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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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IRIDIUM WORLD COMMUNICATIONS LTD.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
BERMUDA 4812 [APPLIED FOR]
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
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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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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
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Shares of Class A Common Stock,
par value $.01 per share........ 11,500,000 $21.00 $241,500,000 $73,181.82
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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.
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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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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 MARCH 14, 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 8,000,000 shares being offered by the U.S.
Underwriters, are reserved for sale to officers and employees of 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
Company has applied for quotation of the Class A Common Stock on the Nasdaq
National Market System ("NNMS") under the symbol "IRIDF."
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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
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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 $ .
(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.
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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 of Iridium LLC.
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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."
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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
service 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."
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 in the world with one
phone and one phone number. ICRS is expected to enable customers to roam on an
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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 and
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 gateways, thereby lowering
total ground segment build-out and operating costs and (iv) provide enhanced
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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 full 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 Iridium will capture the local monopoly provider's long-distance revenues
by undercutting terrestrial "dial-up" rates.
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For ICRS pricing, the "dial up" rate component is primarily the long
distance charge, if any, which will be passed through to the customer. The
mobility premium will be set to compensate the parties involved, primarily the
serving network for its airtime charges, the visited gateway for customer
authentication and Iridium for protocol translation services. The retail price
will include the markup of the home gateway and service provider. Iridium
believes that its ICRS suggested retail prices will be comparable to other
cross-protocol roaming services.
In addition to airtime charges, IRIDIUM subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer IRIDIUM Services as additional features to their existing
wireless services, permitting their customers to remain customers of the
wireless network and to roam onto the IRIDIUM System. These customers will pay a
feature charge to Iridium for the roaming privilege that will be significantly
below the IRIDIUM monthly subscription fee, but they will pay an additional
roaming premium for calls made over the IRIDIUM System.
Initially, Iridium paging subscribers will pay a fixed monthly subscription
fee for unlimited paging. Iridium expects to implement per page pricing after
commencement of commercial operations, with the cost per page based, in part, on
the size of the geographic area covered by the page. The monthly paging
subscription fees will be reduced for persons who are also subscribers to
IRIDIUM voice services.
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 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.
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 expertise
of leading telecommunications companies. The Iridium investor team includes
leading telecommuni-
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cations 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, five are currently being assembled and additional
satellites are being produced at a rate expected to increase to approximately
five per month. The initial satellite launch that 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" and "-- Satellite Launch
Risks."
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, and
coordination through the normal ITU process is in its final stage. No other
action is required from any other country to license the space segment. Three
final and four provisional 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 countries in their
service territories. See "Risk Factors -- Risks Associated with Licensing and
Spectrum Allocation" and
7
<PAGE> 10
"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.
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
8
<PAGE> 11
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.
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 1, 1997, Iridium had drawn $645 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 1, 1997, Iridium had incurred $2,284 million of this amount.
(10) As of March 1, 1997, Iridium had incurred $64 million of this amount.
(11) As of March 1, 1997, Iridium had incurred $15 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 net of revenue provided by
net 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."
Proposed 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 14 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 1, 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 1,
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."
In January 1997 the first launch of IRIDIUM satellites was 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 milestone date for the first launch under the Space
System contract was January 29, 1997, and the launch has not yet occurred. While
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."
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 October 1998.
However, there can be no assurance that one or more gateways will not fail to be
completed by the commencement of commercial operations, which could have a
material adverse effect upon Iridium. See "-- Reliance on Motorola, Gateway
Owners and Other Third Parties; Distribution and Marketing."
As discussed under "-- Technology and Technology Implementation Risks,"
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.
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, 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. 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.
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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.
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."
TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS
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. 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 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.
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" and "-- Reliance on Motorola, Gateway Owners and Other Third Parties;
Distribution and Marketing."
CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS AND IRIDIUM PHONE AND PAGER
CHARACTERISTICS 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.
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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.
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 Iridium's expectation as
to subscribers' willingness to accept service limitations, higher prices and
heavier hand-held phones and pagers than such subscribers may be accustomed to
in order to have the ability to make and receive calls on a worldwide basis with
a single phone or to receive pages on a satellite pager will be correct or 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.
Subscribers will generally purchase equipment from service providers. 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.
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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, under a
proposed contract, will develop, manufacture and deliver the IIU that will
permit protocol translation. There can be no assurance that Motorola will
deliver the required IIU 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
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.
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 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
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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 with
its 3B launch vehicle which, in each case, destroyed the launch vehicle and the
satellite on-board. 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.
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" and "Principal Contracts for the Development of the IRIDIUM System."
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." 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; 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
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same assumption) and assuming no excusable delay occurs. Under the Operations
and Maintenance Contract, Iridium will bear the risk of damage to satellites by
the acts of third parties (including but not limited to the degradation or
complete loss of any satellite due to contact with space debris of any size or
character). See "Principal Contracts for the Development of the IRIDIUM
System -- Operations and Maintenance Contract." Satellites operating in the low
earth orbit region, such as the IRIDIUM satellites, face a higher risk of damage
from space debris than satellites operating in geostationary orbit. As with any
satellite system, the IRIDIUM satellites face risk of damage from meteor and
solar storms, which are recurring phenomena. The potential for damage from
meteor and solar storms is difficult to quantify. Iridium has obtained insurance
to cover certain of these risks, but there can be no assurance that such
insurance will provide adequate mitigation in the event of a loss. Iridium also
bears the risk of damage to person or property resulting from the survival of
any portion of a satellite following planned or unplanned reentry. Motorola
believes that the likelihood of such damage is extremely remote and Iridium
expects to insure 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
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 the same
spectrum for Aeronautical Mobile Satellite (Route) Service ("AMS(R)S") use, (3)
a license by 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 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 of 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."
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."
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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.
With respect to (5) above, while three final and four provisional licenses
to build and operate gateways have been received, several are conditional, may
be of a limited duration or contain time or buildout requirements which could be
difficult to meet. In addition, 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.
With respect to (6) above, only seven countries have granted conditional
licenses for the use of IRIDIUM Satellite Services in their country. 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 of commercial operations are expected to commence. There can be
no assurance that additional authorizations will be granted at all or in a
timely manner, or without burdensome conditions.
In addition, the IRIDIUM System MSS downlinks 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 and must accept any interference
caused to them by a primary spectrum user. In light of the secondary nature of
IRIDIUM's MSS downlinks, there can be no assurance that the integration
interference issue will be resolved in a way that 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 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.
Approval of the offering of IRIDIUM Services by many countries will be
contingent upon Iridium providing such countries with the ability to intercept
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 or that
the emergence of other governmental or political concerns will not impair the
ability to obtain licenses or the offering of the IRIDIUM Service on a timely
basis.
With respect to (7) above, the IRIDIUM System 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 1605.375 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 the FCC has yet to
determine. Iridium believes that it can meet the protection requested for
GLONASS when GLONASS shifts down in frequency to below 1605.375 MHZ by the year
2005. During the interim period between 1999 and when GLONASS shifts to below
1605.375 MHZ, while there can be no assurance as to what level of protection the
FCC will adopt, Iridium believes it will be able to satisfy any reasonable level
of protection required by the FCC.
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
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and Russia. 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 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.
In addition, 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 a memorandum of
understanding establishing principles for coordinating spectrum use (or, in one
case, determining that coordination is not required) with entities representing
14 of the 15 U.S. radioastronomy sites. There can be no assurance that a
coordination agreement with the remaining site 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.
Other countries may 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 has
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.
COMPETITIVE RISKS
Certain sectors of the telecommunications industry are highly competitive
in the United States and in other countries. The uncertainties and risks created
by this competition are intensified by the continuous technological advances
that characterize the industry, regulatory developments which affect competition
and alliances between industry participants. While no single wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will serve this market in some
fashion in the future. Iridium 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."
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
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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.
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."
The technological qualities of Iridium's system will be critical to its
ability to compete. Iridium's system and each of its competitors'
satellite-based systems have different planned technical capabilities. The
actual technical capabilities of satellite-based communications systems will not
be known until such systems are in service. There can be no assurance that the
technological qualities of competing satellite-based systems will not exceed
those of the IRIDIUM System, making those systems more attractive to potential
subscribers. For example, Iridium believes that it will have a link margin
(signal strength) advantage over proposed competing MSS systems, but such
systems may be able to develop and implement technologies, such as "path
diversity" (serving a phone with multiple satellites simultaneously), that may
reduce or eliminate Iridium's expected advantage. Also, it is possible that the
IRIDIUM System may not be able to achieve the technological expectations of
Iridium.
Some of Iridium's potential competitors may have financial and other
resources greater than those of Iridium. There can be no assurance that one or
more of these competitors will not be better capitalized than Iridium.
Terrestrial wireless service providers have found it advantageous to subsidize
wireless phone purchases in order to stimulate demand for their services or to
respond to competitive pressures. Such subsidization requires financial
resources. There can be no assurance that Iridium will have the financial
resources required to pursue subsidization in the event subscriber equipment
subsidization becomes an advantageous strategy in the MSS market.
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."
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
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network that subsequently transmits the message over its local network. Also, in
1995 Inmarsat introduced an international satellite-based one-way messaging
service.
Iridium may also face competition in the future from companies using new
technologies and new satellite systems which could render the IRIDIUM System
obsolete or less competitive. Such new technologies, even if not ultimately
successful, could have a material and adverse effect on Iridium as a result of
associated initial marketing efforts. Iridium's business could be materially and
adversely affected if competitors begin operations or existing
telecommunications service providers penetrate Iridium's target markets before
completion of the IRIDIUM System.
RELIANCE ON MOTOROLA, GATEWAY OWNERS AND OTHER THIRD PARTIES; DISTRIBUTION AND
MARKETING
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. 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."
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. Based on the signing dates, Motorola has committed to deliver the
gateway equipment for these gateways including voice functionality by September
1998 although, in certain circumstances, the relevant contracts permit Motorola
to delay delivery or cancel the agreement. Motorola currently intends to
activate the gateway equipment for paging functionality at a portion of the
gateways by September 1998 with the remainder activated by October 1998. There
can be no assurance that Motorola will be able to meet its gateway supply
commitments or that gateway operators will perform their obligations under the
Gateway Authorization Agreements or gateway equipment purchase agreements. In
addition, the ICRS functionality and enhanced call intercept modifications being
negotiated with Iridium will require all gateway operators to sign agreements
with Motorola for this functionality. No such agreements have been signed. See
"Principal Contracts for the Development of the IRIDIUM System -- Gateway
Authorization Agreements."
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
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commencement of commercial services. Iridium's success will depend upon the
motivation and ability of such service providers to generate on a timely basis
demand for IRIDIUM Services and subscriber equipment, and there can be no
assurance that such demand can be generated on a timely basis. As Iridium will
not control the retail pricing of IRIDIUM Services or equipment to subscribers,
decisions on pricing by gateway operators and service providers could materially
and adversely affect Iridium. The failure of one or more gateway operators to
fulfill their obligations to Iridium on a timely basis could have a material and
adverse effect on Iridium, particularly in view of the fact that the appeal of
the IRIDIUM System will be dependent in part upon 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 1, 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
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such liability under the Operations and Maintenance Contract, the Terrestrial
Network Development Contract or any other contract executed between Iridium and
Motorola in connection with the IRIDIUM System, or any provisions of any of the
foregoing, whether pursued as a breach of contract or as a tort or other cause
of action and whether accruing before or after completion of all the work
required under the contracts, such liability shall be limited to $100 million in
the aggregate. Each contract also provides that Motorola shall not be liable to
Iridium, whether in contract, tort or otherwise, for special, incidental,
indirect or consequential damages, including, without limitation, lost profit or
revenues. As described under "Principal Contracts for the Development of the
IRIDIUM System," the Space System Contract, Operations and Maintenance Contract
and Terrestrial Network Development Contract each contain other significant
limitations on Motorola's potential liability. The foregoing are the "Motorola
Liability Limitations."
Operations and Maintenance Contract. Iridium has also entered into the
Operations and Maintenance Contract with Motorola which obligates Motorola for a
period of five years after completion of the final milestone under the Space
System Contract to operate the IRIDIUM space segment and to exert its best
efforts to monitor, upgrade and replace the hardware and software of the IRIDIUM
space segment as necessary to maintain specified performance levels. Iridium has
the right to extend the term of this contract for an additional two years. This
contract provides for specified increasing quarterly payments by Iridium to
Motorola that are expected to aggregate approximately $2.88 billion, subject to
certain adjustments. If Iridium exercises its option to extend the Operations
and Maintenance Contract for an additional two years, the payments due will be
based upon specified quarterly payments ranging up from $157 million in 2003.
Such payments are expected to aggregate approximately $1.33 billion, subject to
certain adjustments. In the event that completion of the Space System Contract
and, therefore, the commencement of the five year period of the Operations and
Maintenance Contract is delayed more than six months for any reason other than
causes within the reasonable control of Motorola, the specified quarterly
payments will be adjusted to account for any additional costs incurred by
Motorola. See "Principal Contracts for the Development of the IRIDIUM System."
Motorola does not make any warranty with respect to the services, materials or
equipment supplied under this contract. In the event that the Operations and
Maintenance Contract terminates or expires (including termination arising from
certain defaults by Motorola or Iridium), Iridium would be obligated to make
certain additional payments to Motorola. However, if the termination arises from
certain defaults of Motorola, Motorola could also be required to make certain
payments to Iridium (subject to the Motorola Liability Limitations). See
"-- Limited Life of Satellites; 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
$187.8 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.
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
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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. 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 sustain its wholesale prices or to raise them
should it encounter a need to compensate for increased operating costs.
LIMITED SATELLITE CAPACITY
To provide commercially adequate service, ensure user acceptance and
operate successfully, the IRIDIUM System will have to provide minimum levels of
availability of IRIDIUM Satellite Services, which will depend upon system
capacity. Various factors, including usage patterns, will have a significant
impact on the capacity of the IRIDIUM System for a particular geographic area
and on a system-wide basis. Most important among these are usage patterns and
spectrum allocation. Iridium could experience unexpected usage patterns which
could exceed the capacity of the IRIDIUM System through one or several gateways.
If Iridium faces significant capacity issues, its ability to increase its
spectrum assignment in any market is subject to significant regulatory hurdles.
There can be no assurance that the necessary spectrum assignments will occur or
that adverse and unanticipated usage patterns will not materialize. Failure to
achieve a commercially viable capacity level for any reason, including but not
limited to those mentioned in this section, would materially and adversely
affect Iridium.
CONFLICTS OF INTEREST
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
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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 the gateway owners or
operators by the Iridium Board. See "Principal Contracts for the Development of
the IRIDIUM System."
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
and the guarantor of Iridium's borrowings under its Guaranteed Bank Facility.
Motorola has had and will have various conflicts of interest with Iridium.
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. See "Principal Contracts for the
Development of the IRIDIUM System" and "Certain Relationships and Related
Transactions of Iridium."
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 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
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IRIDIUM System may infringe claims contained in pending patent applications. In
general, if it were determined that one or more of such products infringe on
patents held by others, Motorola and Iridium could be required to (i) cease
developing or marketing such products, (ii) obtain licenses to develop and
market such products from the holders of the patents, or (iii) redesign such
products in such a way as to avoid infringing the patent claims. The extent to
which Iridium may be required in the future to obtain licenses with respect to
patents held by others and the availability and cost of any such licenses is
currently unknown. There can be no assurance that Iridium would be able to
obtain such licenses on commercially reasonable terms or, if it were unable to
obtain such licenses, that Motorola would be able to redesign the products which
it developed for the IRIDIUM System to avoid infringement.
Motorola has agreed pursuant to the Space System Contract to indemnify
Iridium for claims of infringement of any valid and enforceable patent in any
country where IRIDIUM Services are authorized which is brought against Iridium
on account of the space segment or any part thereof that is supplied to Iridium
by Motorola under the Space System Contract. However, Motorola's liability
thereunder is subject to certain significant limitations. For example, if
Motorola's liability in respect of a claim or proceeding in any particular
country exceeds 10% of the actual income derived by Iridium from the provision
of IRIDIUM Services in that country, Iridium is required to cooperate to
mitigate Motorola's liability, including either terminating the provision of
IRIDIUM 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
30
<PAGE> 33
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 "Risk Factors -- 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 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 Iridum'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 1, 1997 there were outstanding warrants to purchase 110,028
Class 1 Interests at $.01 per Class 1 Interest; options to acquire 20,530 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
31
<PAGE> 34
scheduled August 1998 maturity date. Through March 1, 1997, Motorola had earned
warrants to purchase 43,398 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 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, shares of Class A Common Stock would be issuable
upon such exchange.
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
32
<PAGE> 35
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 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, it would be in violation of the 1940 Act because non-United
States companies cannot so register. 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 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."
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).
33
<PAGE> 36
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:
[IRIDIUM OWNERSHIP STRUCTURE CHART]
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."
34
<PAGE> 37
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 Investors, Percentage
Ownership and Principal Gateway Service Territories."
35
<PAGE> 38
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.
36
<PAGE> 39
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................... $
======== ===== ========= =====
</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 Offering......................... -- -- -- --
--------- ------- ------ -------
Total....................................
======== ===== ========= =====
</TABLE>
37
<PAGE> 40
- ---------------
(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 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 -- Compensation -- Iridium Option Plan."
(4) 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.
(5) At March 1, 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.
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.
38
<PAGE> 41
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>
Shareholders' 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; (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, authorized 3,000,000 interests, 1,611,147
interests issued and outstanding(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.
39
<PAGE> 42
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>
40
<PAGE> 43
<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."
41
<PAGE> 44
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 $187.8 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."
Through March 1, 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
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Space System Contract......................................... $677 $589 --
Terrestrial Network Development Contract...................... $ 68 $ 56 --
Operations and Maintenance Contract........................... -- $140 $538
</TABLE>
42
<PAGE> 45
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."
Sources of Funding
As of March 1, 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
43
<PAGE> 46
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" and
"-- 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
44
<PAGE> 47
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 and 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 owned, operated and financed by one or more investors in
Iridium or their affiliates. Iridium expects that
45
<PAGE> 48
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 operation prior to 2000 that will be able
to offer global mobile voice and paging services.
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<PAGE> 49
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 systems 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 and IRIDIUM Phone
and Pager Characteristics 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.
47
<PAGE> 50
IRIDIUM satellite fax service will allow subscribers to send and receive
facsimiles 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 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 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
Satellite Service Limitations and IRIDIUM Phone and Pager Characteristics on
Customer Acceptance."
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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; Distribution and Marketing."
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 with 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 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
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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 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 Iridium for protocol translation services. The retail price
will include the markup of the home gateway and
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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.
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 and IRIDIUM Phone and Pager Characteristics on Customer
Acceptance."
Space Segment
The satellite constellation of the space segment will consist of a
constellation of 66 operational satellites arranged in six orbital planes in low
earth orbit. To minimize the cost of the constellation and reduce production
time, the design of the satellites emphasizes attributes which facilitate
production in large quantities. The satellites will be placed in six distinct
planes in near-polar orbit at an altitude of approximately 780 kilometers and
will circle the Earth approximately once every 100 minutes. Each satellite will
communicate with subscriber equipment on the ground using main mission antennas,
with gateways using gateway link antennas and with other IRIDIUM satellites in
space using crosslink antennas.
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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 -- Risk of Delay and Cost Overruns." 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, five are being assembled and additional
satellites are being produced at a rate expected to increase to approximately
five per month. Motorola has completed construction of most of the terrestrial
facilities necessary to command the in-space movements of the satellites,
including the master control facilities and the associated TT&C facilities.
Motorola has entered into subcontracts with suppliers for the provision of
major subsystems of the Space Segment. The principal Space Segment
subcontractors include:
Manufacturers
- Lockheed Martin Corporation. Lockheed has designed and is manufacturing
the satellite bus. Lockheed is an investor in Iridium.
- Raytheon Company. Raytheon is providing the main mission satellite
antennas. Raytheon is an investor in Iridium.
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- 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 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). 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
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 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
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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 -- Satellite Launch Risks" 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."
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."
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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.
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 itself. See "Risk Factors -- Potential for Delay and Cost
Overruns." 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 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.
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
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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 IRDIUM 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 Operators and Other Third Parties;
Distribution and Marketing."
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 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. 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.
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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
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
1998: - Satellite launches expected to be completed
- Gateway construction expected to be completed
- Subscriber trials expected to be completed
- Commercial operations expected to begin
</TABLE>
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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).
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.
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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
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
IRIDIUM satellite voice services will be priced significantly higher than most
cellular telephone 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 cellular 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.
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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."
Paging
In addition to competing with paging services offered by proposed regional
MSS systems, the IRIDIUM paging service will face competition from regional and
nationwide terrestrial paging services, and from M-Tel's SkyTel service which
currently provides paging services to 20 countries around the world. SkyTel
operates by forwarding paging messages via satellite to a foreign paging network
that subsequently transmits the message over its local network. Also, in 1995
Inmarsat introduced an international satellite-based one-way messaging service.
Iridium believes that the relatively higher link margins of the IRIDIUM paging
service will provide superior performance to any proposed satellite paging
systems and that Iridium will be the only global paging service using a
belt-worn pager before 2000.
EMPLOYEES
As of March 1, 1997, Iridium had approximately 195 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.
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The national administration of each country decides how the radio
frequencies that the ITU has allocated to particular communications services
should be allocated and assigned domestically to specific companies. In
addition, the provision of communications services in most countries is subject
to regulatory controls by the national governments of each country.
In the United States, the FCC is the regulatory agency responsible
domestically for allocating spectrum and for licensing and regulating
communication systems, facilities, and services. The FCC regulates satellites in
accordance with laws passed by the United States Congress, particularly the
Communications Act of 1934, as amended (the "Communications Act"), regulations
adopted pursuant to those laws, and judicial opinions rendered by U.S. courts.
IRIDIUM SYSTEM LICENSING REQUIREMENTS
The IRIDIUM System is being built with the capability to link phones to
IRIDIUM satellites using up to 10.5 MHz of spectrum in L-band frequencies from
1616-1626.5 MHz on a bi-directional time division basis, Earth-to-space and
space-to-Earth. The system will also be capable of operating "feeder" links in
the frequencies 19.4-19.6 GHz and 29.1-29.3 GHz (connecting satellites to ground
earth station gateway facilities) and intersatellite links in the frequencies
23.18-23.38 GHz (linking the satellites in the constellation to each other).
The licensing requirements for the IRIDIUM System include: (i) the FCC
license for the space segment; (ii) the licenses in each country where there is
a gateway or TT&C earth 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
have been 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
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Summary -- Progress to Date." To date, seven countries have granted conditional
licenses for the use of IRIDIUM Satellite Services in their respective
countries. 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 regulatory approvals in portions of their
territories by the anticipated commencement of commercial operations in
September 1998 is questionable.
At the 1992 WARC ("WRC 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 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 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 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 denied
their license applications and 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 grant authority to implement a
next generation system 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 protect it from interference from future systems. The ITU
has indicated that it will publish this request in the next few months, but it
has a substantial backlog and it may take significantly longer. 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
Iridium will be listed in the Master Frequency Register. There is no other
action required from any other country to license the space segment. Use of the
intersatellite frequency band (23.18 to 23.38 GHz) is included in the FCC
license of the IRIDIUM System and does not need further licensing.
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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 -- Coordinations and Consultations".
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, may be of a limited
duration or contain time and buildout requirements which could be difficult to
meet. 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.
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.
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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 intercept 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 1605.375 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 the FCC has yet to determine. Iridium believes that
it can meet the protection requested for GLONASS when GLONASS shifts down in
frequency to below 1605.375 MHz by January 1, 2005. During the interim period
between 1999 and when GLONASS shifts to below 1605.375 MHz, while there can be
no assurance as to what level of protection the FCC will adopt, Iridium believes
it will be able to satisfy any reasonable level of protection required by the
FCC. Other administrations will also need to coordinate with the Russian
Federation concerning the level of protection that will be afforded to GLONASS
in their territory. In Russia itself, additional restrictions are expected to be
imposed which may limit the amount of spectrum available to Iridium in Russia.
