (the "Company"), a company organized under the laws
of Bermuda, and IRIDIUM LLC ("Iridium"), a limited liability company organized
under the laws of the State of Delaware.
The parties hereto agree as follows:
I. Definitions and Other Provisions of General Applicability.
Section 1.01. Definitions. As used in this Agreement, the following
terms have the following respective meanings:
"Agreement" means this Interest Exchange Agreement.
"Business Day" means a day other than a Saturday, Sunday, national or New
York State holiday or other day on which commercial banks in New York City are
authorized or required by law to close.
"Class A Common Stock" means Class A Common Stock, par value $.01 per
share, of the Company.
"Class B Common Stock" means Class B Common Stock, par value $.01 per
share, of the Company.
"Class A Holder" means a person that is the record owner of Class A Common
Stock received by that person upon the exchange of Class 1 Membership Interests
pursuant to this Agreement.
"Class 1 Membership Interests" means Class 1 Membership Interests of
Iridium.
"Closing" shall have the meaning assigned thereto in Section 2.05.
"Closing Price" means, for each Trading Day, the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the Class A Common
Stock is listed or admitted to trading, or, if the Class A Common Stock is not
so listed or admitted to trading on a national securities exchange, on the
NASDAQ National Market System or, if the Class A Common Stock is not quoted on
the NASDAQ National Market System, the average
<PAGE> 6
of the closing bid and asked prices in the over-the-counter market as furnished
by any New York Stock Exchange member firm selected from time to time by
Iridium for that purpose or, if the Class A Common Stock is not traded in the
over-the-counter market, the fair market value per share of the Class A Common
Stock as determined by the Iridium Board (whose determination shall be
conclusive).
"Commission" means the Securities and Exchange Commission, or any other
federal agency at the time admin-istering the Exchange Act or the Securities
Act, whichever is the relevant statute for the particular purpose.
"Common Stock" means the Class A Common Stock, the Class B Common Stock and
any stock of any class of the Company which has no preference in respect of
dividends or amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which is not subject
to redemption by the Company. However, shares issuable on exchange of Class 1
Membership Interests, and subject to the rights of Holders granted in Article
IV, shall include only shares of the class designated as Class A Common Stock
of the Company on the date hereof, or shares of any class or classes resulting
from any reclassification thereof and which have no preferences in respect of
dividends or amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which are not subject
to redemption by the Company; provided that, if at any time there shall be more
than one such resulting class, the shares of each such class then so issuable
and registerable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassification bears
to the total number of shares of all such classes resulting from all such
reclassification.
"Company" shall have the meaning set forth in the preamble and shall also
include the Company's successors.
"Company Board" means the Board of Directors of the Company.
"Deemed Outstanding 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 this Agreement in exchange for Class 1 Membership
Interests at the then applicable Exchange Rate, assuming for this purpose that
the Class 1 Membership Interests are then exchangeable.
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<PAGE> 7
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
thereto, as the same shall be amended from time to time.
"Exchange Date" has the meaning assigned thereto in Article III.
"Exchange Notice" has the meaning assigned thereto in Section 2.02.
"Exchange Rate" has the meaning assigned thereto in Section 2.01.
"Exchange Window Period" means the period commencing on the date of
commencement by Iridium of a Notice Distribution and ending on the tenth day
following such date.
"Exchanging Holder" has the meaning assigned thereto in Section 2.02.
"Final Required Transfer Date" has the meaning assigned thereto in Section
2.03.
"Gateway Authorization Agreement" has the meaning assigned thereto in
Article XII of the LLC Agreement.
"Holder" means any person that is the record owner of Class 1 Membership
Interests.
"Indemnified Person" means, with respect to indemnification by Iridium, the
Company and each of its directors and officers, each Registering Holder, such
Holder's directors and officers, and each other person (including each
underwriter) who participated in the offering of Registrable Securities and
each other person, if any, who controls the Company or such Registering Holder
or such participant within the meaning of the Securities Act, and with respect
to indemnification by a Registering Holder, the Company, Iridium, each of their
officers and directors and each person, if any, who controls any of them within
the meaning of the Securities Act.
"Iridium" shall have the meaning set forth in the preamble and shall also
include Iridium's successors.
"Iridium Board" means the Board of Directors of Iridium.
"Iridium Director" means any person authorized to act as director of
Iridium pursuant to the LLC Agreement.
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<PAGE> 8
"LLC Agreement" means the Limited Liability Company Agreement of Iridium
LLC, as it may be amended from time to time.
"Majority Holders" means persons holding shares of Class A Common Stock and
Class 1 Membership Interests which represent (either directly or prospectively
upon exchange of Class 1 Membership Interests under this Agreement) a majority
of the Deemed Outstanding Class A Shares.
"managing underwriter or underwriters" means the person or persons selected
by Holders in an offering pursuant to Section 5.01 to manage an underwritten
offering of Class A Common Stock.
"Notice Distribution" has the meaning assigned thereto in Section 2.02.
"Noticed Interests" has the meaning assigned thereto in Section 2.03.
"Other Holder" has the meaning assigned thereto in Section 6.01 of the LLC
Agreement.
"person" means a natural person, partnership (whether general or limited),
limited liability company, trust, estate, association, corporation, custodian,
nominee or any other individual or entity in its own or any representative
capacity.
"Process Agent" has the meaning assigned thereto in Section 12.07.
"Registering Holders" has the meaning assigned thereto in Section
5.01(a)(i).
"Registrable Securities" means Class A Common Stock acquired by a Class A
Holder upon exchange of Class 1 Membership Interests pursuant to this Agreement
which have not previously been registered for sale pursuant to this Agreement;
provided, that, if U.S. nationally recognized securities counsel to the
Company delivers to the Company a written legal opinion to the effect that any
particular securities may be disposed of by the Holder thereof in the manner
proposed by such Holder without registration under the Securities Act, such
securities shall not be Registrable Securities.
"Registration Notice" has the meaning assigned thereto in Article IV.
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<PAGE> 9
"Sale Notice" has the meaning assigned thereto in Section 6.01 of the LLC
Agreement.
"Securities Act" means the Securities Act of 1933, or any successor
thereto, as the same shall be amended from time to time.
"shelf registration statement" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 5.01 hereof which covers
Class A Common Stock on an appropriate form under Rule 415 under the Securities
Act, or any similar rule that may be adopted by the Commission and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Suspension Notice" has the meaning assigned thereto in Section 5.01(b).
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on the applicable
exchange or in the applicable market.
"underwriter" means any underwriter of an underwritten offering of Common
Stock pursuant to Section 5.01.
Section 1.02. Interpretation. The following provisions shall govern
the interpretation of this Agreement:
(a) The singular form of any word used herein, including the terms
defined in Section 1.01, include the plural, and vice versa, unless the context
otherwise requires. The use herein of a pronoun of any gender shall include
correlative words of the other gender.
(b) Unless otherwise expressly indicated, all references herein to
"Articles", "Sections" and other subdivisions hereof are to the corresponding
Articles, Sections or subdivisions of this Agreement; and the words "herein",
"hereof", "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or subdivision hereof.
(c) The headings or titles of the several Articles and Sections
hereof, and any table of contents appended to copies hereof, shall be solely
for convenience
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<PAGE> 10
of reference and shall not affect the meaning, construction or effect of this
Agreement.
(d) Each reference herein to any agreement, instrument or other
document shall mean such agreement, instrument or document as from time to time
amended, modified or supplemented in accordance with the terms hereof and
thereof. The term "including" shall be construed to mean "including but not
limited to".
II. Exchange Rights.
Section 2.01. General Rights. Subject to the restrictions on
transfer contained in the LLC Agreement and the authorization of the Iridium
Board pursuant to Section 2.03, each Class 1 Membership Interest shall be
exchangeable, at any time on or after the Exchange Date (as defined in Article
III), at the option of the Holder thereof for one*/ fully paid and
non-assessable share of Class A Common Stock, subject to adjustment as provided
in Section 2.07. The number of shares of Class A Common Stock to be delivered
by the Company pursuant to this Article II in exchange for one Class 1
Membership Interest is hereinafter referred to as the "Exchange Rate".
Section 2.02. Notice Required for Exercise of Exchange Right. In
order to exercise the right of exchange, a Holder shall provide written notice
(an "Exchange Notice") to the Company and Iridium of its intent to (i) exercise
its rights under this Article II and setting forth the number of Class 1
Membership Interests to be exchanged by such Holder, (ii) exercise or not
exercise its right pursuant to Articles IV and V hereof to have registered
pursuant thereto the Class A Common Stock received for Class 1 Membership
Interests and (iii) engage or not engage in any distribution of the Class A
Common Stock. A Holder's obligation to provide an Exchange Notice shall be in
addition to any other notices such Holder is required to provide, under the LLC
Agreement or otherwise, including any Sale Notice required under Section 6.01
of the LLC Agreement. Upon receipt of such Exchange Notice, Iridium shall send
to the other Holders a copy of such notice (the "Notice Distribution"). Such
other Holders shall then have the right during the Exchange Window Period to
elect their rights to exchange.
- ------------------------
*/ Assuming subdivision of the Class 1 Membership Interests in anticipation of
the IPO such that there is a one-to-one relationship between the
post-subdivision per interest price of the Class 1 Interests and the per
share price of the Class A Common Stock.
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<PAGE> 11
(Each Holder furnishing an Exchange Notice during the Exchange Window Period is
referred to herein as an "Exchanging Holder".) The receipt of additional
Exchange Notices during the Exchange Window Period shall not require another
Notice Distribution by Iridium. No Exchange Notice may be given by any Member
(and, if given by any Member shall not be effective) during the six month
period following the expiration of the Exchange Window Period. No holder may
furnish any notice under this Section 2.02 or otherwise participate in any
exchange hereunder unless such Holder and its affiliates is in full compliance
with the LLC Agreement and any Gateway Authorization Agreement to which it is a
party.
Section 2.03. Iridium Board Authorization Required for Exchange.
(a) At the next annual or regular meeting of the Iridium Board following the
date (the "Final Required Transfer Date") that is thirty days after the date of
expiration of the Exchange Window Period, the Iridium Board shall determine
whether to authorize the exchange of the Class 1 Interests requested to be
exchanged pursuant to the Exchange Notices received during such Exchange Window
Period which have not been transferred to Iridium or Other Holders pursuant to
the LLC Agreement (the "Noticed Interests"); provided that the Iridium Board
may determine whether to authorize the exchange of the Noticed Interests at any
special meeting of the Iridium Board held after the Final Required Transfer
Date and prior to the next annual or regular meeting following the Final
Required Transfer Date. Authorization of the exchange of the Noticed Interests
pursuant to this Section 2.03(a) shall require the affirmative vote of Iridium
Directors representing at least 66 2/3% of the Iridium Directors on the Iridium
Board.
(b) In the event the Iridium Board does not authorize the exchange of the
Noticed Interests pursuant to Section 2.03(a), the Iridium Board may, in its
sole discretion, authorize the exchange of a number of Class 1 Interests less
than the number of Noticed Interests; provided that such authorization of the
exchange of a lesser number of Class 1 Interests than the number of Noticed
Interests shall require the affirmative vote of Iridium Directors representing
at least 66 2/3% of the Iridium Directors on the Iridium Board.
(c) If Iridium grants its authorization, notice in the form of Annex C
shall be given to each Exchanging Holder and each such Exchanging Holder shall
have 10 business days to countersign and return such notice. Any Exchanging
Holder that fails to so countersign and return its notice shall
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<PAGE> 12
lose its exchange rights with respect to that Exchange Window Period.
Section 2.04. Exchange; Allocation of Iridium Board Authorization.
Within ten days following authorization of exchange by the Iridium Board
pursuant to Section 2.03, the Company shall issue and deliver to the Exchanging
Holders shares of Class A Common Stock in an amount equal to the number of
Noticed Interests; provided, however, that if by operation of Section 2.03 the
number of Noticed Interests exceeds the number Class 1 Interests authorized for
exchange by the Iridium Board, the right to exchange Class 1 Membership
Interests shall be pro rated among the Exchanging Holders, based on the number
of Class 1 Membership Interests proposed to be exchanged in each Exchanging
Holders' Exchange Notice to the Company.
Section 2.05. Closing. The closing of the transactions contemplated
by this Article II shall take place at such specific time and place as shall be
mutually agreed upon by the Company, Iridium and the Exchanging Holders
involved (the "Closing"). At the Closing, the Exchanging Holders shall
relinquish to the Company certificates representing such Class 1 Membership
Interests as are to be exchanged accompanied by such instruments of transfer as
shall reasonably be required by the Company and Iridium, and the Company shall
deliver to such Exchanging Holders shares of Class A Common Stock in an amount
determined pursuant to Section 2.04, registered in the name of such Exchanging
Holders. The Company shall present to Iridium such Class 1 Membership
Interests for transfer and Iridium shall deliver replacement certificates
representing the number of Class 1 Membership Interests transferred to the
Company in the name of the Company or its designee and Iridium shall make
corresponding notations in its books and records. In addition, each Exchanging
Holder shall deliver to the Company and Iridium a letter of representation
substantially in the form of Annex A attached hereto and such other
certificates and documents as may reasonably be requested by the Company or
Iridium (including, without limitation, evidence of receipt of all required
approvals and consents and compliance with all applicable securities and tax
laws).
No fractional interest in a share of Class A Common Stock shall be
issued by the Company upon the exchange of Class 1 Membership Interests. Any
fractional interest in a share of Class A Common Stock resulting from the
exchange of any Class 1 Membership Interests shall be paid by Iridium in cash
(computed to the nearest cent) based on the Closing Price of the Class A Common
Stock on the last
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<PAGE> 13
Trading Day prior to the date on which such Class 1 Membership Interests are
surrendered for exchange in the manner set forth above.
The Exchanging Holder will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Class A Common Stock on exchange of Class 1 Membership Interests
pursuant hereto; and the Company may withhold delivery until such charge is
paid or offset against the number of shares to be delivered.
Section 2.06. Distributions With Respect to Class 1 Membership
Interests. Any payment or distribution (for purposes of this Section 2.07, a
"distribution") received by an Exchanging Holder with respect to Class 1
Membership Interests exchanged pursuant to this Article II by such Exchanging
Holder allocable to any period after the Closing shall be forwarded immediately
by the Exchanging Holder to the Company. Iridium is hereby instructed to and
agrees to pay or cause to be paid such portions of any distribution owed to the
Company directly to the Company on behalf of such Exchanging Holder and
thereafter shall be discharged of any obligation to such Exchanging Holder with
respect to such portion of such distribution.
Section 2.07. Adjustment of Exchange Rate. The Exchange Rate shall
be adjusted from time to time as follows:
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Class A Common
Stock, the Exchange Rate in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be increased by multiplying
such Exchange Rate by a fraction the numerator of which shall be the sum of the
number of shares of Class A Common Stock outstanding at the close of business
on the date fixed for such determination and the total number of shares
constituting such dividend or other distribution and the denominator of which
shall be such number of shares of Class A Common Stock outstanding at the close
of business on the date fixed for such determination, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this subsection (a),
the number of shares of Class A Common Stock at any time outstanding shall not
include shares held in the treasury of the Company.
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<PAGE> 14
(b) In case Iridium shall pay or make a dividend or other
distribution on any class of Iridium Interests in Class 1 Interests, the
Exchange Rate in effect at the opening of business on the day following the
date fixed for the termination of Iridium members entitled to receive such
dividend or other distribution shall be decreased by multiplying such Exchange
Rate by a fraction the denominator of which shall be the sum of the number of
Class 1 Interests outstanding at the close of business on the date fixed for
such determination and the total number of Class 1 Interests constituting such
dividend or other distribution and the numerator of which shall be such number
o Class 1 Interests outstanding at the close of business on the date fixed for
such determination, such decrease to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purposes of this subsection (b), the number of Class 1 Interests at any
time outstanding shall not include shares held in the treasury of Iridium.
(c) In case the Company shall issue rights or warrants to all
holders of any class of Common Stock entitling them to subscribe for, purchase
or acquire shares of Class A Common Stock at a price per share less than the
current market price per share (determined as provided in subsection (k) below)
of the Class A Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the Exchange Rate in
effect at the opening of business on the day following the date fixed for such
determination shall be increased by multiplying such Exchange Rate by a
fraction the numerator of which shall be the number of shares of Class A Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Class A Common Stock so offered for
subscription, purchase or acquisition, and the denominator of which shall be
the number of shares of Class A Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Class A Common Stock which the aggregate of the offering price of the total
number of shares of Class A Common Stock so offered for subscription, purchase
or acquisition would purchase at such current market price, such increase to
become effective immediately after the opening of business on the day following
the date fixed for such determination. For the purposes of this subsection
(c), the number of shares of Class A Common Stock at any time outstanding shall
not include shares held in the treasury of the Company. The Company agrees not
to pay any dividend or make any distribution on shares of Common Stock held in
its treasury.
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<PAGE> 15
(d) In case Iridium shall issue rights or warrants to all holders
of Class 1 Interests entitling them to subscribe for, purchase or acquire Class
1 Interests at a price per Class 1 Interest less than the current market price
per share (determined as provided in subsection (k) below) of the Class A
Common Stock multiplied by the Exchange Rate on the date fixed for the
determination of Class 1 Interest holders entitled to receive such rights or
warrants, the Exchange Rate in effect at the opening of business on the day
following the date fixed for such determination shall be decreased by
multiplying such Exchange Rate by a fraction the denominator of which shall be
the number of Class 1 Interests outstanding at the close of business on the
date fixed for such determination plus the number of Class 1 Interests so
offered for subscription, purchase or acquisition, and the numerator of which
shall be the number of Class 1 Interests outstanding at the close of business
on the date fixed for such determination plus the number of Class 1 Interests
which the aggregate of the offering price of the total number of Class 1
Interests so offered for subscription, purchase of acquisition would purchase
at a price per Class 1 Interest equal to the market price per Share of Class A
Common Stock multiplied by the Exchange Rate, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this subsection (d), the number of
Class 1 Interests at any time outstanding shall not include shares held in the
treasury of Iridium. Iridium agrees not to pay any dividend or make any
distribution on Class 1 Interests held in its treasury.
(e) In case the outstanding shares of Class A Common Stock shall
be subdivided into a greater number of shares of Class A Common Stock, the
Exchange Rate in effect at the opening of business on the day following the day
upon which such subdivision becomes effective shall be proportionately
increased, and, conversely, in case the outstanding shares of Class A Common
Stock shall each be combined into a smaller number of shares of Class A Common
Stock, the Exchange Rate in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately reduced, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(f) In case the outstanding Class 1 Interests shall be subdivided
into a greater number of Class 1 Interests, the Exchange Rate in effect at the
opening of business on the day following the day upon which such
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<PAGE> 16
subdivision becomes effective shall be proportionately decreased, and,
conversely, in case the outstanding Class 1 Interests shall each be combined
into a smaller number of Class 1 Interests, the Exchange Rate in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such increase or
reduction, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such subdivision or
combination becomes effective.
(g) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Class A Common Stock evidences of its
indebtedness or assets (including securities but excluding (A) any rights or
warrants referred to in subsection (c) above, (B) any dividend or distribution
referred to in subsection (a) above, and (C) any dividend or distribution paid
in cash out of current or accumulated earnings), then in each case, the
Exchange Rate in effect at the opening of business on the day following the
date fixed for the determination of holders of Class A Common Stock entitled to
receive such distribution shall be adjusted by multiplying such Exchange Rate
by a fraction of which the numerator shall be the current market price per
share (determined as provided in subsection (k) below) of the Class A Common
Stock on such date of determination (or, if earlier, on the date on which the
Class A Common Stock goes "ex-dividend" in respect of such distribution) less
the then Fair Market Value as determined by the Company Board (whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed (and for which an adjustment to the Exchange Rate
has not previously been made pursuant to the terms of this Article V)
applicable to one share of Class A Common Stock, and the denominator shall be
such current market price per share of the Class A Common Stock, such
adjustment to become effective immediately after the opening of business on the
day following such date of determination.
(h) In case Iridium shall, by dividend or otherwise, distribute to
all holders of its Class 1 Interests evidence of its indebtedness or assets
(including securities but excluding (A) any rights or warrants referred to in
subsection (d) above, (B) any dividend of distribution referred to in
subsection (b) above, and (C) any dividend or distribution paid in cash out of
current or accumulated earnings), then in each case, the Exchange Rate in
effect at the opening of business on the day following the date fixed for the
determination of holders of Class 1 Interests entitled to receive such
distribution shall be adjusted by multiplying such Exchange Rate by a fraction
of which the
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<PAGE> 17
denominator shall be the current market price per share (determined as provided
in subsection (k) below) of the Class A Common Stock on such date of
determination multiplied by the Exchange Rate (or, if earlier, on the date on
which the Class 1 Interests go "ex-dividend" in respect of such distribution)
less the then Fair Market Value as determined by the Iridium Board (whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed (and for which an adjustment to the Exchange Rate
has not previously been made pursuant to the terms of this Article V)
applicable to one Class 1 Interest, and the numerator shall be such current
market price per share of the Class A Common Stock multiplied by the Exchange
Rate, such adjustment to become effective immediately after the opening of
business on the day following such date of determination.
(i) The reclassification or change of Class A Common Stock into
securities including securities other than Class A Common Stock (other than any
reclassification upon a consolidation or merger to which subsection (n) below
applies) shall be deemed to involve (A) a distribution of such securities other
than Class A Common Stock to all holders of Class A Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of holders of Class A Common Stock entitled to receive
such distribution" within the meaning of subsection (g) above), and (B) a
subdivision or combination, as the case may be, of the number of shares of
Class A Common Stock outstanding immediately prior to such reclassification
into the number of shares of Class A Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective" or "the day upon
which such combination becomes effective," as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the
meaning of subsection (e) above).
(j) The reclassification or change of Class 1 Interests into
interests or securities including Iridium Interests other than Class 1
Interests shall be deemed to involve (A) a distribution of such interests or
securities other than Class 1 Interests to all holders of Class 1 Interests
(and the effective date of such reclassification shall be deemed to be "the
date fixed for the determination of holders of Class 1 Interests entitled to
receive such distribution" within the meaning of subsection (h) above), and (B)
a subdivision or combination, as the case may be, of the number of shares of
Class 1 Interests outstanding immediately prior to such reclassification into
the number
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<PAGE> 18
of Class 1 Interests outstanding immediately thereafter (and the effective date
of such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such subdivision becomes
effective," as the case may be, and "the day upon which such subdivision or
combination become effective" within the meaning of subsection (f) above).
(k) For the purpose of any computation under subsection (c), (d),
(g) or (h) above, the current market price per share of Class A Common Stock on
any day shall be deemed to be the average of the Closing Prices of the Class A
Common Stock for the 20 consecutive Trading Days selected by the Company Board
commencing no more than 30 Trading Days before and ending no later than the
second Trading Day before the day in question; provided, that, in the case of
subsection (3), if the period between the date of the public announcement of
the dividend or distribution and the date for the determination of holders of
Class A Common Stock entitled to receive such dividend or distribution (or, if
earlier, the date on which the Common Stock goes "ex-dividend" in respect of
such dividend or distribution) shall be less than 20 Trading Days, the period
shall be such lesser number of Trading Days but, in any event, not less than
five Trading Days.
(l) No adjustment in the Exchange Rate shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that any adjustments which by reason of this clause
(l) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment and provided, further, that adjustments shall be
required and made in accordance with the provisions of this Article V (other
than this clause (l)) not later than such time as may be required in order to
preserve the tax free nature of a distribution to the holders of shares of
Common Stock. Anything in this clause (l) to the contrary notwithstanding, the
Company shall be entitled, at its option, to make such increases in the
Exchange Rate, in addition to those required by this Article V, as it in its
discretion shall determine to be advisable in order that any stock dividend,
subdivision or combination of shares, distribution of capital stock or rights
or warrants to purchase stock or securities, or distribution of evidences of
indebtedness or assets (other than cash dividends or distributions paid from
current or accumulated earnings) or other event shall be a tax free
distribution to holders for United States federal income tax purposes. All
calculations under this clause (h) shall be made to the nearest cent.
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(m) Iridium shall notify the Company of any event requiring an
adjustment in the Exchange Rate pursuant to subsection (b), (d), (f), (h) or
(j), and whenever the Exchange Rate is adjusted as herein provided, the Company
shall notify Iridium which notice shall include the Exchange Rate after such
adjustment and shall set forth a brief statement of the facts requiring such
adjustment and the manner of computing the same.
(n) In case of any consolidation of the Company with, or merger of
the Company into, any other entity, any merger of another entity into the
Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Class A Common
Stock) or any sale or transfer of all or substantially all of the assets of the
Company, Iridium shall have the right thereafter to exchange Class 1 Membership
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by a holder of the number of
shares of Class A Common Stock into which such Class 1 Interests might have
been exchanged immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Class A Common Stock is not the entity with
which the Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may be
(a "constituent person"), or an affiliate of a constituent person and failed to
exercise its rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Class A Common Stock held immediately prior to
such consolidation, merger, sale or transfer by others than a constituent
entity or an affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this subsection (n) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares. If necessary, appropriate
adjustment shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of Iridium, so that the
provisions set forth herein shall thereafter be applicable, as nearly as may
reasonably be practicable, to any shares of stock or other securities or
property thereafter deliverable on the exchange of the Class 1 Interests. Any
adjustment under this subsection (j)
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shall be evidenced by a certificate of the Company and a notice of such
adjustment filed and mailed in the manner set forth in subsection (i). The
above provisions shall similarly apply to successive consolidations, mergers,
sales or transfers.
In case (x) the Company shall take any action that would result in an
adjustment to the Exchange Rate; or (y) of any consolidation or merger to which
the Company is a party and for which approval of any shareholders of the
Company is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or (z) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then the Company shall provide to
Iridium, at least 15 days prior to the applicable record or effective date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such actions, or, if the record is not to be taken,
the date as of which the holders of Common Stock or Class A Common Stock, as
the case may be, of record are to be determined, or (B) the date on which such
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Class A Common Stock of record shall be entitled to exchange their
shares of Class A Common Stock for securities, cash or other property
deliverable upon such consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. Neither the failure to give such notice nor any
defect therein shall affect the legality or validity of the proceedings
described in clauses (x) through (z) above.
Section 2.08. Restricted Securities. Any Class A Common Stock
issued by the Company to any Holder prior to the effectiveness of a
registration statement filed with the Commission pursuant to Article IV below
shall be "restricted securities" and any Holder receiving such "restricted
securities" by execution and delivery of an Exchange Notice shall be deemed to
have agreed that at the time of issuance of such securities such Holder shall
execute and deliver a certificate in the form of Annex B attached hereto. The
certificates evidencing such "restricted securities" shall bear a restrictive
legend to the effect that the shares of Class A Common Stock represented
thereby have not been registered under the Securities Act, and may not be sold
except pursuant to an effective registration statement under the Securities Act
or pursuant to an applicable exemption from the registration requirements
thereof.
Section 2.09. Sale by Holder. Each Holder, by execution and delivery of an
Exchange Notice, shall be
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deemed to have agreed that it will not, directly or indirectly, transfer, sell,
assign, pledge, hypothecate, encumber or otherwise dispose of, to any person,
in one or a series of transactions, any Class A Common Stock received pursuant
to this Agreement, except pursuant to an effective registration statement or an
applicable exemption from the registration requirements of the Securities Act.
Section 2.10. Company Covenants. The Company covenants that (a) all shares
of Class A Common Stock which may be issued upon exchange of Class 1 Membership
Interests will, upon issue, be duly and validly issued, fully paid and
non-assessable, free of all liens and charges and not subject to any preemptive
rights and (b) it will at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued shares
of Class A Common Stock, for the purpose of effecting exchange of Class 1
Membership Interests, the full number of shares of Class A Common Stock
deliverable upon the exchange of all outstanding Class 1 Membership Interests
not theretofore converted.