There can be no assurance that sufficient spectrum will be available to meet
subscriber demand in Russia or any other country that requires a higher level of
protection for GLONASS than the United States. Moreover, there can be no
assurance that CDMA systems will be able to meet the levels of protection
required for GLONASS, either in the United States, Russia or elsewhere. If such
systems do not meet the protection requirements, the FCC and/or other countries'
regulatory authorities might consider requests to reassign the CDMA systems to
higher frequencies within the 1610-1626.5 MHz allocation in order to protect
GLONASS. This development might in turn reduce the amount of spectrum available
to Iridium.
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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 a memorandum of
understanding establishing principles for coordinating spectrum use (or, in one
case, determining that coordination is not required) with entities representing
14 of the 15 U.S. radioastronomy sites. A coordination agreement with the
remaining site has not yet been reached, and the intervention of the FCC may be
requested in order to complete coordination with this site. 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 coordination agreements
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 has 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.
Iridium has entered into an understanding with Loral/Qualcomm and TRW under
which Loral/ Qualcomm and TRW would limit out-of-band emissions by placing their
higher powered carriers in the middle portion of their authorized band. If this
understanding is implemented, Iridium believes it would provide adequate
interference protection to IRIDIUM subscriber units. It is possible, however,
that this understanding will not be implemented because it could result in
increased interference to the GLONASS system. In addition, if the FCC licenses
either or both of the remaining global MSS applicants, Iridium would need to
enter into an agreement regarding emissions masks with those licensees as well.
For these reasons, there can be no assurance that adequate negotiated agreements
will be entered into and implemented, or failing an agreement, that the FCC will
impose an emissions mask on CDMA systems that adequately protects 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 and must accept any interference
caused to them by a primary spectrum user. In light of the secondary nature of
IRIDIUM's MSS downlinks, if the FCC is required to resolve the inter-system
interference issue, there can be no assurance that it will protect IRIDIUM
subscriber units from harmful interference. Any failure to implement an
acceptable CDMA emissions mask could significantly reduce the total capacity of
the IRIDIUM System. Furthermore, the downlinks of the IRIDIUM System may need to
accept interference from Inmarsat terminals, including Inmarsat aeronautical and
land mobile terminals, when they are in the vicinity of an IRIDIUM terminal.
ELECTRONIC SURVEILLANCE LAWS
The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was
enacted on October 25, 1994. CALEA requires that telecommunications carriers
deploy equipment, facilities, and services that meet certain electronic
surveillance requirements identified in the statute. Penalties of $10,000 a
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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,"
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.
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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.
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
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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 Delays and Cost Overruns" and
"-- Risks Associated with Principal Supply Contracts." Capitalized terms used in
the following summary that are defined in the contracts have the meanings
ascribed to them in the contracts.
SPACE SYSTEM CONTRACT
Motorola has agreed under the Space System Contract to design, develop,
produce and deliver in orbit the Space Segment of the IRIDIUM System consisting
of the Constellation and System Control Segment. The Space System Contract
provides for a price of $3.45 billion, scheduled to be paid by Iridium to
Motorola over approximately a five-year period upon the completion of 47
performance milestones. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." This price is not subject to change based
upon inflation but is subject to certain other adjustments. The Space System
Contract generally requires that the Space Segment must pass an acceptance plan
demonstrating, among other things and as specified therein, specified minimum
performance coverage and capacity criteria by a specified date (as extended for
certain excusable delays) as a condition to Iridium's obligation to accept the
Space Segment and make the final contract payment of $150 million. Following
acceptance by Iridium, the coverage and capacity performance level of the Space
Segment will be governed by the Operations and Maintenance Contract. In
addition, the Space System Contract provides that the warranty made by Motorola
that the Space Segment will comply with the requirements specified in the
acceptance plan immediately upon completion of the contract, but not thereafter,
is in lieu of all other warranties. The liability of Motorola to Iridium under
the Space System Contract is subject to certain limitations (discussed below).
The Space System Contract also requires Motorola to deliver the Satellite
Subscriber Unit (Voice) Interface Specification and the Space System Operations
Plan. The Satellite Subscriber Unit (Voice) Interface Specification was
delivered by Motorola and accepted by Iridium in October 1996. Motorola has also
agreed to license intellectual property rights essential to implementation of
the Satellite Subscriber Unit (Voice) Interface Specification to
telecommunications equipment manufacturers on mutually acceptable
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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, 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 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 Contract).
Motorola will have no liability under the Space System Contract for
failures or delays in performance, including with respect to the failure to
complete the final milestone on a timely basis, to the extent that such failure
or delay results from an event that is an excusable delay or certain other
specified delays or occurrences. Further, milestone payments under the Space
System Contract will be adjusted to account for any additional costs incurred by
Motorola as a result of an excusable delay. An excusable delay is defined under
the Space System Contract to include any event beyond the reasonable control and
without the fault or negligence of Motorola and its subcontractors, which may
therefore limit the effect of the specified payment penalties. Delays in
launches of satellites caused by the actions or inactions of Motorola's launch
service subcontractors directly pursuant to their subcontracts with Motorola do
not constitute excusable delays under
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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 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
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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 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.
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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 $187.8 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. Associated with the development of the
IBSS is Andersen's development of the gateway and service provider business
systems that will be deployed at each gateway and service provider location and
which are necessary for the gateways and service providers to operate with the
IBSS and to perform essential gateway and service provider back office business
functions.
The Iridium component of the IBSS will be located and operated at Iridium
facilities in the United States. The gateway and service provider components
will be located throughout the world. The components will be connected by a
terrestrial data network and will operate together to support the functions of
the IBSS. The IBSS is to be deployed using both custom designed software and
currently existing software purchased from commercial vendors. Because
components of the IBSS will have to be deployed around the world, it will be
necessary to meet U.S. export requirements and import requirements of other
countries.
The contract with Andersen for the development of the IBSS has been entered
into at a fixed price of $43 million. Andersen has also agreed to perform
deployment and maintenance functions of the IBSS. Andersen and Iridium are
currently negotiating the terms and conditions for the deployment and
maintenance functions. An agreement for the incorporation of the changes
necessary to accommodate the ICRS has not been negotiated.
Although Iridium believes that the development of the IBSS is proceeding in
accordance with its expectations and with its commercial activation plan, there
is no assurance that Andersen will be successful or timely in the development
and delivery of the IBSS. While the contract with Andersen for the IBSS provides
that Iridium can secure damages from Andersen up to a set limit in the event of
Andersen's breach, the amount of such damages would be insufficient to
compensate Iridium for the loss of revenue should the IBSS fail to function for
a substantial period of time.
OTHER SYSTEM DEVELOPMENT CONTRACTS AND AMENDMENTS
In addition to the contracts described above, Iridium is currently in
negotiations with Motorola and other vendors or prospective vendors relating to
new contracts, or amendments to existing contracts, providing for the
development of new or enhanced system or service capabilities. In 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.
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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 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:
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(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 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. There are no family
relationships between any officers and 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 March 1, 1997 . Each of the
directors and officers of the Company has held his respective position with the
Company since its inception.
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------------------ --- -------------------------------------
<S> <C> <C>
Edward F. Staiano......................... 60 Chief Executive Officer and Director
Paul V. Daverio........................... 58 Chief Financial Officer
Wayne Morgan.............................. 53 Secretary
F. Thomas Tuttle.......................... 54 Assistant Secretary
John F. Mitchell.......................... 69 Chairman and Director
Alberto Finol............................. 62 Deputy Chairman and Director
Ulf Bohla................................. 53 Director
Edward Gams............................... 49 Director
Robert W. Kinzie.......................... 63 Director
Yoshiharu Yasuda.......................... 56 Director
</TABLE>
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.
PAUL V. DAVERIO -- Chief Financial Officer. Chief Financial Officer and
Vice President of Iridium since January 1994 and Treasurer of Iridium from
January 1995 to November 1996. Prior to joining Iridium in 1994, Mr. Daverio had
served for eight years as Senior Vice President and Chief Financial Officer with
Owens-Corning Corporation. He also served as a member of Owens-Corning
Corporation's Board of Directors from 1988 to 1992. Mr. Daverio has served as
the Chief Financial Officer of the Company since December 1996.
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.
JOHN F. MITCHELL -- Chairman and Director. Director of Iridium since July
1993; Chairman of the Iridium Board 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. Mr. Mitchell has served as the Chairman and
Director 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.
EDWARD GAMS -- Director. Director of Iridium since July 1993; member of the
Iridium Board 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. Mr. Gams 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.
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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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 March 1, 1997.
<TABLE>
<CAPTION>
NAME POSITION
- ---------------------------------------- ---------------------------------------------------
<S> <C>
Edward F. Staiano....................... Vice Chairman of the Board and Chief Executive
Officer
O. Bruce Dale........................... Vice President -- Network Operations
Paul V. Daverio......................... Vice President and Chief Financial Officer
Mark Gercenstein........................ Vice President -- Business Operations
Roy Grant............................... Vice President and Treasurer
Dale F. Hogg............................ Vice President -- Human Resources
Francis Latapie......................... Vice President -- Government Affairs
Leo Mondale............................. Vice President -- Marketing & Strategic Planning
Larry G. Rands.......................... Vice President -- Engineering
F. Thomas Tuttle........................ Vice President, General Counsel & Secretary
Robert N. Beury, Jr..................... Assistant Secretary and Deputy General Counsel
Robert W. Kinzie(1)..................... Chairman of the Board
Hasan M. Binladin(4).................... Director (designated by Iridium Middle East)
Ulf Bohla(1)(4)......................... Director (designated by Vebacom)
Gordon J. Comerford(2).................. Director (designated by Motorola)
Atilano de Oms Sobrinho(2)(4)........... Director (designated by Iridium SudAmerica)
Robert A. Ferchat(4).................... Director (designated by Iridium Canada)
Alberto Finol(1)(3)(4).................. Director (designated by Iridium SudAmerica)
Edward Gams(1).......................... Director (designated by Motorola)
Ludwig Hoffman(4)....................... Director (designated by Vebacom)
Kazuo Inamori(4)........................ Director (designated by Nippon Iridium)
S. H. Khan(4)........................... Director (designated by Iridium India)
Anatoli I. Kiselev(4)................... Director (designated by Khrunichev)
George S. Medawar(1)(3)(4).............. Director (designated by Iridium Africa)
John F. Mitchell(3)..................... Director (designated by Motorola)
Jung L. Mok(3)(4)....................... Director (designated by Korea Mobile
Telecommunications)
</TABLE>
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<TABLE>
<CAPTION>
NAME POSITION
- ---------------------------------------- ---------------------------------------------------
<S> <C>
Giuseppe Morganti(1)(2)(4).............. Director (designated by Iridium Italia)
J. Michael Norris....................... Director (designated by Motorola)
Yusai Okuyama(2)(4)..................... Director (designated by Nippon Iridium)
John M. Scanlon......................... Director (designated by Motorola)
Theodore H. Schell(1)(4)................ Director (designated by Sprint)
Sribhumi Sukhanetr(1)(3)(4)............. Director (designated by Thai Satellite)
Tao-Tsun Sun(2)(4)...................... Director (designated by Pacific Electric Wire &
Cable)
Yoshiharu Yasuda(1)(3)(4)............... Director (designated by Nippon Iridium)
Wang Mei Yue(3)(4)...................... 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
Set forth below is information concerning each director and executive
officer of the 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.
PAUL V. DAVERIO -- Chief Financial Officer, Vice-President and Treasurer of
Iridium since January 1994 and Treasurer since January 1995. Prior to joining
Iridium in 1994, Mr. Daverio had served for eight years as Senior Vice President
and Chief Financial Officer with Owens-Corning Corporation. He also served as a
member of Owens-Corning Corporation's Board of Directors from 1988 to 1992.
MARK GERCENSTEIN -- Vice President -- Business Operations of Iridium since
August 1992. Prior to joining Iridium, Mr. Gercenstein was Director of Marketing
of Motorola Satellite Communications from 1990 to 1992. Prior to assuming that
position, Mr. Gercenstein held various marketing and engineering assignments at
Motorola Government Electronics Group from 1984 to 1990, Spar Aerospace from
1985 to 1987 and Bendix Aerospace from 1975 to 1982.
ROY GRANT -- Vice President 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
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<PAGE> 83
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 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.
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<PAGE> 84
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 Siemans AG. From 1990 to 1992, Dr. Hoffmann was the head of
marketing and distribution for debis Systemhaus GmbH, part of Daimler Benz AG.
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,
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<PAGE> 85
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).
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
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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.
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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>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION PAYOUT COMPENSATION
- ------------------------------------- ---- -------- -------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Kinzie
Chairman & Chief
Executive Officer.................. 1996 $372,194 $117,669 $1,596(b) -- $ 7,819(c)
Jerrold D. Adams
President & Chief Operating
Officer............................ 1996 301,772 98,010 -- -- 4,500(d)
Paul V. Daverio
Chief Financial Officer............ 1996 234,236 46,580 -- -- 4,500(d)
Leo Mondale
Vice President -- Marketing &
Strategic Planning................. 1996 220,561 100,000 -- -- 4,500(d)
Mark Gercenstein
Vice President -- Business
Operations......................... 1996 201,692 62,909 -- -- 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. Mr. English did not participate in the Plan. 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 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.
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
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<PAGE> 88
$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 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>
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 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>
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Pension Plan
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. Mr. Kinzie has five years of credited service; Mr.
Adams has retired as of February 1, 1997, and is currently collecting a pension
on the basis of seven years of credited service under the Pension Plan; Mr.
Daverio has three years of credited service; 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. Mr. Daverio participates in both the
Pension Plan and the Supplemental 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.
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
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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 Class 1 Interests had
been granted as of March 1, 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 been at 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 "Risk Factors -- Governance of the
Company and Relationship with Iridium -- Exchange Rights of Iridium Members."
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.
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. 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;
Marketing and Distribution." 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
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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.
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.
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IRIDIUM'S INVESTORS, PERCENTAGE OWNERSHIP
AND PRINCIPAL GATEWAY SERVICE TERRITORIES
Set forth below is a summary of the investors in Iridium, their percentage
ownership of Class 1 Interests and, if applicable, their principal gateway
service territories:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP(1)
--------------------
AS PRINCIPAL GATEWAY
INVESTOR ACTUAL ADJUSTED(2) SERVICE TERRITORY(3)
- ------------------------------------- ------ ----------- -------------------------------------
<S> <C> <C> <C>
The Company........................ --
Iridium Africa Corporation......... 2.48 Africa (excluding Morocco and Egypt)
and Turkey
Iridium Canada, Inc................ 4.35 North America(4)
Iridium China (Hong Kong) Ltd. .... 4.35 China, Mongolia, Hong Kong and Macau
Iridium India Telecom Limited...... 4.35 Indian Subcontinent
Iridium Italia S.p. A. ............ 4.59 Certain countries in Europe including
Belgium, Denmark, France, Greece,
Italy, Luxembourg, the Netherlands
and Switzerland(5)
Iridium Middle East Corporation.... 4.97 Middle East, Morocco, Egypt and
Central Asia
Iridium Brasil Ltda. .............. 2.34 South America and Caribbean(5)
Iridium Andes -- Caribe............ 3.60 South America and Caribbean(5)
Khrunichev State Research and
Production Center............... 4.35 Russia and eight other republics of
the Commonwealth of Independent
States
Korea Mobile Telecom Communications
Corporation..................... 4.35 North Korea and South Korea
Motorola, Inc...................... 21.94 North America(4), Mexico(6) and
Central America, South America and
Caribbean(5)
Nippon Iridium (Bermuda) Limited... 13.03 Japan
Pacific Electric Wire & Cable Co.,
Ltd. ........................... 4.35 Indonesia, Brunei, Papua New Guinea,
the Philippines and Taiwan
Sprint Iridium, Inc. .............. 4.35 North America(4)
Thai Satellite Telecommunications
Co., Ltd. ...................... 4.35 Southeast Asia
Vebacom Holdings, Inc. ............ 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........ 1.23 Not Applicable
Raytheon Company................... 0.74 Not Applicable
</TABLE>
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- ---------------
(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. 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."
(2) 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."
(3) Iridium's South Pacific gateway service territory, which includes Australia
and New Zealand, has not yet been allocated.
(4) The North American gateway service territory, principally consisting of the
United States and Canada, is shared by Iridium Canada, Motorola and Sprint.
(5) 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.
(6) It is anticipated that the Mexican gateway service territory initially will
be served by the North American gateway equipment.
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
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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.
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
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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.
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.
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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 Company Board (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 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."
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 beyond 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 (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
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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); or (v) cause the dissolution and/or liquidation
of Iridium; (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.
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.
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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 shares 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 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
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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
" -- Governance of the Company and Relationship with 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 there are no restrictions on its ability to transfer funds in and out
of Bermuda or to pay dividends to United States residents who are holders of the
Company's Class A Common Stock, other than in respect of local Bermuda currency.
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),
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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 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.
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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.
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
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300,000 additional Class 2 Interests. At March 1, 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 1, 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 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
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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 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
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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 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
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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 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.
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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 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
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(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.
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").
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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 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
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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 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
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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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<PAGE> 115
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 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.
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>
Merrill Lynch, Pierce, Fenner & Smith Incorporated, 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
113
<PAGE> 116
& 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 shares of Class A Common Stock for sale at the initial public
offering price set forth on the cover page of this Prospectus to officers and
employees and business associates of the Company. 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. Certain individuals purchasing
reserved shares may be required to agree not to sell, offer or otherwise dispose
of any shares of Class A Common Stock for a period of three months after the
date of this Prospectus.
The Company has agreed not to (i) sell, offer to sell, grant any option for
the sale of, assign, pledge, grant any security interest in, or otherwise
dispose of, or register for sale by others, any shares of Class A Common Stock
or securities convertible into or exchangeable or exercisable for Class A Common
Stock (other than shares of Class B Common Stock sold pursuant to the Global
Ownership Program) or (ii) enter into any swap or other agreement or transaction
that transfers, in whole or in part, the economic consequence of ownership of
the Class A Common Stock, without the prior written consent of Merrill Lynch,
for a period of 180 days after the date of this Prospectus. See "Governance of
the Company and Relationship with Iridium -- Exchange
114
<PAGE> 117
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.
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
115
<PAGE> 118
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 Company has applied for quotation of the Class A Common Stock 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.
116
<PAGE> 119
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.
The Company will furnish its stockholders with annual reports containing
financial statements of the Company and Iridium audited by independent certified
public accountants and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
117
<PAGE> 120
ANNEX A
GLOSSARY
AMPS....................... Advanced Mobile Phone Service -- a transmission
protocol used by some cellular operators primarily
in the Americas.
Aeronautical
Mobile-Satellite Route
Service ("AMS(R)S")...... aviation communications services for safety and
non-saftey purposes
"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"...................... bits 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> 121
"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 Services"......... the voice, data, facsimile and paging services to
be offered by Iridium
IRIDIUM Satellite
Services................... the satellite-based voice, data and facsimile
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
antennaes)
"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
"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
"MSS"...................... mobile satellite services
"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> 122
"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> 123
"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 -- WARC)
"$"........................ United States Dollars
A-4
<PAGE> 124
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
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<S> <C>
Audited Financial Statements:
IRIDIUM WORLD COMMUNICATIONS LTD.
Independent Auditors' Report.......................................................... F-1
Balance Sheet as of December 31, 1996................................................. F-2
Notes to Financial Statement.......................................................... F-3
IRIDIUM LLC
Independent Auditors' Report.......................................................... F-4
Consolidated Balance Sheets as of December 31, 1996 and 1995.......................... F-5
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-6
Consolidated Statements of Stockholders' 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 28, 1993, the five months ended December 31, 1993, and the
years ended December 31, 1994, 1995 and 1996........................................ F-7
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-8
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE> 125
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> 126
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> 127
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> 128
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> 129
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 (Note 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> 130
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 (Note 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> 131
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 Interests Class 1 Interests
------------------------------ --------------------------
Number of Number of
Interests Amount Interests Amount
----------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
Inception June 14, 1991............................................... - $ - - $ -
Net loss.............................................................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1991............................................ - - - -
Net loss.............................................................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1992............................................ - - - -
Net loss.............................................................. - - - -
----------- --------------- ------------ ------------
BALANCE, July 29, 1993................................................ - - - -
Class 1 Interests subscribed, July 29, 1993........................... - - 800,000 -
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - - 324,167
Costs of raising equity............................................... - - - (8,096)
Net loss.............................................................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1993............................................ - - 800,000 316,071
Class 1 Interests subscribed.......................................... - - 792,778 -
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - - 518,202
Costs of raising equity............................................... - - - (1,863)
Net loss.............................................................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1994............................................ - - 1,592,778 832,410
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - - 633,514
Costs of raising equity............................................... - - - (7)
Net loss.............................................................. - - - -
Adjustment for minimum pension liability.............................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1995............................................ - - 1,592,778 1,465,917
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - 18,369 140,131
Class 2 Interests issued
for cash at $1,000 per interest................................... 43,401 43,325 - -
Series A, Class 2 Interests issued in dividends....................... 3,652 3,652 - (3,652)
Costs of raising equity............................................... - - - (251)
Warrants to purchase Class 1 Interests issued in
connection with 14.5% Senior subordinated notes................... - - - 31,761
Warrants to purchase Class 1 Interests issued in
connection with debt guarantee.................................... - - - 25,719
Net loss.............................................................. - - - -
Adjustment for minimum pension liability.............................. - - - -
----------- --------------- ------------ ------------
BALANCE, December 31, 1996............................................ 47,053 $ 46,977 1,611,147 $ 1,659,625
=========== =============== ============ ============
<CAPTION>
Deficit Adjustment
Accumulated For
During the Minimum
Development Pension
Stage Liability Total
------------ ------------ ------------
<S> <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........................... - - -
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - 324,167
Costs of raising equity............................................... - - (8,096)
Net loss.............................................................. (6,924) - (6,924)
------------ ------------ ------------
BALANCE, December 31, 1993............................................ (21,763) - 294,308
Class 1 Interests subscribed.......................................... - - -
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - 518,202
Costs of raising equity............................................... - - (1,863)
Net loss.............................................................. (14,834) - (14,834)
------------ ------------ ------------
BALANCE, December 31, 1994............................................ (36,597) - 795,813
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - 633,514
Costs of raising equity............................................... - - (7)
Net loss.............................................................. (23,645) - (23,645)
Adjustment for minimum pension liability.............................. - (1,065) (1,065)
------------ ------------ ------------
BALANCE, December 31, 1995............................................ (60,242) (1,065) 1,404,610
Subscribed Class 1 Interests issued
for cash at $1,000 per interest................................... - - 140,131
Class 2 Interests issued
for cash at $1,000 per interest................................... - - 43,325
Series A, Class 2 Interests issued in dividends....................... - - -
Costs of raising equity............................................... - - (251)
Warrants to purchase Class 1 Interests issued in
connection with 14.5% Senior subordinated notes................... - - 31,761
Warrants to purchase Class 1 Interests issued in
connection with debt guarantee.................................... - - 25,719
Net loss.............................................................. (73,598) - (73,598)
Adjustment for minimum pension liability.............................. - 332 332
------------ ------------ ------------
BALANCE, December 31, 1996............................................ $ (133,840) $ (733) $ 1,572,029
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 132
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> 133
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,
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.
F-10
<PAGE> 134
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
F-11
<PAGE> 135
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
F-12
<PAGE> 136
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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.
F-13
<PAGE> 137
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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.
F-14
<PAGE> 138
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 issued 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.
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.
F-15
<PAGE> 139
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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>
F-16
<PAGE> 140
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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).
F-17
<PAGE> 141
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 approximately
$87,000, $161,000 and $288,000 during the years ended December 31, 1994, 1995
and 1996, respectively.