III. Exchange Date.
The rights of Holders pursuant to Article II shall not be exercisable
by any Holder until the 90th day (the "Exchange Date") after the first fiscal
quarter in which Iridium has achieved positive earnings before interest, taxes,
depreciation and amortization, as determined in accordance with U.S. generally
accepted accounting principles.
IV. Registration Rights.
At any time from and after the Exchange Date, the Company shall, after
a written request (a "Registration Request") from Class A Holders requesting
registration under the Securities Act of Registrable Securities representing
not less than 2% of the Deemed Outstanding Class A Shares, promptly notify all
Class A Holders in writing of the receipt of such request and each such Class A
Holder may elect (by written notice (a "Registration Notice") to the Company
within 14 days after receipt by such Class A Holder of the aforementioned
notice from Iridium or the Company, as the case may be), to join in the
Registration Request and to have the Registrable Securities specified in its
notice included in such registration pursuant to this Article. The
Registration Notice to the Company must be in the form of Annex D hereto and
must be executed by the Class A Holder. Thereupon the Company will (a) file as
soon as reasonably practicable a registration statement providing for the sale
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by the Class A Holders of the Registrable Securities specified in the
Registration Request, (b) use its reasonable best efforts to have such
registration statement declared effective and remain continuously effective for
a period of not less than six months or, if earlier, until the date on which
all Registrable Securities covered by such registration have been disposed by
Class A Holders either pursuant to the registration statement or otherwise. In
addition, if requested by Iridium, the Company will include in such
registration statement any other Registerable Securities specified by Iridium
or, if another registration is not in process under this Article IV, the
Company will (a) file as soon as reasonably practicable a registration
statement providing for the sale by Class A Holders of the specified
Registerable Securities, (b) use its best reasonable efforts to have such
registration statement declared effective and remain continuously effective for
a period of not less than [SIX] months or, if earlier, until the date on which
all Registerable Securities covered by such registration statement have been
disposed of by Class A Holders either pursuant to the registration statement or
otherwise. The Company further agrees that if permitted by the rules and
regulations of the Commission, the registration contemplated by this Article IV
shall be a shelf registration.
V. Procedure for Registration
Section 5.01. Registration Statement. (a) In connection with the
obligations of the Company under Article IV, the Company shall:
(i) prepare and file with the Commission, a registration statement
with respect to the Class A Common Stock on any form which may be utilized
by the Company and which shall permit the disposition of Class A Common
Stock in accordance with the intended method or methods thereof, as
specified in writing to the Company by Holders and Class A Holders whose
Registerable Securities are covered by such registration statement
("Registering Holders") and use its reasonable best efforts to cause such
registration statement to become effective as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement for the period required by Article IV and to
comply with the
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provisions of the Securities Act with respect to the sale or other
disposition of the Class A Common Stock covered by such registration
statement;
(iii) for a reasonable period prior to the filing of such
registration statement, and throughout the period required by Article IV
upon reasonable notice, make available for inspection by a representative
of the Registering Holders, any underwriter participating in any
distribution pursuant to the registration statement, and any attorney or
accountant designated by the Registering Holders, at a reasonable time and
in a reasonable manner, financial and other information and books and
records of the Company and Iridium, and cause the officers, directors and
employees of the Company and Iridium to respond to such inquiries and
supply information reasonably requested by any such representative,
underwriter, attorney or accountant in the course of conducting a
reasonable investigation within the meaning of Section 11 of the Securities
Act; provided, however, that such representatives, attorneys or accountants
shall be acceptable to the Company and Iridium in their respective
judgments reasonably exercised and shall agree to enter into written
confidentiality agreements acceptable to the Company and Iridium regarding
any records, information or documents that are designated by the Company or
Iridium as confidential unless such records, information or documents are
available to the public or disclosure of such records, information or
documents is required by court or administrative order after the exhaustion
of appeals therefrom and to use such information obtained pursuant to this
provision only in connection with the transaction for which such
information was obtained, and not for any other purpose;
(iv) promptly notify the Registering Holders, and the managing
underwriter or underwriters, if any, thereof and confirm such advice in
writing, (A) when such registration statement or supplement or
post-effective amendment has been declared or becomes effective, (B) of the
issuance by the Commission of any stop order suspending the effectiveness
of such registration statement or the initiation or threatening of any
proceedings for that purpose, (C) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Class A Common Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, or (D) of the happening of
any event during the period such registration statement is effective which
makes any
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statement made in such registration statement or the related prospectus
untrue in any material respect or which requires the making of any changes
in such registration statement or prospectus in order to make the
statements therein not misleading;
(v) upon the occurrence of any event contemplated by Section
5.01(a)(iv)(D) hereof, use its reasonable best efforts to prepare a
supplement or post-effective amendment to such registration statement or
the related prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Class A Common Stock, such prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(vi) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(vii) provide copies of any prospectus, any amendment to the
registration statement or amendment or supplement to any prospectus or any
document which is to be incorporated by reference into such registration
statement or any prospectus after initial filing of such registration
statement, a reasonable time prior to the filing of any such prospectus,
amendment, supplement or document, to the Registering Holders and
underwriters, if any, and make the representatives of the Company and
Iridium available on a reasonable basis if reasonably requested by the
Registering Holders; provided that the requirements of this paragraph shall
not apply to the Company's Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, its current reports on Form 8-K or any other
documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act (the "Exchange Act Documents"); and further provided that the
Company shall promptly notify Registering Holders of the filing of any
Exchange Act Documents except for such Exchange Act Documents specifically
related to the offering of other securities and not to the Registrable
Securities;
(viii) furnish to each Registering Holder and to each underwriter and
selling agent, if any, at the
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expense of the Registering Holders as many copies of the prospectus,
including each preliminary prospectus, and any amendment or supplement
thereto and such other documents as such Registering Holder or managing
underwriter may reasonably request, in order to facilitate the public sale
or other disposition of the Class A Common Stock;
(ix) use its reasonable best efforts to (A) register or qualify the
Class A Common Stock to be included in such registration statement under
such securities laws or blue sky laws of such jurisdictions as any
Registering Holders and each placement or sales agent, if any, therefor and
each underwriter, if any, thereof shall reasonably request in writing on a
timely basis, (B) take any and all other actions as may be reasonably
necessary or advisable to enable each such holder, agent, if any, and each
underwriter, if any, to consummate the disposition in such jurisdictions of
Class A Common Stock; provided that neither the Company nor Iridium shall
be required for any such purpose to (1) qualify as a foreign corporation or
foreign limited liability company in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this paragraph
5.01(a)(ix), (2) file a general consent to service of process in any such
jurisdiction, (3) subject itself to taxation in any jurisdiction where it
is not already subject to taxation or (4) make any changes to its
Memorandum of Association or Bye-Laws or the LLC Agreement, as the case may
be, or any agreement between it and its shareholders or members, as the
case may be;
(x) use its reasonable best efforts to obtain the consent or approval
of each governmental agency or authority, whether federal, state or local,
in the U.S. or Bermuda which may be required to effect the registration or
the offering or sale in connection therewith or to enable the Exchanging
Holder(s) to offer, or to consummate the disposition of, their Class A
Common Stock;
(xi) furnish to each Registering Holder, without charge, at least one
conformed copy of such registration statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(xii) cooperate with the Registering Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates
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representing the Class A Common Stock to be sold, which shall not bear any
restrictive legends; and, in the case of an underwritten offering, enable
such Class A Common Stock to be in such denominations and registered in
such names as the managing underwriters may request at least two Business
Days prior to any sale of the Class A Common Stock; and
(xiii) enter into and deliver all such customary agreements
(including underwriting or purchase agreements), documents and take such
other actions (including causing the delivery of opinions of counsel and
"comfort" letters of independent certified public accountants) as are
reasonably requested of the Company or Iridium to expedite or facilitate
the disposition of the Class A Common Stock.
(b) Iridium hereby agrees to provide the Company with all assistance
reasonably necessary for the Company to comply with its obligations under
Section 5.01(a).
(c) Each Registering Holder, by execution and delivery of a
Registration Notice, shall be deemed to have agreed that, upon receipt of any
(i) notice from the Company of the happening of any event of the kind described
in Section 5.01(a)(iv)(B), (C) or (D), (ii) notice from the Company that it is
in possession of material information that has not been disclosed to the public
and the Company reasonably deems it to be advisable not to disclose such
information in a registration statement or prospectus or (iii) notice from the
Company that it is in the process of a registered offering of securities and
the Company reasonably deems it to be advisable to have Registering Holders
temporarily discontinue disposition of Class A Common Stock pursuant to the
registration statement (in each case, such notice being hereinafter referred to
as a "Suspension Notice"), such Registering Holder will forthwith discontinue
disposition of Class A Common Stock pursuant to any registration statement and
shall not be entitled to the benefits provided under Article VIII hereof with
respect to any sales made by it in contravention of this subsection, until such
Registering Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 5.01(a)(v) or a notice in accordance with
Section 5.01(a)(vi) hereof that any order suspending the effectiveness of the
registration statement has been withdrawn, or, in the case of (ii) or (iii)
above, until further notice from the Company that disposition of Registrable
Securities may resume. Any Suspension Notice must be based upon a good faith
determination of the Company Board that such Suspension Notice is necessary.
In the case
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of a Suspension Notice, if so directed by the Company, each Registering Holder
by execution and delivery of a Registration Notice, shall be deemed to have
agreed to deliver to the Company (at the expense of Iridium) all copies in its
possession, other than permanent file copies then in such Registering Holder's
possession, of the prospectus covering such Class A Common Stock which is
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Class A Common Stock pursuant to any
registration statement, the Company shall extend the period during which such
registration statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Registering Holders
shall have received copies of the supplemented or amended prospectus necessary
to resume such dispositions or received notice that any order suspending
dispositions of the Class A Common Stock has been withdrawn.
(d) By execution and delivery of a Registration Notice, each
Registering Holder shall be deemed to have agreed that the Company may require
such Registering Holder to (i) furnish in writing to the Company such
information regarding such Registering Holder and such Registering Holder's
intended method of distribution of its Class A Common Stock as the Company may
from time to time reasonably request in writing, but only to the extent that
such information is required in order to comply with the Securities Act and
(ii) enter into and deliver all such customary agreements (including
underwriting or purchase agreements) and documents (including legal opinions)
as are reasonably requested of such Registering Holder to expedite or
facilitate the disposition of its Class A Common Stock. Each such Registering
Holder, by execution and delivery of a Registration Notice, shall be deemed to
have agreed to notify the Company as promptly as practicable of any inaccuracy
or change in information previously furnished by such Registering Holder to the
Company or of the occurrence of any event in either case as a result of which
any prospectus relating to such registration contains or would contain an
untrue statement of a material fact regarding such Registering Holder or such
Registering Holder's intended method of distribution of its Class A Common
Stock or omits to state any material fact regarding such Registering Holder or
such Registering Holder's intended method of distribution of its Class A Common
Stock required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly to
furnish to the Company any additional information required to correct and
update any
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previously furnished information or required so that such prospectus shall not
contain, with respect to such Registering Holder or the distribution of its
Class A Common Stock, an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing. Each such
Registering Holder, by execution and delivery of a Registration Notice, shall
be deemed to have agreed to comply with the provisions of the Securities Act
and the Exchange Act applicable to such Registering Holder with respect to the
disposition by such Registering Holder of Class A Common Stock covered by such
registration statement in accordance with the intended methods of disposition
by such Registering Holder set forth in such registration statement.
Section 5.02. Registration of Additional Shares. The registration
statement filed pursuant to this Article V, may, in addition to the shares of
Class A Common Stock subject to registration rights set forth in Article IV
above, include other securities for sale for the Company's own account or for
the account of any other person.
Section 5.03. Deferral Period. Notwithstanding the foregoing, if the
Company shall furnish to the Registering Holders a certificate (the "Company
Certificate") signed by the Chief Executive Officer of the Company stating
that, in the good faith judgment of the Company Board, acting reasonably and in
the best interest of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed or for
the Registering Holders to sell Class A Common Stock acquired pursuant to this
Agreement under any such effective registration statement and it is therefore
necessary to defer the filing of the registration statement or suspend the
ability of the Registering Holders to sell Class A Common Stock acquired
pursuant to this Agreement under an effective registration statement, each
Registering Holder, by execution and delivery of a Registration Notice, hereby
agrees that the filing of the registration statement shall be deferred, or the
ability of such Registered Holder to sell Class A Common Stock acquired
pursuant to this Agreement under an effective registration statement shall be
suspended, for a period of not more than an aggregate of 120 days from the date
of the Company Certificate; provided however, that the Company may not utilize
this right more than one time in any twelve-month period and the 120-day period
shall be reduced by any period of time in the prior six months covered by a
Suspension Notice as to such Registering Holders under Section 5.01(b). Upon
any
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delivery of a Company Certificate pursuant to this Section 5.03, each
Registering Holder, by execution and delivery of a Registration Notice, shall
be deemed to have agreed that it shall not dispose of its Class A Common Stock
covered by the registration statement during the above-stated 120-day period
other than pursuant to the limitations applicable to "restricted securities"
within the meaning of Rule 144 under the Securities Act and that any sale by
such Registering Holder or its designee of such Class A Common Stock during
this period shall be made only to a person who has agreed to comply with the
provisions of this Section 5.03 for the balance of the 120-day period.
Section 5.04. Expenses. By execution and delivery of a Registration
Notice, each Registering Holder shall be deemed to have agreed that (i) all
registration expenses incurred in connection with any registration,
qualification or compliance pursuant to this Article V, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company and of the Company's accountants, blue
sky fees and expenses and the expenses of any special audits incident to or
required by any such registration, shall be borne by Registering Holder pro
rata on the basis of the number of shares of Class A Common Stock of such
Registering Holder included in such registration and (ii) such Registering
Holder shall pay its own selling expenses. Selling expenses shall mean all
costs and commissions applicable to the sale of the Class A Common Stock and
all fees and disbursements of counsel and other professionals. To the extent
that the Company registers for primary offering additional securities pursuant
to Section 5.02, Iridium shall bear the Company's pro rata share of the above
referenced registration expenses and the Company's own selling expenses.
Section 5.05. Listing. The Company shall use its reasonable best
efforts to list all Class A Common Stock covered by a registration statement
filed pursuant to this Article V on each securities exchange or automated
quotation system on which any of the Class A Common Stock is then listed unless
the Company and Iridium agree not to have the Company do so.
VI. Rule 144 Information.
With a view to making available to the Holders and Class A Holders the
benefits of Rule 144 under the Securities Act ("Rule 144") and any other rule
or regulation of the Commission that may at any time permit a Class A Holder to
sell restricted securities or securities subject
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to Rule 145 under the Securities Act of the Company to the public without
registration, the Company agrees to: (i) make and keep public information
available, as required by Rule 144; (ii) use its reasonable best efforts to
file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and
(iii) furnish to any Class A Holder forthwith upon request (A) a written
statement by the Company that it has complied with the reporting requirements
of Rule 144, the Securities Act and the Exchange Act, (B) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company and (C) such other information as may be
reasonably requested in availing any Class A Holder of any rule or regulation
of the Commission which permits the selling of any Class A Common Stock without
registration.
VII. Equal Treatment.
Nothing contained in this Agreement shall prohibit the Company from
offering, following the Exchange Date, to purchase Class 1 Membership Interests
held by a Holder for cash or any other consideration, or to exchange additional
shares of its Class A Common Stock for Class 1 Membership Interests, all on
such terms and conditions as the Company and such Holder may agree.
VIII. Indemnification.
Section 8.01. Indemnification by Iridium. Iridium will indemnify and
hold harmless each Indemnified Person against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the registration statement or the
prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Indemnified Person for any legal or other
expenses reasonably incurred by such Indemnified Person in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that Iridium shall not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of or
is based upon (i) in the case of indemnification of the Company or its officers
and directors, an intentional act or
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omission of the Company of any such officers, directors or any employee of the
Company which was contrary to any written instruction or request of Iridium or
which amounted to willful misconduct on the part of such officer, director,
employee or agent of the Company who is not also an employee of Iridium, and
(ii) in the case of a party other than the Company or its officers and
directors, an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus, the registration statement
or the prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such
Indemnified Person expressly for use therein.
Section 8.02. Indemnification by Registering Holders. Each
Registering Holder, by execution and delivery of a Registration Notice, shall
be deemed to have agreed that it will indemnify and hold harmless each
Indemnified Person against any losses, claims, damages or liabilities to which
such Indemnified Person may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus, the registration statement or the prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any preliminary
prospectus, the registration statement or the prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Registering Holder expressly for use therein;
and will reimburse each Indemnified Person for any legal or other expenses
reasonably incurred by such Indemnified Person in connection with investigating
or defending any such action or claim as such expenses are incurred.
Section 8.03. Proceedings. Promptly after receipt by an Indemnified
Person of notice of the commencement of any action, suit or proceeding as to
which a claim in respect thereof is to be made under this Article VIII the
Indemnified Person shall notify the party against whom the Indemnified Person
intends to assert a claim for indemnification (an "Indemnifying Person") in
writing of the commencement thereof, but the omission so to notify the
Indemnifying Person shall not relieve the Indemnifying Person from any
liability which it may have to
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any Indemnified Person otherwise than under this Article. In case any such
action shall be brought against any Indemnified Person and it shall notify the
Indemnifying Person of the commencement thereof, the Indemnifying Person shall
be entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel satisfactory to such Indemnified
Person (which shall not, except with the consent of the Indemnified Person, be
counsel to the Indemnifying Person), and, after notice from the Indemnifying
Person to such Indemnified Person of its election so to assume the defense
thereof, the Indemnifying Person shall not be liable to such Indemnified Person
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such Indemnified Person, in
connection with the defense thereof other than reasonable costs of
investigation. The Indemnifying Person shall not, without the written consent
of the Indemnified Person, effect the settlement or compromise of, or consent
to the entry of any judgment with respect to, any pending or threatened action
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the Indemnified Person is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of such Indemnified Person from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by
or on behalf of such Indemnified Person. No Indemnified Person shall effect
the settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution has been or may be sought hereunder without the
prior written consent of the Indemnifying Person. By execution and delivery of
a Registration Notice, each Registering Holder shall be deemed to have agreed
to the provisions of this Section 8.03.
Section 8.04. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in this Article VIII is for any reason held to be unenforceable by
an Indemnified Person although applicable in accordance with its terms, the
Indemnified Person on the one hand and the Indemnifying Person on the other
hand shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Indemnified Person; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from
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<PAGE> 33
any person who was not guilty of such fraudulent misrepresentation. As between
the Indemnifying Person and each Indemnified Person, such parties shall
contribute to the aggregate losses, liabilities, claims, damages and expenses
of the nature contemplated by such indemnity agreement in such proportion as
shall be appropriate to reflect (i) the relative benefits received by the
Indemnifying Person on the one hand and the Indemnified Person on the other
hand, from the offering of the Class A Common Stock included in such offering,
and (ii) the relative fault of the Indemnifying Person on the one hand and the
Indemnified Person on the other, with respect to the statements or omissions
which resulted in such loss, liability, claim, damage or expense, or action in
respect thereof, as well as any other relevant equitable considerations. It is
agreed that it would not be just and equitable if contribution pursuant to this
Article VIII were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the relevant equitable
considerations. For purposes of this Article VIII, each person, if any, who
controls a party covered by the indemnity provisions of this Article VIII
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as such party. By execution and delivery of a
Registration Notice, each Registering Holder shall be deemed to have agreed to
the foregoing contribution provisions.
IX. Representations and Warranties.
Section 9.01. Representations and Warranties of the Company. Each of
the Company and Iridium represents and warrants to each of the Holders as
follows:
(a) The execution, delivery and performance of this Agreement by the
Company or Iridium, as the case may be, have been duly authorized by all
requisite corporate or limited liability company action and will not violate
any provisions of law, any order of any court or other agency of government,
its organizational documents or any provision of any indenture, agreement or
other instrument to which it or any of its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company or
Iridium, as the case may be.
(b) This Agreement has been duly executed and delivered by the Company or
Iridium, as the case may be, and
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<PAGE> 34
constitutes the legal, valid and binding obligation of the Company or Iridium,
as the case may be, enforceable in accordance with its terms.
Section 9.02. Representations, Warranties and Agreements of the
Holders and the Registering Holders. Each of the Holders by execution and
delivery of an Exchange Notice, and each Registering Holder by execution and
delivery of a Registration Notice, shall be deemed to represent, warrant to and
agree with each of the Company and Iridium as follows:
(a) The performance of this Agreement by such Holder or Registering Holder
have been duly authorized by all requisite corporate, partnership or similar
action and will not violate any provisions of law (assuming compliance by the
Company and Iridium with all applicable federal or state securities laws), any
order of any court or other agency of government, the organizational documents
of the Holder or Registering Holder or any provision of any indenture,
agreement or other instrument to which it or any of its properties or assets is
bound, conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
the Member.
(b) This Agreement constitutes the legal, valid and binding obligation of
the Holder or Registering Holder, enforceable in accordance with its terms.
X. Effectiveness of Agreement.
This Agreement shall become effective only upon the first date on
which the Company purchases Class 1 Membership Interests from Iridium.
XI. Assignability.
Each of the Holders by execution and delivery of an Exchange Notice,
and each Registering Holder by execution and delivery of a Registration Notice,
shall be deemed to have agreed that, without the prior written consent of
Iridium, the interest exchange and registration rights of a Holder or Class A
Holder set forth in this Agreement shall not be assignable, in whole or in
part, to any transferee of such Holder's Class 1 Membership Interests, or such
Class A Holder's restricted securities.
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<PAGE> 35
XII. Miscellaneous.
Section 12.01. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties; provided that this Agreement may not be assigned by any party hereto
other than in compliance with the terms hereof.
Section 12.02. Notices. All notices and other communications
provided for in this Agreement shall be in writing, shall be in the English
language and shall be sufficiently given if made (i) by hand delivery or by
telecopier and (ii) by reputable express courier service (charges prepaid) or
by registered or certified mail (postage prepaid and return receipt requested)
(a) if to the Company, at the following address:
Iridium World Communications Ltd.
Clarendon House
2 Church Street
Hamilton MN CX
Bermuda
Attention:
------------------------
Phone:
------------------------
Facsimile:
------------------------
or if to Iridium, at the following address:
Iridium, LLC
1401 H Street, NW
Washington, D.C. 20005
U.S.A.
Attention: General Counsel
Phone: (202) 326-5600
Facsimile: (202) 842-0006
or at such other address as the Company or Iridium shall have furnished in
writing one to the other (notice of any change from the Company to Iridium
being binding upon any Holder), (b) if to any Holder, at the address maintained
by Iridium on its books and records for such purpose (which Iridium agrees to
make available to the Company at its request) and (c) if to a Class A Holder,
at the address maintained by the Company on its books and records for such
purpose. All such notices and other communications shall be deemed to have
been duly given and delivered: when delivered by hand, if personally delivered;
when receipt acknowledged, if delivered by telecopier; five Business Days after
being deposited with a reputable express courier service (charges
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<PAGE> 36
prepaid); and seven Business Days after being deposited in the mail, postage
prepaid, if delivered by United States or Bermuda mail (registered or certified
mail, return receipt requested). Each of the Holders by execution and delivery
of an Exchange Notice, and each Registering Holder by execution and delivery of
a Registration Notice, shall be deemed to have agreed to the foregoing notice
provisions.
Section 12.03. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which together shall be considered one and the same agreement.
Section 12.04. Entire Agreement. This Agreement constitutes the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior understanding among such parties.
Section 12.05. Governing Law; Severability. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE. If it shall be determined by a court of
competent jurisdiction that any provision or wording of this Agreement shall be
invalid or unenforceable under applicable law, such invalidity or
unenforceability shall not invalidate this entire Agreement. In that case,
this Agreement shall be construed so as to limit any term or provision so as to
make it enforceable or valid within the requirements of any applicable law,
and, in the event such term or provision cannot be so limited, this Agreement
shall be construed to omit such invalid or unenforceable provisions.
Section 12.06. Amendments to the Agreement. This Agreement may not
be changed or amended or the observance of any provisions waived without the
written consent of each of the Company and Iridium. No consent to any such
amendment by the Holders or the Class A Holders shall be required.
Section 12.07. Jurisdiction and Service of Process. Any suit, action
or proceeding against any party with respect to this Agreement may be brought
in a court of the United States sitting in the State of Delaware or, if
jurisdiction is lacking in such a court, in a court of record in the State of
Delaware, and each party hereto, each Holder by execution and delivery of an
Exchange Notice, and each Registering Holder by execution and delivery of a
Registration Notice, (i) irrevocably waives, to the fullest
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<PAGE> 37
extent permitted by law, any objection that it may have, whether now or in the
future, to the laying of venue in, or to the jurisdiction of, any and each of
such courts for the purpose of any such suit, action, proceeding or judgment
and further waives any claim that any such suit, action, proceeding or judgment
has been brought in an inconvenient forum, submits to such jurisdiction, (ii)
agrees that service of all writs, process and summonses in any such suit,
action or proceeding brought in the State of Delaware may be made upon The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, or
such alternate process agent in the United States designated with respect to
the party in a writing delivered to LLC (the "Process Agent"), (iii)
irrevocably appoints the Process Agent in its name, place and stead to receive
and forward such service of any and all such writs, process and summonses, (iv)
agrees that the failure of the Process Agent to give any notice of any such
service of process to such party shall not impair or affect the validity of
such service or of any judgment based thereon, (v) agrees to appoint a
substitute process agent, if the Process Agent is no longer able to so act for
any reason whatsoever, which substitute process agent shall thereafter be
deemed to be the Process Agent hereunder and to give notice of such appointment
to LLC and (vi) if the party is a government, irrevocably waives any and all
claims of immunity in connection with the execution, performance and
enforcement of this Agreement and others in any way related to this Agreement,
including, without limitation, with respect to service of process, submission
to jurisdiction, attachment and execution on property.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
IRIDIUM WORLD COMMUNICATIONS LTD
By:
-----------------------------
Name:
Title:
IRIDIUM LLC
By:
-----------------------------
Name:
Title:
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<PAGE> 38
ANNEX A
[LETTER OF REPRESENTATIONS]
<PAGE> 39
ANNEX B
[RESTRICTED SECURITIES CERTIFICATION]
<PAGE> 40
ANNEX C
NOTICE OF EXCHANGE AUTHORIZATION
The Board of Directors of Iridium LLC ("Iridium") has authorized an
exchange of Class 1 Interests into shares of Class A Common Stock of Iridium
World Communications Ltd. ("IWCL") pursuant to the Interest Exchange Agreement,
dated as of May __, 1997, between Iridium and IWCL (the "Interest Exchange
Agreement"). A copy of the Interest Exchange Agreement is attached to this
Notice. By executing a copy of this Notice, the undersigned agrees, on behalf
of itself and its registered assigns, to be bound by the provisions of the
Interest Exchange Agreement applicable to "holders" and "Class A Holders" and,
if the undersigned or its successors or assigns elect to participate in any
registration of Class A Common Stock under the Interest Exchange Agreement, the
provisions of the Interest Exchange Agreement applicable to the undersigned as
a Registering Holder.