RETIREMENT PLANS
All employees of Iridium are covered by a non-contributory defined
benefit retirement plan. Vesting in plan benefits generally occurs after five
years. Benefits under the plan are based on years of credited service
(including any prior employment with Motorola), age at retirement and the
average earnings over the last four years. The plan is funded annually in
accordance with the Employee Retirement Income Security Act of 1974.
In early 1995, Iridium adopted a non-qualified defined benefit plan
covering employees earning in excess of the maximum amounts which may be
considered under the qualified plan, excluding those executives participating
in the supplemental executive plans described below, who also participate in
the qualified defined benefit plan.
SUPPLEMENTAL EXECUTIVE PLANS
Iridium maintains a non-qualified defined benefit plan for selected
senior officers. During 1994 and 1995, one senior executive officer was
covered by a separate plan and a second plan was added for three additional
executive officers in early 1995. Vesting in these plans generally occur upon
the attainment of age 55 with five years of service. Benefits under these plans
are based on average annual compensation prior to retirement. Iridium has also
agreed to provide for the payment of certain taxes associated with plan
benefits. The supplemental executive plans are not funded. The net periodic
pension cost recognized under the plans was approximately $698,000, $1,256,000
and $1,925,000 for the years ended December 31, 1994, 1995, and 1996,
respectively. In addition, Iridium recorded an additional minimum pension
liability adjustment of ($1,065,000) and $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.
F-18
<PAGE> 142
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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
F-19
<PAGE> 143
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
F-20
<PAGE> 144
IRIDIUM LLC
(A Development Stage Limited Liability Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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> 145
======================================================
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........................
Risk Factors..............................
The Company and Iridium's Strategic
Investors...............................
Use of Proceeds...........................
Dividend Policy...........................
Dilution..................................
Capitalization............................
Selected Financial Data...................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................
Business..................................
Regulation of Iridium.....................
Principal Contracts for the Development of
the IRIDIUM System......................
Management................................
Certain Relationships and Related
Transactions of Iridium.................
Iridium's Investors, Percentage Ownership
and Principal Gateway Service
Territories.............................
Governance of the Company and Relationship
with Iridium............................
Description of Capital Stock..............
Description of Iridium LLC Limited
Liability Company Agreement.............
Tax Considerations........................
Shares Eligible for Future Sale...........
Underwriting..............................
Validity of the Class A Common Stock......
Experts...................................
Available Information.....................
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> 146
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 MARCH 14, 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 8,000,000 shares being offered by the
U.S. Underwriters, are reserved for sale to officers and employees of
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
Company has applied for quotation of the Class A Common Stock on the Nasdaq
National Market System ("NNMS") under the symbol "IRIDF".
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 $ .
(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> 147
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 Stated 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
I-1
<PAGE> 148
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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<PAGE> 149
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.
I-3
<PAGE> 150
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 back-up withholding by certifying their status on Internal Revenue Service
Forms W-8 or W-9.
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<PAGE> 151
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 back-up 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 back-up 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 back-up
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 back-up 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 back-up 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, 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.
I-5
<PAGE> 152
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
receive 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 shares of Class A Common Stock for sale at the initial
public offering price set forth on the cover page of this Prospectus to officers
and employees and business associates of the Company. 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. Certain individuals purchasing
reserved shares may be required to agree not to sell, offer or otherwise dispose
of any shares of Class A Common Stock for a period of three months after the
date of this Prospectus.
The Company has agreed not to (i) sell, offer to sell, grant any option for
the sale of, assign, pledge, grant any security interest in, or otherwise
dispose of, or register for sale by others, any shares of Class A Common Stock
or securities convertible into or exchangeable or exercisable for Class A Common
Stock, (ii) enter into any swap or other agreement or transaction that
transfers, in whole or in part, the economic consequence of ownership of the
Class A Common Stock, without the prior written consent of Merrill Lynch, for a
period of 180 days after the date of this Prospectus. See "Governance of the
Company and Relationship with Iridium --
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<PAGE> 153
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 engaged 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 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
I-7
<PAGE> 154
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 Company has applied for quotation of Class A Common Stock 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.
I-8
<PAGE> 155
======================================================
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........................
Risk Factors..............................
The Company and Iridium's Strategic
Investors...............................
Use of Proceeds...........................
Dividend Policy...........................
Dilution..................................
Capitalization............................
Selected Financial Data...................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..............................
Business..................................
Regulation of Iridium.....................
Principal Contracts for the Development of
the IRIDIUM System......................
Management................................
Certain Relationships and Related
Transactions of Iridium.................
Iridium's Investors, Percentage Ownership
and Principal Gateway Service
Territories.............................
Governance of the Company and Relationship
with Iridium............................
Description of Capital Stock..............
Description of Iridium LLC Limited
Liability Company Agreement.............
Tax Considerations........................
Shares Eligible for Future Sale...........
Underwriting..............................
Validity of the Class A Common Stock......
Experts...................................
Available Information.....................
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> 156
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............................................................ $
=======
</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
None.
II-1
<PAGE> 157
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 -- Interest Exchange and Share Issuance Agreement, among the
Company, Iridium LLC and the holders from time to time of
Class 1 Membership Interests of Iridium LLC.
10.3 -- Management Services Agreement between the Company and
Iridium LLC.
10.4 -- 1997 Subscription Agreement between the Company and Iridium
LLC.
10.5 -- Iridium Option Plan.
10.6 -- Space System Contract between the Company and Motorola, Inc.
effective July 29, 1993, as amended and conformed on
September 12, 1995 and Amendment No. 6 thereto, dated as of
August 16, 1996.
10.7 -- Operations & Maintenance Contract between the Company and
Motorola, Inc. effective July 29, 1993, as amended and
conformed on September 12, 1996 and Amendment No. 6 thereto,
dated as of August 16, 1996.
10.8 -- Terrestrial Network Development Contract between the Company
and Motorola, Inc. effective January 1, 1993, as amended and
conformed on March 25, 1996 and Amendment No. 2 thereto,
dated as of August 16, 1996.
10.9 -- Support Agreement between the Company and Motorola.
10.10 -- Agreement, dated between Anderson Consulting, LLP
and the Company relating to the development of business
support systems.
10.11 -- 14 1/2% Senior Subordinated Discount Notes Due 2006 of the
Company.
10.12 -- Form of Warrant issued in respect of 14 1/2% Senior
Subordinated Discount Notes.
10.13 -- Warrant to purchase Series M Class 2 Interests dated July
29, 1993, as amended.
10.14 -- Form of Gateway Authorization Agreement.
10.15 -- Guaranteed Bank Facility.
10.16 -- Motorola Agreement regarding Guarantee.
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*
</TABLE>
- ---------------
* Filed herewith.
II-2
<PAGE> 158
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
(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-3
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on March 14, 1997.
IRIDIUM WORLD COMMUNICATIONS LTD.
By: /s/ JOHN F. MITCHELL
------------------------------------
Name: John F. Mitchell
Title: Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
/s/ EDWARD F. STAIANO Chief Executive Officer and March 14, 1997
- --------------------------------------------- Director
Edward F. Staiano
/s/ PAUL V. DAVERIO Vice President, Chief March 14, 1997
- --------------------------------------------- Financial Officer and
Paul V. Daverio Treasurer
/s/ JOHN F. MITCHELL Chairman and Director March 7, 1997
- ---------------------------------------------
John F. Mitchell
/s/ ALBERTO FINOL Deputy Chairman and Director March 14, 1997
- ---------------------------------------------
Alberto Finol
/s/ ULF BOHLA Director March 14, 1997
- ---------------------------------------------
Ulf Bohla
/s/ EDWARD GAMS Director March 14, 1997
- ---------------------------------------------
Edward Gams
/s/ ROBERT W. KINZIE Director March 3, 1997
- ---------------------------------------------
Robert W. Kinzie
/s/ YOSHIHARU YASUDA Director March 14, 1997
- ---------------------------------------------
Yoshiharu Yasuda
/s/ PAUL V. DAVERIO Authorized Representative in March 14, 1997
- --------------------------------------------- the United States
Paul V. Daverio
</TABLE>
II-4
<PAGE> 160
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 -- Interest Exchange and Share Issuance Agreement, among the Company,
Iridium LLC and the holders from time to time of Class 1 Membership
Interests of Iridium LLC.
10.3 -- Management Services Agreement between the Company and Iridium LLC.
10.4 -- 1997 Subscription Agreement between the Company and Iridium LLC.
10.5 -- Iridium Option Plan.
10.6 -- Space System Contract between the Company and Motorola, Inc.
effective July 29, 1993, as amended and conformed on September 12,
1995 and Amendment No. 6 thereto, dated as of August 16, 1996.
10.7 -- Operations & Maintenance Contract between the Company and Motorola,
Inc. effective July 29, 1993, as amended and conformed on September
12, 1996 and Amendment No. 6 thereto, dated as of August 16, 1996.
10.8 -- Terrestrial Network Development Contract between the Company and
Motorola, Inc. effective January 1, 1993, as amended and conformed on
March 25, 1996 and Amendment No. 2 thereto, dated as of August 16,
1996.
10.9 -- Support Agreement between the Company and Motorola.
10.10 -- Agreement, dated between Anderson Consulting, LLP and the
Company relating to the development of business support systems.
10.11 -- 14 1/2% Senior Subordinated Discount Notes Due 2006 of the Company.
10.12 -- Form of Warrant issued in respect of 14 1/2% Senior Subordinated
Discount Notes.
10.13 -- Warrant to purchase Series M Class 2 Interests dated July 29, 1993,
as amended.
10.14 -- Form of Gateway Authorization Agreement.
10.15 -- Guaranteed Bank Facility.
10.16 -- Motorola Agreement regarding Guarantee.
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*
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1
FORM NO. 2
[ART]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(SECTION 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
IRIDIUM WORLD COMMUNICATIONS LTD.
(hereinafter referred to as "the Company")
1. THE LIABILITY OF THE MEMBERS OF THE COMPANY IS LIMITED TO THE AMOUNT
(IF ANY) FOR THE TIME BEING UNPAID ON THE SHARES RESPECTIVELY HELD BY
THEM.
2. WE, THE UNDERSIGNED, NAMELY,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(YES/NO) SUBSCRIBED
<S> <C> <C> <C> <C>
G.B.R. Collis Clarendon House Yes British One
2 Church Street
Hamilton, Bermuda
L.J. Marshall " Yes British One
N.J. Trollope " Yes British One
</TABLE>
DO HEREBY RESPECTIVELY AGREE TO TAKE SUCH NUMBER OF SHARES OF THE COMPANY AS
MAY BE ALLOTTED TO US RESPECTIVELY BY THE PROVISIONAL DIRECTORS OF THE COMPANY,
NOT EXCEEDING THE NUMBER OF SHARES FOR WHICH WE HAVE RESPECTIVELY SUBSCRIBED,
AND TO SATISFY SUCH CALLS AS MAY BE MADE BY THE DIRECTORS, PROVISIONAL
DIRECTORS OR PROMOTERS OF THE COMPANY IN RESPECT OF THE SHARES ALLOTTED TO US
RESPECTIVELY.
<PAGE> 2
3. THE COMPANY IS TO BE AN exempted COMPANY AS DEFINED BY THE COMPANIES
ACT 1981.
4. THE COMPANY HAS POWER TO HOLD LAND SITUATED IN BERMUDA NOT EXCEEDING
IN ALL, INCLUDING THE FOLLOWING PARCELS-
N/A
5. THE AUTHORISED SHARE CAPITAL OF THE COMPANY IS US$12,000.00 DIVIDED
INTO SHARES OF US$1.00 EACH. THE MINIMUM SUBSCRIBED SHARE CAPITAL OF
THE COMPANY IS US$12,000.00.
6. THE OBJECTS FOR WHICH THE COMPANY IS FORMED AND INCORPORATED ARE -
1. To act as a member, partner, shareholder, participant or other
investor in Iridium LLC, a Delaware (USA) limited liability
company and to take all actions reasonably related to its so
acting.
2. As set out in paragraphs (b) to (n) and (p) to (u) inclusive of
the Second Schedule to the Companies Act 1981.
7. POWERS OF THE COMPANY
1. the Company shall, pursuant to Section 42 of The Companies Act
1981, have the power to issue preference shares which are, at
the option of the holder, liable to be redeemed;
2. the Company shall, pursuant to Section 42A of The Companies Act
1981, have the power to purchase its own shares.
<PAGE> 3
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof -
<TABLE>
<S> <C>
/s/ G. B. R. COLLIS
............................................................... ...............................................................
/s/ L. J. MARSHALL
............................................................... ...............................................................
/s/ N. J. TROLLOPE
............................................................... ...............................................................
............................................................... ...............................................................
(Subscribers) (Witnesses)
</TABLE>
SUBSCRIBED this 25th day of November, 1996.
<PAGE> 1
EXHIBIT 3.2
302894
B Y E - L A W S
of
IRIDIUM WORLD COMMUNICATIONS LTD.
<PAGE> 2
(i)
TABLE OF CONTENTS
Bye-Law
Page
<TABLE>
<S> <C> <C>
1 Interpretation 1
2 Board of Directors 3
3 Management of the Company 3
4 Power to appoint managing director or chief executive officer 3
5 Power to appoint manager 4
6 Power to authorise specific actions 4
7 Power to appoint attorney 4
8 Power to delegate to a committee 4
9 Power to appoint and dismiss employees 5
10 Power to borrow and charge property 5
11 Exercise of power to purchase shares of,
or discontinue the Company 5
12 Election of Directors 5
13 Defects in appointment of Directors 6
14 Alternate Directors 6
15 Removal of Directors 6
16 Vacancies on the Board 7
17 Notice of meetings of the Board 8
18 Quorum at meetings of the Board 8
19 Meetings of the Board 8
20 Unanimous written resolutions 9
21 Contracts and disclosure of Directors' interests 9
22 Remuneration of Directors 9
23 Officers of the Company 10
24 Appointment of Officers 10
25 Remuneration of Officers 10
26 Duties of Officers 10
27 Chairman of meetings 10
28 Register of Directors and Officers 11
29 Obligations of Board to keep minutes 11
30 Indemnification of Directors and Officers of the Company 11
31 Waiver of claim by Member 12
32 Notice of annual general meeting 12
33 Notice of special general meeting 13
34 Accidental omission of notice of general meeting 13
35 Meeting called on requisition of members 13
36 Short notice 13
37 Postponement of meetings 14
</TABLE>
<PAGE> 3
(ii)
<TABLE>
<S> <C> <C>
38 Quorum for general meeting 14
39 Adjournment of meetings 14
40 Attendance at meetings 15
41 Written resolutions 15
42 Attendance of Directors 16
43 Voting at meetings 16
44 Voting on show of hands 17
45 Decision of chairman 17
46 Demand for a poll 17
47 Seniority of joint holders voting 19
48 Instrument of proxy 19
49 Representation of corporations at meetings 19
50 Rights of shares 20
51 Power to issue shares 23
52 Variation of rights, alteration of share capital and purchase
of shares of the Company 24
53 Registered holder of shares 25
54 Death of a joint holder 26
55 Share certificates 26
56 Calls on shares 27
57 Forfeiture of Shares 27
58 Contents of Register of Members 28
59 Inspection of Register of Members 28
60 Determination of record dates 28
61 Instrument of transfer 28
62 Restriction on transfer 29
63 Transfers by joint holders 29
64 Representative of deceased Member 30
65 Registration on death or bankruptcy 30
66 Declaration of dividends by Board 31
67 Other distributions 31
68 Reserve fund 31
69 Deduction of amounts due to the Company 31
70 Issue of bonus shares 31
71 Records of account 32
72 Financial year end 32
73 Financial statements 32
74 Appointment of Auditor 33
75 Remuneration of Auditor 33
76 Vacation of office of Auditor 33
77 Access to books of the Company 33
78 Report of the Auditor 33
79 Notices to Members of the Company 34
80 Notices to joint Members 34
81 Service and delivery of notice 34
</TABLE>
<PAGE> 4
(iii)
<TABLE>
<S> <C> <C>
82 The seal 35
83 Manner in which seal is to be affixed 35
84 Winding-up/distribution by liquidator 35
85 Alteration of Bye-laws 36
</TABLE>
<PAGE> 5
INTERPRETATION
1. Interpretation
(1) In these Bye-laws the following words and
expressions shall, where not inconsistent with the context, have the following
meanings respectively:-
(a) "Act" means the Companies Act 1981 as
amended from time to time;
(b) "Alternate Director" means an alternate
Director appointed in accordance with
these Bye-laws;
(c) "Auditor" includes any individual or
partnership;
(d) "Board" means the Board of Directors
appointed or elected pursuant to these
Bye-laws and acting by resolution in
accordance with the Act and these
Bye-laws or the Directors present at a
meeting of Directors at which there is
a quorum;
(e) "Company" means the company for which
these Bye-laws are approved and
confirmed;
(f) "Director" means a director of the
Company and shall include an Alternate
Director;
(g) "Member" means the person registered
in the Register of Members as the
holder of shares in the Company and,
when two or more persons are so
registered as joint holders of shares,
means the person whose name stands
first in the Register of Members as
one of such joint holders or all of
such persons as the context so requires;
(h) "notice" means written notice as
further defined in these Bye-laws
unless otherwise specifically stated;
(i) "Officer" means any person appointed
by the Board to hold an office in the
Company;
(j) "Register of Directors and Officers"
means the Register of Directors and
Officers referred to in these Bye-laws;
(k) "Register of Members" means the
Register of Members referred to in
these Bye-laws; and
<PAGE> 6
-2-
(l) "Secretary" means the person appointed
to perform any or all the duties of
secretary of the Company and includes
any deputy or assistant secretary.
(m) "Share Equivalent Basis" means that
with respect to any action relating to
two or more classes of the Company's
shares, such action shall be taken by
reference to the number of Class 1
Membership Interests in Iridium LLC
acquired by the Company in respect of
each such class of shares (the
"Underlying LLC Interests") and on the
basis such that the effect of such
action with respect to the Underlying
LLC Interests is equal. For the
avoidance of doubt, if (i) a total
distribution of $1,000 is to be paid on
the outstanding Class A Shares and the
outstanding Class B Shares on a Share
Equivalent Basis, (ii) there are 100
Class A Shares outstanding and 10 Class
B Shares outstanding, and (iii) the
Company has acquired 15 Class 1
Membership Interests in respect of the
Class A Shares and five Class 1
Membership Interests in respect of the
Class B Shares, the distribution on the
Class A Shares would be $7.50 per share
and the distribution of the Class B
Shares would be $25.00 per share (i.e.,
the effect with respect to the Class A
Underlying LLC Interests and the Class B
Underlying LLC Interests is $50.00 per
Underlying LLC Interest).
(2) In these Bye-laws, where not inconsistent with the
context:-
(a) words denoting the plural number
include the singular number and vice
versa;
(b) words denoting the masculine gender
include the feminine gender;
(c) words importing persons include
companies, associations or bodies of
persons whether corporate or not;
(d) the word:-
(i) "may" shall be construed as
permissive;
(ii) "shall" shall be construed
as imperative; and
(e) unless otherwise provided herein words
or expressions defined in the Act shall
bear the same meaning in these Bye-laws.
<PAGE> 7
-3-
(3) Expressions referring to writing or written shall,
unless the contrary intention appears, include facsimile, printing,
lithography, photography and other modes of representing words in a visible
form.
(4) Headings used in these Bye-laws are for convenience
only and are not to be used or relied upon in the construction hereof.
BOARD OF DIRECTORS
2. Board of Directors
The business of the Company shall be managed and conducted by
the Board.
3. Management of the Company
(1) In managing the business of the Company, the Board may
exercise all such powers of the Company as are not, by statute or by these
Bye-laws, required to be exercised by the Company in general meeting subject,
nevertheless, to these Bye-laws, the provisions of any statute and to such
directions as may be prescribed by the Company in general meeting.
(2) No regulation or alteration to these Bye-laws made by
the Company in general meeting shall invalidate any prior act of the Board
which would have been valid if that regulation or alteration had not been made.
(3) The Board may procure that the Company pays all
expenses incurred in promoting and incorporating the Company.
4. Power to appoint managing director or chief executive officer
The Board may from time to time appoint one or more Directors
to the office of managing director or chief executive officer of the Company
who shall, subject to the
<PAGE> 8
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control of the Board, supervise and administer all of the general business and
affairs of the Company.
5. Power to appoint manager
The Board may appoint a person to act as manager of the
Company's day to day business and may entrust to and confer upon such manager
such powers and duties as it deems appropriate for the transaction or conduct
of such business.
6. Power to authorise specific actions
The Board may from time to time and at any time authorise any
company, firm, person or body of persons to act on behalf of the Company for
any specific purpose and in connection therewith to execute any agreement,
document or instrument on behalf of the Company.
7. Power to appoint attorney
The Board may from time to time and at any time by power of
attorney appoint any company, firm, person or body of persons, whether
nominated directly or indirectly by the Board, to be an attorney of the Company
for such purposes and with such powers, authorities and discretions (not
exceeding those vested in or exercisable by the Board) and for such period and
subject to such conditions as it may think fit and any such power of attorney
may contain such provisions for the protection and convenience of persons
dealing with any such attorney as the Board may think fit and may also
authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions so vested in the attorney. Such attorney may, if
so authorised under the seal of the Company, execute any deed or instrument
under such attorney's personal seal with the same effect as the affixation of
the seal of the Company.
8. Power to delegate to a committee
The Board may delegate any of its powers to a committee
appointed by the Board
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which may consist partly or entirely of non-Directors and every such committee
shall conform to such directions as the Board shall impose on them.
9. Power to appoint and dismiss employees
The Board may appoint, suspend or remove any manager,
secretary, clerk, agent or employee of the Company and may fix their
remuneration and determine their duties.
10. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow
money and to mortgage or charge its undertaking, property and uncalled capital,
or any part thereof, and may issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or
obligation of the Company or any third party.
11. Exercise of power to purchase shares of or discontinue the
Company
(1) The Board may exercise all the powers of the Company
to purchase all or any part of its own shares pursuant to Section 42A of the
Act.
(2) The Board may exercise all the powers of the Company to
discontinue the Company to a named country or jurisdiction outside Bermuda
pursuant to Section 132G of the Act.
12. Election of Directors
The Board shall consist of not less than two Directors or such
number in excess thereof as the Members may from time to time determine who
shall be elected or appointed in the first place at the statutory meeting of
the Company and thereafter, except in the case of casual vacancy, at the annual
general meeting or at any special general meeting called for the purpose and
who shall hold office for such term as the Members may determine or, in the
absence of such determination, until the next annual general meeting or until
their successors are elected or appointed or their office is otherwise vacated,
and any general
<PAGE> 10
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meeting may authorise the Board to fill any vacancy in their number left
unfilled at a general meeting.
13. Defects in appointment of Directors
All acts done bona fide by any meeting of the Board or by a
committee of the Board or by any person acting as a Director shall,
notwithstanding that it be afterwards discovered that there was some defect in
the appointment of any Director or person acting as aforesaid, or that they or
any of them were disqualified, be as valid as if every such person had been
duly appointed and was qualified to be a Director.
14. Alternate Directors
(1) Any general meeting of the Company may elect a person
or persons to act as a Director in the alternative to any one or more of the
Directors of the Company or may authorise the Board to appoint such Alternate
Directors. Unless the Members otherwise resolve, any Director may appoint a
person or persons to act as a Director in the alternative to himself or herself
by notice in writing deposited with the Secretary. Any person so appointed
shall have all the rights and powers of the Director or Directors for whom such
person is appointed in the alternative provided that such person shall not be
counted more than once in determining whether or not a quorum is present.
(2) An Alternate Director shall be entitled to receive
notice of all meetings of the Board and to attend and vote at any such meeting
at which a Director for whom such Alternate Director was appointed in the
alternative is not personally present and generally to perform at such meeting
all the functions of such Director for whom such Alternate Director was
appointed.