IRIDIUM LLC
By:
- ------------------------- -----------------------
Date Secretary
Agreed to and accepted:
- -------------------------
Name of Holder of Class 1
Interests
By:
---------------------
Title:
------------------
<PAGE> 41
ANNEX D
REGISTRATION NOTICE
The undersigned holder of Class 1 Membership Interests of Iridium LLC
or shares of Class A Common Stock of Iridium World Communications Ltd. ("IWCL")
hereby notifies IWCL pursuant to the Interest Exchange Agreement, dated as of
May __, 1997, between Iridium, LLC and IWCL (the "Interest Exchange Agreement")
that it wishes to have registered with the Securities and Exchange Commission
the specified number of shares of Class A Common Stock which are either
currently owned by the undersigned or issuable upon exchange of Class 1
Membership Interests currently owned by the undersigned and which have been
approved for exchange within the next 60 days pursuant to the terms of the
Interest Exchange Agreement. A copy of the Interest Exchange Agreement is
attached to this Notice. By executing a copy of this Registration Notice, the
undersigned agrees, on behalf of itself and its registered assigns, to be bound
by the provisions of the Interest Exchange Agreement applicable to Registering
Holders or to "holders" or "Class A Holders" that have requested registration
of Registerable Securities under the Interest Exchange Agreement.
- ---------------------
Name of Holder of Class 1 Interests
By:
---------------------
Title:
-------------------
Number of Securities to be Registered:
_________________ shares of Class A Common Stock, of which _____________
are issuable upon exchange of Class 1 Membership Interests
<PAGE> 1
Exhibit 10.3
FORM OF
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT dated as of __________, 1997 between
IRIDIUM LLC, a Delaware limited liability company ("Iridium" or the "Manager"),
and IRIDIUM WORLD COMMUNICATIONS LTD., a Bermuda corporation (the "Company").
Iridium and the Company are sometimes referred to herein collectively as the
"Parties" and each individually as a "Party".
WHEREAS, Iridium was organized pursuant to a Limited Liability Company
Agreement dated as of July 29, 1996, as amended (the "LLC Agreement");
WHEREAS, Iridium is commercializing the IRIDIUM System, a wireless
communications system designed to provide global wireless telephone service;
WHEREAS, the Company has been established to serve as the entity
through which Iridium will seek to obtain access to the equity capital markets
and through which special financial transactions will be conducted; and
WHEREAS, the Parties hereto desire to enter into this Management
Services Agreement ("Management Agreement") pursuant to which Iridium shall
supervise and manage the day-to-day operations of the Company on the terms set
forth herein;
NOW THEREFORE in consideration of the mutual covenants and agreements
hereinafter set forth, the Parties hereto agree as follows:
ARTICLE 1
GENERAL DUTIES OF MANAGER
1.1 General Duties of Manager. (a) From and after the date hereof
until the earlier of the date (the "Termination Date") (i) on which the parties
mutually agree that this Management Agreement shall terminate or (ii) specified
by Iridium in a Termination Notice (as defined below) pursuant to Section
1.1(b), the Manager shall, subject to the direction and oversight of the Board
of Directors of the Company (the "Company Board") supervise and manage the
day-to-day operations of the Company. The Manager shall implement or cause to
be implemented all policy decisions relating to the operations of the Company
approved by the Company Board and shall conduct or cause to
<PAGE> 2
be conducted the ordinary and usual business and affairs of the Company in
accordance with and as limited by this Management Agreement. The Manager shall
have the authority on behalf of the Company to take all actions and make all
decisions (including and in addition to those described in Sections 1.2 through
1.14) other than as provided in Article 3.
(b) Iridium shall have the right within 120 days after the
occurrence of an Iridium Bermuda Change of Control (as defined in the LLC
Agreement), to terminate this Management Agreement by giving written notice to
the Company (the "Termination Notice") stating the date on which the
termination of this Management Agreement shall become effective.
1.2 Treasury. The Manager shall administer all of the Company's
treasury functions including collection and disbursement of funds and
management of receivables and payables. The Company's funds shall not be
commingled with the Manager's funds.
1.3 Legal; Indemnification. (a) The Manager shall administer all of
the Company's legal affairs including any litigation by, against or involving
the Company.
(b) Iridium shall indemnify and hold harmless the Company and each
of its officers, directors and employees (each an "indemnified party") against
any losses, claims, damages or liabilities to which such indemnified party may
become subject, under the United States Securities Act of 1933, as amended (the
"Securities Act") or otherwise, that directly or indirectly, arise out of or
are related to, the Company's participation in the management and business of
Iridium, including but not limited to capital raising activities conducted at
the request of Iridium, and will reimburse such indemnified party for any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim, as such losses,
damages, liabilities or expenses are incurred; provided, however, that Iridium
shall not be liable in any such case to any indemnified party to the extent
that any such loss, claim, damage or liability arises out of or is based upon
an intentional act or omission of the indemnified party which was contrary to
any written instruction or request of Iridium or which amounted to willful
misconduct on the part of the indemnified party.
(c) Proceedings. Promptly after receipt by an indemnified party
of notice of the commencement of any
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<PAGE> 3
action, suit or proceeding as to which a claim in respect thereof is to be made
against Iridium under Section 1.3(b) the indemnified party shall notify Iridium
in writing of the commencement thereof, but the omission so to notify Iridium
shall not relieve Iridium from any liability which it may have to any
indemnified party otherwise than under such section. In case any such action
shall be brought against any indemnified party and it shall notify Iridium of
the commencement thereof, Iridium shall be entitled to participate therein and,
to the extent that it shall wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to Iridium), and, after notice
from Iridium to such indemnified party of its election so to assume the defense
thereof, Iridium shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation. Iridium
shall not, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (i) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party. No
indemnified party shall effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution has been or may be
sought hereunder without the prior written consent of Iridium.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 1.3 is for any reason held to be unenforceable although applicable
in accordance with its terms, Iridium shall contribute to the losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by any indemnified party in such proportion as
shall be appropriate to reflect (i) the relative benefits received, directly or
indirectly, by Iridium on the one hand and the indemnified party on the other
hand, with respect to the Company's participation in the management and
business of
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<PAGE> 4
Iridium, including but not limited to capital raising activities conducted at
the request of Iridium, and (ii) the relative fault of Iridium on the one hard
and the indemnified party on the other, with respect to the acts or omissions
which resulted in such loss, liability, claim, damage or expense, or action in
respect thereof, as well as any other relevant equitable considerations.
Iridium and the Company agree that it would not be just and equitable if
contribution pursuant to this Section 1.3 were to be determined by pro rata
allocation or by any other method of allocation which does not take into
account the relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from Iridium if Iridium was not guilty of
such fraudulent misrepresentation.
(e) To the extent that (i) the Company is required to pay or
reimburse any director, secretary or other officer of the Company, or any of
their heirs, executors or administrators (each, a "Company Indemnified Party"),
pursuant to the indemnification provided by Bye-Law 30 of the Company's
Bye-Laws (the "Company Indemnity") and (ii) such Company Indemnified Party is
not otherwise entitled to indemnification by, or contribution from, Iridium
pursuant to this Section 3.1 or the LLC Agreement, the Manager shall, on behalf
of the Company, promptly pay the amount due to such Company Indemnified Party
pursuant to the Company Indemnity. In addition, to the extent that (i) the
Company is required to conditionally advance funds to cover expenses incurred
by any Company Indemnified Party pursuant to the provisions of Bye-Law 30 of
the Company's Bye-Laws and (ii) such Company Indemnified Party is not otherwise
entitled to the advancement of such funds pursuant to the LLC Agreement, the
Manager shall, on behalf of the Company, promptly advance funds to the Company
Indemnified Party to cover such expenses upon receipt of an undertaking by or
on behalf of the Company Indemnified Party to repay such advanced funds to the
Manager if it shall ultimately be determined that such Company Indemnified
Party is not entitled to the Company Indemnity.
The indemnity and contribution obligations in this Section 1.3 are
solely obligations of Iridium and no recourse may be had thereunder against any
member, director, officer, employee or agent of Iridium.
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<PAGE> 5
1.4 Accounting System. The Manager shall maintain a system of
accounting established and administered in accordance with generally accepted
accounting principles consistently applied and a set of audit procedures that
are consistent with generally accepted auditing standards.
1.5 Books and Records of the Company. The Manager shall maintain the
books of account and other records of the Company including without limitation
all tax returns, financial statements, contracts and licenses of the Company at
all times at the Manager's principal executive offices or at such other place
or places approved by the Company Board. The Manager shall maintain the books
of account of the Company on an accrual basis in accordance with generally
accepted accounting principles consistently applied. To the extent required
under Bermuda law or the Company's Memorandum of Association or Bye-Laws, each
stockholder of the Company (a "Stockholder") shall have the right at all
reasonable times during normal business hours to examine the books of account
of the Company. Such right may be exercised through any agent or employee of a
Stockholder designated by it or by an independent public accountant designated
by such Stockholder.
1.6 Tax Returns and Elections; Payment of Tax Liabilities. The
Manager shall cause the Company's certified public accountants (the
"Accountants") to prepare the tax returns of the Company, and the Manager shall
use all reasonable efforts to cause the Accountants to prepare such tax returns
as soon as reasonably practicable after the end of each fiscal year of the
Company. The Manager shall use all reasonable efforts to cause such tax
returns to be filed on a timely basis and shall, promptly after the receipt
thereof from such Accountants, deposit such copies with the Company's permanent
records. The Manager shall make all elections required or permitted to be made
by the Company under applicable law, consistent with any instructions issued by
the Company Board. In the event that the Company is required to pay any tax or
similar governmental charge and the Company does not have sufficient funds
available to pay such tax or charge, the Manager shall pay to the appropriate
authority the amount of such tax or governmental charge (the "Tax Advance") on
behalf of the Company upon receipt of an undertaking by the Company to promptly
repay the Manager for the Tax Advance (in whole or in installments) immediately
upon the availability of funds for such purpose, provided that, in any fiscal
year, the Manager shall not be required to provide aggregate Tax Advances for
the payment of U.S. federal, state and local
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<PAGE> 6
income tax liabilities of the Company in an amount greater than the amount of
the Minimum Dividend (as defined in the LLC Agreement) for such fiscal year
(without adjustment for any shortfall in Minimum Dividend payments for previous
years).
1.7 Administration of Borrowing Documentation. The Manager shall
administer the Company's obligations and responsibilities under any loan
documents and related security and other documents relating to borrowings of
the Company, including without limitation submitting certificates required of
the Company thereunder and administering the Company's compliance with all loan
covenants and obligations under such loan documents.
1.8 Insurance. The Manager shall implement the Company's insurance
program, including procuring and maintaining any and all insurance required to
be maintained by the Company pursuant to any agreement to which the Company is
a party. The Manager also shall be responsible for administering all claims
and making all collections on behalf of the Company under insurance policies
covering the Company. The Manager shall be named as an additional insured or a
named insured, as appropriate, under each of the insurance policies which
include the Company as a named or additional insured.
1.9 Licenses and Permits. The Manager shall cause the Company to
obtain, and the Manager shall monitor and maintain compliance with, all
permits, licenses and governmental approvals necessary or desirable for the
conduct of the Company's business. Where permits must be obtained, modified or
renewed by the Company, the Manager shall prepare any application, filing or
notice relating thereto, shall cause such materials to be submitted to, and
shall represent the Company in contacts with, the appropriate governmental
agency, and shall perform all ministerial or administrative acts necessary for
timely issuance and the continued effectiveness thereof.
1.10 Investor Relations. The Manager shall be responsible for all
matters relating to the relations between the Company and its Stockholders and
other investors, including but not limited to, promptly providing the notice of
an annual general meeting, or a special general meeting, of the Company as
required by the Company's Bye-Laws, upon receipt of written notice from the
Company Board of the scheduling of such meetings. The Manager shall appoint,
and oversee the performance of, the registrar and transfer agent for the
Company's common stock.
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<PAGE> 7
1.11 Public Relations. The Manager shall be responsible for all
public and community relations matters of the Company.
1.12 Securities Law and Other Filings. The Manager shall be
responsible for making all filings required (a) under any applicable securities
laws, including without limitation the United States Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, and (b) by any
securities exchange or market on which any of the Company's securities are
listed or traded.
1.13 Other. The Manager shall as promptly as practicable after
obtaining knowledge thereof inform the Company Board of any event, action or
condition that the Manager believes is reasonably likely to have a material
effect on the operations or financial condition of the Company. In addition,
the Manager shall provide any other assistance or services reasonably requested
by the Company in connection with the management of the Company.
1.14 Personnel; Payment of Outside Directors' Fees and Expenses. (a)
The Manager shall provide and make available as necessary all professional,
supervisory, managerial, administrative and other personnel as are necessary to
perform its obligations hereunder, which personnel may be employees of the
Manager and/or its affiliates. Such personnel shall be qualified and
experienced in the duties to which they are assigned.
(b) The Manager shall pay the directors of the Company who also serve
as directors of Iridium pursuant to Section 1.05(a) of the LLC Agreement an
annual fee in the amount authorized by the Board of Directors of Iridium from
time to time and shall reimburse such directors for any expenses incurred by
such directors in attending any meetings of the Company Board or any committee
thereof, or any meetings of the Board of Directors of Iridium or any committee
thereof.
1.15 Standards for Performance of Services. (a) The Manager shall
perform its obligations hereunder in a prudent and efficient manner.
(b) The Manager shall use all reasonable efforts to perform its
obligations hereunder in accordance with all applicable laws, regulations,
codes, permits, licenses and standards.
1.16 The Company Board's Right to Deliver Instructions. The Company,
by action of the Company Board,
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<PAGE> 8
may from time to time deliver to the Manager written instructions with respect
to matters arising under this Management Agreement and the Manager shall follow
such instructions, provided that such instructions are consistent with the
terms and conditions of this Management Agreement.
1.17 Manager's Right to Request Instructions. At any time, the
Manager may, if it reasonably deems it necessary or appropriate, request
written instructions from the Company Board within a reasonable period prior to
the necessity for taking action with respect to any matter contemplated by this
Management Agreement, and may defer action thereon pending receipt of such
written instructions. Actions taken by the Manager, its officers, employees and
representatives in accordance with the written instructions of the Company
Board, or failure to act by such persons pending the receipt of such written
instructions, shall be deemed to be proper conduct within the scope of the
Manager's authority under this Management Agreement.
ARTICLE 2
REPORTS
2.1 Financial Statements; Periodic Reports. (a) The Manager shall
have prepared and shall furnish to the Company Board as soon as practicable,
but in any event within 90 days after the end of each fiscal year of the
Company, an audited consolidated balance sheet as at the end of such fiscal
year and audited statements of income and results of operations and cash flows
for such fiscal year (including notes thereto), setting forth in each case in
comparative form corresponding figures for the preceding fiscal year. Such
financial statements shall be accompanied by the report thereon of the
Accountants to the effect that such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with prior years (except as otherwise specified in such report).
The Manager shall use all reasonable efforts to conduct the business of the
Company so that such report of the Accountants will not contain any
qualifications as to the scope of the audit or with respect to the Company's
compliance with generally accepted accounting principles consistently applied,
except for changes in methods of accounting in which such Accountants concur.
(b) The Manager shall prepare as soon as practicable, and in any event
within 45 days after the end of each fiscal quarter, a report of the Company
consisting
-8-
<PAGE> 9
of an unaudited consolidated balance sheet as at the end of such quarter and an
unaudited statement of operations, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal quarter. All such
reports shall be certified by the Manager to be correct and complete, to fairly
present in all material respects the consolidated financial condition of the
Company at the date shown and the results of its operations for the period then
ended and to have been prepared in accordance with generally accepted
accounting principles consistently applied except for year end adjustments.
The reports for each calendar quarter shall include a narrative discussion
prepared by the Manager describing the business and operations of the Company
during the preceding quarter.
ARTICLE 3
LIMITATIONS ON AUTHORITY
3.1 Interested Transactions. The Manager shall have no authority to
give any notice, to consent to the taking of any action under, or otherwise to
act on behalf of the Company with respect to, any matter under the LLC
Agreement, unless the Manager has received written instructions from the
Company Board or authorization from the Company Board to act on behalf of the
Company as to any specific matter or classes of matters.
3.2 Section 2.09(b) Actions. The Manager shall have no authority to
consent or approve on behalf of the Company any of the actions set forth in
Section 2.09 of the LLC Agreement.
3.3 Reserved Actions. The Manager shall have no authority to take
any actions on behalf of the Company which actions may only be taken by the
Company Board under Bermuda law or the Company's Memorandum of Association or
Bye-Laws.
ARTICLE 4
FEES AND CHARGES
The Manager shall perform the services to be performed hereunder free
of any charge to the Company and all of the costs and expenses associated with
the performance of all services hereunder shall be paid or reimbursed by the
Manager including, without limitation, the funds required to be paid or
advanced pursuant to Section 1.3, the fees and expenses of the Accountants, the
-9-
<PAGE> 10
funds required to be advanced pursuant to Section 1.6 (subject to the Company's
repayment obligation), the costs of the insurance referred to in Section 1.8,
the fees and costs of the filings referred to in Section 1.12 and the
directors' fees and expenses referred to in Section 1.14.
ARTICLE 5
MISCELLANEOUS
5.1 Term. This Agreement shall terminate on the Termination Date (as
defined in Section 1.1). No termination shall affect any rights of the Company
against the Manager in respect of any breach by the Manager of any provision of
this Management Services Agreement or any rights of the Manager hereunder.
5.2 Assignment. Neither the Company nor the Manager shall assign,
transfer, convey or delegate in any manner, any of their respective duties and
obligations under this Management Services Agreement.
5.3 Non-Recourse. Each representation, warranty, undertaking and
agreement made in this Management Agreement on the part of either Party hereto
was not made or intended to be made as a personal or individual representation,
undertaking or agreement on the part of any past, present, or future general or
limited partner of either Party or any such Party's incorporator, stockholder,
director, officer, employee or agent or of any such person's incorporators,
stockholders, directors, officers, employees, agents or partners, and no
personal or individual liability or responsibility is assumed by, nor shall any
recourse at any time be asserted or enforced against, any past, present, or
future general or limited partner of either Party or any such partner's
incorporator, stockholder, director, officer, employee or agent or against any
such person's incorporators, stockholders, directors, officers, employees,
agents or partners, all of which recourse (whether in common law, in equity, by
statute or otherwise) is hereby forever waived and released. It is intended by
the Parties hereto that the Manager shall be solely responsible for its
performance of its obligations under this Management Services Agreement and the
Company expressly waives any obligation it may have now or in the future
against any individual officer, employee or agent of the Manager who performs
or omits to perform any actions hereunder on behalf of the Manager.
-10-
<PAGE> 11
5.4 Major Decisions. The Manager shall not be obligated to perform
its duties or obligations hereunder to the extent but only to the extent the
performance of such duties or obligations is subject to the authorization of
the Company Board pursuant to Article 3 of this Management Services Agreement
and such authorization has not been obtained.
5.5 Independent Contractor. The Manager shall be an independent
contractor with respect to the performance of its obligations hereunder. In no
event shall the relationship between the Company and the Manager be construed
as a partnership or joint venture for any purpose. Neither the Manager nor its
employees or other agents employed by the Manager in connection with the
performance of its obligations hereunder shall be deemed to be agents of the
Company, except to the extent of the agency created hereunder pursuant to the
authority granted to the Manager under Article 1.
5.6 Counterparts. This Management Agreement may be executed in
several counterparts and all such counterparts shall constitute one Agreement,
binding on the Parties hereto, notwithstanding that all of the parties are not
signatory to the original or the same counterpart.
5.7 Binding on Successors. This Management Agreement shall be
binding upon and shall inure to the benefit of the successors and permitted
assigns of the Parties.
5.8 Severability. In the event any one or more of the provisions
contained in this Management Agreement should be rendered invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby. The Parties shall endeavor in good faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid, legal and
enforceable provisions, the economic effect of which come as close as possible
to that of such invalid, illegal or unenforceable provisions.
5.9 Notices. All notices under this Management Services Agreement
shall be in writing and shall be given to the person entitled thereto, by
personal service, or by certified or registered mail, return receipt requested,
posted to the address for that person set forth below or at any other address
that he specifies in writing. Any such notice shall be deemed given on the
date delivered, when so
-11-
<PAGE> 12
given by personal service, or on the fourth day after the date mailed, when so
given by certified or registered mail.
The Company: c/o Iridium LLC
1401 H Street, N.W.
Washington, DC
cc: General Counsel
The Manager: Iridium LLC
1401 H Street, N.W.
Washington, DC
cc: General Counsel
5.10 Captions. Section titles or captions contained in this
Management Agreement are inserted only as a matter of convenience and for
reference. The titles and captions in no way define, limit, extend or describe
the scope of this Management Agreement nor the intent of any provision hereof.
5.11 Choice of Law. This Management Agreement shall be construed
under the laws of the State of New York as if this Management Agreement were
executed in and to be performed entirely within the State of New York.
5.12 Jurisdiction and Service of Process. Any suit, action or
proceeding against any party with respect to this Agreement may be brought in a
court of the United States sitting in the State of Delaware or, if jurisdiction
is lacking in such a court, in a court of record in the State of Delaware, and
each party hereby irrevocably waives, to the fullest extent permitted by law,
any objection that it may have, whether now or in the future, to the laying of
venue in, or to the jurisdiction of, any and each of such courts for the
purpose of any such suit, action, proceeding or judgment and further waives any
claim that any such suit, action, proceeding or judgment has been brought in an
inconvenient forum, and the party hereby submits to such jurisdiction. Each
party hereto hereby agrees that service of all writs, process and summonses in
any such suit, action or proceeding brought in the State of Delaware may be
made upon The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801, or such alternate process agent in the United States designated
with respect to the party in a writing delivered to the other party (the
"Process Agent") and each of the parties hereto hereby irrevocably appoints the
Process Agent in its name, place and stead to receive and forward such service
of any and all such writs, process and summonses and agrees that the failure of
the Process
-12-
<PAGE> 13
Agent to give any notice of any such service of process to such party shall not
impair or affect the validity of such service or of any judgment based thereon.
If the Process Agent is no longer able to so act for any reason whatsoever, the
party agrees to appoint a substitute process agent, which substitute process
agent shall thereafter be deemed to be the Process Agent hereunder, and to give
notice of such appointment to the other party.
5.13 Authority. Each individual executing this Management Agreement
on behalf of an entity represents and warrants that he has full authority to
execute this Management Agreement on behalf of such entity and the execution of
this Management Services Agreement and entry into this transaction by the
undersigned has been duly authorized by such entity.
5.14 Entire Agreement. This Management Services Agreement
constitutes the entire agreement between the Parties with respect to the
subject matter herein contained and supersedes all agreements, representations,
warranties, statements, provisions, and undertakings, whether oral or written,
with respect to the subject matter hereof.
5.15 Amendments. This Management Agreement may be amended or
modified only with the written consent of both Parties.
IN WITNESS WHEREOF, the Parties hereto have executed this Management
Agreement as of the date first above written.
IRIDIUM LLC
By:
-----------------------------
IRIDIUM WORLD COMMUNICATIONS LTD.
By:
-----------------------------
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<PAGE> 1
Exhibit 10.04
FORM OF
1997 SUBSCRIPTION AGREEMENT
Dated as of May [ ], 1997
by and between
IRIDIUM WORLD COMMUNICATIONS LTD.
and
IRIDIUM LLC
<PAGE> 2
This 1997 SUBSCRIPTION AGREEMENT (this "Agreement") is dated as of May
[ ], 1997 and is by and between IRIDIUM WORLD COMMUNICATIONS LTD., a company
organized under the laws of Bermuda (the "Company"), and IRIDIUM LLC
("Iridium"), a limited liability company organized under the laws of the State
of Delaware.
WHEREAS, the Company intends to consummate an underwritten initial
public offering (the "Offering") of 10,000,000 shares of its Class A Common
Stock, par value $.01 per share (the "Class A Common Stock") (11,500,000 shares
if the Underwriters' over-allotment options are exercised in full) and to use
the proceeds of the Offering to purchase an equivalent number of Class 1
Membership Interests ("Class 1 Interests") in Iridium as described in the
registration statement on Form S-1 (File No. 333-23419) filed with the U.S.
Securities and Exchange Commission, as amended (the "Registration Statement").
WHEREAS, upon consummation of the Offering, Iridium intends to issue
and sell to the Company 10,000,000 Class 1 Interests (11,500,000 Class 1
Interests if the Underwriters' over-allotment options are exercised in full) at
a purchase price per Class 1 Interest equal to the per share public offering
price of the Class A Common Stock less the per share underwriting discount.
WHEREAS, Iridium owns all 1,200,000 currently outstanding shares of
Class A Common Stock (the "Outstanding Shares") and intends to surrender the
Outstanding Shares to the Company in connection with the consummation of the
Offerings and the Company intends to cancel the Outstanding Shares upon
surrender by Iridium.
NOW, THEREFORE, the parties hereto, intending to be bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Reference to Registration Statement. Capitalized terms
used but not defined herein shall have the meanings assigned to such terms in
the Registration Statement.
Section 1.2. Certain Definitions. As used in this Agreement the
following terms have the following respective meanings:
"Agreement" means this 1997 Subscription Agreement.
"Class A Common Stock" means the Class A Common Stock, par value $.01
per share, of the Company.
"Class 1 Interests" means the Class 1 Membership Interests of Iridium
LLC.
"Firm Interests" has the meaning assigned to the term in Section 2.1
of this Agreement.
"Firm Shares" means the shares of Class A Common Stock purchased by
the Underwriters pursuant to the Purchase Agreements without giving effect to
the exercise of over-allotment options.
"Iridium Bermuda" means the Company as such term is used in the LLC
Agreement referenced herein.
"LLC Agreement" means the Limited Liability Company Agreement of
Iridium LLC dated as of July 29, 1996, as amended.
-2-
<PAGE> 3
"Offering" means the initial public offering by the Company of its
Class A Common Stock as described in the Registration Statement.
"Option Interests" has the meaning assigned to the term in Section 2.2
of this Agreement.
"Option Shares" means the shares of Class A Common Stock purchased by
the Underwriters pursuant to the over-allotment options granted in the Purchase
Agreements.
"Registration Statement" means the Company's registration statement on
Form S-1 (File No. 333-23419) filed with the U.S. Securities and Exchange
Commission, as amended.
ARTICLE II
PURCHASE OF CLASS 1 INTERESTS
BY THE COMPANY
Section 2.1. Firm Interests. Subject to the terms and conditions set
forth herein, Iridium agrees to create, issue and sell 10,000,000 Class 1
Interests to the Company (the "Firm Interests") and the Company agrees to
purchase the Firm Interests at a price per Firm Interest equal to the per share
price paid by the Underwriters for the 10,000,000 Firm Shares of Class A Common
Stock purchased by the Underwriters pursuant to the Purchase Agreements.
Section 2.2. Over-Allotment Interests. Subject to terms and
conditions set forth herein, Iridium agrees to create, issue and sell up to
1,500,000 Class 1 Interests to the Company (the "Option Interests") and the
Company agrees to purchase an aggregate number of Option Interests that is
equal to the number of Option Shares of Class A Common Stock purchased by the
Underwriters pursuant to the Purchase Agreements at a price per Option Interest
equal to the price paid by the Underwriters for the Option Shares of Class A
Common Stock purchased by the Underwriters pursuant to the Purchase Agreements.
ARTICLE III
DELIVERY AND PAYMENT FOR INTERESTS
Section 3.1. Delivery of and Payment for Firm Interests. Delivery of
certificates for the Firm Interests shall be made at the time and location of
the delivery of the Firm Shares under the Purchase Agreements against payment
of the purchase price therefor in immediately available funds.
Section 3.2. Delivery of and Payment for Option Interests. Delivery
of certificates for the Option Interests shall be made at the time and location
of the delivery of the Option Shares under the Purchase Agreements against
payment of the purchase price therefor in immediately available funds.
Section 3.3. Delivery and Cancellation of Outstanding Shares.
Iridium hereby agrees that in addition to its other obligations under this
Agreement, upon payment by the Company of the purchase price for the Firm
Shares pursuant to Section 3.1 above, Iridium shall deliver the Outstanding
Shares to the Company and shall relinquish any rights in or claims on the
Outstanding Shares. The Company hereby agrees that upon delivery of the
Outstanding Shares by Iridium, the Company shall retire and cancel such
Outstanding Shares.