(3) An Alternate Director shall cease to be such if the
Director for whom such Alternate Director was appointed ceases for any reason
to be a Director but may be
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re-appointed by the Board as alternate to the person appointed to fill the
vacancy in accordance with these Bye-laws.
15. Removal of Directors
(1) Subject to any provision to the contrary in these
Bye-laws, the Members entitled to vote for the election of Directors may, at
any special general meeting convened and held in accordance with these
Bye-laws, remove a Director, with or without cause, provided that the notice of
any such meeting convened for the purpose of removing a Director shall contain
a statement of the intention so to do and be served on such Director not less
than 14 days before the meeting and at such meeting such Director shall be
entitled to be heard on the motion for such Director's removal.
(2) A vacancy on the Board created by the removal of a
Director under the provisions of subparagraph (1) of this Bye-law may be filled
by the Members entitled to vote for the election of Directors at the meeting at
which such Director is removed and, in the absence of such election or
appointment, the Board may fill the vacancy.
16. Vacancies on the Board
(1) Subject to Bye-law 15, the Board shall have the power
from time to time and at any time to appoint any person as a Director to fill a
vacancy on the Board occurring as the result of the death, disability,
disqualification or resignation of any Director and to appoint an Alternate
Director to any Director so appointed.
(2) The Board may act notwithstanding any vacancy in its
number but, if and so long as its number is reduced below the number fixed by
these Bye-laws as the quorum necessary for the transaction of business at
meetings of the Board, the continuing Directors or Director may act for the
purpose of (i) summoning a general meeting of the Company or (ii) preserving
the assets of the Company.
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(3) The office of Director shall be vacated if the Director:-
(a) is removed from office pursuant to these
Bye-laws or is prohibited from being a
Director by law;
(b) is or becomes bankrupt or makes any
arrangement or composition with his
creditors generally;
(c) is or becomes of unsound mind or dies;
or
(d) resigns his or her office by notice in
writing to the Company.
17. Notice of meetings of the Board
(1) A Director may, and the Secretary on the requisition of
a Director shall, at any time summon a meeting of the Board.
(2) Notice of a meeting of the Board shall be deemed to be
duly given to a Director if it is given to such Director verbally in person or
by telephone or otherwise communicated or sent to such Director by post, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form at such Director's last known address or any other
address given by such Director to the Company for this purpose.
18. Quorum at meetings of the Board
The quorum necessary for the transaction of business at a
meeting of the Board shall be three Directors.
19. Meetings of the Board
(1) The Board may meet for the transaction of business,
adjourn and otherwise regulate its meetings as it sees fit.
(2) Directors may participate in any meeting of the Board
by means of such telephone, electronic or other communication facilities as
permit all persons participating
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in the meeting to communicate with each other simultaneously and
instantaneously, and participation in such a meeting shall constitute presence
in person at such meeting.
(3) A resolution put to the vote at a meeting of the Board
shall be carried by the affirmative votes of a majority of the votes cast and
in the case of an equality of votes the resolution shall fail.
20. Unanimous written resolutions
A resolution in writing signed by all the Directors which may
be in counterparts, shall be as valid as if it had been passed at a meeting of
the Board duly called and constituted, such resolution to be effective on the
date on which the last Director signs the resolution. For the purposes of this
Bye-law only, "Director" shall not include an Alternate Director.
21. Contracts and disclosure of Directors' interests
(1) Any Director, or any Director's firm, partner or any
company with whom any Director is associated, may act in a professional
capacity for the Company and such Director or such Director's firm, partner or
such company shall be entitled to remuneration for professional services as if
such Director were not a Director, provided that nothing herein contained shall
authorise a Director or Director's firm, partner or such company to act as
Auditor of the Company.
(2) A Director who is directly or indirectly interested in
a contract or proposed contract or arrangement with the Company shall declare
the nature of such interest as required by the Act.
(3) Following a declaration being made pursuant to this
Bye-law, and unless disqualified by the chairman of the relevant Board meeting,
a Director may vote in respect of any contract or proposed contract or
arrangement in which such Director is interested
<PAGE> 14
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and may be counted in the quorum at such meeting.
22. Remuneration of Directors
The remuneration, (if any) of the Directors shall be
determined by the Company in general meeting and shall be deemed to accrue from
day to day. The Directors may also be paid all travel, hotel and other
expenses properly incurred by them in attending and returning from meetings of
the Board, any committee appointed by the Board, general meetings of the
Company, or in connection with the business of the Company or their duties as
Directors generally.
OFFICERS
23. Officers of the Company
The Officers of the Company shall consist of a President and a
Vice President, or a Chairman and a deputy Chairman, a Secretary and such
additional Officers as the Board may from time to time determine all of whom
shall be deemed to be Officers for the purposes of these Bye-laws.
24. Appointment of Officers
(1) The Board shall, as soon as possible after the
statutory meeting of Members and after each annual general meeting appoint a
President and Vice President or a Chairman and Deputy Chairman who shall be
Directors.
(2) The Secretary and additional Officers, if any, shall be
appointed by the Board from time to time.
25. Remuneration of Officers
The Officers shall receive such remuneration as the Board may
from time to time determine.
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26. Duties of Officers
The Officers shall have such powers and perform such duties in
the management, business and affairs of the Company as may be delegated to them
by the Board from time to time.
27. Chairman of meetings
Unless otherwise agreed by a majority of those attending and
entitled to attend and vote thereat, the Chairman, if there be one, and, if
not, the President shall act as chairman at all meetings of the Members and of
the Board at which such person is present. In their absence the Deputy
Chairman or Vice President, if present, shall act as chairman and in the
absence of all of them a chairman shall be appointed or elected by those
present at the meeting and entitled to vote.
28. Register of Directors and Officers
The Board shall cause to be kept in one or more books at the
registered office of the Company a Register of Directors and Officers and shall
enter therein the particulars required by the Act.
MINUTES
29. Obligations of Board to keep minutes
(1) The Board shall cause minutes to be duly entered in
books provided for the purpose:-
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting
of the Board and of any committee appointed by the
Board; and
(c) of all resolutions and proceedings of general meetings
of the Members, meetings of the Board, meetings of
managers and meetings of committees appointed by the
Board.
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(2) Minutes prepared in accordance with the Act and these
Bye-laws shall be kept by the Secretary at the registered office of the
Company.
INDEMNITY
30. Indemnification of Directors and Officers of the Company
The Directors, Secretary and other Officers for the time being
of the Company and the liquidator or trustees (if any) for the time being
acting in relation to any of the affairs of the Company and every one of them,
and their heirs, executors and administrators, shall 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
which they or any of them, their heirs, executors or administrators, shall or
may incur or sustain by or by reason of any act done, concurred in or omitted
in or about the execution of their duty, or supposed duty, or in their
respective offices or trusts, and none of them shall be answerable for the
acts, receipts, neglects or defaults of the others of them or for joining in
any receipts for the sake of conformity, or for any bankers or other persons
with whom any moneys or effects belonging to the Company shall or may be lodged
or deposited for safe custody, or for insufficiency or deficiency of any
security upon which any moneys of or belonging to the Company shall be placed
out on or invested, or for any other loss, misfortune or damage which may
happen in the execution of their respective offices or trusts, or in relation
thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect
of any fraud or dishonesty which may attach to any of said persons.
31. Waiver of claim by Member
Each Member agrees to waive any claim or right of action such
Member might have, whether individually or by or in the right of the Company,
against any Director or Officer 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,
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PROVIDED THAT such waiver shall not extend to any matter in respect of any
fraud or dishonesty which may attach to such Director or Officer.
MEETINGS
32. Notice of annual general meeting
The annual general meeting of the Company shall be held in
each year other than the year of incorporation at such time and place as the
President or the Chairman or any two Directors or any Director and the
Secretary or the Board shall appoint. At least 10 days notice of such meeting
shall be given to each Member entitled to vote thereat stating the date, place
and time at which the meeting is to be held, that the election of Directors
will take place thereat, and as far as practicable, the other business to be
conducted at the meeting. Notice will be given personally or by mail. Mail
notice shall be deemed given when deposited, with postage prepaid, in the
United States or Bermuda mail.
33. Notice of special general meeting
The President or the Chairman or any two Directors or any
Director and the Secretary or the Board may convene a special general meeting
of the Company whenever in their judgment such a meeting is necessary, upon not
less than five days' notice which shall state the date, time, place and the
general nature of the business to be considered at the meeting. Notice will be
given personally or by mail. Mail notice shall be deemed given when deposited,
with postage prepaid, in the United States or Bermuda mail.
34. Accidental omission of notice of general meeting
The accidental omission to give notice of a general meeting
to, or the non-receipt of notice of a general meeting by, any person entitled
to receive notice shall not invalidate the proceedings at that meeting.
35. Meeting called on requisition of Members
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Notwithstanding anything herein, the Board shall, on the
requisition of Members holding at the date of the deposit of the requisition
not less than one-tenth of such of the paid-up share capital of the Company as
at the date of the deposit carries the right to vote at general meetings of the
Company, forthwith proceed to convene a special general meeting of the Company
and the provisions of Section 74 of the Act shall apply.
36. Short notice
A general meeting of the Company shall, notwithstanding that
it is called by shorter notice than that specified in these Bye-laws, be deemed
to have been properly called if it is so agreed by (i) all the Members entitled
to attend and vote thereat in the case of an annual general meeting; and (ii)
by a majority in number of the Members having the right to attend and vote at
the meeting, being a majority together holding not less than 95% in nominal
value of the shares giving a right to attend and vote thereat in the case of a
special general meeting. Attendance of a Member, in person or by proxy at a
meeting will constitute consent to short notice of such meeting by such Member
except when the Member attends a meeting for the sole purpose of objecting, at
the beginning the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
37. Postponement of meetings
The Secretary may postpone any general meeting called in
accordance with the provisions of these Bye-laws (other than a meeting
requisitioned under these Bye-laws) provided that notice of postponement is
given to each Member before the time for such meeting. Fresh notice of the
date, time and place for the postponed meeting shall be given to each Member
entitled to vote thereat in accordance with the provisions of these Bye-laws.
<PAGE> 19
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38. Quorum for general meeting
At any general meeting of the Company 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 form a quorum
for the transaction of business, PROVIDED that if the Company shall at any time
have only one Member, one Member present in person or by proxy shall form a
quorum for the transaction of business at any general meeting of the Company
held during such time. If within half an hour from the time appointed for the
meeting a quorum is not present, the meeting shall stand adjourned to the same
day one week later, at the same time and place or to such other day, time or
place as the Secretary may determine.
39. Adjournment of meetings
The chairman of a general meeting may, with the consent of the
Members holding not less than 51% in nominal value of the shares having a right
to attend and vote at the meeting, at any general meeting at which a quorum is
present (and shall if so directed), adjourn the meeting. Unless the meeting is
adjourned to a specific date and time and no new record date is established,
fresh notice of the date, time and place for the resumption of the adjourned
meeting shall be given to each Member entitled to vote thereat in accordance
with the provisions of these Bye-laws.
40. Attendance at meetings
Members or their duly appointed proxy may participate in any
general meeting by means of such telephone, electronic or other communication
facilities as permit all persons participating in the meeting to communicate
with each other simultaneously and instantaneously, and participation in such a
meeting shall constitute presence in person at such meeting.
41. Written resolutions
(1) Subject to subparagraph (6), anything which may be done
by resolution of the Company in general meeting or by resolution
<PAGE> 20
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of a meeting of any class of the Members of the Company, may, without a meeting
and without any previous notice being required, be done by resolution in
writing signed by, or, in the case of a Member that is a corporation whether or
not a company within the meaning of the Act, on behalf of, all the Members who
at the date of the resolution would be entitled to attend the meeting and vote
on the resolution.
(2) A resolution in writing may be signed by, or, in the
case of a Member that is a corporation whether or not a company within the
meaning of the Act, on behalf of, all the Members, or any class thereof, in as
many counterparts as may be necessary.
(3) For the purposes of this Bye-law, the date of the
resolution is the date when the resolution is signed by, or, in the case of a
Member that is a corporation whether or not a company within the meaning of the
Act, on behalf of, the last Member to sign and any reference in any Bye-law to
the date of passing of a resolution is, in relation to a resolution made in
accordance with this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this
Bye-law is as valid as if it had been passed by the Company in general meeting
or by a meeting of the relevant class of Members, as the case may be, and any
reference in any Bye-law to a meeting at which a resolution is passed or to
Members voting in favour of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this
Bye-law shall constitute minutes for the purposes of Sections 81 and 82 of the
Act.
(6) This Bye-law shall not apply to:-
(a) a resolution passed pursuant to Section
89(5) of the Act; or
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(b) a resolution passed for the purpose of
removing a Director before the
expiration of his term of office under
these Bye-laws.
42. Attendance of Directors
(1) The Directors of the Company shall be entitled to
receive notice of and to attend and be heard at any general meeting.
(2) Notice of any general meeting shall be deemed to be
duly given to a Director if it is given to such Director verbally in person or
by telephone or otherwise communicated or sent to such Director by post, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form at such Director's last known address or any other
address given by such Director to the Company for this purpose.
43. Voting at meetings
(1) Subject to the provisions of the Act and these
Bye-laws, any question proposed for the consideration of the Members at any
general meeting shall be decided by the affirmative votes of a majority of the
votes cast in accordance with the provisions of these Bye-laws and in the case
of an equality of votes the resolution shall fail.
(2) No Member shall be entitled to vote at any general
meeting unless such Member has paid all the calls on all shares held by such
Member.
44. Voting on show of hands
At any general meeting a resolution put to the vote of the
meeting shall, in the first instance, be voted upon by a show of hands and,
subject to any rights or restrictions for the time being lawfully attached to
any class of shares and subject to the provisions of these Bye-laws, every
Member entitled to vote who is present in person and every person holding a
valid proxy from a Member entitled to vote at such meeting shall be entitled
to one vote and shall cast such vote by raising his or her hand.
<PAGE> 22
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45. Decision of chairman
At any general meeting a declaration by the chairman of the
meeting that a question proposed for consideration has, on a show of hands,
been carried, or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in a book containing the minutes of the proceedings of
the Company shall, subject to the provisions of these Bye-laws, be conclusive
evidence of that fact.
46. Demand for a poll
(1) Notwithstanding the provisions of the immediately
preceding two Bye-laws, at any general meeting of the Company, in respect of
any question proposed for the consideration of the Members (whether before or
on the declaration of the result of a show of hands as provided for in these
Bye-laws), a poll may be demanded by any of the following persons:-
(a) the chairman of such meeting; or
(b) at least three Members present in person
and entitled to vote or represented by
proxy; or
(c) any Member or Members present in person
or represented by proxy and holding
between them not less than one-tenth of
the total voting rights of all the
Members having the right to vote at
such meeting; or
(d) any Member or Members present in person
or represented by proxy holding shares
in the Company conferring the right to
vote at such meeting, being shares on
which an aggregate sum has been paid up
equal to not less than one-tenth of the
total sum paid up on all such shares
conferring such right.
(2) Where, in accordance with the provisions of
subparagraph (1) of this Bye-law, a poll is demanded, subject to any rights or
restrictions for the time being lawfully attached to any class of shares, every
person present at such meeting shall have one vote
<PAGE> 23
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for each share of stock entitled to be voted on such matter of which such
person is the holder or for which such person holds a proxy and such vote shall
be counted in the manner set out in sub-paragraph (4) of this Bye-Law or in the
case of a general meeting at which one or more Members are present by telephone
in such manner as the chairman of the meeting may direct and the result of such
poll shall be deemed to be the resolution of the meeting at which the poll was
demanded and shall replace any previous resolution upon the same matter which
has been the subject of a show of hands.
(3) A poll demanded in accordance with the provisions of
subparagraph (1) of this Bye-law, for the purpose of electing a chairman or on
a question of adjournment, shall be taken forthwith and a poll demanded on any
other question shall be taken in such manner and at such time and place as the
chairman may direct and any business other than that upon which a poll has been
demanded may be proceeded with pending the taking of the poll.
(4) Where a vote is taken by poll, each person present and
entitled to vote shall be furnished with a ballot paper on which such person
shall record his or her vote in such manner as shall be determined at the
meeting having regard to the nature of the question on which the vote is taken,
and each ballot paper shall be signed or initialled or otherwise marked so as
to identify the voter and the registered holder in the case of a proxy. At the
conclusion of the poll, the ballot papers shall be examined and counted by a
committee of not less than two Members or proxy holders appointed by the
chairman for the purpose and the result of the poll shall be declared by the
chairman.
47. Seniority of joint holders voting
In the case of joint holders the vote of the senior who
tenders a vote, whether in person or by proxy, shall be accepted to the
exclusion of the votes of the other joint holders, and for this purpose
seniority shall be determined by the order in which the names stand in the
Register of Members.
<PAGE> 24
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48. Instrument of proxy
The instrument appointing a proxy shall be in writing in the
form, or as near thereto as circumstances admit, of Form "A" in the Schedule
hereto, under the hand of the appointor or of the appointor's attorney duly
authorised in writing, or if the appointor is a corporation, either under its
seal, or under the hand of a duly authorised officer or attorney. The decision
of the chairman of any general meeting as to the validity of any instrument of
proxy shall be final.
49. Representation of corporations at meetings
A corporation which is a Member may, by written instrument,
authorise such person as it thinks fit to act as its representative at any
meeting of the Members and the person so authorised shall be entitled to
exercise the same powers on behalf of the corporation which such person
represents as that corporation could exercise if it were an individual Member.
Notwithstanding the foregoing, the chairman of the meeting may accept such
assurances as he or she thinks fit as to the right of any person to attend and
vote at general meetings on behalf of a corporation which is a Member.
SHARE CAPITAL AND SHARES
50. Rights of shares
(1) The capital of the Company shall be divided into two
classes of shares, namely:
(a) Shares of Class A Common Stock, par value $1.00 per
share ("Class A Shares"); and
(b) Shares of Class B Common Stock, par value $0.01 per
share ("Class B Shares").
<PAGE> 25
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Class A Shares
(2) The holders of Class A Shares shall, subject to the
provisions of these Bye-laws:
(a) be entitled to one vote per Class A Share;
(b) be entitled to such dividends as the directors may
from time to time declare as provided below under
Dividends; and
(c) in the event of a liquidation, winding-up or
dissolution of the Company, whether voluntary or
involuntary or for a reorganisation or otherwise or
upon a distribution of capital, be entitled,
to share in the surplus assets of the Company as
provided below under Liquidation.
Class B Shares
(3) The holders of Class B Shares shall, subject to the
provisions of these Bye-laws:
(a) not be entitled to any votes in respect of such Class B
Shares except that such shares may be voted in the
case of a vote of the holders of Class B Shares as
provided in Section 52 of these Bye-laws and pursuant
to Section 47 of the Act and otherwise as required by
the Act;
(b) be entitled to such dividends as the directors may
from time to time declare as provided below under
Dividends;
(c) in the event of a liquidation, winding up or
dissolution of the Company, whether voluntary or
involuntary or for a re-organisation or otherwise or
upon a distribution of capital, be entitled, to share in
the surplus assets of the Company as provided below
under Liquidation; and
(d) subject to sub-paragraph (3)(a) above, the Class B
Shares shall be deemed to be non voting shares for all
purposes of these Bye-laws.
Conversion
(4) The Class B Shares shall be convertible into Class A
Shares on such terms and conditions as the Directors shall
determine, including by repurchase of
<PAGE> 26
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Class B Shares and the application of the proceeds towards the
purchase of Class A Shares to be issued by the Company.
Dividends
(5) Holders of Class A Shares shall be entitled to receive
equally on a Share Equivalent Basis such dividends and other
distributions in cash, stock or property of the Company as may
be declared thereon by the Board of Directors from time to
time out of assets or funds of the Company legally available
therefor; provided that the Board of Directors shall declare
no dividend, and no dividend shall be paid, with respect to
any outstanding Class A Share or Class B Share, whether paid
in cash or property, unless, simultaneously, the same dividend
(calculated on a Share Equivalent Basis) is declared and paid
with respect to each Class A Share and Class B Share, except
that in the case of any dividend in the form of capital stock
of a subsidiary of the Company, the capital stock of the
subsidiary distributed to holders of Class A Shares may differ
from the capital stock of the subsidiary distributed to
holders of the Class B Shares to the extent and only to the
extent that the Class A Shares and the Class B Shares differ
as provided herein.
Liquidation
(6) In the event of any liquidation, winding-up or
dissolution of the Company, whether voluntary or involuntary,
or for a reorganisation or otherwise or a distribution of
capital, after payment or provision for payment of the debts
and other liabilities of the Company and after payment in full
of the amounts to be paid to holders of Preferred Stock, if
any, the remaining assets and funds of the Company shall be
divided among and paid ratably (calculated on a Share
Equivalent Basis) to the holders of Class A Shares and Class B
Shares as a single class. For the purposes hereof, the
voluntary sale, conveyance, exchange or transfer (for cash,
shares of
<PAGE> 27
-23-
stock, securities or other consideration) of all or
substantially all the property or assets of the Company shall
be deemed a voluntary liquidation, winding-up or dissolution
of the Company (unless occurring as a result of a
reorganisation, reclassification, merger or similar
transaction involving Iridium LLC (or any successor to Iridium
LLC) if the Company becomes a member, stockholder or similar
investor in the successor entity thereto), but a consolidation
or merger of the Company with one or more other entities shall
not be deemed to be a liquidation, winding-up or dissolution,
voluntary or involuntary.
Reclassifications, Etc.
(7) The Class A Shares or the Class B Shares may be
subdivided, consolidated, reclassified or otherwise changed
without any requirement that the other class of Shares be
subdivided, consolidated, reclassified or otherwise changed.
Mergers, Consolidations, Etc.
(8) In any merger, consolidation or business combination of
the Company with or into another entity, whether or not the
Company is the surviving entity, the consideration per share
to be received by holders of either Class A Shares or Class B
Shares in such merger, consolidation or business combination
must be the same (calculated on a Share Equivalent Basis) as
that received by holders of the other class of Shares, except
that in any such transaction in which shares of capital stock
are distributed, such shares may differ as to voting and other
rights to the extent and only to the extent that such voting
and other rights of the Class A Shares and Class B Shares
differ as provided herein.
Transfer
(9) The Class B Shares shall be transferable upon such
terms and conditions as the Directors shall determine.
<PAGE> 28
-24-
51. Power to issue shares
(1) Subject to these Bye-laws and to any resolution of the
Members to the contrary and without prejudice to any special rights previously
conferred on the holders of any existing shares or class of shares, the Board
shall have power to issue any unissued shares of the Company on such terms and
conditions as it may determine and any shares or class of shares may be issued
with such preferred, deferred or other special rights or such restrictions,
whether in regard to dividend, voting, return of capital or otherwise as the
Company may from time to time by resolution of the Members prescribe.
(2) The Board shall, in connection with the issue of any
share, have the power to pay such commission and brokerage as may be permitted
by law.
(3) The Company shall not give, whether directly or
indirectly, whether by means of loan, guarantee, provision of security or
otherwise, any financial assistance for the purpose of a purchase or
subscription made or to be made by any person of or for any shares in the
Company, but nothing in this Bye-Law shall prohibit transactions mentioned in
Sections 39A, 39B and 39C of the Act.
(4) The Company may from time to time do any one or more of
the following things:
(a) make arrangements on the issue of shares
for a difference between the Members in
the amounts and times of payments of
calls on their shares;
(b) accept from any Member the whole or a
part of the amount remaining unpaid on
any shares held by him, although no part
of that amount has been called up;
(c) pay dividends in proportion to the
amount paid up on each share where a
larger amount is paid up on some shares
than on others;
<PAGE> 29
-25-
(d) issue shares as to which all or a portion
of the purchase price thereof is to be
paid throug the Company's withholding of
dividends which would otherwise be paid
on such shares or otherwise apply to
such purchase price all or a portion of
such dividend payments;
(e) withhold the payment of dividends on
shares as described in subparagraph
(4)(d); and
(f) issue its shares in fractional
denominations and deal with such
fractions to the same extent as its
whole shares and shares in fractional
denominations shall have in proportion to
the respective fractions represented
thereby all of the rights of whole shares
including (but without limiting the
generality of the foregoing) the right to
vote, to receive dividends and
distributions and to participate in a
winding up.