-3-
<PAGE> 4
ARTICLE IV
ADMISSION OF THE COMPANY TO IRIDIUM LLC
Section 4.1. Admission of the Company. The Company wishes to be
admitted as a Class 1 Member in Iridium and agrees to be bound by all of the
applicable provisions of the Limited Liability Company Agreement of Iridium
LLC, dated as of July 29, 1996, as amended (the "LLC Agreement"). Prior to the
first issuance of any Class 1 Interests hereunder, the Company will execute and
deliver a counterpart of the LLC Agreement in substantially the form set forth
in Annex A hereto. This Agreement constitutes the Company's written request
that Iridium's Members' Interest Register be amended to reflect the Company's
admission as a Member and Iridium agrees that its Members' Interest Register
will be so amended, and the Company will be admitted as a Member in Iridium,
on the date of the issuance of the Firm Interests hereunder.
Section 4.2. Rights of the Company. The Class 1 Interests issued
hereunder shall be entitled to all of the rights of Class 1 Interests under the
LLC Agreement, including the rights of "Iridium Bermuda" described thereunder.
ARTICLE V
EXPENSES OF THE OFFERING
Iridium shall promptly pay, or reimburse the Company for the payment
of, all expenses incurred by the Company in connection with the Offering and
the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS OF THE PARTIES' OBLIGATIONS
Section 6.1. Firm Interests. The respective obligations of the
parties with respect to the Firm Interests are subject to the performance by
the Underwriters of their obligations to purchase the 10,000,000 Firm Shares
under the Purchase Agreements.
Section 6.2. Option Interests. The respective obligations of the
parties with respect to the Option Interests, if any, are subject to the
performance by the Underwriters of their obligations, if any, to purchase
Option Shares under the Purchase Agreements.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties of Iridium. Iridium hereby
represents and warrants that it has duly and validly executed and delivered
this Agreement and that the Firm Interests and the Option Interests, if any,
when issued against payment therefore by the Company pursuant to Article III,
will be duly and validly authorized and issued and fully-paid and
non-assessable.
Section 7.2 Representations and Warranties of the Company. The
Company hereby represents and warrants that it has duly and validly executed
and delivered this Agreement and will duly and validly execute the LLC
Agreement pursuant to Article IV.
ARTICLE VIII
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<PAGE> 5
INDEMNIFICATION AND CONTRIBUTION
Section 8.1. Indemnification by Iridium. Iridium will indemnify and
hold harmless the Company and each of its officers, directors and employees
(each an "indemnified party") against any losses, claims, damages or
liabilities to which such indemnified party may become subject, under the
Securities Act or otherwise, that directly or indirectly, arise out of or are
related to, the transactions contemplated by this Agreement, and will reimburse
such indemnified party for any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, as such losses, damages, liabilities or expenses are incurred;
provided, however, that Iridium shall not be liable in any such case to any
indemnified party to the extent that any such loss, claim, damage or liability
arises out of or is based upon an intentional act or omission of the
indemnified party which was contrary to any written instruction or request of
Iridium or which amounted to willful misconduct on the part of the indemnified
party.
Section 8.2. Proceedings. Promptly after receipt by an indemnified
party of notice of the commencement of any action, suit or proceeding as to
which a claim in respect thereof is to be made against Iridium under Section
8.1, the indemnified party shall notify Iridium in writing of the commencement
thereof, but the omission so to notify Iridium shall not relieve Iridium from
any liability which it may have to any indemnified party otherwise than under
such section. In case any such action shall be brought against any indemnified
party and it shall notify Iridium of the commencement thereof, Iridium shall be
entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(which shall not, except with the consent of the indemnified party, be counsel
to Iridium), and, after notice from Iridium to such indemnified party of its
election so to assume the defense thereof, Iridium shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. Iridium shall not, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party. No indemnified party shall effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution has been or may be sought hereunder without the prior written
consent of Iridium.
Section 8.3. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 8.1 is for any reason held to be unenforceable although
applicable in accordance with its terms, Iridium shall contribute to the
losses, liabilities, claims, damages and expenses of the type contemplated by
such indemnity agreement incurred by any indemnified party in such proportion
as shall be appropriate to reflect (i) the relative benefits received, directly
or indirectly, by Iridium on the one hand and the indemnified party on the
other hand, from (a) the sale of the Firm Shares and the Option Shares, if any,
and (b) the sale of the Firm Interests and the Option Interests, if any, and
(ii) the relative fault of Iridium on the one hand and the indemnified party on
the other, with respect to the acts or omissions which resulted in such loss,
liability, claim, damage or expense, or action in respect thereof, as well as
any other relevant equitable considerations. Iridium and the Company agree
that it would not be just and equitable if contribution pursuant to this
Section 8.3 were to be determined by pro rata allocation or by any other method
of allocation which does not take into account the relevant equitable
considerations. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from Iridium if Iridium was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution obligations in this Article VIII are
solely obligations of Iridium and no recourse may be had thereunder against any
member, director, officer, employee or agent of Iridium.
-5-
<PAGE> 6
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1. Governing Law. This Agreement is governed by, and shall
be construed in accordance with, the laws of the State of New York without
regard to principles of conflicts of laws.
Section 9.2. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 9.3. Entire Agreement. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior understandings among such parties with respect to such
subject matter.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto signed their names in
the space provided below.
IRIDIUM WORLD COMMUNICATIONS LTD.
By:
--------------------------------------
Name:
Title:
IRIDIUM LLC
By:
--------------------------------------
Name:
Title:
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<PAGE> 8
ANNEX A
TO 1997 SUBSCRIPTION AGREEMENT
FORM OF COUNTERPART TO LLC AGREEMENT
The undersigned agrees to be bound by the Limited Liability Company
Agreement of Iridium LLC, dated as of July 29, 1996, as amended, to which this
signature page is attached.
IN WITNESS WHEREOF, the undersigned has hereunto set its hand as of
this day of May, 1997.
MEMBER
IRIDIUM WORLD COMMUNICATIONS LTD.
By:
------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.10
The portions of this exhibit for which
confidential treatment has been requested,
have been redacted and filed separately with
the Commission
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MASTER AGREEMENT
By and Between
IRIDIUM LLC
And
ANDERSEN CONSULTING, LLP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE 1. THE WORK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1 Work Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-----------
1.2 Scope Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------
1.3 Milestone Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------------
1.4 Tools and Measurements/Metrics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------
1.5 _________________ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2. PURCHASE PRICE; PAYMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----
2.2 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------
ARTICLE 3. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----
ARTICLE 4. INFRINGEMENT OF THIRD-PARTY RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------
4.2 Undertakings if Infringement Found. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------------------------------
ARTICLE 5. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Consequential and Special Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------------------
5.2 Limit of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------------
ARTICLE 6. CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Definition of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------------------------------
6.2 Restrictions on Use or Disclosure of Confidential Information . . . . . . . . . . . . . . 9
-------------------------------------------------------------
6.4 Disclosure Required by Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------------------
ARTICLE 7. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------
7.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------
7.3 Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------------------
7.4 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------------
7.5 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------
7.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
------
7.7 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------------------
7.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
7.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------
7.10 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------
7.11 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
DEPLOYMENT WORK ORDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
- ---------------------
MAINTENANCE AND SUPPORT SERVICES AND ENHANCEMENTS WORK
- ------------------------------------------------------
ORDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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</TABLE>
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This Agreement is made by and between Iridium LLC, a Delaware limited
liability company, having an address at 1401 H Street, N.W., Washington, D.C.
20005 (hereinafter referred to as "Iridium"), and Andersen Consulting, LLP, an
Illinois limited liability partnership, having an address at 1666 K Street,
N.W., Washington, D.C. 20006 (hereinafter referred to as "Andersen").
ARTICLE 1. THE WORK
1.1 Work Orders. The work to be performed is described in the documents
constituting this Agreement which include work orders and any
documents referenced in a work order. A work order is a document
executed by both parties in accordance with the provisions of this
agreement regarding amendments. As of the execution date of this
agreement only the following three work orders exist: the IBSS
Development and Test Plan, the Deployment Work Order, and the
Maintenance and Support Services and Enhancements Work Order. The
parties recognize that they intend to agree upon replacements for the
Deployment Work Order and the Maintenance and Support Services and
Enhancements Work Order which replacements will become effective upon
execution by both parties as provided herein.
1.2 Scope Changes. A "Scope Change" shall mean any change to the work as
set forth in a work order. Either party may propose a Scope Change.
Upon being informed of any proposed Scope Change, Andersen shall
promptly furnish to Iridium an itemized breakdown of the increased or
decreased cost, if any, created by the change and any other impact
such as impact on Andersen's work schedule and impact on any agreed-to
Milestone Dates. A Scope Change shall not be effective until a
written change order, signed by both parties, has been executed.
Andersen shall have no obligation to commence work in connection with
any change until the fee and/or schedule impact of the change is
agreed upon by the parties in writing. Notwithstanding the foregoing,
the parties may in writing agree that Andersen shall start work
("Interim Work") before executing a written change order, while the
parties are conducting good faith negotiations as to the exact terms
of such written change order. Andersen will be paid on a time and
materials basis for such Interim Work with direct Iridium involvement.
1.3 Milestone Dates. On the terms and subject to the conditions set forth
in this Agreement, the parties shall fulfill each of their respective
obligations in each phase of this Agreement and other related work,
tasks, procedures or the like necessary to meet the Milestone Date
specified for each Phase in the Work Order.
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<PAGE> 5
1.4 Tools and Measurements/Metrics. Andersen shall use appropriate tools
and measurements/metrics to measure the completeness and quality of
each deliverable and phase. Iridium and Andersen shall jointly agree
upon tools and measurements/metrics to be used in gauging the quality
of the System. Andersen shall provide Iridium with access to all
metrics and tools used in the execution of the work orders under this
Agreement. Such access shall include the training of Iridium
personnel associated with the project in the use of the metrics and
tools.
1.5 ____________________. Andersen may not resell any part of the
software originally produced by Andersen or its subcontractors in the
performance of this Agreement, modifications made to commercial
off-the-shelf (COTS) software where Andersen (rather than the COTS
vendor) owns the modifications, requirements definitions, plans or
other documents originally created pursuant to this Agreement without
____ ___________________ are not subject to the restriction in the
previous sentence. The parties agree that the version of the _________
product existing prior to the modifications made pursuant to this
Agreement shall not __________________________________________
_______________________________________________________________________
_____________. Key Individual means the individuals set forth in the
IBSS Development and Test Work Order. Andersen shall propose for
addition to this list any individual who performs work__________ where
the work involves
_______________________________________________________________,
technical matters, method of operation, clearinghouse, business
support systems (including the Iridium, Gateway, and Service Provider
Support Systems), and similar matters. Iridium may also propose
individuals meeting the criteria stated in the preceding sentence for
addition to the list. Upon mutual agreement, such individuals shall
be added to the list.
ARTICLE 2. PURCHASE PRICE; PAYMENT SCHEDULES
2.1 Price. The purchase price shall be the total amount set forth in each
work order. Unless otherwise set forth in a work order sales, use,
excise and other similar taxes shall be payable by Iridium in addition
to the amount set forth in the work order on any deliverable upon
which such taxes are required to be assessed and collected. Iridium
shall not be liable for any _____ ________, business license,
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<PAGE> 6
property, or other similar taxes.
2.2 Payments. Iridium shall pay and Andersen shall receive payment in the
manner outlined in each work order. Iridium may not withhold payment
for a satisfactorily completed phase, milestone, deliverable, or work
order on the basis that a subsequent phase, milestone, or deliverable
has not been satisfactorily completed or on the basis that the work
set forth in an unrelated work order has not been satisfactorily
completed.
2.3 Overdue Payments. Amounts which remain unpaid thirty (30) days after
the date upon which payment is due shall accrue interest at a rate of
one percent (1%) per month until paid.
ARTICLE 3. TERM AND TERMINATION
3.1 Term. The terms of this Agreement shall continue until all its
provisions are satisfied or until terminated in accordance with the
provisions of this article.
3.2 Termination. This Agreement may be terminated by Andersen or Iridium
upon 30 days written notice if all of the obligations of both parties
have been performed. Otherwise, this Agreement may only be terminated
by mutual agreement, evidenced in writing. Each work order shall set
forth, if applicable, the terms for termination of the work order.
ARTICLE 4. INFRINGEMENT OF THIRD-PARTY RIGHTS
4.1 Indemnification. Andersen shall (i) indemnify Iridium from and against
any liability, cost, loss, or expense of any kind; (ii) hold Iridium
harmless and save it from any liability, cost, loss, or expense of any
kind; and (iii) defend any suit or proceeding against Iridium arising
out of or based on any claim, demand, or action alleging that the
Andersen Indemnified Software, or any portion thereof as furnished
under this Agreement and used within the scope of the license
hereunder, infringes any third-party intellectual property rights in
the U.S. Additionally, Andersen shall pay any costs, damages, or
awards of settlement, including court costs, arising out of any such
claim, demand, or action, provided that Iridium promptly gives written
notice of the claim, demand, or action to Andersen and that Andersen
may directly and fully participate in the defense to any settlement of
such claim, demand, or action. Andersen will not indemnify Iridium,
however, if the claim of infringement is caused by (1) Iridium's
misuse or modification of the Andersen Indemnified Software, (2)
Iridium's failure to use corrections or enhancements made available by
Andersen, (3) Iridium's use of
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such Andersen Indemnified Software in combination with any product or
information (other than the software with which the Andersen
Indemnified Software is intended to be used pursuant to this
agreement) not owned or developed by Andersen, (4) Iridium's
distribution, marketing or use for the benefit of third parties, other
than Iridium, the gateway operators, service providers, and their
contractors, or (5) information, direction, specification, or software
provided by Iridium.
4.2 Undertakings if Infringement Found In the event that the Andersen
Indemnified Software or any portion thereof, as furnished and used
under this Agreement or pursuant to any licensed purported to be
granted hereunder, are held in such a suit or proceeding to infringe a
third-party intellectual property right in the U.S., and that the use
of the Andersen Indemnified Software or portion thereof is enjoined,
Andersen shall, at its sole option and expense (1) procure for Iridium
the right to continue using the Andersen Indemnified Software or
portion thereof; (2) replace the same with non-infringing software of
equivalent functions and efficiency; or (3) modify the Andersen
Indemnified Software such that it no longer infringes the third-party
intellectual property right in the U.S. In the event Andersen is
unable to accomplish any of the three undertakings set forth above,
Andersen may refund to Iridium the amount paid by Iridium for such
software, less a reasonable amount for Iridium's use of the infringing
Andersen Indemnified Software or portion thereof up to the time of
refund, provided, however that Iridium shall thereafter continue to
have the right, at its own risk, to use said Andersen Indemnified
Software or portion thereof. The foregoing remedies constitute
Iridium's sole and exclusive remedies and Andersen's entire liability
with respect to infringement by the Andersen Indemnified Software.
4.3 Non-U.S. Infringement. In the event of any claim, demand, or action
alleging that the Andersen Indemnified Software or any portion thereof
as furnished under this Agreement and used within the scope of the
license hereunder infringes any third-party intellectual property
rights outside the U.S., Andersen shall cooperate with Iridium in
Iridium's defense of the claim and, if requested by Iridium, undertake
to replace the allegedly infringing software with non-infringing
software of equivalent functions and efficiency or modify the
allegedly infringing software so that it no longer infringes. Iridium
shall pay Andersen for such activities at
___________________________________________.
4.4 Iridium Infringement Responsibilities. To receive the foregoing
indemnity, Iridium must notify Andersen in writing of a claim or suit
promptly and provide reasonable cooperation (at Andersen's expense)
and full authority to defend and settle the claim or suit. Andersen
shall not have any obligation to indemnify
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Iridium under any settlement made without Andersen's consent.
4.5 "Intellectual Property" means patents, trademarks, service marks,
trade names, copyrights, trade secrets.
4.6 "Andersen Indemnified Software" means software produced by Andersen or
its subcontractors in performance of this Agreement but does not
include software which has been modified by Andersen but has been
licensed, in its modified form, to Iridium by a third party. Andersen
Indemnified Software includes modifications to software, but not the
underlying software, if the prior sentence is not applicable. The
_______ Software product is Andersen Indemnified Software.
ARTICLE 5. LIMITATION OF LIABILITY
5.1 Consequential and Special Damages. In no event will either party be
liable to the other for any loss of profits; or any incidental,
special, exemplary, or consequential damages; even if the party has
been advised of the possibility of such claims or demands. The
foregoing limitation shall not apply with respect to (i) Andersen's
obligation to indemnify Iridium for intellectual property infringement
claims by third parties as set forth in Article 4 entitled
"Infringement of Third-Party Rights"; or (ii) damages resulting from
either party's breach of its confidentiality obligations as set forth
in Article 6 entitled "Confidentiality".
5.2 Limit of Liability. The limit of either party's liability (whether in
contract, tort, negligence, strict liability in tort or by statute or
otherwise) to the other or to any third party concerning performance
or non-performance by the other party, or in any manner related to
this Agreement or any Work Order, for any and all claims shall not in
the aggregate exceed ________________________________________________
_____________________________________________________________________
________________________________________________________________. The
foregoing limitation in this article shall not apply with respect to
(i) Andersen's obligation to indemnify Iridium for intellectual
property infringement claims by third parties as set forth in Article
4 entitled "Infringement of Third-Party Rights"; or (ii) damages
resulting from a breach by either party of its confidentiality
obligations as set forth in Article 6 entitled "Confidentiality".
ARTICLE 6. CONFIDENTIALITY
6.1 Definition of Confidential Information.
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"Confidential Information" means any and all information disclosed to,
or otherwise acquired or observed whether in writing, orally,
electronically, photographically, in recorded or any other form,
including, but not limited to, sales and operation information,
existing and potential business plans and strategies and marketing
methods, financial information, costs, pricing information, know-how,
designs, drawings, specifications, technical information, concepts,
knowledge, reports, methods, processes, techniques, whether or not the
foregoing information is patentable, tested, reduced to practice, or
subject to copyright, provided that such information is identified as
confidential. Confidential Information shall not include any
information which
a. was at the time of disclosure in the public domain through no
fault of the disclosing party, or
b. was known to the party (as shown by written records) prior to
receipt thereof from the disclosing party, or
c. was independently developed by the party (as shown by written
records), or
d. was properly received by from an unaffiliated third party
under no obligation of confidentiality.
6.2 Restrictions on Use or Disclosure of Confidential Information. Each
party shall maintain in confidence, applying the same standard of care
as it applies to its own, similar Confidential Information, all
Confidential Information, including this Agreement, and shall not use
or copy any Confidential Information or disclose Confidential
Information to any person or entity without the other party's prior
written consent, except that each party may disclose Confidential
Information to those employees, agents, and contractors of the party
as may be necessary in connection with the party's performance of its
services or obligations under this Agreement. Each party shall be
responsible to ensure that its employees, agents, and contractors
maintain Confidential Information in confidence and do not disclose,
use or copy any Confidential Information except as may be permitted or
required under this Agreement.
6.3 Similar Services and Products. Subject only to its confidentiality
and non-disclosure obligations, and the restrictions on Andersen
contained in artcile 1.5, "Competitors of Iridium" as set forth in
this Agreement, each party's right to develop, use, and market
products and services similar to or competitive with the Confidential
Information of the party shall remain unimpaired. Each party
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<PAGE> 10
acknowledges that the other may already possess or have developed
products or services similar to or competitive with those of the other
party disclosed in the Confidential Information.
6.4 Disclosure Required by Law. Either party may disclose Confidential
Information to the extent required by law; provided, however, that the
party shall give notice of such required disclosure as soon as
reasonably possible prior to any such disclosure. Each party agrees
to cooperate, at the other party's expense, in any lawful effort to
contest the requirement of such disclosure.
ARTICLE 7. MISCELLANEOUS
7.1 Further Assurances. Each party hereto agrees to execute, acknowledge
and deliver such further instruments, and to do all such other acts,
as may be necessary or appropriate in order to carry out the purposes
and intent of this Agreement.
7.2 Notices. All notices, requests or communication required by this
Agreement shall be in writing and shall be made by personal delivery,
telecopy (confirmed within 24 hours) or certified or registered mail,
return receipt requested, or by such other method capable of providing
reasonable proof of receipt thereof, addressed to the parties at the
following addresses or to such other addresses as may be designated in
writing by the respective parties: Iridium - Director of Commercial
Relations, Iridium LLC, 1401 H Street N.W., Suite 800, Washington,
D.C. 20005. Andersen - Albert M. Krall, Andersen Consulting LLP, 1666
K Street, N.W., Washington, D.C. 20006. Any notice shall be deemed
given on the earlier of the date of delivery or on the third business
day after the date of mailing or transmission thereof.
7.3 Relationship of the Parties. Andersen is an independent contractor
under this Agreement. Nothing contained in this Agreement is intended
nor is to be construed so as to constitute the parties as partners or
joint venturers with respect to this Agreement. Neither party hereto,
nor any of their respective employees, agents, officers, directors or
representative shall be construed to be the employee, representative
or agent of the other, nor does either party have any express or
implied right or authority to make any representations or warranties,
or assume or create any obligations or responsibilities, on behalf of
or in the name of the other party hereunder to any third party.
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7.4 Severability. If any provision of this Agreement shall be declared
invalid or illegal for any reason whatsoever, then notwithstanding
such invalidity or illegality, the remaining terms and provisions of
this Agreement shall remain in full force and effect in the same
manner as if the invalid or illegal provision had not been contained
herein.
7.5 Amendments. This Agreement may not be and shall not be deemed or
construed to have been modified, amended, rescinded, canceled or
waived in whole or in part, except by written instrument, signed by
the parties hereto, which makes specific reference to this Agreement
and which specifies that this Agreement is being amended. A Scope
change, work order, or other document shall be considered an amendment
which, to be effective, must comply with this paragraph.
7.6 Waiver. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right
or remedy hereunder preclude any other or a future exercise thereof or
the exercise of any other right or remedy granted hereby or by any
related document or by law.
7.7 Binding Effect; Assignment. This Agreement and the rights and
obligations of the parties hereunder, may not be transferred, assigned
or sublicensed, in whole or in part, by either party hereto without
the prior written consent of the other party, but shall be binding
upon and inure to the benefit of and be enforceable by the parties
hereto and permitted successors, assignees and legal representative;
provided, however, that either party shall be entitled to assign its
obligations under this Agreement, without the prior written consent of
the other party, to any organization which succeeds as a going concern
to the business presently conducted by the party if such assignee
assumes all obligations hereunder.
7.8 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of Virginia without regard to its conflict of
law principles.
7.9 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. If this
Agreement is executed in counterparts, no signatory hereto shall be
bound until each of the parties named below shall have duly executed
or caused to be executed a counterpart of this Agreement.
7.10 Force Majeure. Each party shall be excused for any reasonable delay
in its
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performance under this Agreement, if such delay shall be due to any
cause beyond its reasonable control, including, but not limited to,
acts of God or the public enemy, valid law, acts or requests of any
national or provincial government, or of any national or provincial
officer or agent purporting to act under duly constituted authority,
wars, floods, fires, storms, strikes, lockouts, interruptions of
transportation, freight embargoes or failures, exhaustion or
unavailability on the open market or delays in delivery of raw
material, supplies, equipment, or services necessary for the
performance of any provision hereof, or happening of any unforeseen
acts, misfortune, or casualty by which performance hereunder is
delayed or prevented, provided, however, that each party will use all
commercially reasonably efforts to remedy the situation. If any such
delay occurs, the party affected by the delay shall inform the other
party of the occurrence of the circumstances causing the delay, and
(unless the cause thereof shall frustrate or render impossible or
illegal the performance of this Agreement or shall otherwise discharge
the same), the period for performing obligations under this Agreement
shall be extended (not limited to the length of the delay) as may
reasonably be required to complete the delayed performance or
obligation.
7.11 Records. ________ shall be solely responsible for maintenance of all
records and for archiving all data required by law. _________ may agree
from time to time to store or keep for ________ records and data
required by law to be maintained or archived by ________ (including,
without limitation, original or electronic signatures); provided,
however, that nothing shall relieve ________ of its obligations (or
otherwise obligate _______) under the law to maintain and/or archive
such records and data and ________ agrees to indemnify _______ and
hold _______ harmless from and against any and all losses, claims,
liabilities, costs and expenses arising in connection with any such
obligation or responsibility (including, without limitation, any
failure to comply with any such obligation or responsibility).
ACCEPTED AND AGREED TO:
IRIDIUM LLC
By: /s/ PAUL V. DAVERIO Date: December 16, 1996
-------------------------- --------------------
Name: Paul V. Daverio
--------------------------
Title: CFO
--------------------------
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ANDERSEN CONSULTING LLP
By: /s/ ALBERT M. KRALL Date: December 10, 1996
-------------------------- --------------------
Name: Albert M. Krall
--------------------------
Title: Partner
--------------------------
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DEPLOYMENT WORK ORDER
Andersen and Iridium shall agree on a comprehensive deployment plan and price
in the form of a proposed deployment work order which shall include deployment
of the Gateway Business System ("GBS") and the Service Provider Business System
("SBS") for each Gateway, language packages, and training. (The work and cost
of Iridium Business System ("IBS") deployment is included in the IBSS
Development and Test Work Order.)
In the absence of a work order, approved by both parties, Andersen shall, upon
Iridium's request, be obligated to perform the deployment work on a time and
materials basis in accordance with the specifications and requirements set
forth in Schedules 1-6 and 8 of the gateway deployment documents sent to
gateway operators on November 12, 1996 and any documents referenced in those
schedules.
This work order and Work Order 001 are "related" for purposes of calculating
Andersen's limit of liability under article 5 of this Agreement.
This Deployment Work Order is a part of the Master Agreement between Iridium
and Andersen to which it is attached. As this work order has been attached to
the Master Agreement prior to the execution of the Master Agreement, the
signatures of the parties upon the Master Agreement shall constitute the
signature of the parties upon this work order.
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MAINTENANCE AND SUPPORT SERVICES AND ENHANCEMENTS WORK ORDER
Andersen and Iridium shall agree on a comprehensive maintenance and support
services and enhancements work order and price in the form of a work order
which is intended to replace this work order.
In the absence of a revised work order, approved by both parties, Andersen
shall, upon Iridium's request, be obligated to perform the maintenance and
support services and enhancements work on a time and materials basis in
accordance with the specifications and requirements set forth below.
Software Support Services. Andersen will provide the support set forth in this
section for the Software (the "Maintenance and Support Services") to the
Iridium Business Entities without fee during the Software Warranty Period and
will provide the support services after the Software Warranty Period at
Iridium's sole option for a fee. The parties contemplate that the fee and
additional provisions related to Maintenance and Support Services will be
included in a subsequent work order. The Maintenance and Support Services Work
Order proposed by Andersen shall be reasonable in terms of plan, schedule, and
price, shall be consistent with this article and shall be subject to Iridium's
approval.
Corrective Maintenance. Andersen shall correct defects or errors in the
Software as they are or become known. In the case of any defect or error in
the Software, Andersen shall use its best efforts to repair or replace the
Software until the defect is corrected. Error-correction services, which shall
consist of Andersen using its best efforts to design, code, and implement
programming changes to the Software and modifications to the documentation to
correct errors therein. Andersen's response to any defect or error in the
Software shall be determined by the level of severity of the defect or error,
and such determination shall be in the sole discretion of Iridium. The levels
of severity shall be as follows:
a. Severity One Defect: The System, in whole or in part, is down (not
operable) and some or all business functions affecting system revenues
cannot be supported. Andersen agrees to work continuously around the
clock to fix the defect with a goal of restoring the system within 24
hours at the affected site(s).
b. Severity Two Defect: The System, in whole or in part, is impacted and
the operation of the system is seriously impaired. While operations
can continue, the defect impairs the business and/or computer
operation to a serious extent and must be remedied within a short
period of time. Andersen agrees to work these problems on a priority
basis with a goal of restoring the system to full operation
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within 15 calendar days at the affected site(s).
c. Severity Three Defect: The System is not working according to
requirements and the operation is impacted. Workarounds are available,
however, which enable the operation to continue in a reasonable
fashion, but the defect should be corrected. Andersen agrees to fix
these defects with a goal of 3 (three) months from their
identification at the affected site(s).
d. Severity Four Defect: The System is not working according to
requirements but the impact on the operation is considered minimal.
Operations are able to continue in a reasonable fashion without
workarounds. Andersen agrees to fix these defects as resources are
available. The fixing of these defects should not take priority over
the fixing of any other defects.
Iridium Termination of Support Services. Iridium shall have the right
to discontinue the services set forth herein upon not less than 90
days' prior written notice to Andersen.
Failure to Deliver or Maintain and Support. In the event of (i) a
material breach (whether or not Iridium terminates this Agreement), or
(ii) material failure by Andersen to provide maintenance or support,
Andersen shall promptly provide to Iridium and/or third parties
designated by Iridium the technical, engineering and design
information and specifications that exist relating to the System that
Andersen has the right to use and transfer including Source Code and
those materials necessary for Iridium or qualified third parties to
design any aspect of the System, such materials including functional
specifications, instructions and specifications for any custom
components or assemblies (the "Technical Materials").
This work order is a part of the Master Agreement between Iridium and Andersen
to which it is attached. As this work order has been attached to the Master
Agreement prior to the execution of the Master Agreement, the signatures of the
parties upon the Master Agreement shall constitute the signature of the
parties upon this work order.
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The portions of this Exhibit for which confidential
treatment has been requested have been redacted and
filed separately with the Commission
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WORK ODER 001
IBSS DEPLOYMENT AND TEST
By and Between
IRIDIUM LLC
And
ANDERSEN CONSULTING, LLP
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 18
IBSS DEVELOPMENT AND TEST WORK ORDER
This Work Order 001 ("Work Order") entered into between Andersen Consulting
("Andersen") and Iridium LLC ("Iridium") on the tenth day of December, 1996
sets forth the terms and conditions under which Andersen will deliver solutions
to Iridium in accordance with this Work Order and documents referenced herein
in relation to Release 1.0 and Release 1.5 of the Iridium Business Support
Systems ("IBSS") as further defined in the Master Agreement ("Agreement")
entered into by the parties on the tenth day of December, 1996 and this Work
Order. This Work Order may be referred to as Work Order 001 or the IBSS
Development and Test Work Order. In the event of an inconsistency between the
terms and conditions of the Agreement and the terms and conditions of this Work
Order, the terms and conditions of this Work Order shall prevail.
This Work Order is organized as follows:
- - General Provisions
- - Section 1.0 IBSS Description
- - Section 2.0 IBSS Payment Schedule and Milestone Descriptions
- - Section 3.0 Assumptions
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IBSS DEVELOPMENT AND TEST WORK ORDER
GENERAL PROVISIONS
1. The parties shall develop and mutually agree to a Program Plan that
will include project schedules with milestones and the strategy and
approach being used to manage the overall project.
2. In connection with Andersen's delivery of the solution contemplated in
this Work Order, Iridium shall perform those tasks and assume those
responsibilities specified in this Work Order ("Iridium
Responsibilities"). This Work Order also contains assumptions related
to this Work Order. Iridium understands that Andersen's performance
is dependent on Iridium's timely and effective satisfaction of Iridium
Responsibilities hereunder and timely decisions and approvals by
Iridium. Andersen shall be entitled to rely on all decisions and
approvals of the Iridium in connection with this Work Order; changes
in decisions and approvals are subject to the section of the Master
Agreement entitled "Scope Changes."
3. Andersen shall use all reasonable efforts to conclude an agreement
with ___ __________________________________ for modifications to the
software to be licensed by ___ to Iridium for use in the solution.
Should the amount to be paid to ___ in such agreement exceed
__________, with a scope and delivery schedule equivalent to the
Release Plan and Program Plan, such excess amount shall be referred to
as the ____ ______ and the payment amounts set forth in Section 2.1 of
this Work Order shall be increased in an amount equal to the _________
__________. In the event that the amount to be paid is less than
____________ with a scope and delivery schedule equivalent to the
Release Plan and Program Plan, the difference shall be applied to
cover Scope Changes.
If the _____ approach as set forth in the Release Plan is not feasible
due to ___ architectural prohibitions and the amount to be paid for
___________, with a scope equivalent to the _____ component and a
delivery schedule consistent with the Program Plan, exceed ___________
such excess amount shall be referred to as the ___________ and the
payment amounts set forth in Section 2.1 of this Work Order shall be
increased in an amount equal to the _________. If the _____ approach
as set forth in the Release Plan is not feasible due to ___
architectural prohibitions and the amount to be paid for ____________,
with a scope equivalent to the _____ component and a delivery schedule
consistent with the Program Plan, is less than _________, the
difference shall be applied to cover Scope Changes.
4. Iridium is acquiring the rights to use the _______ product through
Andersen's affiliate, Proquire LLC. The obligations of Andersen with
respect to ________ as set forth in this Work Order and the Master
Agreement shall not be altered or reduced as a result of such
transaction. By way of example, and not limitation, Andersen's
obligation to provide indemnification with respect to infringement of
intellectual property rights, Andersen's warranty obligation,
Andersen's obligation to correct errors in the _______ software, and
Andersen's obligation to pay the amounts due from Iridium pursuant to
the agreement under which Iridium acquires rights to use the _______
product shall continue notwithstanding that the _______ Product has
been licensed to Iridium by a separate entity that is affiliated with
Andersen.
5. No bailment shall be created and no interest or obligation shall be
conferred upon
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IBSS DEVELOPMENT AND TEST WORK ORDER
Andersen regarding Iridium's property or the property of Iridium's
employees, agents, vendors, or other contractors, beyond the limited
right to use such property in furtherance of the Agreement. All such
property, regardless of its physical location or use, shall be deemed
to be in the care, custody, and control of Iridium.
6. Subject to the following paragraph (General Provision 7) and subject
to Andersen's right to retain copies of its work papers for quality
assurance purposes, the parties acknowledge and agree that the Custom
Software originated and prepared for Iridium by Andersen, pursuant to
this Work Order and all ownership rights therein (including copyrights
_____________ will be and shall at all times remain, the sole property
of Iridium. Andersen hereby assigns to Iridium any copyright
ownership rights to such Custom Software and other related written
materials (except internal Andersen administrative materials) and
agrees to provide written assignments of such ownership in the future
at the request of Iridium. Andersen agrees that it will require any
third party independent contractor hired by it to perform services
pursuant to this Work Order to execute all necessary assignments of
ownership to Andersen in the works created by such third parties, and
Andersen will in turn assign such ownership to Iridium.______________
___________ for the Custom Software, including the _______ product,
shall be provided to Iridium. Iridium shall not own the ________
product but shall have a license to use the _______ product in
accordance with the separate license agreement for _______. Such
license agreement will provide that the Gateways and Service Providers
will have a limited right to use _______ as necessary to conduct
business with Iridium as contemplated by this Work Order and prepare
derivative works therefrom for the conduct of Iridium's business
(which includes mobile satellite services and cellular roaming, but
does not include the business of sublicensing _______). In the event
that Iridium obtains _______ right in any aspects of the Custom
Software, to the extent that any such ______ rights cover activities
outside the scope of the solution, subject to the section of the
Master Agreement titled "Competitors of Iridium", Andersen shall have
a royalty-free, non-transferable, non-exclusive, irrevocable,
worldwide right to practice inventions covered by such ______ rights.
_______________________________ the rights conveyed by the preceding
sentence. "Custom Software", as used throughout this Work Order,
means software which was originally produced by Andersen or its
subcontractors in performance of this Work Order but does not include
Proprietary Items or derivative works of Proprietary Items as set
forth in General Provision 7 below. The ownership and obligations
related to Proprietary Items shall be as set forth in the paragraph
below.
7. In the course of performance hereunder, Andersen may use products,
materials, tools and methodologies that are proprietary to Andersen or
to third parties (collectively, "Proprietary Items"). As between
Iridium and Andersen, Proprietary Items will be deemed Confidential
Information of Andersen. Included among the Proprietary Items of
Andersen are tools that Andersen identifies as Solution Construction
Aids which Andersen makes available to clients under separate
licensing terms. Iridium shall have or obtain no rights in such
Proprietary Items other than (i) to use them as authorized by Andersen
in writing from time to time solely for purposes of performing Iridium
Responsibilities, (ii) to the extent the Proprietary Items are
incorporated into the Custom Software , to use them as part of the
Deliverable for purposes of its internal business only, or (iii)
pursuant to Andersen's standard license for such Proprietary Items or,
in the case of Proprietary Items owned by third parties, pursuant to
terms acceptable to the applicable third party. If Proprietary Items
are made available to Iridium, they will be made available "AS IS" and
without express or implied warranties of any kind. This
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IBSS DEVELOPMENT AND TEST WORK ORDER
provision shall not negate nor diminish Andersen's warranty
obligations regarding the Custom Software as set forth in this Work
Order. Specifically, Proprietary Items which fall within
classification (ii) above shall be considered Custom Software for
purposes of the warranty provided for in this Work Order and will be
delivered in source code and object code. Iridium will have the right
to modify and create derivative works from such items and otherwise
use them in its business operations contemplated in this Work Order
and the Gateways and Service Providers will have a limited right to
use such items as necessary to conduct business with Iridium as
contemplated by this Work Order.
8. Ownership of Technical Materials (other than software) Related to the
Solution. The parties acknowledge and agree that Andersen shall
transfer to Iridium all Technical Materials originally developed
hereunder by Andersen for Iridium in relation to the Custom Software
and such Technical Materials shall be owned by Iridium and shall be
provided with the Custom Software provided, however, that Iridium
shall not own Technical Materials which are the property of third
parties (who are not subcontractors of Andersen). Technical Materials
means documentation, engineering, design, training and other written
materials, other than software, originally prepared for Iridium, but
shall not include internal Andersen administrative materials.
9. Andersen warrants that the solution delivered to Iridium will meet the
specifications set forth in the IBSS Release 1.0 and 1.5 Release Plan
("Release Plan") dated November 12, 1996, including the features,
functions, and performance specifications set forth therein and the
related user documentation. This warranty shall extend for a period
of ___________________________________________________________________
____________________________________. Andersen's obligation under
this warranty shall be to correct any warranty nonconformity that
Iridium reports to Andersen within the time frames set forth in the
Maintenance and Support Services and Enhancements Work Order.
10. Not withstanding General Provision 9.0, in cases where the warranty
nonconformity is attributable to errors or defects in a product
provided by a third party that has been developed or manufactured for
general commercial use and not solely in connection with the project
and for the sole use of Iridium, e.g., the __________________________
product, or operating system, Andersen's sole obligation shall be to
report the error or defect to the third party and to work with the
third party toward its resolution.
11. THE PRECEDING ARE ANDERSEN'S ONLY WARRANTIES CONCERNING THE SERVICES
AND ANY DELIVERABLE PRODUCT AND ANDERSEN DISCLAIMS ANY AND ALL
PROMISES, REPRESENTATIONS AND ALL EXPRESS OR IMPLIED WARRANTIES,
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, AND SPECIFICALLY
DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
12. Either party may, upon giving thirty (30) days written notice
identifying specifically the basis for such notice, terminate this
Work Order for breach of a material term or condition of this Work
Order provided the breaching party shall not have cured such breach
within the thirty (30) day period. Such termination shall not limit
the party's rights with respect to breach, if any, as provided
elsewhere in this Work Order or the Master Agreement.
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IBSS DEVELOPMENT AND TEST WORK ORDER
13. Iridium may terminate this Work Order for convenience at any time by
providing Andersen with written notice of such termination, such
termination to be effective upon delivery of such notice. In such
event Iridium agrees to compensate Andersen for all fees and expenses
incurred up to the date of termination, including software license
fees. In addition, if Iridium terminates this Work Order under this
provision, Iridium shall pay Andersen's reasonable project
demobilization costs to be agreed to by both parties.
14. The parties further agree that, in the event of a dispute or alleged
breach they will work together in good faith first, to resolve the
matter internally by escalating it to higher levels of management and,
then if necessary, to use a mutually agreed alternative dispute
resolution technique prior to resorting to litigation, other than
disputes involving confidentiality or infringement of intellectual
property rights (in which case either party shall be free to seek
available remedies in any forum).
15. The parties acknowledge that certain Services contemplated by this
Work Order commenced prior to execution of this Work Order. This Work
Order shall be applicable to all such Services as if it had been
executed prior to the beginning of the Services. All payments made by
Iridium to Andersen for such Services shall be considered as payments
under this Work Order.
16. The Custom Software, the _______ product, and Proprietary Items
incorporated in the Custom Software (collectively "Andersen
Software"), when used in accordance with its associated documentation,
will be capable of correctly processing, providing and/or receiving
date data within and between the twentieth and twenty-first centuries,
provided that all products (i.e., hardware, software and firmware)
used with the Andersen Software properly exchange accurate date data
with it. For Andersen Software, Andersen will test the software to
handle 20th and 21st century dates at the component level. Andersen
will also select representative product test cycles to test dates in
the years 1999 and 2000. For third party software and software
components, Andersen will test that year 2000 dates can be accepted
and processed by the third-party product. If year 2000 compliance
violations are found in the third party product, Andersen will report
the defect to the software vendor. Andersen will use all reasonable
efforts to have third party vendors agree to similar language and if
the third party vendor contract is between Andersen and a third party,
Andersen will pass on any year 2000 warranty to Iridium.
17. ________________________________________________________
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IBSS DEVELOPMENT AND TEST WORK ORDER
18. __________________ Iridium and Andersen agree that the baselined
Business Operations Model ("the Model") is a ______________ design
which describes at a generic level the way in which Iridium LLC will
do ___________ and that it supports ________________________ as it was
known as of the baseline date. Iridium and Andersen recognize that
the Model may require modifications to _____________
__________________________________________________________________
______________ The Model comprises ____________ that may be
_____________________________________________ that the _______________
requirements specified in the baselined
________________________________ will support those activities
identified in the model as ____________________ Should it be found
that the _______________ specified in the Model could not be satisfied
unless additional requirements are implemented, then this condition
will be considered _______________. Should such additional
requirements arise because of ___________
___________________________________________________________________
_________________________, such requirements are excluded
_______________.
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IBSS DEVELOPMENT AND TEST WORK ORDER
SECTION 1.0 IBSS DESCRIPTION
IBSS is the planned IRIDIUM Business Support System. IBSS is composed of three
functional component "levels" where application systems will reside. The three
levels reflect the IRIDIUM business model, which is composed of Iridium LLC,
Gateway Operator(s), and Service Provider(s).
IRIDIUM LLC
Iridium LLC will have overall responsibility for the management of the IRIDIUM
satellite constellation, ground based components, and the terrestrial network.
It will also have responsibility, in conjunction with the Gateway Operators,
for the management and settlement of revenues.
GATEWAY OPERATORS
There are currently 15 defined Gateways territories and 15 Gateway Business
System (GBS) installations. Each GBS is operated by a Gateway Operator, all of
whom are, currently, also IRIDIUM investors. Each Gateway Operator is a
distinct business. It is expected that the Gateway Operator will perform,
among other obligations, the following with respect to its designated
geographic territory: (i) purchase and install a physical gateway (if
applicable), along with a Gateway Business System (GBS), (ii) obtain all
required governmental licenses and permits for equipment importation,
exportation and gateway operation; (iii) promote the distribution of IRIDIUM
Subscriber Equipment; (iv) authorize IRIDIUM Service Providers; (v) cooperate
with Iridium LLC, IRIDIUM Service Providers and other gateway operators to
facilitate worldwide operation of the IRIDIUM communications system.
Gateway Operators will be expected to negotiate interconnection terms with
wireline and/or wireless telephone companies, as well as obtain access to the
international transit network as part of their interconnection agreements.
SERVICE PROVIDERS
Service Providers will be the retailers of IRIDIUM Service in their service
areas, marketing IRIDIUM Service directly to their subscribers. Gateway
Operators may also be Service Providers. Iridium LLC expects that Service
Providers will have primary responsibility for retail distribution and
marketing as well as service negotiation, customer care, billing and
collections, and aspects of provisioning.
IRIDIUM Business Support Systems (IBSS)
IBSS refers to the collection of systems that are used by each IRIDIUM business
entity to enable its business processes. These are divided into three
subsystems that are generally aligned with the three business entity tiers.
These subsystems are illustrated and defined in figure 1.1 below:
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IBSS DEVELOPMENT AND TEST WORK ORDER
[CHART]
Figure 1.1 IBSS Overview
- IRIDIUM BUSINESS SYSTEMS (IBS) - Refers to the set of systems used by
Iridium LLC.
- GATEWAY BUSINESS SYSTEMS (GBS) - Refers to the set of systems used by
Gateway Operators, with processing decentralized from Iridium LLC.
- SERVICE PROVIDER BUSINESS SYSTEMS (SBS) - Refers to the set of systems
used by the service providers (SP's).
IRIDIUM LLC / GATEWAY BUSINESS SYSTEMS
This section describes the business functions that are the responsibility of
Iridium LLC and the Gateway Operators. These functions are divided between the
IBS and GBS subsystems.
Iridium LLC will have overall responsibility for the management of the
satellite constellation. It will also have responsibility, in conjunction with
the Gateway Operators, for the management and settlement of revenues. This
requires business systems that support the means to:
- Collect and distribute IRIDIUM system network usage. This will
facilitate the allocation of revenue between IRIDIUM entities and
support the billing of subscribers by Service Providers.
- Calculate financial liabilities and allocate revenue between IRIDIUM
business entities, including Iridium LLC, Gateways, Service Providers,
Authorizing Entities, Taxing Authorities, and Public Telephone
Operators.
- Assist management in overall decision making via the collection of
summarized data and key performance indicators from the entire IRIDIUM
enterprise.
IBS will support:
- Usage Collection
- Usage Processing & Wholesale Rating & Revenue Allocation
- Clearing and Settlement (Net Settlement Clearinghouse for all IRIDIUM
entities)
- Decision Support
- General Ledger for Network Settlements Operations (NSO)
- Dispute Resolution
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IBSS DEVELOPMENT AND TEST WORK ORDER
GATEWAY / SERVICE PROVIDER BUSINESS SYSTEMS
This section describes the business functions that are the responsibility of
Service Providers and Gateway Operators. These functions are divided between
the SBS and GBS subsystems.
Gateway Operators and Service Providers are central to the operation of the
IRIDIUM Communications System. Gateway Operators will have the authority to
offer IRIDIUM Service directly to end users, or indirectly through Service
Providers. This requires business operations that provide the means to:
- Acquire subscribers, distribute equipment, and negotiate / activate
IRIDIUM services for these customers (Service Delivery)
- Provide on-going customer support (Customer Care)
- Render invoices and accept customer payments (Billing and Collections)
- Accept and manage customer problems (Trouble Management)
GBS/SBS will support:
- Subscriber Activation/Deactivation
- Customer Service
- Maintenance Tickets
- Retail Rating and Billing
- Invoicing
- Fraud Management
- Settlement Reporting for Service Providers
- SIM Card Management
- Number Management
- EIR/IMEI Management
- Equipment Inventory
- Network Advisories
The IRIDIUM business systems will support a number of diverse market
environments, Gateway Operators and Service Providers with varying degrees of
infrastructure and capabilities. The IRIDIUM businesses have therefore
designed their business operations model to fit a variety of scenarios, ranging
from the full integration of Gateway Service Provider operations, to complete
decentralization of all customer contact functions to the Service Provider are
shown in figure 1.2 below. The result of this flexibility is that the systems
functionality can vary for each Gateway-Service Provider combination.
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IBSS DEVELOPMENT AND TEST WORK ORDER
[CHART]
FIGURE 1.2 SERVICE PROVIDER RELATIONSHIPS
SCOPE OF ANDERSEN CONSULTING'S SERVICES
The scope of Andersen Consulting's services will be as specified in this Work
Order.
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IBSS DEVELOPMENT AND TEST WORK ORDER
SECTION 2.0 IBSS PAYMENT SCHEDULE AND MILESTONE DESCRIPTIONS
The payments for work performed under this Work Order are separated into two
major categories:
1. Labor, expenses, and facilities
2. Hardware, systems software, and software license fees
The total fixed fee arrangement is ___________, payable to Andersen Consulting
according to the schedules set forth below. Changes to this Work Order shall
constitute changes in scope and shall be handled as provided in this Work Order
and the Agreement.
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IBSS DEVELOPMENT AND TEST WORK ORDER
2.1 LABOR, EXPENSES, AND FACILITIES
Payments for these items are subject to acceptance of the deliverables outlined
in the this section. Specifically, there are 16 milestones with associated
deliverables and Acceptance Criteria that form the basis of the payment
schedule. Each milestone has a payment value and estimated completion date.
<TABLE>
<CAPTION>
=======================================================================================
MILESTONE PAYMENT TARGET COMPLETION DATE
<S> <C> <C>
=======================================================================================
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
=======================================================================================
=======================================================================================
</TABLE>
- - for the following Milestones:
------------------
- -
------------------
- -
-----------------------------------------------
- -
-----------------------------------------------
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IBSS DEVELOPMENT AND TEST WORK ORDER
CONTINGENCY MANAGEMENT
The Contingency funds included in the above fees amount to _________. Andersen
management will control the use of contingency funds to cover errors in
estimation and additional tasks needed to fulfill its obligations under this
Work Order. Andersen will disclose to Iridium its use of the contingency
funds. Andersen and Iridium agree that they will ___________ the contingency
funds unused when this Work Order has been satisfied.
ACCEPTANCE CRITERIA
Andersen and Iridium will work together at the start of each phase to develop
mutually agreed-to, clearly defined, objective Acceptance Criteria ("Acceptance
Criteria") and Entry and Exit Criteria. The Acceptance Criteria will be based
on documentation such as the Release Plan, user documentation, design
documents, and other materials as appropriate. In the case where deliverables
do not conform with the Acceptance Criteria, those areas requiring additional
strengthening will be communicated in writing to Andersen within five business
days of Iridium's receiving the milestone deliverables. If the deliverables
conform with the Acceptance Criteria, then Iridium will sign-off on the
deliverables within five business days. Andersen will respond within five
business days with the required updates to the deliverables and/or a plan and
schedule to implement the required updates to conform with the Acceptance
Criteria.
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IBSS DEVELOPMENT AND TEST WORK ORDER
1. REQUIREMENTS AND ANALYSIS
During the Requirements and Analysis phase, Andersen and Iridium
compiled detailed business and system requirements. The requirements
were developed from higher level business functions identified during
the development of the IBSS Business Operations Model.
The Requirements and Analysis phase resulted in the set of documents
and deliverables listed below. An objective of this phase was to
achieve a common understanding of the requirements objectives between
the development and IBSS stakeholder teams. The functional needs of
the system were captured in an electronic form and then analyzed as to
how they were satisfied by COTS packages. Approaches to filling the
resulting gaps were documented as an input to the User and Technical
Design phase.
DELIVERABLES:
IBSS SYSTEM REQUIREMENTS DOCUMENT
The IBSS System Requirements document specifies and describes the long
term requirements for each functional area to be supported by the IBSS
set of systems. The document provides a high level description of
each functional area, and details each specific requirement in a
Requirements Traceability Matrix (RTM).
GAP ANALYSIS RESULTS
The Gap Analysis Results deliverables document the work of the gap
analysis process conducted for IBSS COTS packages. The documents
identify the degree to which each COTS package meets the system
requirement as documented in the IBSS System Requirements Deliverable.
THREAD DIAGRAMS
This deliverable will document Intra-IBSS thread diagrams for major
business events to be supported by IBSS.
ANALYSIS FOR CUSTOM DEVELOPMENT ANALYSIS
This deliverable documents Data Flow Diagrams (DFDs), Logical Data
Models (LDMs), and Low Fidelity User Interface Prototypes for those
IBSS components requiring custom software development (e.g.,
settlements).
COTS DEMONSTRATION SOFTWARE AND DOCUMENTATION
Makes available to the project team demo copies of the COTS software
and related system and user documentation for further analysis.
WWW HTML DEMO "VISION FOR IRIDIUM LEVERAGING INTRANET TECHNOLOGIES"
_____ TECHNICAL FEASIBILITY ANALYSIS
- _____ Preliminary Functional Scope and Requirements
Definition
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IBSS DEVELOPMENT AND TEST WORK ORDER
- _____Technical Security Analysis
- _____ Network Connectivity Analysis
Acceptance Criteria
The Requirements and Analysis payment milestone was met on June 20,
1996 when Iridium signed-off on the Requirements.
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IBSS DEVELOPMENT AND TEST WORK ORDER
2. USER AND TECHNICAL DESIGN
The Application Architecture defines the distribution of data and
processes over the network. Inputs include response time and
availability requirements. The overall application structure is
determined in this phase. Data models are augmented as necessary for
COTS packages and system interface designs and user interface designs
are produced in this phase.
DELIVERABLES:
IBS USER DESIGN
The IBS User Design Document presents the user interface components of
the usage processing and settlements systems. The document is
intended to be the vehicle through which the user community can
evaluate the user interface windows and user reports. The document
contains the user interface components and high level business
processes that they support for the following areas: Audits and
Controls, Error Administration, Settlements Processing, Reporting,
Post Processing Analysis, and Table Maintenance.
IBS TECHNICAL DESIGN
The IBS Technical Design Document defines the technical approach to
implementing the system requirements as described in the IBS
Preliminary Systems Design Document. The document describes the IBS
application architecture, high level object diagram, logical data
model, preliminary physical data model, and interface definitions.
GBS/SBS USER DESIGN
The GBS/SBS User Design Document presents how the GBS/SBS support the
high level business processes required for _____________ (and the
selected fraud package if necessary). The purpose of the document is
intended to be the vehicle through which the user community can
evaluate the manner in which the COTS packages are to support user
requirements.
GBS/SBS TECHNICAL DESIGN
The GBS/SBS Technical Design Document defines the technical approach
to implementing the system requirements as described in the GBS/SBS
Gap Analysis Documents. The document describes the GBS and SBS
application architectures, and system modifications required.
INTERFACE SPECIFICATION TOOL
The interface specification tool is a Microsoft Access-based database
which contains information about IBSS logical and physical interfaces.
The tool provides the ability to track and generate interface
specification reports.
IBSS/SATCOM INTERFACE SPECIFICATION
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IBSS DEVELOPMENT AND TEST WORK ORDER
The IBSS/SATCOM interface specification is a collection of system
functional specifications and interface control documents addressing
the following interfaces: IBS-GW including SSS-GBS, MOC-GBS, OMCG-GBS,
OMCG-IBS, and IBSS-SCS.
IBSS INTERNAL INTERFACE SPECIFICATION
The IBSS internal interface specification is a collection of system
functional specifications and interface control documents addressing
the interfaces for IBS-GBS and GBS-SBS.
IBSS TESTING STRATEGY
This document describes the test strategy for IBSS. It describes the
testing approach, methodology, schedule, timeline, tools, environment,
and metrics to be used during each phase of IBSS testing. It also
describes each testing phase (e.g., component, assembly, product,
etc.), and each application to be tested (e.g., ________________
etc.).
COMPONENT AND ASSEMBLY TEST STANDARDS
This document describes the standards to be used by the IBS, GBS, and
SBS development teams governing component and assembly testing of
compiled modules.