52. Variation of rights, alteration of share capital and purchase
of shares of the Company
(1) Subject to the provisions of Sections 42 and 43 of the
Act any preference shares may be issued or converted into shares that, at a
determinable date or at the option of the Company, are liable to be redeemed on
such terms and in such manner as the Company before the issue or conversion may
by resolution of the Members entitled to vote determine.
(2) If at any time the share capital is divided into
different classes of shares, the rights attached to any class (unless otherwise
provided by the terms of issue of the shares of that class) may, whether or not
the Company is being wound-up, be varied with the consent in writing of the
holders of three-fourths of the issued shares of that class or with the
sanction of a resolution passed by a majority of the votes cast at a separate
general meeting of the holders of the shares of the class in accordance with
Section 47 (7) of the Act. The rights conferred upon the holders of the shares
of any class issued with preferred or other rights shall not, unless otherwise
expressly provided by the terms of issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari passu
therewith.
<PAGE> 30
-26-
(3) The Company may from time to time by resolution of the
Members change the currency denomination of, increase, alter or reduce its
share capital in accordance with the provisions of Sections 45 and 46 of the
Act. Where, on any alteration of share capital, fractions of shares or some
other difficulty would arise, the Board may deal with or resolve the same in
such manner as it thinks fit including, without limiting the generality of the
foregoing, the issue to Members, as appropriate, of fractions of shares and/or
arranging for the sale or transfer of the fractions of shares of Members.
(4) The Company may from time to time purchase its own
shares in accordance with the provisions of Section 42A of the Act.
53. Registered holder of shares
(1) The Company shall be entitled to treat the registered
holder of any share as the absolute owner thereof and accordingly shall not be
bound to recognise any equitable or other claim to, or interest in, such share
on the part of any other person.
(2) Any dividend, interest or other moneys payable in cash
in respect of shares may be paid by cheque or draft sent through the post
directed to the Member at such Member's address in the Register of Members or,
in the case of joint holders, to such address of the holder first named in the
Register of Members, or to such person and to such address as the holder or
joint holders may in writing direct. If two or more persons are registered as
joint holders of any shares any one can give an effectual receipt for any
dividend paid in respect of such shares.
54. Death of a joint holder
Where two or more persons are registered as joint holders of a
share or shares then in the event of the death of any joint holder or holders
the remaining joint holder or holders shall be absolutely entitled to the said
share or shares and the Company shall recognise
<PAGE> 31
-27-
no claim in respect of the estate of any joint holder except in the case of the
last survivor of such joint holders.
55. Share certificates
(1) Every Member shall be entitled to a certificate under
the seal of the Company (or a facsimile thereof) specifying the number and,
where appropriate, the class of shares held by such Member and whether the same
are fully paid up and, if not, how much has been paid thereon, or a statement
that the amount paid thereon as of a recent date may be obtained from the
Company. The Board may by resolution determine, either generally or in a
particular case, that any or all signatures on certificates may be printed
thereon or affixed by mechanical means.
(2) The Company shall be under no obligation to complete
and deliver a share certificate unless specifically called upon to do so by the
person to whom such shares have been allotted.
(3) If any such certificate shall be proved to the
satisfaction of the Board to have been worn out, lost, mislaid, stolen or
destroyed the Board may cause a new certificate to be issued and request a bond
or an indemnity for the lost, mislaid, stolen or destroyed certificate if it
sees fit.
56. Calls on shares
(1) The Board may from time to time make such calls as it
thinks fit upon the Members in respect of any monies unpaid on the shares
allotted to or held by such Members and, if a call is not paid on or before the
day appointed for payment thereof, the Member may at the discretion of the
Board be liable to pay the Company interest on the amount of such call at such
rate as the Board may determine, from the date when such call was payable up to
the actual date of payment. The joint holders of a share shall be jointly and
severally liable to pay all calls in respect thereof.
<PAGE> 32
-28-
(2) The Board may, on the issue of shares, differentiate
between the holders as to the amount of calls to be paid and the times of
payment of such calls.
57. Forfeiture of shares
(1) If any Member fails to pay, on the day appointed for
payment thereof, any call in respect of any share allotted to or held by such
Member, the Board may, at any time thereafter during such time as the call
remains unpaid, direct the Secretary to forward to such Member a notice in the
form, or as near thereto as circumstances admit, of Form "B" in the Schedule
hereto.
(2) If the requirements of such notice are not complied
with, any such share may at any time thereafter before the payment of such call
and the interest due in respect thereof be forfeited by a resolution of the
Board to that effect, and such share shall thereupon become the property of the
Company and may be disposed of as the Board shall determine.
(3) A Member whose share or shares have been forfeited as
aforesaid shall, notwithstanding such forfeiture, be liable to pay to the
Company all calls owing on such share or shares at the time of the forfeiture
and all interest due thereon.
REGISTER OF MEMBERS
58. Contents of Register of Members
The Board shall cause to be kept in one or more books a
Register of Members and shall enter therein the particulars required by the
Act.
59. Inspection of Register of Members
<PAGE> 33
-29-
The Register of Members shall be open to inspection at the
registered office of the Company on every business day, subject to such
reasonable restrictions as the Board may impose, so that not less than two
hours in each business day be allowed for inspection. The Register of Members
may, after notice has been given by advertisement in an appointed newspaper to
that effect, be closed for any time or times not exceeding in the whole thirty
days in each year.
60. Determination of record dates
Notwithstanding any other provision of these Bye-laws, the
Board may fix any date as the record date for:-
(a) determining the Members entitled to receive any
dividend or other distribution;
(b) determining the Members entitled to receive notice of
and to vote at any general meeting of the Company or
to consent to the taking of any action without a
meeting; and
(c) determining the Members entitled to exercise any
rights in respect of any change, conversion, or
exchange of securities or for the purpose of any other
lawful action.
TRANSFER OF SHARES
61. Instrument of transfer
(1) An instrument of transfer shall be in the form or as
near thereto as circumstances admit of Form "C" in the Schedule hereto or in
such other form as the Board may accept. Such instrument of transfer shall be
signed by or on behalf of the transferor and transferee provided that, in the
case of a fully paid share, the Board may accept the instrument signed by or on
behalf of the transferor alone. The transferor shall be deemed to remain the
holder of such share until the same has been transferred to the transferee in
the Register of Members.
<PAGE> 34
-30-
(2) The Board may refuse to recognise any instrument of
transfer unless it is accompanied by the certificate in respect of the shares
to which it relates and by such other evidence as the Board may reasonably
require to show the right of the transferor to make the transfer.
62. Restriction on transfer
(1) The Board may in its absolute discretion and without
assigning any reason therefor refuse to register the transfer of a share. The
Board shall refuse to register a transfer unless all applicable consents,
authorisations and permissions of any governmental body or agency in Bermuda
have been obtained.
(2) If the Board refuses to register a transfer of any
share the Secretary shall, within three months after the date on which the
transfer was lodged with the Company, send to the transferor and transferee
notice of the refusal.
63. Transfers by joint holders
The joint holders of any share or shares may transfer such
share or shares to one or more of such joint holders, and the surviving holder
or holders of any share or shares previously held by them jointly with a
deceased Member may transfer any such share to the executors or administrators
of such deceased Member.
TRANSMISSION OF SHARES
64. Representative of deceased Member
<PAGE> 35
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In the case of the death of a Member, the survivor or
survivors where the deceased Member was a joint holder, and the legal personal
representatives of the deceased Member where the deceased Member was a sole
holder, shall be the only persons recognised by the Company as having any title
to the deceased Member's interest in the shares. Nothing herein contained
shall release the estate of a deceased joint holder from any liability in
respect of any share which had been jointly held by such deceased Member with
other persons. Subject to the provisions of Section 52 of the Act, for the
purpose of this Bye-law, legal personal representative means the executor or
administrator of a deceased Member or such other person as the Board may in its
absolute discretion decide as being properly authorised to deal with the shares
of a deceased Member.
65. Registration on death or bankruptcy
Any person becoming entitled to a share in consequence of the
death or bankruptcy of any Member may be registered as a Member upon such
evidence as the Board may deem sufficient or may elect to nominate some person
to be registered as a transferee of such share, and in such case the person
becoming entitled shall execute in favour of such nominee an instrument of
transfer in the form, or as near thereto as circumstances admit, of Form "D" in
the Schedule hereto. On the presentation thereof to the Board, accompanied by
such evidence as the Board may require to prove the title of the transferor,
the transferee shall be registered as a Member but the Board shall, in either
case, have the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Member before such Member's
death or bankruptcy, as the case may be.
DIVIDENDS AND OTHER DISTRIBUTIONS
66. Declaration of dividends by the Board
The Board may, subject to these Bye-laws and in accordance
with Section 54 of the Act, declare a dividend to be paid to the Members, in
proportion to the number of shares
<PAGE> 36
-32-
held by them, and such dividend may be paid in cash or wholly or partly in
specie in which case the Board may fix the value for distribution in specie of
any assets.
67. Other distributions
The Board may declare and make such other distributions (in
cash or in specie) to the Members as may be lawfully made out of the assets of
the Company.
68. Reserve fund
The Board may from time to time before declaring a dividend
set aside, out of the surplus or profits of the Company, such sum as it thinks
proper as a reserve fund to be used to meet contingencies or for equalising
dividends or for any other special purpose.
69. Deduction of Amounts due to the Company
The Board may deduct from the dividends or distributions
payable to any Member all monies due from such Member to the Company on account
of calls or otherwise.
CAPITALISATION
70. Issue of bonus shares
(1) The Board may resolve to capitalise any part of the
amount for the time being standing to the credit of any of the Company's share
premium or other reserve accounts or to the credit of the profit and loss
account or otherwise available for distribution by applying such sum in paying
up unissued shares to be allotted as fully paid bonus shares to the Members on
a Share Equivalent Basis (and, for the avoidance of doubt, holders of Class A
Shares are only entitled to a bonus issue of Class A Shares and holders of
Class B Shares are only entitled to a bonus issue of Class B Shares.
(2) The Company may capitalise any sum standing to the
credit of a reserve account or sums otherwise available for dividend or
distribution by applying such amounts
<PAGE> 37
-33-
in paying up in full partly paid shares of those Members who would have been
entitled to such sums if they were distributed by way of dividend or
distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
71. Records of account
The Board shall cause to be kept proper records of account
with respect to all transactions of the Company and in particular with respect
to:-
(a) all sums of money received and expended by the Company
and the matters in respect of which the receipt and
expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the Company
or, subject to Section 83 (2) of the Act, at such other place as the Board
thinks fit and shall be available for inspection by the Directors during normal
business hours.
72. Financial year end
The financial year end of the Company may be determined by
resolution of the Board and failing such resolution shall be 31st December in
each year.
73. Financial statements
Subject to any rights to waive laying of accounts pursuant to
Section 88 of the Act, financial statements as required by the Act shall be
laid before the Members in general meeting.
<PAGE> 38
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AUDIT
74. Appointment of Auditor
Subject to Section 88 of the Act, at the annual general
meeting or at a subsequent special general meeting in each year, an independent
representative of the Members shall be appointed by them as Auditor of the
accounts of the Company. Such Auditor may be a Member but no Director, Officer
or employee of the Company shall, during his or her continuance in office, be
eligible to act as an Auditor of the Company.
75. Remuneration of Auditor
The remuneration of the Auditor shall be fixed by the Company
in general meeting or in such manner as the Members may determine.
76. Vacation of office of Auditor
If the office of Auditor becomes vacant by the resignation or
death of the Auditor, or by the Auditor becoming incapable of acting by reason
of illness or other disability at a time when the Auditor's services are
required, the Board shall, as soon as practicable, convene a special general
meeting to fill the vacancy thereby created.
77. Access to books of the Company
The Auditor shall at all reasonable times have access to all
books kept by the Company and to all accounts and vouchers relating thereto,
and the Auditor may call on the Directors or Officers of the Company for any
information in their possession relating to the books or affairs of the
Company.
78. Report of the Auditor
<PAGE> 39
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(1) Subject to any rights to waive laying of accounts or
appointment of an Auditor pursuant to Section 88 of the Act, the accounts of
the Company shall be audited at least once in every year.
(2) The financial statements provided for by these
Bye-laws shall be audited by the Auditor in accordance with generally accepted
auditing standards. The Auditor shall make a written report thereon in
accordance with generally accepted auditing standards and the report of the
Auditor shall be submitted to the Members in general meeting.
(3) The generally accepted auditing standards referred to
in subparagraph (2) of this Bye-law may be those of a country or jurisdiction
other than Bermuda. If so, the financial statements and the report of the
Auditor must disclose this fact and name such country or jurisdiction.
NOTICES
79. Notices to Members of the Company
A notice may be given by the Company to any Member either by
delivering it to such Member in person or by sending it to such Member's
address in the Register of Members or to such other address given for the
purpose. For the purposes of this Bye-law, a notice may be sent by mail,
courier service, cable, telex, telecopier, facsimile or other mode of
representing words in a legible and non-transitory form.
80. Notices to joint Members
Any notice required to be given to a Member shall, with
respect to any shares held jointly by two or more persons, be given to
whichever of such persons is named first in the Register of Members and notice
so given shall be sufficient notice to all the holders of such shares.
81. Service and delivery of notice
<PAGE> 40
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Any notice shall be deemed to have been served at the time
when the same would be delivered in the ordinary course of transmission and, in
proving such service, it shall be sufficient to prove that the notice was
properly addressed and prepaid, if posted, and the time when it was posted,
delivered to the courier or to the cable company or transmitted by telex,
facsimile or other method as the case may be.
SEAL OF THE COMPANY
82. The seal
The seal of the Company shall be in such form as the Board may
from time to time determine. The Board may adopt one or more duplicate seals
for use outside Bermuda.
83. Manner in which seal is to be affixed
The seal of the Company shall not be affixed to any instrument
except attested by the signature of a Director and the Secretary or any two
Directors, or some other person appointed by the Board for the purpose,
provided that any Director, or Officer, may affix the seal of the Company
attested by such Director or Officer's signature only to any authenticated
copies of these Bye-laws, the incorporating documents of the Company, the
minutes of any meetings or any other documents required to be authenticated by
such Director or Officer.
WINDING-UP
84. Winding-up/distribution by liquidator
If the Company shall be wound up the liquidator may, with the
sanction of a resolution of the Members, divide amongst the Members in specie
or in kind the whole or any part of the assets of the Company (whether they
shall consist of property of the same kind or not) and may, for such purpose,
set such value as he or she deems fair upon any property to be divided as
aforesaid and may, subject to the provisions of these Bye-laws, determine how
such division shall be carried out as between the Members or different classes
of
<PAGE> 41
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Members. The liquidator may, with the like sanction, vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the Members
as the liquidator shall think fit, but so that no Member shall be compelled to
accept any shares or other securities or assets whereon there is any liability.
ALTERATION OF BYE-LAWS
85. Alteration of Bye-laws
No Bye-law shall be rescinded, altered or amended and no new
Bye-law shall be made until the same has been approved by a resolution of the
Board and by a resolution of the Members.
*****
***
*
<PAGE> 42
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SCHEDULE - FORM A (Bye-law 48)
..............................................
P R O X Y
I/We
of
the holder(s) of share(s) in the above-named company
hereby appoint .................................................... or failing
him/her ................................................. or failing him/her
................................................. as my/our proxy to vote on
my/our behalf at the general meeting of the Company to be held on the
day of , 19 , and at any adjournment thereof.
Dated this day of , 19
*GIVEN under the seal of the Company
*Signed by the above-named
..............................................................
.............................................................
Witness
*Delete as applicable.
<PAGE> 43
-39-
SCHEDULE - FORM B (Bye-law 57)
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
You have failed to pay the call of [amount of call] made on the ...... day of
........, 19.. last, in respect of the [number] share(s) [numbers in figures]
standing in your name in the Register of Members of the Company, on the ......
day of ........., 19.. last, the day appointed for payment of such call. You
are hereby notified that unless you pay such call together with interest
thereon at the rate of .......... per annum computed from the said ....... day
of ........., 19... last, on or before the ....... day of ........., 19...
next at the place of business of the Company the share(s) will be liable to be
forfeited.
Dated this ....... day of .............., 19...
[Signature of Secretary]
By order of the Board
<PAGE> 44
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SCHEDULE - FORM C (Bye-law 61)
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED
........................................................................[amount]
....................................................................[transferor]
hereby sell assign and transfer unto ...............................[transferee]
of.....................................................................[address]
..............................................................[number of shares]
shares of......................................................[name of Company]
Dated ............................
............................
(Transferor)
In the presence of:
..........................
(Witness)
............................
(Transferee)
In the presence of:
..........................
(Witness)
<PAGE> 45
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SCHEDULE - FORM D (Bye-law 65)
TRANSFER BY A PERSON BECOMING ENTITLED ON
DEATH/BANKRUPTCY OF A MEMBER
I/We having become entitled in consequence of the [death/bankruptcy] of [name
of the deceased Member] to [number] share(s) standing in the register of
members of [Company] in the name of the said [name of deceased Member] instead
of being registered myself/ourselves elect to have [name of transferee] (the
"Transferee") registered as a transferee of such share(s) and I/we do hereby
accordingly transfer the said share(s) to the Transferee to hold the same unto
the Transferee his or her executors administrators and assigns subject to the
conditions on which the same were held at the time of the execution thereof;
and the Transferee does hereby agree to take the said share(s) subject to the
same conditions.
WITNESS our hands this ........ day of ..........., 19...
Signed by the above-named )
[person or persons entitled] )
in the presence of: )
Signed by the above-named )
[transferee] )
in the presence of: )
<PAGE> 1
EXHIBIT 10.1
LIMITED LIABILITY COMPANY
AGREEMENT
OF
IRIDIUM LLC
<PAGE> 2
LIMITED LIABILITY COMPANY AGREEMENT
OF
IRIDIUM LLC
LIMITED LIABILITY COMPANY AGREEMENT of IRIDIUM LLC ("LLC") dated as of
July 29, 1996 among the undersigned.
WHEREAS, the Members are forming a limited liability company pursuant
to the terms and provisions of this Agreement and in accordance with the
Delaware Limited Liability Company Act, 6 Del. C. Sections 18-101, et seq. as
amended from time to time (the "Delaware Act");
WHEREAS, On June 14, 1993, Iridium, Inc. was formed as a corporation
under the laws of the State of Delaware and commenced operations on July 29,
1993;
WHEREAS, the stockholders of Iridium, Inc. have determined that it is
advantageous and desirable, for tax and other reasons, to conduct the business
of Iridium in a limited liability company;
WHEREAS, on July 29, 1996, Iridium, Inc. was merged with and into LLC
(the "LLC Merger") pursuant to 8 Del.C. Section 264 with LLC as the surviving
entity; and
WHEREAS, certain terms shall have the meanings assigned in ARTICLE XII
hereof;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
GENERAL PROVISIONS
Section 1.01 Formation and Name
The name of LLC is Iridium LLC. The business of LLC may be conducted
under any other name deemed necessary or desirable by the Class 1 Members in
order to comply with local law.
The parties hereto agree to form LLC and enter into this Agreement,
and do hereby form LLC and enter into this Agreement, pursuant to the
provisions of the Delaware Act and for the purposes hereinafter described and
agree that the rights and liabilities of the Members shall be as provided in
the Delaware Act except as provided herein.
Section 1.02 Place of Business and Office:
Registered Agent
LLC shall maintain a registered office in the State of Delaware at The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The principal executive office
of LLC shall be 1401 H Street, N.W., Washington, D.C. 20006 or such other place
as the Board of Directors may determine. The name and address of LLC's
registered agent in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
Section 1.03 Purpose of LLC
LLC is organized for the purpose of acquiring, owning and managing the
low-earth orbit satellite space system to be delivered under the Space System
Contract, and any successor or replacement
1
<PAGE> 3
space system, and the management of the access to any use of such space system
by the Members and/or their Affiliates through their Gateways and/or their
Service Providers and by others and the engagement in activities necessary,
appropriate or incidental to the foregoing.
Section 1.04 Fiscal Year
The fiscal year of LLC (the "Fiscal Year") shall be fixed by
resolution of the Class 1 Members.
Section 1.05 Directors: Number, Appointment,
Removal, Qualifications, Etc.
(a) Board of Directors. There shall initially be a Board of
Directors comprised of 23 Directors, which number may be changed, subject to
the rights of the Class 2 Members, as determined from time to time by the Class
1 Members. Each Class 1 Member owning at least 70,000 Class 1 Interests shall
be a Director (accordingly, each such Class 1 Member shall appoint a
representative who will represent it on the Board of Directors and who shall be
the Director in respect of such Class 1 Member for purposes of this Agreement)
and in addition shall be entitled to designate one Director for each additional
70,000 Class 1 Interests owned by such Class 1 Member. In addition, two or
more Class 1 Members may aggregate their Class 1 Interests and appoint a
Director for each 70,000 Class 1 Interests owned by such Class 1 Members in the
aggregate. The persons listed in Annex A hereto as Directors are hereby
designated by the Class 1 Member(s) set forth next to such Director's name as
the initial Board of Directors of LLC. In addition, the chairman of the Board
of Directors and the vice chairman and chief executive officer elected pursuant
to Section 2.03 shall be a Director and a member of the Board of Directors.
The business address of each Director is set forth opposite his name on Annex A
hereto. Directors appointed pursuant to this Agreement shall be managers for
purposes of the Delaware Act. During the Iridium Bermuda Special Rights
Period, and notwithstanding the second and third sentences of this Section
1.05(a), Iridium Bermuda shall be entitled to designate two Directors. No
Director designated by Iridium Bermuda shall be an employee or Affiliate of
Motorola or any other Member owning more than five percent of the outstanding
Class 1 Membership Interests.
(b) Alternate Directors. The Member(s) who are or who have
appointed a Director under Section 1.05(a) may appoint an alternate Director to
act for and fulfill the obligations of such Director in the event that such
Director is unable to attend any meeting of the Board of Directors or any
committee thereof. Any such alternates are listed on Annex A hereto or if
appointed after the date hereof shall be specified in writing by such Member to
the secretary of LLC. Any appointment of an alternate Director may be changed
by the Member(s) by providing written notice of such change to the secretary of
LLC.
(c) Removal and Resignation. A Director may be removed with or
without cause by the Member who appointed such Director by providing written
notice of such removal to the secretary of LLC and to each Member. A Director
may not otherwise be removed. If, as a result of the removal, resignation or
death of any member of the Board of Directors, a vacancy occurs in the Board of
Directors, such vacancy shall be filled by the Member(s) who appointed such
Director by written notice to the secretary of LLC and to each Member of the
name of the new Director who shall fill such vacancy (such notice may be
included with notice of removal as provided by the preceding sentence).
(d) Assumption and Acceptance of Powers and Duties. Any Director
designated pursuant to this Section 1.05, and any alternate acting for such
Director, shall assume the powers, duties and obligations of a Director as
provided under this Agreement and of a director under the Delaware Act and
shall be subject to the terms hereof. Any person designated as a Director and
any alternate shall be deemed to have agreed to accept such Director's rights
and authority hereunder and to perform and discharge such Director's duties and
obligations hereunder by performing any act in the capacity of Director
hereunder (including but not limited to participating in any meeting of the
Board of Directors or executing any written consent of the Board of Directors),
and such rights, authority, duties and
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obligations hereunder shall continue until such Director's successor is
designated or until such Director's earlier resignation or removal in
accordance with this Agreement.
Section 1.06 Members
(a) Initial Members. The initial Members of LLC, their business
addresses and their respective Interests shall be as set forth in Annex B
hereto. The initial Members shall become Members upon the filing of the
certificate of formation of LLC and the execution of this Agreement by such
Members.
(b) Rights and Obligations. A Member shall have the rights,
powers, duties and obligations provided herein for a Member.
(c) Investment Company Restrictions. Each Member organized in the
United States covenants and agrees that it will not make a public offering of
its own securities if as a result of such offering, LLC will become an entity
controlled by an investment company registered under the Investment Company Act
of 1940.
(d) Annual Meetings. An annual meeting of the Class 1 Members
shall be held each year within 120 days after the close of the immediately
preceding fiscal year of LLC for the purpose of conducting such proper business
as may come before the meeting. The date, time and place of the annual meeting
shall be determined by the president of LLC; provided, that if the president
does not act, the Board of Directors shall determine the date, time and place
of such meeting. At such annual meetings, each Member shall provide notice to
the secretary of LLC and the other Member of the names of the Director(s) such
Member is entitled to appoint and each person so named shall serve as Director
until a substitute shall be appointed at the next annual meeting or pursuant to
Section 1.05(c).
(e) Special Meetings. Special meetings of Members may be called
for any purpose and may be held at such time and place, within or without the
State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the Board of Directors, 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.
(f) Place of Meetings. The Directors may designate any place,
either within or outside of the State of Delaware, as the place of meeting for
any annual meeting or for any special meeting called by the Directors. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal executive office of LLC.
(g) Notice. Whenever Members are required or permitted to take
action at a meeting, written or printed notice stating the place, date, time,
and, in the case of special meetings, the purpose or purposes, of such meeting,
shall be given to each Member entitled to vote at such meeting and to each
Director not less than 10 nor more than 60 days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the Directors, the chairman of the Board of Directors, the vice
chairman and chief executive officer, the president or the secretary, and if
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the Member at his, her or its
address as the same appears on the records of LLC. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
(h) Members List. The officer having charge of the records
referred to in Section 2.07 shall make, at least 10 days before every meeting
of the Members, a complete list of the Members entitled to
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vote at such meeting arranged in alphabetical order, showing the address of
each Member and the Interest of each Member. Such list shall be open to the
examination of any Member, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any Member who is present.
(i) Quorum. The holders of a majority of the Interests entitled
to vote, present in person or represented by proxy, shall constitute a quorum
at all meetings of the Members. If a quorum is not present, the holders of a
majority of the Interests present in person or represented by proxy at the
meeting, and entitled to vote at the meeting, may adjourn the meeting to
another time and/or place. When a specified item of business requires a vote by
a class or series (if LLC shall then have outstanding Interests of more than
one class or series) voting as a class, the holders of a majority of the
Interests of such class or series shall constitute a quorum (as to such class
or series) for the transaction of such item of business. When a quorum is once
present to commence a meeting of Members, it is not broken by the subsequent
withdrawal of any Members or their proxies.
(j) Adjourned Meetings. If at any meeting of Members there shall
be, with respect to a particular matter, less than a quorum present, the
Members present in person or by proxy and entitled to vote thereat on such
matter may without further notice, following the completion of such action, if
any, with respect to other matters as the Members present in person or by proxy
and constituting a quorum to vote thereat on such matters desire to take,
adjourn the meeting from time to time until a quorum with respect to such
matter shall be present. When a meeting is adjourned to another time and
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting LLC may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each Member
entitled to vote at the meeting.
(k) Vote Required. When a quorum is present, the affirmative vote
of the majority of Interests present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
Members, unless the question is one upon which by express provisions of an
applicable law or of this Agreement a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Where a separate vote by class is required, the affirmative vote of the
majority of Interests of such class present in person or represented by proxy
at the meeting shall be the act of such class, unless the question is one upon
which by express provisions of an applicable law or of this Agreement a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
(l) Proxies. 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 another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy
may be made irrevocable regardless of whether the interest with which it is
coupled is an interest in the membership Interest itself or an interest in LLC
generally. Any proxy is suspended when the person executing the proxy is
present at a meeting of Members and elects to vote, except that when such proxy
is coupled with an interest and the fact of the interest appears on the face of
the proxy, the agent named in the proxy shall have all voting and other rights
referred to in the proxy, notwithstanding the presence of the person executing
the proxy. At each meeting of the Members, and before any voting commences,
all proxies filed at or before the meeting shall be submitted to and
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examined by the secretary or a person designated by the secretary, and no
Interests may be represented or voted under a proxy that have been found to be
invalid or irregular.
(m) Action by Written Consent. Unless otherwise provided in the
Delaware Act, any action required to be taken at any annual or special meeting
of Members, or any action which may be taken at any annual or special meeting
of such Members, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action
so taken and bearing the dates of signature of the Members who signed the
consent or consents, shall be signed by the holders of not less than the
minimum Interests that would be necessary to authorize or take such action at a
meeting at which all Interests entitled to vote thereon were present and voted
and shall be delivered to LLC by delivery to its registered office in the State
of Delaware, or LLC's principal place of business, or an officer or agent of
LLC having custody of the book or books in which proceedings of meetings of the
Members are recorded. Delivery made to LLC's registered office shall be by
hand or by certified or registered mail, return receipt requested; provided,
that no consent or consents delivered by certified or registered mail shall be
deemed delivered until such consent or consents are actually received at the
registered office. All consents properly delivered in accordance with this
section shall be deemed to be recorded when so delivered. No written consent
shall be effective to take any action referred to therein unless, within 60
days of the earliest dated consent delivered to LLC as required by this
section, written consents signed by the holders of Interests sufficient to take
such action are so recorded. Prompt notice of the taking of the action without
a meeting by less than unanimous written consent shall be given to those
Members who have not consented in writing. Any action taken pursuant to such
written consent or consents of the Members shall have the same force and effect
as if taken by the Members at a meeting thereof.
(n) Record Dates. For purposes of determining the Members entitled
to notice of or to vote at a meeting of Members or to give approvals without a
meeting as provided in Section 2.03(l), the Board of Directors may set a record
date, which shall not be less than 10 nor more than 60 days before (a) the date
of the meeting or (b) in the event that approvals are sought without a meeting,
the date by which Members are requested in writing by the Board of Directors to
give such approvals.
(o) Communications Equipment. The Members may participate in and
act at any meeting of such Members through the use of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other, and participating in the meeting pursuant to
this section shall constitute presence in person at the meeting.
Section 1.07 Liability of Members and Directors
No Member or Director shall have any liability under this Agreement or
under the Delaware Act except as provided in Section 1.08 or elsewhere herein
or as required by the Delaware Act. Except as required by the Delaware Act,
the debts, obligations and liabilities of LLC, whether arising in contract,
tort or otherwise (including without limitation those arising as member, owner
or shareholder of another company, partnership or entity), shall be solely the
debts, obligations and liabilities of LLC, and no Member or Director shall be
obligated personally for any such debt, obligation or liability of LLC solely
by reason of being a Member or acting as a Director of LLC. No Member or
Director shall be liable for any debts, obligations and liabilities, whether
arising in contract, tort or otherwise, of any other Member or Director.
Section 1.08 Certain Duties and Liabilities of
Members and Directors
(a) Duties of Members and Directors. Except as otherwise
specifically provided in this Agreement, the duties and obligations owed to LLC
and to the Members by the Directors and officers of LLC, and any such duties
that may be owed by any Member or by any Affiliates of any Member, shall be
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the same as the respective duties and obligations owed to a corporation
organized under the Delaware General Corporation Law by its directors and
officers and any such duties that may be owed to such corporation by any
similarly situated stockholder or affiliate thereof, respectively; provided,
that a Director shall not be liable as a Director if such Director would not
have had liability if LLC were a corporation subject to the Delaware General
Corporation Law as the same exists or may hereafter be amended and had in its
certificate of incoroporation the same provision as Article X of the
Certificate of Incorporation of Iridium, Inc., a Director shall not be liable
to LLC or its Members for monetary damages for a breach of fiduciary duty as a
Director and any repeal or modification of this Section 1.08(a) shall not
adversely affect any right or protection of a Director of LLC existing at the
time of such repeal or modification.
(b) Limitations on Liability of Members, Directors and Officers. To
the extent that any Member, Director or officer has duties (including fiduciary
duties) and liabilities relating thereto to LLC or to a Member, (1) any such
Member, Director or officer acting under this Agreement shall not be liable to
LLC or to any such other Member for the Member's or Director's good faith
reliance on the provisions of this Agreement, the records of LLC and such
information, opinions, reports or statements presented to LLC by any of LLC's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the Director reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of LLC, and (2) the Member's, Director's or
officer's duties and liabilities are restricted by the provisions of this
Agreement to the extent that such provisions restrict the duties and
liabilities of the Members, Directors or officers otherwise existing at law or
in equity.
Section 1.09 Reliance by Third Parties
Persons dealing with LLC are entitled to rely conclusively upon the
power and authority of the Directors and officers as herein set forth. Persons
dealing with LLC are entitled to rely conclusively upon a certificate of any
secretary or assistant secretary as to the incumbency of any Director, officer
or other personnel of LLC.
Section 1.10 Organizational Expenses
LLC shall be solely responsible for the expenses of organizing LLC.
Section 1.11 Seal of LLC
The Board of Directors may adopt a seal, alter such seal at its
pleasure and authorize it to be used by causing it or a facsimile to be affixed
or impressed or reproduced in any other manner.
Section 1.12 Ratification and Authorization
of Certain Actions
The actions of the officers of LLC, including the preparation of the
Merger Agreement, with respect to the formation of LLC and the LLC Merger are
hereby ratified and approved and such officers are further authorized to
execute and deliver the Merger Agreement simultaneously herewith and upon such
execution and delivery to file a corresponding Certificate of Merger in the
office of the Secretary of State of the State of Delaware.
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ARTICLE II
MANAGEMENT AND OPERATIONS OF LLC
Section 2.01 Power and Authority of Members
The Members shall manage LLC only through their designated Directors
on the Board of Directors and the Members, in their capacity as such, shall
have no authority or right to act on behalf of or bind LLC in connection with
any matter.
Section 2.02 Power and Authority of Directors
The business and affairs of LLC shall be managed by or under the
direction of the Board of Directors, except as may be otherwise provided in
this Agreement. The Board of Directors shall have the power on behalf and in
the name of LLC to carry out any and all of the objects and purposes of LLC
contemplated by Section 1.03 and to perform all acts which they may deem
necessary or advisable in connection therewith.
The Members agree that all determinations, decisions and actions made
or taken by the Board of Directors (or their designee(s)) shall be conclusive
and absolutely binding upon LLC, the Members (but only in their capacity as
such) and their respective successors, assigns and personal representatives.
Section 2.03 Directors: Meetings, Committees, and Delegation
(a) Annual and Special Meetings. An annual meeting of the Board
of Directors shall be held without other notice than this provision immediately
after, and at the same place as, the annual meeting of Members (or execution by
all Class 1 Members of a unanimous written consent in lieu thereof). At the
annual meeting of the Board of Directors, the Directors shall, by resolution
duly adopted by a majority of the Directors present and voting, elect a
chairman of the Board of Directors and shall elect a vice chairman and chief
executive officer who, in accordance with Section 2.05(g), shall also serve as
chief executive officer of LLC. During the Iridium Bermuda Special Rights
Period, the Board of Directors shall, by resolution duly adopted by a majority
of the Directors present and voting, elect one of the Directors designated by
Iridium Bermuda as a vice chairman of the Board of Directors, such vice
chairman to be responsible for such matters as shall be designated by the Board
of Directors from time to time. Regular meetings, other than the annual
meeting, of the Board of Directors shall be held without notice at such time
and at such place as shall from time to time be determined by resolution of the
Board of Directors. Special meetings of the Board of Directors may be called by
or at the request of any Director on at least 48 hours notice to each Director,
either personally, by telephone, by mail or by telegraph. One-half of the
total number of Directors shall constitute a quorum for the transaction of
business. The vote of a majority of Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless a previous
resolution of the Board of Directors requires a majority greater than one-half
(a "supermajority") to take such action, in which case the vote of such
supermajority shall be the act of the Board of Directors; such supermajority
requirement shall remain in effect unless amended by a vote of the
supermajority of Directors; provided, however, that at any meeting held during
any period in which Directors have been elected by holders of Series C Class 2
Interests, in their capacity as such, the vote required to approve any merger,
liquidation, sale, lease, conveyance or transfer of LLC or all or substantially
all of its assets or to approve or recommend to the Members any changes in the
capital structure or in the rights of any interests or security of LLC or to
approve the incurrence of any debt of LLC which debt would exceed $10,000,000
or any amendments to this Agreement which would have a material effect on any
of the Members, shall require the affirmative vote of 66 2/3% of all of the
directors. If a quorum shall not be present at any meeting of the Board of
Directors, the Directors present thereat
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may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
(b) Representation of Certain Members. LLC shall give each of
Raytheon Company ("Raytheon") and Lockheed Martin Corporation ("Lockheed
Martin") (in each case so long as it has complied in all material respects with
the terms of this Agreement and has not Transferred any of its Class 1
Interests other than in a Transfer referred to in clause (i) of the definition
of Exempt Transfer in the 1993 Stock Purchase Agreement) written notice of each
meeting of the Board of Directors at the same time and in the same manner as
notice is given to the Directors, and LLC shall permit a representative of each
of Raytheon and Lockheed Martin to attend as a non-participating observer all
meetings of the Board of Directors; provided, that in the case of telephonic
meetings conducted in accordance with this Agreement and applicable law, each
of Raytheon and Lockheed Martin need receive only actual notice thereof at
least 48 hours prior to any such meeting, and each of their representatives
shall be given the opportunity to listen to such telephonic meetings. Raytheon
and Lockheed Martin shall designate in writing to LLC their respective
representatives under this Section 2.03(b) (which representatives upon written
notice to LLC can be changed by the appointing party from time to time). Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
Directors in connection with such meetings at the same time such materials and
information are given to the Directors. If LLC proposes to take any action by
written consent in lieu of a meeting of the Board of Directors, LLC shall give
written notice thereof to each of the representatives of Raytheon and Lockheed
Martin prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action.
(c) Committees. The Board of Directors may, by resolution passed
by a majority of all the Directors, designate one or more committees, in
addition to those provided for in this Agreement, each committee to consist of
one or more of the Directors, which to the extent provided in such resolution
or this Agreement shall have and may exercise the powers of the Board of
Directors in the management and affairs of LLC except as otherwise limited by
law; provided, that no such committee of the Board of Directors shall have the
power or authority to amend this Agreement (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance
of Interests adopted by the Board of Directors, fix the designations and any of
the preferences or rights of such Interests relating to distributions,
redemption, dissolution, any distribution of assets of LLC or the conversion
into, or the exchange of such Interests for, Interests of any other class or
classes or any other series of the same or any other class or classes of
Interests of LLC or fix the aggregate number of Interests comprising any series
of Interests or authorize the increase or decrease of the aggregate number of
Interests comprising any series of Interests), adopting any agreement of merger
or consolidation, recommending to the Members the sale, lease or exchange of
all or substantially all of LLC's property and assets, recommending to the
Members a dissolution of LLC or revocation of a dissolution; and, unless a
resolution of the Board of Directors or this Agreement expressly so provides,
no such committee shall have the power or authority to declare a dividend or
other distribution or to authorize the issuance of Interests. The Directors
may designate one or more Directors as alternate members of any such committee,
who may replace any absent or disqualified Director at any meeting of such
committee. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Directors. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required. During the Iridium Bermuda Special Rights
Period, one Director designated by Iridium Bermuda shall be a member of each
committee of the Board of Directors.
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(d) Committee Rules. Each committee of Directors may fix its own
rules of procedure and shall hold its meetings as provided by such rules,
except as may otherwise be provided by a resolution of the Board of Directors
designating such committee. Unless otherwise provided in such a resolution,
the presence of at least a majority of the members of the committee shall be
necessary to constitute a quorum. In the event that a committee member and
that committee member's alternate, if alternates are designated by the Board of
Directors as provided in Section 2.03(c), of such committee is or are absent or
disqualified, the committee member or members present at any meeting and not
disqualified from voting, whether or not such committee member or members
constitute a quorum, may unanimously appoint another Director to act at the
meeting in place of any such absent or disqualified committee member.
(e) Audit Committee. There shall be an audit committee of the
Board of Directors and the audit committee shall consist of not fewer than two
(2) Directors as shall from time to time be appointed by resolution of the
Board of Directors. No Director who is an Affiliate of LLC or an officer or an
employee of LLC or any subsidiary of LLC shall be eligible to serve on the
audit committee. The audit committee shall review and, as it shall deem
appropriate, recommend to the Board of Directors internal accounting and
financial controls for LLC and accounting principles and auditing practices and
proce dures to be employed in the preparation and review of financial
statements of LLC. The audit committee shall make recommendations to the Board
of Directors concerning the engagement of independent public accountants to
audit the annual financial statements of LLC and the scope of the audit to be
undertaken by such accountants.
(f) Compensation Committee. There shall be a compensation
committee of the Board of Directors and the compensation committee shall
consist of not fewer than three Directors as from time to time shall be
appointed by resolution of the Board of Directors. No Director who is an
Affiliate of LLC or an officer or an employee of LLC or any subsidiary of LLC
shall be eligible to serve on the compensation committee. The compensation
committee shall review and, as it deems approriate, recommend to the president
and the Directors policies, practices and procedures relating tot he
compensation of managerial employees and the establishment and administration
of employee benefit plans. The compensation committee shall have and exercise
all authority under any employee stock option plans of LLC as the committee
therein (unless the Board of Directors by resolution appoints any other
committee to exercise such authority), and shall advise and consult with the
officers of LLC as may be requested regarding managerial personnel policies.
(g) Related Party Contract Committee. There shall be a related
party contract committee of the Board of Directors (the "Contract Committee")
and the Contract Committee shall consist of all Directors other than any
Director who is a director, officer, employee of, or person designated as a
Director by, Motorola, Inc. ("Motorola"), Lockheed Martin or Raytheon;
provided, however, that (i) any such Director so designated by Motorola shall
be added to the Contract Committee at such time as Motorola ceases to be a
party to the Space System Contract, the O&M Contract and the Terrestrial
Network Development Contract or such contracts are terminated (other than as a
result of a breach by Motorola), (ii) any such Director so designated by
Lockheed Martin shall be added to the Contract Committee at such time as
Lockheed Martin and its Affiliates cease to be subcontractors to Motorola in
connection with the Space System Contract, the O&M Contract and the Terrestrial
Network Development Contract and (iii) any such Director so designated by
Raytheon shall be added to the Contract Committee at such time as Raytheon and
its Affiliates cease to be subcontractors to Motorola in connection with the
Space System Contract, the O&M Contract and the Terrestrial Network Development
Contract. The Contract Committee shall have the authority on behalf of LLC to
review and monitor the Space System Contract, the O&M Contract, and the
Terrestrial Network Development Contract and, as it deems appropriate, cause
LLC to enforce its rights thereunder and propose amendments, waivers and/or
modifications thereto (it being understood that the Space System Contract, the
O&M Contract, and the Terrestrial Network Development Contract can be amended
only in accordance with the terms thereof or by mutual consent of the parties
thereto). A resolution adopted by
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the Contract Committee, if within the above-described authority of the Contract
Committee, shall be deemed to be a resolution adopted by the Board of Directors
as if approved by a majority of the Directors then in office.
(h) Banking and Financing Committee. There shall be a banking and
financing committee of the Board of Directors and the banking and financing
committee shall consist of not fewer than eight (8) Directors as shall from
time to time be appointed by resolution of the Board of Directors. A quorum of
the banking and financing committee shall require the presence at any meeting
of such committee of at least five (5) members thereof. The banking and
financing committee shall (i) deal with important decisions concerning future
financings of LLC in the interim period between meetings of the Board of
Directors, (ii) consult with and advise management on future financing strategy
and direction, (iii) review debt and equity financing proposals submitted by
LLC's financial advisors and make recommendations to the Board of Directors
with respect thereto, (iv) supervise generally the financial affairs of LLC,
(v) supervise the investment of idle funds of LLC, and (vi) exercise such other
powers delegated by the Board of Directors regarding the implementation of
financing plans approved by the Board of Directors. Subject to the authority of
the Board of Directors, the banking and financing committee is authorized to
exercise all the powers and authority of the Board of Directors in all matters
related to the future financing of LLC.
(i) Communications Equipment. The Directors or any committee
thereof may participate in and act at any meeting of such Directors or
committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
(j) Waiver of Notice and Presumption of Assent. Any Director or
any member of a committee of the Board of Directors who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except
when such member attends for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. Such member shall be conclusively presumed to
have assented to any action taken unless his or her dissent shall be entered in
the minutes of the meeting or unless his or her written dissent to such action
shall be filed with the person acting as the secretary of the meeting before
the adjournment thereof or shall be forwarded by registered mail to the
secretary of LLC immediately after the adjournment of the meeting. Such right
to dissent shall not apply to any member who voted in favor of such action.
(k) Initial Committee Members. The initial members of the audit
committee, the compensation committee, the related party contracts committee
and the banking and financing committee shall be the same Directors who served
on such committees of the Board of Directors of Iridium, Inc. as of the date of
the LLC Merger.
(l) Action by Written Consent. Unless otherwise restricted by
this Agreement or the Delaware Act, any action required or permitted to be
taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all the Directors or members of the committee
thereof, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
(m) Tax Consequences to the Members. At the request of any
Director, the Board of Directors shall consider, as part of any determination,
decision or action, the tax consequences to the Members that result from any
proposed action by LLC.
(n) Resolutions. The resolutions of the Board of Directors of
Iridium, Inc. are hereby adopted by LLC with only such changes as are necessary
to reflect LLC as the successor to Iridium, Inc.
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Section 2.04 Compensation of the Directors
No Director shall be entitled to any compensation for services as
Director.
Section 2.05 Officers
(a) Establishment, Nomination and Election. The officers of LLC
shall be nominated by the chairman of the Board of Directors and elected by the
Directors and shall consist of a chief executive officer, a president, one or
more vice-presidents, a chief operating officer, a chief financial officer, a
secretary, a treasurer, and such other officers and assistant officers as may
be deemed necessary or desirable by the chairman of the Board of Directors.
Any number of offices may be held by the same person. In their discretion, the
Directors may choose not to fill any office for any period as they may deem
advisable, except that the offices of president and secretary shall be filled
as expeditiously as possible. The initial officers of LLC are set forth in
Annex A.
(b) Election and Term of Office. The officers of LLC shall be so
nominated and elected annually by the Board of Directors at their first meeting
held after each annual meeting of Members or as soon thereafter as conveniently
may be. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Each officer shall hold office until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
(c) Removal. Any officer or agent elected by the Directors may be
removed by the Directors whenever in their judgment the best interests of LLC
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
(d) Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by
the Directors for the unexpired portion of the term by the Directors then in
office.
(e) Compensation. Compensation of all officers shall be fixed by
the Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a Director of LLC.
(f) Chairman of the Board. The chairman of the Board of Directors
shall be selected according to the terms set forth in Section 2.03(a). He
shall preside at all meetings of the Board of Directors and Members. The
chairman of the Board of Directors shall also counsel the vice chairman and
cheif executive officer, when appropriate, and shall perform such other duties
as may be prescribed byn the Board of Directors or provided in this Agreement.
(g) Vice Chairman and Chief Executive Officer. The vice chairman
and chief executive officer shall serve as both the chief executive officer and
a director and shall be selected as provided in Section 2.03(a). He shall in
general supervise and control all the business affairs of LLC, subject to the
powers of the Board of Directors. In the absence of the chairman of the Board
of Directors, he shall preside at meetings of the Board of Directors and
Members and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or provided in this Agreement.