PRODUCT AND ACCEPTANCE TEST STANDARDS
This document describes the standards to be used by the IBS, GBS, and
SBS development teams governing the product test of application
software developed by the IBSS team, and acceptance testing of
application software developed by outside vendors.
IBSS HARDWARE/SOFTWARE PURCHASE PLAN
This document defines the hardware and software configurations
required to support the IBSS development, product test, integration
test and production environments. This document also provides cost
estimates for these environments for budgeting and planning purposes.
IBSS NETWORK ARCHITECTURE
This document defines the configuration of the network required to
support the development, testing, and deployment of IBSS. This
document also contains detailed analysis of the network security
architecture and the network performance model.
IBS CAPACITY PLANNING MODEL
This document defines a capacity planning model for estimating the
hardware and system software required to support IBS applications to
the year 2000. The capacity planning model will be based on call
volume estimates provided by Iridium.
GBS CAPACITY PLANNING MODEL
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IBSS DEVELOPMENT AND TEST WORK ORDER
This document defines a capacity planning model for estimating the
hardware and system software required to support GBS applications to
the year 2000. The capacity planning model will be based on call
volume estimates provided by Iridium.
DEVELOPMENT TOOLS AND STANDARDS
This deliverable consists of a number of different documents which
together, describe the standards, procedures, and tools that will be
used in the development and testing of IBSS applications.
IBS EXECUTION ARCHITECTURE
This document presents high-level system and technical architecture
diagrams for the IBS applications. In addition, the document
describes the run-time services and control structures that provide
the infrastructure for these applications to operate.
GBS/SBS EXECUTION ARCHITECTURE
This document presents high-level system and technical architecture
diagrams for the GBS/SBS applications. In addition, the document
describes the run-time services and control structures that provide
the infrastructure for these applications to operate.
CONFIGURATION MANAGEMENT APPROACH
The Configuration Management deliverable defines the policies and
procedures for coordinating and controlling all changes to the IBSS
production environment. A change request submission process, change
review board, code acceptance standards, change migration path, and
release planning procedures are defined.
INTERNATIONAL TEAM
This phase also includes work by the "International Team" and
Rotational Program support. The International Requirements team
collected IBSS requirements associated with
internationalization/localization issues resulting from Gateways'
differing business and regulatory environments. The team's objective
was to record these requirements.
The effort encompassed site-specific IBSS system requirements
including: Language, Currency, Taxation, Billing interfaces, General
Ledger interfaces, Payments/Receivables, Late Fees processing,
Formats, Regulatory, Credit Assessment, Deposits, Commissions,
Services, Equipment/SIM Card ordering and distribution, and Clearing
and Settlement. A more detailed explanation of International Team
activities can be found in the International Requirements Plan
Refinement Memo dated October 2, 1996.
DELIVERABLES:
- Requirements Backlog Summary Report
- Prioritized International Requirements Matrix
- IBSS Functional Description
Acceptance Criteria
Acceptance Criteria will be met when the User and Technical Design
milestone deliverables are delivered to Iridium and exit criteria are
satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
3. IBSS PROGRAM PLAN AND RELEASE 1.0 IBS DETAILED DESIGN
IBSS PROGRAM PLAN
The mutually agreed to IBSS Program Plan will outline the IBSS Project
management methodology and tools.
DELIVERABLES:
PROGRAM WORKPLANS AND SCHEDULE
The Program Workplans document the work breakdown structure,
associated workday estimates, and start and completion dates by task
for each IBSS team (e.g., IBS Development, ______________, Testing,
Deployment). The IBSS Schedule documents the major IBSS program
phases, start and stop dates, milestones, and dependencies among IBSS
component and with external interfaces.
PROJECT MANAGEMENT APPROACH
This document describes the disciplines, standards, metrics, and
procedures that will govern the execution of the IBSS program. For
example, this deliverable documents the manner in which PWW is to be
used for workplanning, and project tracking. It also specifies
regular status and issues meetings that are to be conducted in
managing the effort; entry/exit criteria; required document reviews
and inspections, etc.
RESOURCE PLAN
This deliverable describes the acquisition plan for human resources,
hardware, software, and facilities required to accomplish the IBSS
program.
QUALITY PLAN
The quality plan is primarily composed of an expectations matrix
outlining the various expectations of major stakeholders of the IBSS
application. This matrix includes measures used to determine whether
expectations have been met.
RISK MANAGEMENT PLAN
This document describes the program and team level risks to the
successful completion of the IBSS program. Strategies for risk
mitigation and retirement are documented in the Risk Management Plan.
BASELINING PROCEDURES
This document describes the procedures through which the various IBSS
deliverables are completed, reviewed/inspected, approved, and placed
under version/change control.
CHANGE CONTROL PROCEDURES
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IBSS DEVELOPMENT AND TEST WORK ORDER
This document describes the procedures and tools the IBSS team is to
use when modifications are required to any baselined component of the
IBSS program (e.g., deliverables, work breakdown structure, scope,
etc.). It also describes the process by which change control items
are evaluated for inclusion in, or exclusion from the IBSS program.
PHASE ENTRY AND EXIT CRITERIA
This document specifies the criteria which must be met in order for
the project to complete a given program phase, and the criteria which
must be met in order for the project to begin a phase.
IBS DETAILED DESIGN
Andersen will create specifications for programming IBS Release 1.0.
This specification includes batch, on-line, and report module designs.
DELIVERABLES:
IBS DETAILED DESIGN SPECIFICATIONS
This deliverable specifies the inputs, outputs, and processing logic
required for each programming work unit as specified during the User
and Technical Design phase for the IBS. Modifications are specified
to existing COTS programs, and new programs are designed where needed.
IBS PROGRAMMING, COMPONENT TEST, AND PRODUCT TEST ENVIRONMENT
This deliverable establishes the computing environment, tools and
procedures required to conduct the programming, component, assembly,
product, and acceptance tests for the IBS applications.
DEPLOYMENT PLANNING STRATEGY
The Deployment Planning Strategy document identifies tasks and
deliverables required for GBS deployments. The document describes
those activities for which Iridium has responsibility, as well as
Gateway Owner responsibilities.
FACILITY REQUIREMENTS
This document describes the GBS facility requirements including:
physical and electrical specifications for hardware, clearance and
service access guidelines, mounting and placement requirements, and
environmental specifications. The purpose of this document is to help
the gateways plan for their local fixture, electrical, and HVAC
requirements.
COMMUNICATION INSTALLATION PROCEDURES
The Communication Installation Procedures Document describes the GBS
communications hardware installation, configuration, testing, and
acceptance sign-off procedures. The document includes: GBS hardware
list, hardware purpose, export restrictions, export license
requirements, communications hardware installation procedures,
communications hardware
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IBSS DEVELOPMENT AND TEST WORK ORDER
configuration procedures, hardware test procedures, and hardware
acceptance sign-off PROCEDURES.
HARDWARE INSTALLATION PROCEDURES
The Hardware Installation Procedures Document describes the GBS
hardware installation and configuration, language configuration,
testing, and hardware acceptance sign-off procedures. The document
also includes: hardware list, hardware purpose, export restrictions,
and export license requirements.
SOFTWARE INSTALLATION PROCEDURES
The Software Installation Procedures Document describes the GBS
software installation and configuration, language configuration,
testing, and acceptance sign-off procedures. The document also
includes: software list, software purpose, export restrictions, and
export license requirements.
TRAINING PLAN
The Training Plan document describes the approach for developing IBS,
GBS/SBS System Administration Training, IBS, GBS/SBS User Training,
and SBS Installation Training. It will also contain training course
curriculum outlines.
Acceptance Criteria
Acceptance Criteria will be met when the IBSS Program Plan and Release
1.0 IBS Detailed Design milestone deliverables are delivered to
Iridium and exit criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
4. RELEASE 1.0 - GBS/SBS DETAILED DESIGN
During GBS/SBS Detailed Design for Release 1.0, the project team will
create specifications for programming GBS/SBS Release 1.0. This
specification includes online, batch, and report module designs for
COTS modifications and custom software.
DELIVERABLES:
GBS/SBS PROGRAMMING SPECIFICATION PACKAGES
This deliverable specifies that inputs, outputs, and processing logic
required for each programming work unit as specified during the User
and Technical Design phase for the GBS and SBS for Release 1.0.
Modifications are specified to existing COTS programs, and new
programs are designed where needed.
IBSS PRODUCT TESTING ENVIRONMENT AND PROCEDURES
This deliverable establishes the computing environment, standards, and
procedures required to plan and execute each Product and Acceptance
test for the IBSS.
GBS/SBS PROGRAMMING, COMPONENT TEST, AND PRODUCT TEST ENVIRONMENT
This deliverable establishes the computing environment, tools, and
procedures required to conduct the Programming, Component, Assembly,
Product, and Acceptance tests for the GBS/SBS applications.
PLANNED DELIVERABLE TITLES
System Architecture Diagram
Data Architecture Diagram
Application Software Inventory
HW/System SW Inventory
Interface Specifications
Modifications/Custom Design
GBS Execution Architecture Direction
GBS/SBS Development Server Configuration
GBS/SBS Development Workstation Configuration
GSM ___ Detailed Design
Messaging ___ Detailed Design (Release 1.0)
___ Testing Approach
Asian Suite Multiple Language Prototype
_____ Profile Management Prototype
_____ Detailed Design Specifications
____ Prototype I Development SW
____ Prototype II Development SW
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IBSS DEVELOPMENT AND TEST WORK ORDER
Acceptance Criteria
Acceptance Criteria will be met when the GBS/SBS Detailed Design
Release 1.0 milestone deliverables are delivered to Iridium and exit
criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
5. RELEASE 1.0 - GBS COMPONENT TEST
Andersen will create programming work units utilizing the agreed to
programming specifications from the GBS/SBS Detailed Design
deliverables. The programming work units will be designed to support
the business requirements and functions identified for Release 1.0 in
the Release Plan.
In the Component test activity of this phase, Andersen will verify the
programming work units have been designed to correctly implement the
detailed design specifications. This aspect of the phase exercises
code at the line level, tests looping and branching conditions, and
tests other conditions. Work units developed by the GBS/SBS
development team for Release 1.0 will be component tested.
DELIVERABLES:
EXECUTABLE CODE MODULES
This deliverable yields coded, compiled, and component tested code
modules for each of the programs developed and/or modified by the GBS
team.
COMPONENT TEST CONDITIONS, DATA AND RESULTS
This deliverable documents the component test plan and test results
(conditions, cycles, data, expected results) for each GBS module coded
and tested during Release 1.0. It includes Component Test Execution
Log (actual results, Purify log, Quantify log) and component test
metrics reports.
PRODUCT TEST PLAN
The Product Test Plan describes the test cycles, test conditions, test
data, and expected results that will be used during the execution of
each product and acceptance test conducted for the GBS applications.
Product tests will be conducted for application software developed by
the IBSS team. Acceptance tests will be conducted for software
developed by COTS vendors.
PLANNED DELIVERABLE TITLES
Messaging ___ Detailed Design (Release 1.5)
Release 1.0 ___ Delivered to ____ Assembly Test
Updated Release 1.0 ___ Component Testing Summary
____ SW level Use Case Document
____ SW Design Document
____ Build 6 Software
Acceptance Criteria
Acceptance Criteria will be met when the GBS/SBS Component Test for
Release 1.0 milestone deliverables are delivered to Iridium and exit
criteria are satisfied.
RELEASE 1.5 - GBS/SBS DETAILED DESIGN
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IBSS DEVELOPMENT AND TEST WORK ORDER
Andersen will create specifications for programming GBS/SBS Release
1.5. This specification includes designing modifications to COTS.
This includes batch, online, reporting, and client server
applications.
DELIVERABLES:
GBS AND SBS PROGRAMMING SPECIFICATION PACKAGES
This deliverable specifies that inputs, outputs, and processing logic
required for each programming work unit as specified during the User
and Technical Design phase for the GBS and SBS for Release 1.5.
Modifications are specified to existing COTS programs, and new
programs are designed where needed.
WORKAROUNDS INVENTORY
This deliverable contains the complete list of workarounds identified
during the detailed design phase.
Acceptance Criteria
Acceptance Criteria will be met when GBS/SBS Detailed Design for
Release 1.5 milestone deliverables are delivered to Iridium and exit
criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
7. RELEASE 1.0 - IBS COMPONENT TEST
Andersen will create programming work units utilizing the agreed to
programming specifications from the IBS Detailed Design deliverables.
The programming work units will be designed to support the business
requirements and functions identified in the Release Plan.
In the Component test activity of this phase, Andersen will verify the
programming work units have been designed to correctly implement the
detailed design specifications. This aspect of the phase exercises
code at the line level, tests looping and branching conditions, and
tests other conditions. The testing will include testing of input and
output data to the objects. Work units developed by the IBS
development team for Release 1.0 will be component tested.
DELIVERABLES:
EXECUTABLE CODE MODULES
This deliverable yields coded, compiled, and component tested code
modules for each of the programs developed and/or modified by the IBS
team.
COMPONENT TEST CONDITIONS, DATA AND RESULTS
This deliverable documents the component test plan and test results
for each IBS module coded and tested during Release 1.0. It includes
Component Test Execution Log (actual results, Purify log, Quantify
log) and component test metrics reports.
PRODUCT TEST PLAN
The Product Test Plan describes the test cycles, test conditions, test
data, and expected results that will be used during the execution of
the product test conducted for the IBS application
PLANNED DELIVERABLE TITLES
Shared IBS Unit Test Data
IBSS Operations Monitoring Tool Standards & Procedures
IBS Workstation Configuration
IBS Server Configuration
Acceptance Criteria
Acceptance Criteria will be met when IBS Component Test for Release
1.0 milestone deliverables are delivered to Iridium and exit criteria
are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
8. RELEASE 1.0 - GBS PRODUCT AND ACCEPTANCE TEST
For applications developed partially or fully in the GBS development
environment (e.g., ____), Andersen will conduct an Assembly Test and a
Product Test. For applications developed or modified entirely outside
of the GBS development environment (e.g., ____), the project team will
conduct an Acceptance Test.
Assembly tests are internal to a single application. Assembly tests
will be conducted between work units developed in the GBS environment.
Assembly tests will also be conducted between work units developed in
the GBS environment and work units supplied by outside vendors. This
aspect of the phase tests interaction between work units, and verifies
that the dialogs and transactions perform according to the design
specifications.
The Product Test will verify that the documented requirements of the
application have been met for a specific application. These
requirements will be tested across components built by Andersen and
those supplied by outside vendors. Interaction between assembled
product components is tested during this stage.
During Acceptance Testing, Andersen will verify that products
developed or modified outside of the GBS development environment meet
the requirements as delivered to the outside vendor. Acceptance
Testing takes the place of Product Testing for COTS products or other
products subcontracted for development. The Acceptance Test Team will
validate that software products have been customized by outside
parties to meet GBS functional and technical requirements and
specifications. As in Product Testing, interaction between assembled
product components is tested during this stage.
The last phase of Product or Acceptance Test will be the Requirements
Confirmation (or "User Acceptance") phase. During this phase, Iridium
will participate in the execution of cycles selected from the Product
or Acceptance Test. These cycles will be jointly determined by
Iridium and Andersen to cover representative business requirements.
Following the successful execution of these cycles, Iridium will sign
off that the application meets the documented requirements.
Andersen will provide four days review of the GBS Acceptance Test Plan
for the Gateways' representatives. The review of the Acceptance Test
Plan including test cycles, test conditions, acceptance criteria, and
the testing process will communicate the detail, breadth and general
content of the plan. Questions and issues regarding changing the
functionality of the system will be captured by Iridium, but will not
be discussed during the review. Iridium will consider issues relating
to GBS functionality for future GBS releases.
Iridium will send the Release 1.0 GBS Acceptance Test Approach and
Acceptance Test Plan documents to the Gateways, receive any feedback,
clarify the feedback with the Gateways, and provide consolidated Test
Plan change proposals to Andersen.
DELIVERABLES:
PRODUCT TEST SIGN OFF MEMORANDUM
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IBSS DEVELOPMENT AND TEST WORK ORDER
This memorandum serves to document Iridium's sign-off and approval of
the product and/or acceptance tests executed for the GBS/SBS
applications including: __________________, _________.
IBSS SOFTWARE/DATA DISTRIBUTION PROCEDURES
This document defines the standards, procedures, and tools used to
distribute IBSS software and data between the development and testing
environments, as well as to each of the GBS and IBS production
environments.
PLANNED DELIVERABLE TITLES
HW/System SW Checklist (Revised)
GBS Release 1.0 Product Test Approach
GBS Release 1.0 Product Test Plan
GBS Release 1.0 Product Test Model
GBS Release 1.0 Product Test Execution Log
____ Acceptance Test
Detailed HW and SW List (by GBS size)
Export Restrictions
Messaging ___ Component Specs (Release 1.5)
SSS GBS Interface Control Document
Acceptance Criteria
Acceptance Criteria will be met when GBS Product and Acceptance Test
for Release 1.0 milestone deliverables are delivered to Iridium and
exit criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
9. RELEASE 1.5 - GBS COMPONENT TEST
Andersen will create programming work units utilizing the agreed-to
programming specifications from the GBS/SBS Detailed Design
deliverables. The programming work units will be designed to support
the business requirements and functions identified in the Release
Plan.
In the Component test aspect of this phase, Andersen will verify the
programming work units have been designed to correctly implement the
detailed design specifications. This aspect of the phase exercises
code at the line level, tests looping and branching conditions, and
tests other conditions. Work units developed by the GBS/SBS
development team will be component tested.
DELIVERABLES:
EXECUTABLE CODE MODULES
This deliverable yields coded, compiled, and component tested code
modules for each of the programs developed and/or modified by the GBS
team for Release 1.5.
COMPONENT TEST CONDITIONS, DATA AND RESULTS
This deliverable documents the component test plan and test results
for each GBS module coded and tested during Release 1.5. It includes
Component Test Execution Log (actual results, Purify log, Quantify
log) and component test metrics reports.
PRODUCT TEST PLAN
The Product Test Plan describes the test cycles, test conditions, test
data, and expected results that will be used during the execution of
the product test conducted for the relevant components of the GBS
application.
PLANNED DELIVERABLE TITLES
IBSS SW/Data Distribution Standards & Procedures
IBSS New System Configuration, Standards & Procedures
IBSS Trouble Management Tool Standards & Procedures
GBS/SBS Server Configuration
GBS/SBS Workstation Configuration
GBS Operating Procedures
_________________ Delivered to ____ Assembly Test
Updated _______________ Detailed Design Documents
_________________ Component Testing Summary
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IBSS DEVELOPMENT AND TEST WORK ORDER
Acceptance Criteria
Acceptance Criteria will be met when GBS Component Test for Release
1.5 milestone deliverables are delivered to Iridium and exit criteria
are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
10. RELEASE 1.0 - IBS PRODUCT TEST
Andersen will execute Assembly tests between the work units for IBS
Release 1.0. This aspect of the phase tests interaction between work
units, and verifies that the dialogs and transactions perform
according to the design specifications.
Andersen will execute the Product Test that will verify that each IBS
application developed or modified functions as designed across all
product business functions. Product Testing validates that the
requirements of each IBS application have been met. Interaction
between assembled product components and external systems interfaces
is thoroughly tested during this stage.
DELIVERABLES:
PRODUCT TEST SIGN OFF MEMORANDUM
This memorandum serves to document Iridium's sign-off and approval of
the product test executed for the IBS application.
IBS RESTART/RECOVERY PLAN
This document defines the tools, standards, and procedures used to
restart and recover IBS applications in the event of critical hardware
or software failure. This document includes procedures for restoring
data from backup and/or archive volumes as well as procedures for
returning applications to a point of consistency.
IBS PERFORMANCE TEST PLAN
This document defines the approach, standards, procedures, tools, and
environment used to test the performance of the IBS applications.
This document also describes the cycles and conditions required to
test the performance of each application.
PLANNED DELIVERABLE TITLES
Package Installation Checklist
HW/System SW Checklist (Revised)
IBS Operations Architecture Test Plan
IBS User Procedures and Training Materials (includes on-line help)
IBS Product Test Planning
IBS Product Test Strategy and Approach
IBS Product Test Plan
Common Test Scenarios
Test Methods
Success Criteria
IBS Product Test
IBS Product Test Results
Test Method results
Success Criteria Results
Shared Integration Test Data
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IBSS DEVELOPMENT AND TEST WORK ORDER
Acceptance Criteria
Acceptance Criteria will be met when IBS Product Test for Release 1.0
milestone deliverables are delivered to Iridium and exit criteria are
satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
11. RELEASE 1.0 - INTEGRATION TEST
Andersen will perform Integration Testing for Release 1.0 to validate
that specified business functions can be performed on an end-to-end
basis across the IBSS solution. Integration test will verify that the
IBSS applications interact with each other and that transactions which
cross IBSS applications can be successfully executed across the
involved IBSS applications. Integration test of Release 1.0 will
exercise transactions among IBS Release 1.0, GBS/SBS Release 1.0, and
____ Release 1.0. It will also exercise transactions between those
systems and the Gateway components SSS and OMC-G.
The IBS and GBS Operations Training Plan will be developed during this
phase. This plan will outline the steps and deliverables necessary to
train the IBS and GBS/SBS System Operators.
At the conclusion of Integration Test, an Integration Acceptance test
will be conducted. During this phase, Iridium will participate in
the execution of cycles selected from the Integration Test. These
cycles will be jointly determined by Iridium and Andersen to cover
representative integration cases. Following the successful execution
of these cycles, Iridium will sign off that the applications as
delivered from Product Test have been successfully integrated.
DELIVERABLES:
IBSS INTEGRATION TEST PLAN
The IBSS integration test plan describes the test cycles, test
conditions, test data, and expected results that will be used during
the execution of the integration test across IBSS applications.
IBSS INTEGRATION TEST SIGN-OFF MEMORANDUM
This memorandum serves to document Iridium's sign-off and approval of
the Release 1.0 Integration Test executed for the IBSS application.
PLANNED DELIVERABLE TITLES
Release 1.0 Integration Test Approach
Release 1.0 Integration Test Plan
Release 1.0 Integration Test Model
Release 1.0 Integration Test Execution Log
Integration Tested IBSS Components
GBS Operations Test Plan
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IBSS DEVELOPMENT AND TEST WORK ORDER
Acceptance Criteria
Acceptance Criteria will be met when Integration Test for Release 1.0
milestone deliverables are delivered to Iridium and exit criteria are
satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
12. RELEASE 1.5 - GBS PRODUCT AND ACCEPTANCE TEST
For applications developed partially or fully in the GBS development
environment (e.g., ____), Andersen will conduct an Assembly Test and a
Product Test. For applications developed or modified entirely outside
of the GBS development environment, the project team will conduct an
Acceptance Test.
Assembly tests are internal to a single application. Assembly tests
will be conducted between work units developed in the GBS environment.
Assembly tests will also be conducted between work units developed in
the GBS environment and work units supplied by outside vendors. This
aspect of the phase tests interaction between work units, and verifies
that the dialogs and transactions perform according to the design
specifications.
The Product Test will verify that the documented requirements of the
application have been met. These requirements will be tested across
components built by Andersen and those supplied by outside vendors.
Interaction between assembled product components and external systems
interfaces is thoroughly tested during this stage.
During Acceptance Testing, Andersen will verify that products
developed or modified outside of the GBS development environment meet
the requirements as delivered to the outside vendor. Acceptance
Testing takes the place of Product Testing for Commercial Off the
Shelf ("COTS") products or other products subcontracted for
development. The Acceptance Test Team will validate that software
products have been customized by outside parties to meet GBS
functional and technical requirements and specifications. As in
Product Testing, interaction between assembled product components and
external systems interfaces is thoroughly tested during this stage.
The last phase of Product or Acceptance Test will be the Requirements
Confirmation (or "User Acceptance") phase. During this phase, Iridium
will participate in the execution of cycles selected from the Product
or Acceptance Test. These cycles will be jointly determined by
Iridium and Andersen to cover representative business requirements.
Following successful execution of these cycles, Iridium will sign off
that the application meets the documented requirements.
Iridium will send the Release 1.5 GBS Acceptance Test Approach and
Acceptance Test Plan documents to the Gateways, receive any feedback,
clarify the feedback with the Gateways, and provide consolidated Test
Plan change proposals to Andersen.
DELIVERABLES:
PRODUCT/ACCEPTANCE TEST SIGN-OFF MEMORANDA
This memorandum serves to document Iridium's sign-off and approval of
the Product Test executed for the GBS/SBS applications developed by
the IBSS team, and Iridium's acceptance of the application code
developed by COTS vendors.
GBS/SBS RESTART/RECOVERY PLAN
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IBSS DEVELOPMENT AND TEST WORK ORDER
This document defines the tools, standards, and procedures used to
restart and recover GBS/SBS applications in the event of critical
hardware or software failure. This document also includes procedures
for restoring data from backup and/or archive volumes as well as
procedures for returning applications to a point of consistency.
GBS PERFORMANCE TEST PLAN
This document defines the approach, standards, procedures, tools, and
environment used to test the performance of the GBS applications. This
document also describes the cycles and conditions required to test the
performance of each application.
WORKAROUNDS
This document contains the complete descriptions of the identified
workarounds - this effort will not exceed 200 Andersen staff days.
PLANNED DELIVERABLE TITLES
GBS Release 1.5 Product Test Approach
GBS Release 1.5 Product Test Plan
GBS Release 1.5 Product Test Model
GBS Release 1.5 Product Test Execution Log
Acceptance Criteria
Acceptance Criteria will be met when GBS Product and Acceptance Test
for Release 1.5 milestone deliverables are delivered to Iridium and
exit criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
13. RELEASE 1.0 - IBS DEPLOYMENT
The IBS will be deployed at the Main Control Facility (MCF) in
Lansdowne, Virginia. Prior to deployment, Andersen will produce a
Facilities Requirements document detailing the specifications of the
MCF for IBS Deployment. The IBS Deployment Plan will indicate
detailed deliverables and time lines for supporting the IBS hardware
and software purchase and delivery. The plan will also detail the
schedule and dependencies of any subcontractors. To support the IBS
deployment, the IBS Deployment team will perform the following tasks:
1. Site Inspection
Based on the specifications of the Facilities Requirements,
the IBS Deployment team will inspect the MCF for compliance
with the site requirements prior to deployment.
2. Hardware and System Software Ordering
Based on the detailed configurations in the IBSS
Hardware/Software Purchase Plan, Andersen will order the
required hardware and system software for the IBS.
3. Hardware Configuration and Installation
This activity takes place at the MCF. As ordered hardware and
system software arrives at the MCF, the team will perform the
following staging activities: hardware receiving and
inventory, hardware mounting, hardware burn-in, and hardware
cabling.
Once completed, hardware configuration will take place. This
includes: operating system installation, configuration and
fine-tuning, disk partitioning, database engine installation,
connectivity testing between components, and configuration and
testing client workstations over the application server.
4. Software Configuration and Installation
Once the hardware installation and configuration are complete,
the IBS system software, application software, license
agreements, and all related materials associated with the IBS
deployment effort will be sent to the MCF site. During this
activity, the application software is installed. Application
software for the IBS is detailed in the IBSS Hardware/Software
Purchase Plan.
5. Training & Training Material
Training and documentation will be provided for IBS system
operators. This training includes instruction in system
administration and software application operations. Training
and Documentation will be provided to the Iridium Network
Settlement Operations users. These users are limited to the
staff expected to perform data maintenance, report generation
and maintenance, and usage of the DSS system and General
Ledger as necessary to meet the IBS requirements.
DELIVERABLES:
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IBSS DEVELOPMENT AND TEST WORK ORDER
MCF SITE INSPECTION MEMORANDUM
This memorandum serves to document that the Deployment team conducted
the pre-installation gateway site inspection.