(h) President. The president shall, subject to the powers of the
vice chairman and chief executive officer and the Directors, have general
charge of the business, affairs and property of LLC, and control over its
officers, agents and employees; and shall see that all orders and resolutions
of the Board of Directors are carried into effect. The president shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of LLC,
except where required or permitted by law to be otherwise signed and executed
and except where the signing and execution thereof shall be expressly delegated
by the Board of Directors to some other officer or agent of LLC. The president
shall have such
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other powers and perform such other duties as may be prescribed by the Board of
Directors or as may be provided in this Agreement.
(i) Chief Operating Officer. The chief operating officer of LLC,
subject to the powers of the vice chairman and chief executive officer and the
Directors, shall have general and active management of the business of LLC; and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The chief operating officer shall have such other powers and
perform such other duties as may be prescribed by the chairman of the Board of
Directors or the Board of Directors or as may be provided in this Agreement.
(j) Chief Financial Officer. The chief financial officer of LLC
shall, under the direction of the vice chairman and chief executive officer and
the President, be responsible for all financial and accounting matters and for
the direction of the offices of treasurer and controller. The chief financial
officer shall have such other powers and perform such other duties as may be
prescribed by the chairman of the Board of Directors or the Board of Directors
or as may be provided in this Agreement.
(k) Vice-presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the chairman of
the Board of Directors, shall, in the absence or disability of the president,
act with all of the powers and be subject to all the restrictions of the
president. The vice-presidents shall also perform such other duties and have
such other powers as the Board of Directors, the vice chairman and chief
executive officer, the president or this Agreement may, from time to time,
prescribe.
(l) Secretary and Assistant Secretaries. The secretary shall
attend all meetings of the Board of Directors (other than the portion of any
such meeting during which the Compensation Committee shall be reporting to the
Board of Directors), all meetings of the committees thereof except the
Compensation Committee and all meetings of the Members and record all the
proceedings of the meetings except meetings of the Compensation Committee in a
book or books to be kept for that purpose. The record of proceedings of
meetings of the Compensation Committee and of any portion of any meeting of the
Board of Directors during which the Compensation Committee shall be reporting
to the Board of Directors (and related discussion by the Directors) included by
the secretary in such book or books of LLC shall be prepared by the chairman of
the Compensation Committee as provided in this Section 2.05(k). The chairman
of the Compensation Committee shall be responsible for recording all the
proceedings of that Committee and of any report by that committee to the
Directors (and related discussion by the Directors) and shall provide to the
secretary complete and accurate minutes of the proceedings of the Compensation
Committee and of such report to the Board of Directors and related discussion
which minutes shall be included by the secretary in the book or books of LLC
kept for the purpose of recording such proceedings. Under the president's
supervision, the secretary: shall give, or cause to be given, all notices
required to be given by this Agreement or the Delaware Act; shall have such
powers and perform such duties as the Directors, the chairman of the Board of
Directors, the vice chairman and chief operating officer, or this Agreement
may, from time to time, prescribe; and shall have custody of the seal of LLC.
The secretary, or an assistant secretary, shall have authority to affix the
seal to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
LLC and to attest the affixing by his signature. The assistant secretary, or
if there be more than one, the assistant secretaries in the order determined by
the Board of Directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the Board of Directors, the
chairman of the Board of Directors, the vice chairman and chief executive
officer, or secretary may, from time to time, prescribe.
(m) Treasurer and Assistant Treasurer. The treasurer shall have
the custody of LLC's funds and securities; shall keep full and accurate
accounts of receipts and disbursements in books belonging
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to LLC; shall deposit all monies and other valuable effects in the name and to
the credit of LLC as may be ordered by the Board of Directors; shall cause the
funds of LLC to be disbursed when such disbursements have been duly authorized,
taking proper vouchers for such disbursements; and shall render to the
president and the Board of Directors, at its regular meeting or when the Board
of Directors so require, an account of LLC; shall have such powers and perform
such duties as the Board of Directors, the vice chairman and chief operating
officer, or this Agreement may, from time to time, prescribe. If required by
the Board of Directors, the treasurer shall give LLC a bond (which shall be
rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of the office of treasurer and for the restoration to LLC, in case
of death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in the possession
or under the control of the treasurer belonging to LLC. The assistant
treasurer, or if there shall be more than one, the assistant treasurers in the
order determined by the Board of Directors, shall in the absence or disability
of the treasurer, perform the duties and exercise the powers of the treasurer.
The assistant treasurers shall perform such other duties and have such other
powers as the Board of Directors, the vice chairman and chief executive
officer, or treasurer may, from time to time, prescribe.
(n) Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in this Agreement, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of the Board of
Directors.
(n) Absence or Disability of Officers. In the case of the absence
or disability of any officer of LLC and of any person hereby authorized to act
in such officer's place during such officer's absence or disability, the Board
of Directors may by resolution delegate the powers and duties of such officer
to any other officer or to any Director, or to any other person whom it may
select.
Section 2.06 Interested Directors
(a) Contracts Permitted. No contract or transaction between LLC and
one or more of its Directors or officers, or between LLC and any other limited
liability company, corporation, partnership, association, or other organization
in which one or more of its managers, directors or officers, are Directors or
officers of LLC, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board or committee which authorizes the
contract or transaction, or solely because his or their votes are counted for
such purpose, if:
(i) The material facts as to such Director's or officer's
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and
the Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors be less than a
quorum; or
(ii) The material facts as to the relationship or interest and
as to the contract or transaction are disclosed or are known to the
Members entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the Members; or
(iii) The contract or transaction is fair as to LLC as of the
time it is authorized, approved or ratified by the Board of Directors,
a committee or the Members.
(b) Quorum. Interested Directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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Section 2.07 Books and Records
(a) Books and Records to be Kept. LLC shall keep; (i) correct and
complete books and records of account, (ii) minutes of the proceedings of
meetings of the Members, the Board of Directors and any committee thereof, and
(iii) a current list of the Directors and officers and their residence
addresses; and LLC shall also keep at its principal executive office a record
containing the names and addresses of all Members, the total Interests held by
each Member, the number thereof that are Class 1 Interests and Class 2
Interests and the dates when they respectively became the owners of record
thereof (the "Members' Interest Register"). Any of the foregoing books,
minutes or records may be in written form or in any other form capable of being
converted into written form within a reasonable time. The financial statements
of LLC shall be audited at the end of each fiscal year by an internationally
recognized firm of independent certified public accountants based in the United
States.
(b) Inspection of Books and Records. Any Member, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose LLC's Members' Interest Register and its other books and
records, and to make copies of extracts therefrom. A proper purpose shall mean
any purpose reasonably related to such Person's interest as a Member. In every
instance where an attorney or other agent shall be the Person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing which authorizes the attorney or other agent to
so act on behalf of the Member. The demand under oath shall be directed to LLC
at its registered office in the State of Delaware or at its principal place of
business.
(c) Directors' Rights to Inspect. Any Director shall have the
right to examine LLC's Members' Interest Register and its other books and
records for a purpose reasonably related to his position as a Director.
(d) Members' Interest Register as Evidence. The Members' Interest
Register shall be the only evidence as to who are the Members entitled to vote
in person or by proxy at any meeting of Members.
Section 2.08 Indemnification
(a) Third Party Actions, Suits and Proceedings. Each person who
was or is made a party or is threatened to be made a party to or is involved in
any action, suit or proceeding, whether civil, crimi nal, administrative or
investigative (other than an action by or in the right of LLC), by reason of
the fact that he or she, or a person of whom he or she is the legal
representative, is or was a Director or officer, of LLC or is or was serving at
the request of LLC as a manager, director, officer, employee, fiduciary, or
agent of another limited liability company or of a corporation, partnership,
joint venture, trust or other enterprise (hereinafter a "proceeding"), shall be
indemnified and held harmless by LLC, against all expenses (including
attorneys' fees) judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of LLC, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of LLC, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) Actions by LLC. LLC shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of LLC to procure a judgment in its
favor by reason of the fact that such person, or a person of whom he or she is
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the legal representative, is or was a Director or officer of LLC, or is or was
serving at the request of LLC as a manager or director, officer, employee,
fiduciary or agent of another limited liability company or of a corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of LLC 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 LLC unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) Procedure for Indemnification. Any indemnification of a
Director or officer of LLC under Section 2.08(a) or 2.08(b) or advance of
expenses under Section 2.08(f) shall be made promptly, and in any event within
30 days, upon the written request of the Director or officer. If a
determination by LLC, by action of its Board of Directors, that the Director or
officer is entitled to indemnification pursuant to this Section 2.08 is
required, and LLC fails to respond within 60 days to a written request for
indemnity, LLC shall be deemed to have approved the request. If LLC denies a
written request for indemnification or advancing of expenses, in whole or in
part, or if payment in full pursuant to such request is not made within 30
days, the right to indemnification or advances as granted by this Section 2.08
shall be enforceable by the Director or officer in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be indemnified by LLC. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to LLC)
that the claimant has not met the standards of conduct which would make it
permissible under the Delaware General Corporate Law if LLC were a corporation
for LLC to indemnify the claimant for the amount claimed, but the burden of
such defense shall be on LLC. Neither the failure of LLC (including its
Directors, independent legal counsel or Members) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the standard of
conduct set forth for a director or officer of a corporation in the Delaware
General Corporate Law, nor an actual determination by LLC (including its
Directors, independent legal counsel or Members) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the appli cable standard of
conduct.
(d) Rights Non-exclusive. The rights to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section 2.08 shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of this Agreement, agreement, vote of Members or disinterested
Directors or otherwise.
(e) Insurance. LLC may purchase and maintain insurance on its own
behalf and on behalf of any person who is or was a Director, officer, employee,
fiduciary, or agent of LLC or was serving at the request of LLC as a manager,
officer, employee or agent of another limited liability company, corpo ration,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not LLC would have the power to indemnify such person against such
liability under this Section 2.08.
(f) Expenses. Expenses incurred by any person described in
Section 2.08(a) or 2.08(b) in defending a proceeding shall be paid by LLC in
advance of such proceeding's final disposition upon receipt of an undertaking
by or on behalf of the Director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by
LLC. Such expenses incurred
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by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
(g) Employees and Agents. Persons who are not covered by the
foregoing provisions of this Section 2.08 and who are or were Members,
employees or agents of LLC, or who are or were serving at the request of LLC as
employees or agents of another limited liability company, corporation,
partnership, joint venture, trust or other enterprise, may be indemnified to
the extent authorized at any time or from time to time by the Board of
Directors.
(h) Contract Rights. The provisions of this Section 2.08 shall be
deemed to be a contract right between LLC and each Director or officer who
serves in any such capacity at any time while this Section 2.08 and the
relevant provisions of the Delaware Act or other applicable law are in effect,
and any repeal or modification of this Section 2.08 or any such law shall not
affect any rights or obligations then existing with respect to any state of
facts or proceeding then existing. The indemnification and other rights
provided for in this Section 2.08 shall inure to the benefit of the heirs,
executors and administrators of any person entitled to such indemnification.
Except as provided in Section 2.08(c) hereof, LLC shall indemnify any such
person seeking indemnification in connection with a proceeding initiated by
such person only if such proceeding was authorized by the Directors.
(i) Merger or Consolidation; Other. For purposes of this Section
2.08, references to "LLC" shall include, in addition to the resulting company,
any constituent company (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its managers, directors,
officers, and employees or agents, so that any person who is or was a manager,
director, officer, employee or agent of such constituent company, or is or was
serving at the request of such constituent company as a director, officer,
employee or agent of another company, partnership, joint venture, trust or
other enterprise, shall stand in the same position under this Section 2.08 with
respect to the resulting or surviving company as he or she would have with
respect to such constituent company if its separate existence had continued.
For purposes of this Section 2.08, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of LLC" shall include any service as a
manager, director, officer, employee or agent of LLC which imposes duties on,
or involves services by, such manager, director, officer, employee, or agent
with respect to an employee benefit plan, its participants or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of LLC" as referred to in this Section 2.08.
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"Section 2.09 Special Rights of Iridium Bermuda.
(a) Waiver of Limited Liability. Pursuant to
Section 18-303(b) of the Delaware Act, Iridium Bermuda waives,
commencing on the first day of the Iridium Bermuda Special
Rights Period, the limitation on liability contained in
Section 18-303(a) of the Delaware Act and Section 1.07 of this
Agreement; provided that Iridium Bermuda shall have no
liability to any person, including LLC, for any debt,
obligation or liability of LLC until all of the assets and
capital of LLC have first been exhausted in satisfaction
thereof.
(b) Special Approval Rights. In addition to any
other voting rights which Iridium Bermuda may have hereunder,
under the Delaware Act or otherwise, during the Iridium
Bermuda Special Rights Period, LLC shall 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
designated by Iridium Bermuda:
(i) Make any material amendments or modifications
to this Agreement;
(ii) Approve any business plan of LLC that would
result in any material change in the purpose
of LLC as set forth in Section 1.03 of this
Agreement or otherwise change LLC's business
so that it varies materially from the
business purpose contemplated by Section 1.03
of this Agreement;
(iii) Acquire, other than in the ordinary course of
business of LLC, (A) a controlling interest
or a majority of the voting stock or equity
of any corporation or other entity that would
be a
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Significant Subsidiary (as such term is
defined in Rule 405 under the United States
Securities Act of 1933, or any successor rule
thereto) 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 LLC (other than to a person
controlled by LLC);
(v) Cause the dissolution and/or liquidation of
LLC;
(vi) Take any action for the (A) commencement of a
voluntary case with respect to LLC under any
applicable bankruptcy, insolvency or similar
law now or hereafter in effect, (B) consent
to the entry of any order for relief in an
involuntary case under any such law with
respect to LLC to the extent that the giving
or withholding of such consent is within
LLC's discretion, (C) consent to the
appointment or taking possession by a
receiver, liquidator, assignee, custodian
trustee, sequestrator (or similar official)
of LLC or of any substantial part of LLC's
property or (D) making by LLC of a general
assignment for the benefit of creditors."
ARTICLE III
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
Section 3.01 Form of Contribution
The contribution with respect to a Member of LLC may, as determined by
the Board of Directors in its discretion, be in cash or other legal
consideration. The initial capital contribution of the initial Members are the
shares of Iridium, Inc. stock surrendered for Interests in LLC pursuant to the
LLC Merger and no Member shall be required to make any additional contributions
with respect thereto (except as required by law and except as set forth in
Section 4.02).
Section 3.02 Contributions by the Class 1 Members
There shall be contributed to the capital of LLC, with respect to each
Person who purchases a Class 1 Interest, an amount equal to the net purchase
price to the Company for such Class 1 Interest (such amount being such Person's
capital contribution to LLC). Class 1 Members, in their capacity as Members of
LLC, shall not be required to make any additional contributions to LLC (except
as required by law and except as set forth in Section 4.02).
The Class 1 Members shall 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 LLC at all times.
Section 3.03 Contributions with Respect to
the Class 2 Members
There shall be contributed to the capital of LLC, with respect to each
Person who purchases a Class 2 Interest, an amount equal to the net purchase
price to the Company for such Class 2 Interest (such amount being such Person's
capital contribution to LLC). Class 2 Members, in their capacity as Members of
LLC, shall not be required to make any additional contributions to LLC (except
as required by law and except as set forth in Section 4.02).
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Section 3.04 Allocation of Distributions
The distributions of LLC shall, subject to the applicable terms of
this Article, Article IV of this Agreement and the rights of the Class 2
Members, be allocated entirely to the Class 1 Members pro rata in proportion to
their percentage ownership of all outstanding Class 1 Interests.
Section 3.05 Allocation of Tax Items
(a) For U.S. federal income tax purposes, items of income and
gain, to the extent available, shall be allocated first to the Class 2 Members
in amounts that match the distributions made to the Class 2 Members pursuant to
Article IV of this Agreement. Items of income or gain not allocated to the
Class 2 Members pursuant to the immediately preceding sentence, and 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.
(b) Asset Contributions. If there is a difference between the
adjusted tax basis of any LLC asset and its fair market value as of the date of
contribution of the asset, allocations of depreciation, amortization and gain
or loss with respect to such asset, as computed for U.S. federal income tax
purposes, shall be made among the Members for U.S. federal income tax purposes
in accordance with Code Section 704(c) and the regulations thereunder. In
complying with the requirements of Code Section 704(c), LLC is authorized to
utilize any method permitted by the Treasury Regulations under Code Section
704(c) that is approved by a majority of the Directors.
(c) Allocations Solely for Tax Purposes. Allocations pursuant to
this Section 3.05 are solely for purposes of U.S. federal, state and local
taxes and shall not affect, or in any way be taken into account in computing,
any Member's share of distributions pursuant to any provision of this
Agreement.
Section 3.06 Withholding
LLC shall comply with withholding requirements under U.S. federal,
state and local law and shall remit amounts withheld to and file required forms
with applicable jurisdictions. To the extent that LLC is required to withhold
and pay over any amounts to any authority with respect to distributions or
allocations to any Member, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Member. To the fullest
extent permitted by law, in the event of any claimed over-withholding, Members
shall be limited to an action against the applicable jurisdiction. If the
amount withheld was not withheld from actual distributions, LLC may reduce
subsequent distributions by the amount of such withholding. Each Member, by
its acceptance of an Interest in LLC, shall be deemed to agree to furnish LLC
with any representations and forms as shall reasonably be requested by LLC to
assist it in determining the extent of, and in fulfilling, its withholding
obligations.
Section 3.07 Distributions
(a) Declaration. Subject to the terms of this Article III and the
Delaware Act, Class 2 Members shall receive periodic distributions
("dividends"), if any, in accordance with Article IV of this Agreement, as and
when declared by the Board of Directors, and Class 1 Members shall receive
periodic dividends, subject to Section 3.07(c) and Article IV of this Agreement
and to the provisions of the Delaware Act, as and when declared by the Board of
Directors, in their discretion. In addition to the provisions of Section
3.07(c), in determining whether to declare a dividend to Class 1 Members, the
Board of Directors shall consider the total tax liability of Class 1 Members
with respect to their Class 1 Interests, including the tax liability of Class 1
Members in countries other than the home country of each Class 1 Member.
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(b) Accounting. Each time the Board of Directors declares a
dividend, it shall determine the amount of such distribution that is from
retained earnings and the amount that constitutes a return of capital for
accounting purposes and will make a record of such determination in the minutes
of the Board meeting at which the dividend was declared.
(c) Tax. Each Non-U.S. Class 1 Member, upon receiving notice from
LLC or its allocation pursuant to Section 3.05, shall compute its U.S. federal,
state and local income tax liability resulting solely from such allocation and
shall notify LLC, within 30 days of receiving notice of its allocation of the
amount of such U.S. federal, state and local income tax liability. The Board
of Directors shall then be required, to the extent LLC has funds legally
available therefore, to promptly declare and pay a dividend (pro rata as
provided in Section 3.04) in an amount which, when added to any prior dividends
paid with respect to the profits of the same fiscal year, is sufficient to
ensure that each Non-U.S. Class 1 Member receives not less than the amount of
such U.S. federal, state and local income tax liability (the "Minimum
Dividend"); provided, that for purposes of determining the amount of the
dividend, the Board of Directors shall take into account any withholding
pursuant to Section 3.06. To the extent that LLC has insufficient funds
legally available to pay the Minimum Dividend in any year, the Minimum Dividend
that the Board of Directors shall be required to declare and pay in subsequent
years shall be increased by the amount of such shortfall. Subject to the
rights of Class 2 Interests, any amounts required to be declared and paid as
Minimum Dividends shall be declared and paid prior to the declaration and
payment of any other dividend or distribution whatsoever to Members.
For purpose of this Section 3.07 (c), a "Non-U.S. Class 1 Member" is
any Class 1 Member that is for U.S. federal income tax purposes: (i) a
nonresident alien individual or (ii) a foreign corporation, partnership or
estate or trust.
(d) Legal Funds. A Member shall not be entitled to receive any
dividend with respect to any dividend payment date (and any such dividend shall
not be considered due and payable), irrespective of whether such dividend has
been declared by the Board of Directors, until such time as LLC shall have
funds legally available for the payment of such dividend to such Member
pursuant to the terms of this Agreement and the Delaware Act, and
notwithstanding any provision of Section 18-606 of the Delaware Act to the
contrary, until such time, a Member shall not have the status of a creditor of
LLC, or the remedies available to a creditor of LLC.
(e) Record Dates. For purposes of determining the Members
entitled to receive payment of any dividend or other distribution, the Board of
Directors may set a record date, which shall not precede the date upon which
the resolution fixing the record date is adopted, and which shall be not more
than 60 days before such action. If no record date is fixed, the record date
for determining Members for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 3.08 Limitations on Distributions
Notwithstanding any provision to the contrary contained in this
Agreement, LLC shall not pay a dividend to any Member on account of any of its
Interests if such dividend would violate Section 18-607 of the Delaware Act or
other applicable law.
Section 3.09 Interests as Personal Property
Each Member hereby agrees that its Interests shall for all purposes be
personal property. A Member has no interest in specific LLC property.
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Section 3.10 Tax Matters Partner
Motorola shall be the tax matters partner (the "Tax Matters Partner")
of LLC and, as such, shall assume all the rights and duties of a Tax Matters
Partner as set forth in the Code and in the Treasury Regulations promulgated
thereunder. The Tax Matters Partner agrees to act as a liaison between LLC and
the Internal Revenue Service (the "IRS") in connection with all administrative
and judicial proceedings involving tax controversies regarding LLC.
(a) As Tax Matters Partner, Motorola agrees:
(i) to take all actions necessary to preserve the rights
of the members with respect to audits;
(ii) to notify and keep all other Members informed of all
administrative and judicial proceedings, as required by Section
6223(g) of the Code, and to furnish to each Member, a copy of each
notice or other communication which the Tax Matters Partner receives
from the IRS or sends to the IRS;
(iii) to be reasonably available to respond to inquiries
concerning any and all tax controversies;
(iv) to employ experienced tax counsel to represent LLC in
connection with any audit or investigation by the IRS, and in
connection with all subsequent administrative and judicial proceedings
arising out of such audit. The fees and expenses of such counsel
shall be an expense of LLC and shall be paid by LLC. Such counsel
shall be responsible for representing LLC; it shall be the
responsibility of the Members, at their expense, to employ tax counsel
to represent their respective interests; and
(v) to employ an international firm of certified public
accountants to prepare federal, state, local and other required
returns for LLC. At least 30 days prior to the due date of such
returns, the Tax Matters Partner (or the firm of certified public
accountants that has been retained to prepare the returns) shall
transmit copies of the Form 1065 (U.S. Partnership Return of Income)
to the Members for their review. The Tax Matters Partner shall not
sign or file the Form 1065 unless the Members have collectively
consented to its filing. If, however, a Member does not object to the
filing of the Form 1065 within 15 days after receiving the return, the
Tax Matters Partner may sign the return and LLC may file it after
making a good faith effort to incorporate in the return any comments
previously received from any Member.
(b) The Members agree that the chief financial officer, relying if
he/she deems appropriate on the advice of outside counsel or of LLC's firm of
independent certified public accountants, will make all material decisions
relating to any tax controversy. Without limiting the scope of the foregoing,
the Tax Matters Partner agrees that it shall not take any of the following
actions without the written consent of the Board of Directors:
(i) settle any significant claims by the IRS against the
LLC;
(ii) initiate judicial proceedings contesting adverse
determinations by the IRS against the LLC; and
(iii) enter into an agreement to extend the statute of
limitations.
(c) The Tax Matters Partner shall not be required to take any
action or incur any expenses for the prosecution of any administrative or
judicial remedies in its capacity as Tax Matters Partner
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unless the Members agree on a method of sharing expenses incurred in connection
with the prosection of such remedies. As long as the Tax Matters Partner is
not grossly negligent and acts in good faith pursuant to instructions it
receives from the Members, the Tax Matter Partner shall be fully protected in
acting as such and the LLC shall indemnify and hold harmless the Tax Matters
Partner from and against any and all expenses incurred by the Tax Matters
Partner in connection with any activities or undertakings taken by it in its
capacity as the Tax Matters Partner. Any Member that enters into a settlement
or closing agreement with the IRS or any comparable U.S. governmental
authorities with respect to any LLC tax item shall notify the Tax Matters
Partner of such agreement and its terms within 30 days of the execution of such
agreement. The Tax Matters Partner shall take such action as may be reasonably
necessary to constitute the other Members as "notice partners" within the
meaning of Section 6231(a)(8) of the Code.