INSTALLATION SIGN-OFF MEMORANDUM
This memorandum serves to document that Iridium has accepted the
hardware and system software installation at the MCF.
ACCEPTANCE SIGN-OFF MEMORANDUM
This memorandum serves to document Iridium's acceptance of the
application software installed and tested at the MCF.
Acceptance Criteria
Acceptance Criteria will be met when IBS Deployment for Release 1.0
milestone deliverables are delivered to Iridium and exit criteria are
satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
14. RELEASE 1.5 - INTEGRATION TEST AND IRIDIUM SYSTEM TEST
Integration Testing for Release 1.5 validates that business functions
can be performed on an end-to-end basis across the IBSS solution.
Integration test verifies that the IBSS applications interact with
each other and that transactions which cross IBSS applications can be
successfully executed across the involved IBSS applications.
Integration test of Release 1.5 will exercise transactions among IBS
as delivered with Release 1.0, ____ as delivered with Release 1.0, and
GBS/SBS as delivered with Release 1.5. It will also exercise
transactions between those systems and the Gateway components SSS and
OMC-G.
Andersen will test, with the support of SATCOM and Iridium, the IBSS
software applications to confirm that the software applications
correctly communicate with the System Control Segment (SCS) and
Gateways. System Test planning and execution will require joint
efforts and coordination between Iridium, Andersen, and SATCOM. The
System Testing Team will include functional and technical experts from
Iridium and SATCOM. Actual IRIDIUM customer equipment will be
required, including ISUs and SIM cards.
At the conclusion of Integration & System Test, an Integration &
System Acceptance test will be conducted. During this phase, Iridium
will participate in the execution of cycles selected from the
Integration & System Test. These cycles will be jointly determined by
Iridium and Andersen to cover representative system integration cases.
Following the successful execution of these cycles, Iridium will sign
off that the applications as delivered from Product Test have been
successfully integrated.
Iridium will send the Release 1.5 Integration Test Approach and
Acceptance Test Plan documents to the Gateways, receive any feedback,
clarify the feedback with the Gateways, and provide consolidated
Integration Test Plan change proposals to Andersen.
DELIVERABLES:
IBSS INTEGRATION AND SYSTEM TEST PLAN
The IBSS Integration Test Plan describes the test cycles, test
conditions, test data, and expected results that will be used during
the execution of the integration test across IBSS applications, and
for testing with SATCOM interfaces.
INTEGRATION AND SYSTEM TEST SIGN-OFF MEMORANDUM
This memorandum serves to document Iridium's sign-off and approval of
the Release 1.5 Integration Test executed across the IBSS application,
and interface tests conducted with SATCOM.
IBS PERFORMANCE TEST SIGN-OFF MEMORANDUM
This memorandum summarizes the results of the IBS performance testing
activities. It documents that the test cycles and test conditions
defined in the IBS Performance Test Plan were executed.
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IBSS DEVELOPMENT AND TEST WORK ORDER
GBS PERFORMANCE TEST SIGN-OFF MEMORANDUM
This memorandum summarizes the results of the GBS performance testing
activities. It confirms that the test cycles and test conditions
defined in the GBS Performance Test Plan were executed.
Acceptance Criteria
Acceptance Criteria will be met when the Integration Test for Release
1.5 and IRIDIUM System Test milestone deliverables are delivered to
Iridium and exit criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
15. BETA GATEWAY ACCEPTANCE AND IBS ACCEPTANCE
Beta Gateway Deployment, Testing, and Acceptance support are part of
the Deployment Work Order. Development of deliverables for this phase
are, therefore, part of the Deployment Work Order. The final list of
deliverables and Acceptance Criteria will be included in the
Deployment Work Order.
IBS DEPLOYMENT ACCEPTANCE TEST
The purpose of the IBS Deployment Acceptance Test is to verify that
the IBS functions as shipped. Although this will not serve as a
functional test, a series of functional regression tests will be
executed to verify a complete implementation. At the completion of
this activity, the IBS should be operational in terms of hardware,
network connectivity, and external interfaces.
Acceptance Criteria
Acceptance Criteria will be met when the Beta Gateway Acceptance and
IBS Acceptance milestone deliverables are delivered to Iridium and
exit criteria are satisfied.
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IBSS DEVELOPMENT AND TEST WORK ORDER
16. COMMERCIAL ACTIVATION
At Commercial Activation, Iridium will initiate revenue generating
calls across the IRIDIUM network.
Acceptance Criteria:
The Commercial Activation milestone will be considered the initiation
of revenue generating calls across the Iridium network. It will occur
at the conclusion of subscriber trials. At Commercial Activation, an
Iridium subscriber will be able to buy service, be provisioned on the
IRIDIUM network, and be billed correctly for the services purchased
and use of the network. Settlement among Iridium, the deployed
Gateways, and associated Service Providers will occur at this time.
Commercial Activation is anticipated to be September 23, 1998.
Payment for this milestone will occur at Commercial Activation or
January 1, 1999 which ever comes first.
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IBSS DEVELOPMENT AND TEST WORK ORDER
2.2 HARDWARE, SYSTEM SOFTWARE, AND SOFTWARE LICENSE FEES
A complete listing and detailed configuration of the hardware and software to
be provided as part of this Work Order is included in the "IBSS
Hardware/Software Purchase Plan (Version 1.0)" document dated November 15,
1996.
<TABLE>
<CAPTION>
===============================================================================================================
ESTIMATED 1996 PAYMENT ESTIMATED 1997 PAYMENT
===============================================================================================================
<S> <C> <C> <C>
HARDWARE
- ---------------------------------------------------------------------------------------------------------------
SOFTWARE
===============================================================================================================
TOTAL
===============================================================================================================
GRAND TOTAL
===============================================================================================================
</TABLE>
Andersen Consulting's affiliated entity Proquire LLC ("Proquire"), formerly
named Andersen Consulting Financial Limited Partnership ("ACFLP"), will procure
for Iridium the hardware and software listed in this section. This list may be
amended by Andersen upon reasonable notice to Iridium. Proquire shall provide
such third party hardware and software products subject to the terms and
conditions set forth on Proquire's Sales Contract executed by the parties and
dated May, 1, 1996. Andersen, as agent for Proquire, shall invoice, collect,
and receive from Iridium all sums that are or become due to Proquire, including
taxes and shipping charges as applicable. Andersen shall remain accountable to
Iridium for its obligations as set forth in this Agreement.
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IBSS DEVELOPMENT AND TEST WORK ORDER
SECTION 3.0 ASSUMPTIONS
1. The project team will be staffed with full-time personnel with the
appropriate skills in keeping with the requirements of the Program
Plan.
2. Iridium and Andersen management will support timely resolution of
issues.
3. Participation by outside parties in testing other than as planned
between Iridium and Andersen will be to observe and on a
non-interference basis. There is no separate testing effort for these
outside parties.
4. ________ will be responsible for all IBS shipping and shipping costs
to the production facility.
5. The GBS and SBS were designed to be a generic solution to meet common
requirements. It is understood that some Gateways will need to
separately procure additional modifications to support their unique
business needs.
6. This Work Order includes the following interfaces with Network
Operations:
- Call Detail Record file collection by the IBS and GBS from
each OMC-G (Operations and Maintenance Control - Gateway)
- Call Detail Record files made available to SCS (System Control
Segment) for performance analysis
- Hot Call Detail Records sent to the IBS and GBS from each
OMC-G
- Call Detail Record collection schedules sent from IBS to each
OMC-G
- Inter-administrative Revenue Accounting and Statistics report
files sent to the IBS from each OMC-G
- Mobile subscriber administration (provisioning) commands sent
to the telephony and paging switches from each GBS
- Network Status and Gateway Status sent to the IBS and GBS from
each OMC-G and the SCS
- Fault Management event notification sent to IBS and each GBS
from each OMC-G
- Network Advisories sent to IBS and each GBS from SCS, and each
OMC-G
- Trouble tickets exchanged between all systems
- Email exchanged between all systems
- Network time received from OMC-G by GBS
- Arbitrary file transfers to/from IBS, GBS, SCS, OMC-G
- Connectivity checks (ping) between interfacing systems
- Remote access to the OMC-G from GBS
7. Call volumes will be as specified in the Iridium IBS Capacity Planning
and Iridium GBS Capacity Planning documents dated November 1996.
8. Taxation will be provided based on Service Category, Service Type, and
Service Code as outlined in the __________________ document dated
November 1996.
9. ___________ will create and maintain a central IBSS Project Library
containing all project documents and relevant material and accessible
by the project team.
10. Configuring the data for Gateway Deployment is not covered in the
scope of Work Order 001.
11. Fixes applied to software during Acceptance Tests will be re-tested
only as necessary to verify that the software fix has resolved the
test issue.
12. If dependencies (external to IBSS) required to meet Acceptance
Criteria prevent Andersen from completing milestones and Andersen can
show that they have met their obligations (e.g., using simulated
production test data to run test cycles) with respect to those
milestones, Iridium shall pay Andersen for successfully completing
that milestone.
44
<PAGE> 62
IBSS DEVELOPMENT AND TEST WORK ORDER
13. IBSS-J requirements documented in the RTM are not part of this Work
Order. IBSS-J represents the work commissioned by Nippon Iridium Corp.
with Andersen to address their unique gateway requirements.
14. Test scripts will be automated to the extent possible so they can be
re-used in future testing efforts.
15. Fraud functionality is expected to be provided by the product
___________________ interfaced with ____.
16. The list of required RTM updates in the RTM binder will be entered
into the RTM database.
17. The IBSS interfaces that will be built will be documented as
specifications. Andersen to provide the following specifications:
- ____________
- ____________
- ____________
- Invoice Viewer (will provide one standard viewer)
- SPEdi
- GBS - IBS Interfaces (BER/SER flows)
___ to provide the following specifications:
- Address Validation
- Commission Payments
- Credit Card Charge Authorization/Validation/Debits
- Credit Scoring
- Dunning & Welcome Letters
- External Identification Validation
- General Ledger
- Report Generator (data layout)
- Taxation
18. For third-party software and software components, Andersen will test
those functions within the software to demonstrate compliance with the
Release Plan. Testing of software capabilities beyond those necessary
to meet the IBSS requirements is out of the scope of this Work Order.
19. Iridium personnel working with the Gateways to review Product and
Acceptance Test Planning documentation will have a detailed knowledge
of the test methodology, test plans, and test models. Andersen will
train Iridium testing personnel to use the test planning tools.
20. Services to be supported at Commercial Activation by IBSS:
TELEPHONY
BASIC
* Telephony
* Emergency Calls
SUPPLEMENTARY TELEPHONY SERVICES
* Call Forward unconditional
* Call Forward on busy
* Call Forward on not reachable
* Barring of Outgoing Calls
* Barring of Incoming Calls
* Enhanced Call Completion
* Voice Mail
MESSAGING
BASIC MESSAGING
* Direct Messaging Service (DMS)
45
<PAGE> 63
IBSS DEVELOPMENT AND TEST WORK ORDER
SUPPLEMENTARY MESSAGING SERVICES
* Subscriber Service Session
* Delivery Area Specification
* Message Recall/Retransmit
* Message Blocking/Override
* Group Messaging
* Message Diversion
* Message Hold
* Voice Mail
BUNDLED MESSAGING SERVICES (MTLI)
MXU
SOLAR POWER BOOTH
46
<PAGE> 64
IBSS DEVELOPMENT AND TEST WORK ORDER
ACCEPTED AND AGREED TO:
IRIDIUM LLC
By: /s/ PAUL V. DAVERIO
--------------------------------
Name: Paul V. Daverio
--------------------------------
Title: CFO
--------------------------------
Date: December 16, 1996
--------------------------------
ANDERSEN CONSULTING LLP
By: /s/ ALBERT M. KRALL
--------------------------------
Name: Albert M. Krall
--------------------------------
Title: Partner
--------------------------------
Date: December 10, 1996
--------------------------------
47
<PAGE> 1
Exhibit 10.17
FORM OF
SHARE ISSUANCE AGREEMENT
DATED AS OF MAY [ ], 1997
BY AND BETWEEN
IRIDIUM WORLD COMMUNICATIONS LTD.
AND
IRIDIUM LLC
<PAGE> 2
SHARE ISSUANCE AGREEMENT
This SHARE ISSUANCE AGREEMENT (this "Agreement") is by and between
Iridium LLC, a limited liability company organized under the laws of the State
of Delaware ("Iridium"), and Iridium World Communications Ltd., a company
organized under the laws of Bermuda (the "Company"), and is made and entered
into as of May __, 1997.
WHEREAS, Iridium is commercializing the IRIDIUM System, a wireless
communications system designed to provide global wireless personal
communications services;
WHEREAS, the Company was formed to act as a special-purpose member of
Iridium and to have no other business; and pursuant to the 1997 Subscription
Agreement between the Company and Iridium, Iridium has agreed to create, issue
and sell, and the Company has agreed to purchase, Class 1 Membership Interests
of Iridium ("Class 1 Interests") at an aggregate purchase price equal to the
proceeds to the Company from the initial public offering (the "IPO") of its
Class A Common Stock, par value $.01 per share (the "Class A Common Stock");
and upon the purchase of such Class 1 Interests with the proceeds from the IPO
the Company will be admitted as a member of Iridium;
WHEREAS, Iridium may desire that the Company authorize, issue, offer
and sell its securities (the "Company Securities") from time to time and invest
the proceeds from such sales of Company Securities in limited liability company
interests of Iridium ("Iridium Interests"); and the Company desires to acquire
from time to time Iridium Interests, including Class 1 Interests, with the
proceeds from any such issuance of Company Securities;
WHEREAS, Iridium has adopted the Iridium LLC Share Option Plan of 1996
(the "1996 Option Plan")and Iridium may desire to adopt other employee benefit
plans from time to time (each such plan, an "Iridium Benefit Plan"); and
Iridium desires to have the ability to (i) issue options to purchase Class A
Common Stock ("Class A Options") from time to time pursuant to the 1996 Option
Plan and (ii) to issue Class A Options and other rights to acquire Class A
Common Stock ("Class A Rights") pursuant to other Iridium Benefit Plans;
WHEREAS, the Company desires to facilitate Iridium's granting of Class
A Options and Class A Rights pursuant to Iridium Benefit Plans, and the Company
desires
<PAGE> 3
to acquire Class 1 Interests in exchange for shares of Class A Common Stock
issued by the Company in connection with the exercise of such Class A Options
and the exercise or conversion of Class A Rights.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICABILITY
Section 1.01. Definitions. As used in this Agreement, the
following terms have the following respective meanings:
"Agreement" means this Share Issuance Agreement.
"Benefit Plan Schedule" has the meaning assigned thereto in Section 4.02.
"Business Day" means a day other than a Saturday, Sunday, national or New
York State holiday or other day on which commercial banks in New York City are
authorized or required by law to close.
"Class A Common Stock" means Class A Common Stock, par value $.01 per
share, of the Company.
"Class A Option" means an option to purchase one or more shares of Class A
Common Stock that is issued pursuant to an Iridium Benefit Plan.
"Class A Right" means a right (other than a Class A Option) to acquire,
either directly or beneficially, one or more shares of Class A Common Stock
that is issued pursuant to an Iridium Benefit Plan.
"Class 1 Interests" means Class 1 Membership Interests of Iridium.
"Closing Price" means, for each Trading Day, the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either
case on the principal national securities exchange on which the Class A Common
Stock is listed or admitted to trading, or, if the Class A Common Stock is not
so listed or admitted to trading on a national securities exchange, on the
Nasdaq
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<PAGE> 4
National Market System or, if the Class A Common Stock is not quoted on the
Nasdaq National Market System, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by Iridium for that purpose or, if the
Class A Common Stock is not traded in the over-the-counter market, the fair
market value per share of the Class A Common Stock as determined by Iridium
Board (whose determination shall be conclusive).
"Commission" means the U.S. Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
"Common Stock" means the Class A Common Stock and any stock of any class of
the Company which has no preference in respect of dividends or amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company and which is not subject to redemption by the
Company. However, shares issuable on exchange of Class 1 Interests pursuant to
Article IV shall include only shares of the class designated as Class A Common
Stock of the Company on the date hereof, or shares of any class or classes
resulting from any reclassification thereof and which have no preferences in
respect of dividends or amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company and which are
not subject to redemption by the Company; provided that, if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable and registerable shall be substantially in the proportion which the
total number of shares of such class resulting from all such reclassification
bears to the total number of shares of all such classes resulting from all such
reclassification.
"Company" shall have the meaning set forth in the preamble and shall also
include the Company's successors, if any.
"Company Board" means the Board of Directors of the Company.
"Company Certificate" has the meaning assigned thereto in Section 3.05.
"Company Securities" means (i) equity securities of the Company, including
Common Stock and any class of preferred stock and (ii) any security issued by
the Company that is
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<PAGE> 5
convertible into, or exchangeable or exercisable for, equity securities of the
Company.
"Directed Offering" has the meaning assigned thereto in Section 2.03.
"Directed Offering Period" means the period commencing on the date Iridium
delivers a Sale Notice to the Company and ending on the 90th day following such
date; provided that the Directed Offering Period may be extended by Iridium, at
its sole discretion, by delivering written notice of such extension to the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, or any successor
thereto, as the same shall be amended from time to time.
"Exchange Notice" has the meaning assigned thereto in Section 4.02.
"Exchange Rate" has the meaning assigned thereto in Section 4.01.
"Holder" has the meaning assigned thereto in Section 4.01.
"indemnified party" has the meaning assigned thereto in Section 6.01.
"Iridium" shall have the meaning set forth in the preamble and shall also
include Iridium's successors.
"Iridium Benefit Plan" means any employee benefit plan of Iridium existing
on the date hereof or hereafter created, each as adopted by the Iridium Board
and as amended from time to time, including the 1996 Option Plan.
"Iridium Board" means the Board of Directors of Iridium.
"Iridium Interests" means any limited liability company interest in
Iridium, including the Class 1 Interests, and any security issued by Iridium
that is convertible into, or exchangeable or exercisable for, limited liability
company interests in Iridium.
"LLC Agreement" means the Limited Liability Company Agreement of Iridium
LLC dated as of July 29, 1996, as amended from time to time.
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<PAGE> 6
"IPO" means the initial underwritten public offering of the Class A Common
Stock as contemplated by the registration statement on Form S-1 under the
Securities Act filed by the Company (file No. 333-23419) on March 14, 1997, as
such registration statement is amended from time to time.
"IPO Date" means the date of the consummation of the IPO.
"managing underwriter or underwriters" means the person or persons selected
by Iridium and the Company in a Directed Offering to manage an underwritten
offering of Company Securities.
"1996 Option Plan" means the Iridium LLC Share Option Plan of 1996, as
amended from time to time.
"Noticed Interests" has the meaning assigned thereto in Section 2.02.
"Offering Documents" has the meaning assigned thereto in Section 3.02.
"person" means a natural person, partnership (whether general or limited),
limited liability company, trust, estate, association, corporation, custodian,
nominee or any other individual or entity in its own or any representative
capacity.
"Process Agent" has the meaning assigned thereto in Section 7.07.
"Sale Notice" has the meaning assigned thereto in Section 2.02.
"Sale Right" has the meaning assigned thereto in Section 2.01.
"Securities Act" means the Securities Act of 1933, or any successor
thereto, as the same shall be amended from time to time.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on the applicable
exchange or in the applicable market.
"Transfer" has the meaning assigned thereto in Article V.
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<PAGE> 7
"Underlying Shares of Class A Common Stock" has the meaning assigned
thereto in Section 4.01.
"underwriter" means any underwriter of an underwritten offering of Company
Securities pursuant to Article III.
Section 1.02. Interpretation. The following provisions shall govern
the interpretation of this Agreement:
(a) The singular form of any word used herein, including the terms
defined in Section 1.01, includes the plural, and vice versa, unless the
context otherwise requires. The use herein of a pronoun of any gender shall
include correlative words of the other gender.
(b) Unless otherwise expressly indicated, all references herein to
"Articles", "Sections" and other subdivisions hereof are to the corresponding
Articles, Sections or subdivisions of this Agreement; and the words "herein",
"hereof", "hereunder" and other words of similar import refer to this Agreement
as a whole and not to any particular Article, Section or subdivision hereof.
(c) The headings or titles of the several Articles and Sections
hereof, and any table of contents appended to copies hereof, shall be solely
for convenience of reference and shall not affect the meaning, construction or
effect of this Agreement.
(d) Each reference herein to any agreement, instrument or other
document shall mean such agreement, instrument or document as from time to time
amended, modified or supplemented in accordance with the terms hereof and
thereof. The term "including" shall be construed to mean "including but not
limited to".
ARTICLE II
IRIDIUM'S RIGHT TO REQUIRE
FUTURE PURCHASES OF IRIDIUM INTERESTS
Section 2.01. General Sale Rights of Iridium. Subject to the terms
and conditions set forth herein, at any time and from time to time after the
IPO Date, Iridium shall have the right (the "Sale Right") to create, issue and
sell to the Company, and the Company shall have the obligation to purchase from
Iridium, Iridium Interests.
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<PAGE> 8
Section 2.02. Notice Required for Exercise of Sale Right. In order
to exercise its Sale Right, Iridium shall deliver written notice (a "Sale
Notice") to the Company of (i) its intent to exercise its rights under this
Article II and (ii) the type and number of Iridium Interests intended to be
sold to the Company (the "Noticed Interests"); provided that if Iridium elects
to change the number or type of Noticed Interests during a Directed Offering
Period an additional Sale Notice shall not be required.
Section 2.03. Company's Obligation to Consummate Offering of Company
Securities in Respect of Noticed Interests. The Company hereby agrees that
upon receipt of a Sale Notice the Company shall, within the Directed Offering
Period and in accordance with Article III, use its best reasonable efforts to
consummate an offering of Company Securities (a "Directed Offering"), and apply
the proceeds received by the Company from such Directed Offering to the
purchase of the Noticed Interests, on terms and conditions determined by
Iridium; provided that the Company shall not be required to purchase Noticed
Interest until the date it first receives proceeds from the Directed Offering.
ARTICLE III
PROCEDURES FOR DIRECTED OFFERINGS
Section 3.01. Terms of Directed Offerings; Corporate Action by the
Company. (a) The Company hereby agrees that, subject to applicable law, the
terms of any Directed Offering shall be structured at the direction of Iridium,
including (i) the quantity, class and terms of the Company Securities to be
offered, (ii) whether the Company Securities to be offered will be registered
under the Securities Act or whether such Company Securities will be sold
pursuant to an exemption from such registration, (iii) whether the Directed
Offering will be consummated on a date certain or will be made on a delayed or
continuous basis, (iv) whether the Company Securities will be offered by the
Company or by Iridium or jointly by the Company and Iridium and (v) the terms
under which the proceeds from the sale of the Company Securities will be
applied to the purchase of the Noticed Interests.
(b) The Company hereby agrees, subject to applicable law, to take
all action necessary to consummate any Directed Offering in accordance with the
terms of this Agreement, including (i) authorizing the issuance and sale
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<PAGE> 9
of the Company Securities (and authorizing and reserving for issuance all
Company Securities issuable upon the exercise of the Company Securities to be
issued in the Directed Offering) and (ii) amending or supplementing the
Company's governing documents as required by the terms of the Directed Offering
and seeking shareholder or other approval, if necessary, for such action.
(c) In addition to any other obligation of the Company hereunder, the
Company hereby agrees that at any time and from time to time after the IPO
Date, it will increase its authorized share capital as directed by Iridium,
including authorizing additional shares of Class A Common Stock and creating
and authorizing one or more series of preferred stock, within thirty days of
receipt of written instructions from Iridium to effect such an increase.
Section 3.02. Cooperation in Preparation of Offering Documents.
Iridium and the Company hereby agree to cooperate in the preparation of any
offering documents relating to a Directed Offering (the "Offering Documents"),
including (i) any registration statements or amendments thereto required to be
filed with the Commission pursuant to Section 3.04 in connection with the
registration of Company Securities to be issued in a Directed Offering and (ii)
any disclosure memoranda or amendments thereto to be used in connection with a
Directed Offering of Company Securities exempt from registration under the
Securities Act.
Section 3.03. Customary Agreements. Iridium and the Company hereby
agree to enter into and deliver all customary agreements (including
underwriting or purchase agreements) as are reasonably requested of the Company
or Iridium to expedite or facilitate any Directed Offering.
Section 3.04. Registration Statements. (a) In connection with the
obligations of the Company under Articles II and III in respect of any Directed
Offering of Company Securities registered under the Securities Act the Company
hereby agrees to:
(i) prepare and file with the Commission, a registration statement
with respect to the Company Securities on any form which may be utilized by
the Company and which shall permit the disposition of such Company
Securities in accordance with the terms of the Directed Offering and use
its reasonable best efforts to cause such registration statement to become
effective as directed by Iridium;
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<PAGE> 10
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement for the period required for the disposition of
the Company Securities in accordance with the terms of the Directed
Offering and to comply with the provisions of the Securities Act with
respect to the sale or other disposition of the Company Securities covered
by such registration statement;
(iii) for a reasonable period prior to the filing of such registration
statement, and throughout the period required for the disposition of the
Company Securities in accordance with the terms of the Directed Offering,
and upon reasonable notice, make available for inspection by Iridium, any
underwriter participating in any distribution pursuant to the registration
statement, and any attorney or accountant designated by Iridium, at a
reasonable time and in a reasonable manner, financial and other information
and books and records of the Company, and cause the officers, directors and
employees of the Company to respond to such inquiries and supply
information reasonably requested by Iridium and any such underwriter,
attorney or accountant in the course of conducting a reasonable
investigation within the meaning of Section 11 of the Securities Act;
(iv) promptly notify Iridium, and the managing underwriter or
underwriters, if any, thereof and confirm such advice in writing, (A) when
such registration statement or supplement or post-effective amendment has
been declared or becomes effective, (B) of the issuance by the Commission
of any stop order suspending the effectiveness of such registration
statement or the initiation or threatening of any proceedings for that
purpose, (C) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Company Securities Offered in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose, or (D) of the happening of any event during the period such
registration statement is effective which makes any statement made in such
registration statement or the related prospectus untrue in any material
respect or which requires the making of any changes in such registration
statement or prospectus in order to make the statements therein not
misleading;
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<PAGE> 11
(v) upon the occurrence of any event contemplated by Section
3.04(a)(iv)(D) hereof, use its reasonable best efforts to prepare a
supplement or post-effective amendment to such registration statement or
the related prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Company Securities, such prospectus will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(vi) use its reasonable best efforts to obtain promptly the
withdrawal of any order suspending the effectiveness of such registration
statement or any post-effective amendment thereto;
(vii) provide copies of any prospectus, any amendment to the
registration statement or amendment or supplement to any prospectus or any
document which is to be incorporated by reference into such registration
statement or any prospectus after initial filing of such registration
statement, a reasonable time prior to the filing of any such prospectus,
amendment, supplement or document, to Iridium and the underwriters, if any,
and make the representatives of the Company available to Iridium and the
underwriters, if any, for discussion of any such document;
(viii) use its reasonable best efforts to (A) register or qualify the
Company Securities to be included in such registration statement under such
Securities laws or blue sky laws of such jurisdictions as Iridium and each
placement or sales agent, if any, therefor and each underwriter, if any,
thereof shall reasonably request in writing on a timely basis, (B) take any
and all other actions as may be reasonably necessary or advisable to enable
each such holder, agent, if any, and each underwriter, if any, to
consummate the disposition in such jurisdictions of the Company Securities;
and
(ix) use its reasonable best efforts to obtain the consent or approval
of each governmental agency or authority, whether federal, state or local,
in the U.S. or Bermuda which may be required to effect the registration or
the offering or sale in connection therewith of the Company Securities;
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<PAGE> 12
(b) Iridium hereby agrees to provide the Company with all assistance
reasonably necessary for the Company to comply with its obligations under
Section 3.04(a).
Section 3.05. Expenses of Directed Offerings. Iridium shall promptly
pay all expenses incurred by the Company in connection with any Directed
Offering conducted pursuant to this Agreement.
ARTICLE IV
IRIDIUM'S EXCHANGE RIGHTS WITH RESPECT
TO CLASS A OPTIONS AND CLASS A RIGHTS
Section 4.01. General Exchange Rights of Iridium. Upon exercise of
any Class A Options or exercise or conversion of Class A Rights by the holder
thereof (the "Holder") and notice by Iridium of such exercise or conversion
pursuant to Section 4.02(c), the Company shall have the obligation to issue and
deliver, in accordance with Section 4.03, the number of registered, fully paid
and non-assessable shares of Class A Common Stock such Holder is entitled to
have delivered upon exercise of such Class A Options or Class A Rights (the
"Underlying Shares of Class A Common Stock"). In exchange for each Underlying
Share of Class A Common Stock delivered by the Company pursuant to this Article
IV, Iridium shall create, issue and deliver to the Company one fully paid and
non-assessable Class 1 Interest, subject to adjustment as provided in Article
V. The number of shares of Class A Common Stock to be delivered by the Company
pursuant to this Article V in exchange for one such Class 1 Interest is
hereinafter referred to as the "Exchange Rate." At any time and from time to
time after the IPO Date, Iridium shall have the right to issue additional Class
A Options and Class A Rights pursuant to any Iridium Benefit Plan.
Section 4.02. Information and Notice Obligations of Iridium; Share
Reservation Obligations of the Company. (a) Iridium has heretofore delivered
to the Company a copy of the 1996 Option Plan and agrees to provide the Company
with copies of any other Iridium Benefit Plan that permits Iridium to offer
Class A Options or Class A Rights. Iridium hereby agrees to provide the
Company with a schedule no later than the 30th Business Day following the last
day of each calendar quarter listing (i) all authorized and outstanding Class A
Options and Class A Rights under Iridium Benefit Plans and (ii) the total
number of Underlying Shares of Class A Common Stock issuable in respect of all
authorized and outstanding Class A Options and Class A
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<PAGE> 13
Rights (the "Authorized Shares") as of the last Business Day of such calendar
quarter (the "Benefit Plan Schedule"); provided that (i) Iridium may provide a
Benefit Plan Schedule at any time and (ii) Iridium shall not be required to
provide a Benefit Plan Schedule if there has been no change from the most
recently provided Benefit Plan Schedule.
(b) The Company hereby agrees to authorize and reserve for
issuance pursuant to this Agreement a number of shares of Class A Common Stock
that is not less than the number of Authorized Shares; and the Company agrees
that, if a Benefit Plan Schedule lists a greater number of Authorized Shares
than the number of shares of Class A Common Stock the Company has authorized
and reserved for issuance pursuant to this Agreement, the Company shall
immediately act to increase the number of shares of Class A Common Stock
authorized and reserved for issuance pursuant to this Agreement to a number of
shares of Class A Common Stock that is not less than the number of Authorized
Shares listed in such Benefit Plan Schedule.
(c) In order for the Company to have the obligation to deliver
Underlying Shares of Class A Common Stock upon a Holder's exercise or
conversion of a Class A Option or a Class A Right, Iridium must provide the
Company with written notice (an "Exchange Notice") of (i) such Holder's
exercise of, or intention to exercise, Class A Options or Class A Rights, (ii)
the number of Underlying Shares of Class A Common Stock to be delivered by the
Company as a result of such exercise and (iii) the person in whose name such
Underlying Shares of Class A Common Stock are to be registered.
Section 4.03. Procedures for Delivery by the Company and Iridium. On
a date that is not more than three Business Days after the date the Company
receives the Exchange Notice or on such other date as the Company and Iridium
may mutually agree, the Company shall deliver to Iridium the number of
Underlying Shares of Class A Common Stock requested by the Exchange Notice,
registered in the names specified in the Exchange Notice, and Iridium shall
deliver to the Company certificates representing the Class 1 Interests to be
exchanged for such Underlying Shares of Class A Common Stock pursuant to this
Article IV.
Section 4.04. Company's Obligation to Maintain Effective Registration
Statement. The Company hereby agrees to prepare and file with the Commission,
a registration statement with respect to the Underlying Shares of Class A
Common Stock to be delivered pursuant to this Article IV on
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<PAGE> 14
any form which may be used by the Company and will permit the delivery of
registered Underlying Shares of Class A Common Stock in accordance with this
Article IV and to use its best efforts to cause such registration statement or
statements to become effective as of the IPO Date or as soon as practicable
thereafter; and the Company hereby agrees to use its best efforts to prepare
and file with the Commission such amendments and supplements to such
registration statement, or to file and seek the effectiveness of additional
registration statements, if any, as may be necessary to maintain an effective
registration statement that will permit the delivery of registered Underlying
Shares of Class A Common Stock in accordance with this Article IV at any time
after the IPO Date.
Section 4.05. Cooperation in Preparation of Registration Statements;
Customary Agreements. Iridium and the Company hereby agree to cooperate in the
preparation of any registration statement required to be filed with the
Commission pursuant to Section 4.04. Iridium and the Company hereby agree to
enter into and deliver all customary Agreements as are reasonably requested of
the Company or Iridium to expedite or facilitate the issuance of registered
Underlying Shares of Class A Common Stock in accordance with this Article IV.
Section 4.06. Expenses. Iridium shall promptly pay, or reimburse the
Company for the payment of, all expenses incurred by the Company in connection
with the transactions contemplated by this Article IV.
ARTICLE V
ADJUSTMENT OF EXCHANGE RATE
The Exchange Rate shall be adjusted from time to time as follows:
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Class A Common
Stock, the Exchange Rate in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be increased by multiplying
such Exchange Rate by a fraction the numerator of which shall be the sum of the
number of shares of Class A Common Stock outstanding at the close of business
on the date fixed for such determination and the total number of shares
constituting such dividend or other distribution and the denominator of which
shall be such
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number of shares of Class A Common Stock outstanding at the close of business
on the date fixed for such determination, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this subsection (a), the number of
shares of Class A Common Stock at any time outstanding shall not include shares
held in the treasury of the Company.
(b) In case Iridium shall pay or make a dividend or other
distribution on any class of Iridium Interests in Class 1 Interests, the
Exchange Rate in effect at the opening of business on the day following the
date fixed for the termination of Iridium members entitled to receive such
dividend or other distribution shall be decreased by multiplying such Exchange
Rate by a fraction the denominator of which shall be the sum of the number of
Class 1 Interests outstanding at the close of business on the date fixed for
such determination and the total number of Class 1 Interests constituting such
dividend or other distribution and the numerator of which shall be such number
o Class 1 Interests outstanding at the close of business on the date fixed for
such determination, such decrease to become effective immediately after the
opening of business on the day following the date fixed for such determination.
For the purposes of this subsection (b), the number of Class 1 Interests at any
time outstanding shall not include shares held in the treasury of Iridium.
(c) In case the Company shall issue rights or warrants to all
holders of any class of Common Stock entitling them to subscribe for, purchase
or acquire shares of Class A Common Stock at a price per share less than the
current market price per share (determined as provided in subsection (k) below)
of the Class A Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the Exchange Rate in
effect at the opening of business on the day following the date fixed for such
determination shall be increased by multiplying such Exchange Rate by a
fraction the numerator of which shall be the number of shares of Class A Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Class A Common Stock so offered for
subscription, purchase or acquisition, and the denominator of which shall be
the number of shares of Class A Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Class A Common Stock which the aggregate of the offering price of the total
number of shares of Class A Common Stock so offered for subscription, purchase
or acquisition would purchase at such current
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<PAGE> 16
market price, such increase to become effective immediately after the opening
of business on the day following the date fixed for such determination. For
the purposes of this subsection (c), the number of shares of Class A Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company. The Company agrees not to pay any dividend or make any
distribution on shares of Common Stock held in its treasury.
(d) In case Iridium shall issue rights or warrants to all holders
of Class 1 Interests entitling them to subscribe for, purchase or acquire Class
1 Interests at a price per Class 1 Interest less than the current market price
per share (determined as provided in subsection (k) below) of the Class A
Common Stock multiplied by the Exchange Rate on the date fixed for the
determination of Class 1 Interest holders entitled to receive such rights or
warrants, the Exchange Rate in effect at the opening of business on the day
following the date fixed for such determination shall be decreased by
multiplying such Exchange Rate by a fraction the denominator of which shall be
the number of Class 1 Interests outstanding at the close of business on the
date fixed for such determination plus the number of Class 1 Interests so
offered for subscription, purchase or acquisition, and the numerator of which
shall be the number of Class 1 Interests outstanding at the close of business
on the date fixed for such determination plus the number of Class 1 Interests
which the aggregate of the offering price of the total number of Class 1
Interests so offered for subscription, purchase of acquisition would purchase
at a price per Class 1 Interest equal to the market price per Share of Class A
Common Stock multiplied by the Exchange Rate, such increase to become effective
immediately after the opening of business on the day following the date fixed
for such determination. For the purposes of this subsection (d), the number of
Class 1 Interests at any time outstanding shall not include shares held in the
treasury of Iridium. Iridium agrees not to pay any dividend or make any
distribution on Class 1 Interests held in its treasury.
(e) In case the outstanding shares of Class A Common Stock shall
be subdivided into a greater number of shares of Class A Common Stock, the
Exchange Rate in effect at the opening of business on the day following the day
upon which such subdivision becomes effective shall be proportionately
increased, and, conversely, in case the outstanding shares of Class A Common
Stock shall each be combined into a smaller number of shares of Class A Common
Stock, the Exchange Rate in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately
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<PAGE> 17
reduced, such reduction or increase, as the case may be, to become effective
immediately after the opening of business on the day following the day upon
which such subdivision or combination becomes effective.
(f) In case the outstanding Class 1 Interests shall be subdivided
into a greater number of Class 1 Interests, the Exchange Rate in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately decreased, and, conversely, in case
the outstanding Class 1 Interests shall each be combined into a smaller number
of Class 1 Interests, the Exchange Rate in effect at the opening of business on
the day following the day upon which such combination becomes effective shall
be proportionately increased, such increase or reduction, as the case may be,
to become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes effective.
(g) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Class A Common Stock evidences of its
indebtedness or assets (including securities but excluding (A) any rights or
warrants referred to in subsection (c) above, (B) any dividend or distribution
referred to in subsection (a) above, and (C) any dividend or distribution paid
in cash out of current or accumulated earnings), then in each case, the
Exchange Rate in effect at the opening of business on the day following the
date fixed for the determination of holders of Class A Common Stock entitled to
receive such distribution shall be adjusted by multiplying such Exchange Rate
by a fraction of which the numerator shall be the current market price per
share (determined as provided in subsection (k) below) of the Class A Common
Stock on such date of determination (or, if earlier, on the date on which the
Class A Common Stock goes "ex-dividend" in respect of such distribution) less
the then Fair Market Value as determined by the Company Board (whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed (and for which an adjustment to the Exchange Rate
has not previously been made pursuant to the terms of this Article V)
applicable to one share of Class A Common Stock, and the denominator shall be
such current market price per share of the Class A Common Stock, such
adjustment to become effective immediately after the opening of business on the
day following such date of determination.
(h) In case Iridium shall, by dividend or otherwise, distribute to
all holders of its Class 1 Interests evidence of its indebtedness or assets
(including
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<PAGE> 18
securities but excluding (A) any rights or warrants referred to in subsection
(d) above, (B) any dividend of distribution referred to in subsection (b)
above, and (C) any dividend or distribution paid in cash out of current or
accumulated earnings), then in each case, the Exchange Rate in effect at the
opening of business on the day following the date fixed for the determination
of holders of Class 1 Interests entitled to receive such distribution shall be
adjusted by multiplying such Exchange Rate by a fraction of which the
denominator shall be the current market price per share (determined as provided
in subsection (k) below) of the Class A Common Stock on such date of
determination multiplied by the Exchange Rate (or, if earlier, on the date on
which the Class 1 Interests go "ex-dividend" in respect of such distribution)
less the then Fair Market Value as determined by the Iridium Board (whose
determination shall be conclusive) of the portion of the assets or evidences of
indebtedness so distributed (and for which an adjustment to the Exchange Rate
has not previously been made pursuant to the terms of this Article V)
applicable to one Class 1 Interest, and the numerator shall be such current
market price per share of the Class A Common Stock multiplied by the Exchange
Rate, such adjustment to become effective immediately after the opening of
business on the day following such date of determination.
(i) The reclassification or change of Class A Common Stock into
securities including securities other than Class A Common Stock (other than any
reclassification upon a consolidation or merger to which subsection (n) below
applies) shall be deemed to involve (A) a distribution of such securities other
than Class A Common Stock to all holders of Class A Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of holders of Class A Common Stock entitled to receive
such distribution" within the meaning of subsection (g) above), and (B) a
subdivision or combination, as the case may be, of the number of shares of
Class A Common Stock outstanding immediately prior to such reclassification
into the number of shares of Class A Common Stock outstanding immediately
thereafter (and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective" or "the day upon
which such combination becomes effective," as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the
meaning of subsection (e) above).
(j) The reclassification or change of Class 1 Interests into
interests or securities including Iridium Interests other than Class 1
Interests shall be deemed to
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<PAGE> 19
involve (A) a distribution of such interests or securities other than Class 1
Interests to all holders of Class 1 Interests (and the effective date of such
reclassification shall be deemed to be "the date fixed for the determination of
holders of Class 1 Interests entitled to receive such distribution" within the
meaning of subsection (h) above), and (B) a subdivision or combination, as the
case may be, of the number of shares of Class 1 Interests outstanding
immediately prior to such reclassification into the number of Class 1 Interests
outstanding immediately thereafter (and the effective date of such
reclassification shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such subdivision becomes effective,"
as the case may be, and "the day upon which such subdivision or combination
become effective" within the meaning of subsection (f) above).
(k) For the purpose of any computation under subsection (c), (d),
(g) or (h) above, the current market price per share of Class A Common Stock on
any day shall be deemed to be the average of the Closing Prices of the Class A
Common Stock for the 20 consecutive Trading Days selected by the Company Board
commencing no more than 30 Trading Days before and ending no later than the
second Trading Day before the day in question; provided, that, in the case of
subsection (3), if the period between the date of the public announcement of
the dividend or distribution and the date for the determination of holders of
Class A Common Stock entitled to receive such dividend or distribution (or, if
earlier, the date on which the Common Stock goes "ex-dividend" in respect of
such dividend or distribution) shall be less than 20 Trading Days, the period
shall be such lesser number of Trading Days but, in any event, not less than
five Trading Days.
(l) No adjustment in the Exchange Rate shall be required unless
such adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that any adjustments which by reason of this clause
(l) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment and provided, further, that adjustments shall be
required and made in accordance with the provisions of this Article V (other
than this clause (l)) not later than such time as may be required in order to
preserve the tax free nature of a distribution to the holders of shares of
Common Stock. Anything in this clause (l) to the contrary notwithstanding, the
Company shall be entitled, at its option, to make such increases in the
Exchange Rate, in addition to those required by this Article V, as it in its
discretion shall determine to be advisable in order that any stock dividend,
subdivision or
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<PAGE> 20
combination of shares, distribution of capital stock or rights or warrants to
purchase stock or securities, or distribution of evidences of indebtedness or
assets (other than cash dividends or distributions paid from current or
accumulated earnings) or other event shall be a tax free distribution to
holders for United States federal income tax purposes. All calculations under
this clause (h) shall be made to the nearest cent.
(m) Iridium shall notify the Company of any event requiring an
adjustment in the Exchange Rate pursuant to subsection (b), (d), (f), (h) or
(j), and whenever the Exchange Rate is adjusted as herein provided, the Company
shall notify Iridium which notice shall include the Exchange Rate after such
adjustment and shall set forth a brief statement of the facts requiring such
adjustment and the manner of computing the same.
(n) In case of any consolidation of the Company with, or merger of
the Company into, any other entity, any merger of another entity into the
Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Class A Common
Stock) or any sale or transfer of all or substantially all of the assets of the
Company, Iridium shall have the right thereafter to exchange Class 1 Membership
only into the kind and amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer by a holder of the number of
shares of Class A Common Stock into which such Class 1 Interests might have
been exchanged immediately prior to such consolidation, merger, sale or
transfer, assuming such holder of Class A Common Stock is not the entity with
which the Company consolidated or into which the Company merged or which merged
into the Company or to which such sale or transfer was made, as the case may be
(a "constituent person"), or an affiliate of a constituent person and failed to
exercise its rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
sale or transfer (provided that if the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer is
not the same for each share of Class A Common Stock held immediately prior to
such consolidation, merger, sale or transfer by others than a constituent
entity or an affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this subsection (n) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by each
non-electing share shall be deemed to be the kind
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<PAGE> 21
and amount so receivable per share by a plurality of the non-electing shares.
If necessary, appropriate adjustment shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of Iridium, so that the provisions set forth herein shall thereafter be
applicable, as nearly as may reasonably be practicable, to any shares of stock
or other securities or property thereafter deliverable on the exchange of the
Class 1 Interests. Any adjustment under this subsection (j) shall be evidenced
by a certificate of the Company and a notice of such adjustment filed and
mailed in the manner set forth in subsection (i). The above provisions shall
similarly apply to successive consolidations, mergers, sales or transfers.
In case (x) the Company shall take any action that would result in an
adjustment to the Exchange Rate; or (y) of any consolidation or merger to which
the Company is a party and for which approval of any shareholders of the
Company is required, or of the sale or transfer of all or substantially all of
the assets of the Company; or (z) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Company; then the Company shall provide to
Iridium, at least 15 days prior to the applicable record or effective date
hereinafter specified, a notice stating (A) the date on which a record is to be
taken for the purpose of such actions, or, if the record is not to be taken,
the date as of which the holders of Common Stock or Class A Common Stock, as
the case may be, of record are to be determined, or (B) the date on which such
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Class A Common Stock of record shall be entitled to exchange their
shares of Class A Common Stock for securities, cash or other property
deliverable upon such consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. Neither the failure to give such notice nor any
defect therein shall affect the legality or validity of the proceedings
described in clauses (x) through (z) above.
ARTICLE VI
RESTRICTIONS ON TRANSFER
The Iridium Interests sold or exchanged hereunder are subject to the
restrictions on Transfer (as hereinafter defined) contained in the LLC
Agreement. In addition, such Iridium Interests will not be registered under
any United
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<PAGE> 22
States federal or state securities laws and may not be Transferred unless such
laws do not apply or unless such registration is otherwise not required. As
used herein, "Transfer" means to sell, transfer, assign, pledge or otherwise
encumber or dispose of (whether with or without consideration and whether
voluntarily or involuntarily or by operation of law), directly or indirectly.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Indemnification by Iridium. Iridium will indemnify and
hold harmless the Company and each of its officers, directors and employees
(each an "indemnified party") against any losses, claims, damages or
liabilities to which such indemnified party may become subject, under the
Securities Act or otherwise, that directly or indirectly, arise out of or are
related to, the transactions contemplated by this Agreement, and will reimburse
such indemnified party for any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, as such losses, damages, liabilities or expenses are incurred;
provided, however, that Iridium shall not be liable in any such case to any
indemnified party to the extent that any such loss, claim, damage or liability
arises out of or is based upon an intentional act or omission of the
indemnified party which was contrary to any written instruction or request of
Iridium or which amounted to willful misconduct on the part of the indemnified
party.
Section 7.02. Proceedings. Promptly after receipt by an indemnified
party of notice of the commencement of any action, suit or proceeding as to
which a claim in respect thereof is to be made against Iridium under Section
6.01, the indemnified party shall notify Iridium in writing of the commencement
thereof, but the omission so to notify Iridium shall not relieve Iridium from
any liability which it may have to any indemnified party otherwise than under
such section. In case any such action shall be brought against any indemnified
party and it shall notify Iridium of the commencement thereof, Iridium shall be
entitled to participate therein and, to the extent that it shall wish, to
assume the defense thereof, with counsel satisfactory to such indemnified party
(which shall not, except with the consent of the indemnified party, be counsel
to Iridium), and, after notice from Iridium to such indemnified party of its
election so to assume the defense thereof, Iridium shall not be liable to such
indemnified
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party under such subsection for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party,
in connection with the defense thereof other than reasonable costs of
investigation. Iridium shall not, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party. No indemnified party shall effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution has been or may be sought hereunder without the prior written
consent of Iridium.
Section 7.03. Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in Section 6.01 is for any reason held to be unenforceable
although applicable in accordance with its terms, Iridium shall contribute to
the losses, liabilities, claims, damages and expenses of the type contemplated
by such indemnity agreement incurred by any indemnified party in such
proportion as shall be appropriate to reflect (i) the relative benefits
received, directly or indirectly, by Iridium on the one hand and the
indemnified party on the other hand, from the sale or exchange of the Company
Securities and the issuance and sale of the Class 1 Interests, and (ii) the
relative fault of Iridium on the one hand and the indemnified party on the
other, with respect to the acts or omissions which resulted in such loss,
liability, claim, damage or expense, or action in respect thereof, as well as
any other relevant equitable considerations. Iridium and the Company agree
that it would not be just and equitable if contribution pursuant to this
Section 6.03 were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the relevant equitable
considerations. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from Iridium if Iridium was not guilty of such fraudulent
misrepresentation.
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<PAGE> 24
The indemnity and contribution obligations in this Article VI are
solely obligations of Iridium and no recourse may be had thereunder against any
member, director, officer, employee or agent of Iridium.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.01. Effectiveness of Agreement. This Agreement shall
become effective only upon the first date on which the Company purchases Class
1 Interests from Iridium.
Section 8.02. Acknowledgment. The Company hereby acknowledges
pursuant to the 1996 Option Plan that shares of Class A Common Stock are
available for purposes of the 1996 Option Plan.
Section 8.03. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors and permitted assigns of each
of the parties; provided that this Agreement may not be assigned by the Company
without the written consent of Iridium.
Section 8.04. Notices. All notices and other communications provided
for in this Agreement shall be in writing, shall be in the English language and
shall be sufficiently given if made (i) by hand delivery, (ii) by telecopier,
or (iii) by reputable express courier service (charges prepaid), if to the
Company, at the following address:
Iridium World Communications Ltd.
c/o Iridium, LLC
1401 H Street, NW
Washington, D.C. 200005
U.S.A.
Attention: General Counsel
Phone: (202) 326-5600
Telecopier: (202) 842-0006
or if to Iridium, at the following address:
Iridium, LLC
1401 H Street, NW
Washington, D.C. 20005
U.S.A.
Attention: General Counsel
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<PAGE> 25
Phone: (202) 326-5600
Telecopier: (202) 842-0006
or at such other address as the Company or Iridium shall have furnished in
writing one to the other. Such notice shall be deemed to have been given when
actually received.
Section 8.05. Entire Agreement. This Agreement constitutes the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior understandings among such parties with respect
to such subject matter.
Section 8.06. Governing Law; Severability. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE DOMESTIC LAWS OF
THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE. If it shall be determined by a court of
competent jurisdiction that any provision or wording of this Agreement shall be
invalid or unenforceable under applicable law, such invalidity or
unenforceability shall not invalidate this entire Agreement. In that case,
this Agreement shall be construed so as to limit any term or provision so as to
make it enforceable or valid within the requirements of any applicable law,
and, in the event such term or provision cannot be so limited, this Agreement
shall be construed to omit such invalid or unenforceable provisions.
Section 8.07. Jurisdiction and Service of Process. Any suit, action
or proceeding against any party with respect to this Agreement may be brought
in a court of the United States sitting in the State of Delaware or, if
jurisdiction is lacking in such a court, in a court of record in the State of
Delaware, and each party hereby irrevocably waives, to the fullest extent
permitted by law, any objection that it may have, whether now or in the future,
to the laying of venue in, or to the jurisdiction of, any and each of such
courts for the purpose of any such suit, action, proceeding or judgment and
further waives any claim that any such suit, action, proceeding or judgment has
been brought in an inconvenient forum, and the party hereby submits to such
jurisdiction. Each party hereto hereby agrees that service of all writs,
process and summonses in any such suit, action or proceeding brought in the
State of Delaware may be made upon The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801, or such alternate process agent in the
United States designated with respect to the party in a writing delivered to
the other party (the "Process Agent") and each of
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<PAGE> 26
the parties hereto hereby irrevocably appoints the Process Agent in its name,
place and stead to receive and forward such service of any and all such writs,
process and summonses and agrees that the failure of the Process Agent to give
any notice of any such service of process to such party shall not impair or
affect the validity of such service or of any judgment based thereon. If the
Process Agent is no longer able to so act for any reason whatsoever, the party
agrees to appoint a substitute process agent, which substitute process agent
shall thereafter be deemed to be the Process Agent hereunder, and to give
notice of such appointment to the other party.
Section 8.08. Amendments to the Agreement. This Agreement may not be
changed or amended or the observance of any provisions waived without the
written consent of each of the Company and Iridium.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
IRIDIUM WORLD COMMUNICATIONS LTD.
By:
-----------------------------
Name:
Title:
IRIDIUM LLC
By:
-----------------------------
Name:
Title:
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<PAGE> 1
Exhibit 23.1
Accountants' Consent
The Boards of Directors, Members and Stockholders
Iridium LLC and Iridium World Communications Ltd.:
We consent to the use of our reports included herein and to the references to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG Peat Marwick LLP
Washington, D.C.
April 24, 1997
<PAGE> 1
EXHIBIT 24.1
Annex B
-------
POWER OF ATTORNEY
To: Iridium World Communications Ltd. (the "Company")
Each Person whose signature appears below authorizes each of Robert Kinzie
and Edward Staiano (each, an "Authorized Officer"), as attorneys-in-fact, and
any Director (to the extent provided in the Director's Authorization to be
filed with the Registrar of Companies in Bermuda), to sign any registration
statement or amendment thereto, including post-effective amendments, and any
other documentation, agreement, certificate, undertaking, instrument, order or
request necessary or desirable, in the opinion of an Authorized Officer or
Director, as the case may be, in order to carry out the purpose and intent of
the foregoing resolutions or in order to perform, or cause to be performed, the
obligations of IWCL under the Securities Act, the Exchange Act, any state
securities or other laws, the Underwriting Agreements, and any rules or
regulations imposed by a securities exchange on which the shares of the
Company's Class A Common Stock are to be listed.
/s/ ALBERTO FINOL
- -------------------- Deputy Chairman and April 16, 1997
Alberto Finol Director
- --------------------------------------------------------------------
/s/ ROBERT W. KINZIE
- -------------------- Director April 16, 1997
Robert W. Kinzie
- --------------------------------------------------------------------
/s/ EDWARD STAIANO
- -------------------- Director April 16, 1997
Edward Staiano
- --------------------------------------------------------------------
5
<PAGE> 2
- --------------------------------------------------------------------
/s/ YOSHIHARU YASUDA
- -------------------- Director April 16, 1997
Yoshiharu Yasuda
- --------------------------------------------------------------------
- -------------------- Director April , 1997
Ulf Bohla --
6
<PAGE> 1
Exhibit 99.1
Consent
I hereby consent to act as Director of the Board of Iridium World
Communications Limited and consent to the reference to my name under the
caption "Management" in the Prospectus.
/s/ RICHARD L. LESHER
---------------------------
Richard L. Lesher
Date: April 24, 1997
----------------------
<PAGE> 1
Exhibit 99.2
Consent
I hereby consent to act as a Director of the Board of Iridium World
Communications Limited and consent to the reference to my name under the
caption "Management" in the Prospectus.
/s/ WILLIAM A. SCHREYER
---------------------------
William A. Schreyer
Date: April 25, 1997
----------------------