ARTICLE IV
INTERESTS AND OTHER SECURITIES
Section 4.01 Class 1 Interests and Class 2 Interests
(a) Authorization. The Interests in LLC shall be divided into two
classes, Class 1 Interests and Class 2 Interests. Class 1 Interests shall be
represented by certificates, unless otherwise specified by resolution of the
Board of Directors pursuant to Section 4.10, evidencing any number of whole
Class 1 Interests. Class 2 Interests shall be issued in series, as described
below, with each series represented by certificates, unless otherwise specified
by resolution of the Board of Directors pursuant to Section 4.10, evidencing
any number of whole Class 2 Interests of such series. All series of Class 2
Interests are referred to herein collectively as "Class 2 Interests" and the
Class 1 Interests and Class 2 Interests are referred to herein collectively as
"Interests". The total number of Interests which LLC has the authority to
issue is 3,000,000 Class 1 Interests, 50,000 Series M Class 2 Interests and
300,000 additional Class 2 Interests. Subject to Article VII of this
Agreement, Class 2 Interests may be issued in series from time to time by the
Board of Directors, and the Board of Directors are expressly authorized by the
Members to fix by resolution or resolutions the designations and the powers,
preferences and rights, and the qualifications, limitations and restrictions
thereof, of each series of Class 2 Interests, including without limitation the
following:
(i) the distinctive serial designation of such series which
shall distinguish it from other series;
(ii) the number of Class 2 Interests included in such series,
which number may be increased or decreased from time to time unless
otherwise provided by the Board of Directors in the resolution or
resolutions providing for the issue of such series;
(iii) the dividend rate (or method of determining such rate)
payable to the holders of the Class 2 Interests of such series, any
conditions upon which such dividends shall be paid and the date or
dates upon which such dividends shall be payable;
(iv) whether dividends on the Class 2 Interests of such
series shall be cumulative and, in the case of Class 2 Interests of
any series having cumulative dividend rights, the date or dates or
method of determining the date or dates from which dividends on the
Class 2 Interests of such series shall be cumulative;
(v) the amount or amounts which shall be payable out of the
assets of LLC to the holders of the Class 2 Interests of such series
upon voluntary or involuntary liquidation,
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dissolution or winding up of LLC (including designations of priority
between and among any series of Class 2 Interests, Series M Class 2
Interests and Series A Class 2 Interests);
(vi) the price or prices at which, the period or periods
within which and the terms and conditions upon which the Class 2
Interests of such series may be redeemed, in whole or in part, at the
option of LLC or at the option of the holder or holders thereof or
upon the happening of a specified event or events;
(vii) the obligation, if any, of LLC to purchase or redeem
Class 2 Interests of such series pursuant to a sinking fund or
otherwise and the price or prices at which, the period or periods
within which and the terms and conditions upon which the Class 2
Interests of such series shall be redeemed or purchased, in whole or
in part, pursuant to such obligation;
(viii) whether or not the Class 2 Interests of such series
shall be convertible or exchangeable, at any time or times at the
option of the holder or holders thereof or at the option of LLC or
upon the happening of a specified event or events, into Interests of
any other class or classes or any other series of the same or any
other class or classes of Interests in LLC, and the price or prices or
rate or rates of exchange or conversion and any adjustments applicable
thereto; and
(ix) the voting rights, if any, of the holders of the Class 2
Interests of such series.
(b) Certificate of Designations; Convertible Interests and
Securities. When any series of Class 2 Interests has been authorized by the
Board of Directors, the special rights, preferences and other terms of such
series of Class 2 Interests shall be as set forth in a certificate of
designations which shall be approved and adopted by a majority of the Board of
Directors and annexed to this Agreement. The annexation of a certificate of
designations to this Agreement shall not be considered an amendment of this
Agreement. When authorized as provided in Article VII, the Board of Directors
may also provide for the issuance of Class 1 Interests and Class 2 Interests
upon the exercise, conversion or exchange of rights of purchasers represented
by options, warrants, convertible debt securities or such other interests or
instruments as they may determine.
(c) Outstanding Convertible Securities. The Members hereby
acknowledge that LLC has issued (i) a warrant to Motorola (the "Motorola
Warrant"), as amended hereby in the form of Exhibit 3-B hereto, to purchase
Series M Class 2 Interests, (ii) Warrants to certain Members, in the form of
Exhibit 2- B hereto, to purchase in the aggregate 68,427 Class 1 Interests (the
"Third Round Warrants") and (iii) Series A Class 2 Interests, which are
convertible into Class 1 Interests; and, that (A) in connection with the
negotiation, execution and implementation of any Agreements Regarding Guarantee
with Guarantors, LLC is authorized to issue warrants to purchase up to 150,000
Class 1 Interests to the Guarantors, and (B) in order to provide incentive to
the gateway service territory owners to achieve commercial activation of their
gateways by the date of completion of Milestone 47 under the Space System
Contract and to achieve specified service revenues within 15 months from said
date of completion of Milestone 47, LLC is authorized to issue warrants to
purchase up to 122,200 Class 1 Interests to the gateway territory owners;
provided, however that the banking and financing committee of the Board of
Directors shall have full authority to (x) approve the terms of the foregoing
warrants (including the inclusion of customary anti-dilution provisions
comparable to those included in the Third Round Warrants); and (y) determine
the recipients of warrants and the number of warrants to be issued to each such
recipient.
Section 4.02 Reserve Capital Call
Each Member named on Annex D hereto hereby irrevocably and
unconditionally agrees to purchase additional Class 1 Interests in an amount up
to the number of Class 1 Interests specified on
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Annex D for such Member, at a purchase price of $1,000 per Class 1 Interest, in
such manner and at such time(s) as the Board of Directors may determine if and
when the Board of Directors has determined that the purchase of such additional
Class 1 Interests is necessary for the successful operation of LLC; provided,
however, that, to the extent that any Agreement Regarding Guarantee so
provides, the full capital call contemplated by this Section 4.02 shall be
mandatory (the "Mandatory Call") upon the occurrence of any of the following
specified conditions: (i) the total of the required Guarantees of indebtedness
of LLC under any one or more bank loan agreements ("Loan Agreements") exceeds
$750 million at any time (after taking into account other funds reasonably and
timely available to LLC); (ii) the lead or agent banks under any Loan Agreement
have formally advised LLC that they will require more than $750 million of
Guarantees (after taking into account other funds reasonably and timely
available to LLC and acceptable to the lenders) prior to the completion of the
agreed demonstrations that begin limited recourse under their Loan Agreement;
or (iii) if an Event of Default (as defined in the relevant Loan Agreement)
exists under a Loan Agreement under which borrowings have been Guaranteed;
provided, however, that the Mandatory Call (A) is not effective if, at the time
of occurrence of the condition giving rise to the Mandatory Call, Motorola or
another Guarantor is in default on its milestone commitments or other material
obligations under its Guarantee, and (B) terminates immediately upon the
lending of any funds to LLC by banks, which loans are not fully Guaranteed by
one or more Guarantors. Any obligation to purchase additional Class 1 Interests
under this Section 4.02 shall be on a pro rata basis, with each Member only
being required to purchase a percentage of the Class 1 Interests to be
purchased under this Section 4.02 equal to the number of Class 1 Interests set
forth next to such Members' name in Annex D hereto divided by the total number
of Class 1 Interests set forth next to all of the Members names in Annex D.
The number of and purchase price for Class 1 Interests that each Member shall
be obligated to purchase pursuant to this Section 4.02 shall be appropriately
adjusted for stock splits, stock dividends and other recapitalizations having a
similar effect. In connection with a purchase of Class 1 Interests under this
Section 4.02, each Member acquiring Class 1 Interests shall be deemed to have
made the acknowledgements and agreements set forth on Annex C hereto.
Section 4.03 Class 1 Interests
(a) Voting Rights. Subject to the rights of holders of Series M
Class 2 Interests, Series A Class 2 Interests and of any other Class 2
Interests, and except as otherwise provided herein and in the Delaware Act, all
voting rights of the Members shall be vested exclusively in the Class 1
Members. The Class 1 Interests shall entitle the Class 1 Members to vote in
proportion to the number of Class 1 Interests owned by each Class 1 Member upon
all matters upon which Class 1 Members have the right to vote. A Member shall
have one vote in respect of each Class 1 Interest owned by such Member.
(b) Liquidation Rights. Subject to the rights of holders of
Series M Class 2 Interests, Series A Class 2 Interests and of any other Class 2
Interests, each Class 1 Member shall be entitled to receive all distributions
to the holders of Class 1 Interests in any liquidation, dissolution or winding
up of LLC pro rata on the basis of the number of Class 1 Interests held by each
of them as a percentage of all outstanding Class 1 Interests.
(c) Dividends. To the extent permitted under the Delaware Act and
subject to the rights of holders of Series M Class 2 Interests, Series A Class
2 Interests and of any other Class 2 Interests, dividends may be paid on the
Class 1 Interests as and when declared by the Board of Directors, in their
discretion, subject to the requirements of Section 3.07 (c) of this Agreement.
In addition to the provisions of Section 3.07 (c), in determining whether to
declare a dividend on the Class 1 Interests, the Board of Directors shall
consider the total tax liability of Class 1 Members in respect of their Class 1
Interests, including the tax liability of Class 1 Members in countries other
than the home country of each Class 1 Member.
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Section 4.04 Series M Class 2 Interests
(a) Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Series M Class 2 Interests shall have no voting
rights; provided that each holder of Series M Class 2 Interests shall be
entitled to notice of all meetings of Members at the same time and in the same
manner as notice is given to the Members entitled to vote at such meeting.
(b) Liquidation Rights. Upon any liquidation, dissolution or
winding up of LLC, each holder of Series M Class 2 Interests shall be entitled
to be paid, before any distribution or payment is made upon any Junior
Interests, an amount in cash equal to the aggregate Liquidation Value (plus all
accrued and unpaid dividends) of all Series M Class 2 Interests held by such
holder, and the holders of Series M Class 2 Interests shall not be entitled to
any further payment. If upon any such liquidation, dissolution or winding up
of LLC, LLC's assets to be distributed among the holders of the Series M Class
2 Interests are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid, then the entire assets to be
distributed shall be distributed ratably among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Series M Class 2 Interests held by each such holder. LLC shall mail written
notice of such liquidation, dissolution or winding up, not less than 60 days
prior to the payment date stated therein, to each record holder of Series M
Class 2 Interests. Neither the consolidation or merger of LLC into or with any
other entity or entities, nor the sale or transfer by LLC of all or any part of
its assets, nor the reduction of the aggregate number of Interests in LLC,
shall be deemed to be a liquidation, dissolution or winding up of LLC within
the meaning of this Section 4.04(b).
(c) Dividends.
(i) General Obligation. When and as declared by the
Board of Directors and to the extent permitted under the Delaware Act,
LLC shall pay preferential dividends to the holders of the Series M
Class 2 Interests as provided in this Section 4.04(c)(i). Except as
otherwise provided herein, dividends on each Series M Class 2 Interest
shall accrue on a daily basis at the rate of 8% 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
Series M Class 2 Interest to and including the date on which the
Liquidation Value of such Series M Class 2 Interest (plus all accrued
and unpaid dividends thereon) is paid or the date on which such Series
M Class 2 Interest is converted into Class 1 Interests hereunder
("Series M Dividends"). Series M Dividends shall accrue whether or
not they have been declared and whether or not there are profits,
surplus or other funds of LLC legally available for the payment of
dividends. Series M Dividends shall be cumulative such that all
accrued and unpaid dividends shall be fully paid or declared with
funds irrevocably set apart for payment before any dividend,
distribution or payment may be made with respect to any Junior
Interests (Series M).
In addition, as and when dividends are declared or paid on the
Class 1 Interests, whether in cash, property or additional Interests
in LLC, the holders of Series M Class 2 Interests shall be entitled to
participate with the holders of Class 1 Interests in such dividends
ratably on a per interest basis.
The date on which LLC initially issues any Series M Class 2
Interests shall be deemed to be its "date of issuance" regardless of
the number of times transfer of such Series M Class 2 Interests is
made on the records maintained by or for LLC and regardless of the
number of Certificates which may be issued to evidence such Series M
Class 2 Interests.
(ii) Series M Dividend Reference Dates. To the extent not
paid on January 1, April 1, July 1 and October 1 of each year,
beginning January 1, 1997 (the "Series M Dividend Reference Dates"),
all Series M Dividends which have accrued on each Series M Class 2
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Interest outstanding during the three-month period (or other period in
the case of the initial Series M Dividend Reference Date) ending upon
each such Series M Dividend Reference Date shall be accumulated and
shall remain accumulated dividends with respect to such Series M Class
2 Interests until paid.
(iii) Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time LLC pays less than the total
amount of Series M Dividends then accrued with respect to the Series M
Class 2 Interests, such payment shall be distributed ratably among the
holders thereof based upon the number of Series M Class 2 Interests
held by each such holder.
(d) Conversion.
(i) Conversion Procedure.
(A) At any time and from time to time, any holder of
Series M Class 2 Interests may convert all or any portion of
the Series M Class 2 Interests (including any fraction of a
Series M Class 2 Interest) held by such holder into a number
of Class 1 Interests 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.
(B) Each conversion of Series M Class 2 Interests
shall be deemed to have been effected as of the close of
business on the date on which the Certificate or Certificates
representing the Series M Class 2 Interests to be converted
have been surrendered at the principal executive office of
LLC. At such time as such conversion has been effected, the
rights of the holder of such Series M Class 2 Interests as
such holder shall cease and the Person or Persons in whose
name or names any Certificate or Certificates for Class 1
Interests are to be issued upon such conversion shall be
deemed to have become the holder or holders of record of the
Class 1 Interests represented thereby.
(C) Notwithstanding any other provision hereof, if a
conversion of Series M Class 2 Interests is to be made in
connection with a Public Offering, the conversion of any
Series M Class 2 Interests may, at the election of the holder
of such Series M Class 2 Interests, be conditioned upon the
consummation of the Public Offering in which case such
conversion shall not be deemed to be effective until the
consummation of the Public Offering.
(D) As soon as possible after a conversion has been
effected (but in any event within five business days in the
case of Section 4.04(d)(i)(D)(I) below), LLC shall deliver to
the converting holder:
(I) a Certificate or Certificates
representing the number of Class 2 Interests issuable
by reason of such conversion in such name or names
and such denomination or denominations as the
converting holder has specified;
(II) payment in an amount equal to all
accrued Series M Dividends with respect to each
Series M Class 2 Interest converted, which have not
been paid prior thereto, plus the amount payable
under Section 4.04(d)(i)(H) below with respect to
such conversion; and
(III) a Certificate representing any Series
M Class 2 Interests which were represented by the
Certificate or Certificates delivered to LLC in
connection with such conversion but which were not
converted.
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(E) If LLC is not permitted under applicable law to
pay any portion of the accrued Series M Dividends on the
Series M Class 2 Interests being converted, LLC shall pay such
dividends to the converting holder as soon thereafter as funds
of LLC are legally available for such payment. At the request
of any such converting holder, LLC shall provide such holder
with written evidence of its obligation to such holder.
(F) The issuance of Certificates for Class 1 Interests
upon conversion of Series M Class 2 Interests shall be made
without charge to the holders of such Series M Class 2
Interests for any issuance tax in respect thereof or other
cost incurred by LLC in connection with such conversion and
the related issuance of Class 1 Interests. Upon conversion of
each Series M Class 2 Interest, LLC shall take all such
actions as are necessary in order to insure that the Class 1
Interests issuable with respect to such conversion shall be
validly issued.
(G) LLC shall assist and cooperate with any holder of
Series M Class 2 Interests required to make any governmental
filings or obtain any governmental approval prior to or in
connection with any conversion of Series M Class 2 Interest
hereunder (including, without limitation, making any filings
required to be made by LLC).
(H) If any fractional interest in a Class 1 Interest
would, except for the provisions of this subsection, be
deliverable upon any conversion of the Series M Class 2
Interests of LLC, in lieu of delivering the fractional
interest therefor, shall pay an amount to the holder thereof
equal to the market price of such fractional interest as of
the date of conversion.
(I) LLC shall at all times reserve and keep available
out of its authorized but unissued Class 1 Interests, solely
for the purpose of issuance upon the conversion of the Series
M Class 2 Interests, the number of Class 1 Interests issuable
upon the conversion of all outstanding Series M Class 2
Interests. All Class 1 Interests which are so issuable shall,
when issued, be duly and validly issued and free from all
taxes, liens and charges. LLC shall take all such actions as
may be necessary to assure that all such Class 1 Interests may
be so issued without violation of any applicable law or
governmental regulation (except for official notice of
issuance which shall be immediately delivered by LLC upon each
such issuance).
(ii) Series M Conversion Price. The initial Series M
Conversion Price shall be $1,000. In order to prevent dilution of the
conversion rights granted under this subdivision, the Series M
Conversion Price shall be subject to adjustment from time to time
pursuant to this Section 4.04(d)(ii). If LLC at any time subdivides
(by any split of Interests, Interest dividend or distribution,
recapitalization or otherwise) one or more classes of its outstanding
Class 1 Interests into a greater number of Interests, the Series M
Conversion Price in effect immediately prior to such subdivision shall
be proportionately reduced, and if LLC at any time combines (by
reverse split of Interests or otherwise) one or more classes of its
outstanding Class 1 Interests into a smaller number of Interests, the
Series M Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(iii) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of LLC's
assets to another Person or other transaction which is effected in
such a manner that holders of Class 1 Interests are entitled to
receive (either directly or upon subsequent liquidation) membership
interests, stock, securities or assets with respect to or in exchange
for Class 1 Interests is referred to herein as an "Organic Change".
Prior to the consummation of any Organic Change, LLC shall make
appropriate provisions (in form and substance satisfactory to the
holders of a majority of the Series M Class 2 Interests then
outstanding) to insure that each of the holders of Series M Class 2
Interests shall thereafter have the right to acquire and receive, in
lieu of or in addition to (as the case may be) the Class 1 Interests
immediately theretofore acquirable and receivable upon the conversion
of such holder's Series M Class 2 Interests, such membership
interests, shares of stock, securities or assets as such holder would
have received in connection with such Organic Change if such holder
had converted its Series M Class 2 Interests immediately prior to such
Organic Change. In each such case, LLC shall also make appropriate
provisions (in form and substance satisfactory
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to the holders of a majority of the Series M Class 2 Interests then
outstanding) to insure that the provisions of this Section 4.04(d) and
Sections 4.04(e) and (f) shall thereafter be applicable to the Series
M Class 2 Interests (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is
other than LLC, an immediate adjustment of the Series M Conversion
Price to the value for the Class 1 Interests reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of Class 1 Interests acquirable and
receivable upon conversion of Series M Class 2 Interests, if the value
so reflected is less than the Conversion Price in effect immediately
prior to such consolidation, merger or sale). LLC shall not effect
any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor Person (if other than LLC)
resulting from consolidation or merger or the corporation purchasing
such assets assumes by written instrument (in form reasonably
satisfactory to the holders of a majority of the Series M Class 2
Interests then outstanding), the obligation to deliver to each such
holder such membership interests, shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder
may be entitled to acquire.
(iv) Notices.
(A) Immediately upon any adjustment of the Series M
Conversion Price, LLC shall give written notice thereof to all
holders of Series M Class 2 Interests, setting forth in
reasonable detail and certifying the calculation of such
adjustment.
(B) LLC shall give written notice to all holders of
Series M Class 2 Interests at least 20 days prior to the date
on which LLC closes its books or takes a record (a) with
respect to any dividend or distribution upon Class 1
Interests, (b) with respect to any pro rata subscription offer
to holders of Class 1 Interests (c) for determining rights to
vote with respect to any Organic Change, dissolution or
liquidation.
(C) LLC shall also give written notice to the holders of
Series M Class 2 Interests at least 20 days prior to the date
on which any Organic Change shall take place.
(e) Liquidating Dividends. If LLC declares or pays a dividend
upon the Class 1 Interests payable otherwise than in cash out of earnings or
earned surplus (determined in accordance with generally accepted accounting
principles, consistently applied) except for an Interest dividend payable in
Class 1 Interests (a "Liquidating Dividend"), then LLC shall pay to the holders
of Series M Class 2 Interests at the time of payment thereof the Liquidating
Dividends which would have been paid on the Class 1 Interests had such Series M
Class 2 Interests been converted immediately prior to the date on which a
record is taken for such Liquidating Dividend, or, if no record is taken, the
date as of which the record holders of Class 1 Interests entitled to such
dividends are to be determined.
(f) Rights. If at any time LLC grants, issues or sells any Right
to acquire Class 1 Interests pro rata to the record holders of any class of
Class 1 Interests, then each holder of Series M Class 2 Interests shall be
entitled to acquire, upon the terms applicable to such Rights, the aggregate
Rights which such holder could have acquired if such holder had held the number
of Class 1 Interests acquirable upon conversion of such holder's Series M Class
2 Interests immediately before the date on
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which a record is taken for the grant, issuance or sale of such Rights, or, if
no such record is taken, the date as of which the record holders of Class 1
Interests are to be determined for the grant, issue or sale of such Rights.
(g) Events of Noncompliance.
(i) Definition. An Event of Noncompliance shall be
deemed to have occurred if:
(A) LLC fails to pay on any Series M Dividend Reference
Date the full amount of Series M Dividends then accrued on the
Series M Class 2 Interests, whether or not such payment is
legally permissible or is prohibited by any agreement to which
LLC is subject; or
(B) LLC or any Subsidiary makes an assignment for the benefit
of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or
decree is entered adjudicating LLC or any Subsidiary bankrupt
or insolvent; or any order for relief with respect to LLC or
any Subsidiary is entered under the United States Federal
Bankruptcy Code; or LLC or any Subsidiary petitions or applies
to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of LLC or any Subsidiary or of any
substantial part of the assets of LLC or any Subsidiary, or
com mences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of a Subsidiary)
relating to LLC or any Subsidiary under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding
is commenced, against LLC or any Subsidiary and either (a) LLC
or any such Subsidiary by any act indicates its approval
thereof, consent thereto or acquiescence therein or (b) such
petition, application or proceeding is not dismissed within 60
days.
(ii) Consequences of Certain Events of Noncompliance.
(A) If an Event of Noncompliance has occurred, the
holder or holders of a majority of the Series M Class 2
Interests then outstanding may demand (by written notice
delivered to LLC) immediate redemption of all or any portion
of the Series M Class 2 Interests owned by such holder or
holders at a price per Series M Class 2 Interests equal to the
Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). LLC shall redeem all Series M Class 2
Interests as to which rights under this section have been
exercised within 15 days after receipt of the initial demand
for redemption. Notwithstanding the foregoing, LLC shall not
have any obligation to redeem the Series M Class 2 Interests
so long as (i) such redemption is prohibited by the provisions
of applicable state law or (ii) such redemption is prohibited
by, or would otherwise cause a default under, indebtedness of
LLC having a principal amount of excess of $1,000,000.00.
(B) If any Event of Noncompliance has occurred, the
number of Directors of LLC shall, at the request of the
holders of a majority of the Series M Class 2 Interests then
outstanding, be increased by one (1), and the holders of
Series M Class 2 Interests shall have the special right,
voting separately as a single class (with each Series M Class
2 Interest being entitled to one vote) and to the exclusion of
all other Interests in LLC, to elect an individual to fill
such newly created Director position, to remove any individual
elected to such position and to fill any vacancies in such
position. The special right of the holders of Series M Class
2 Interests to elect Directors may be exercised at the special
meeting called pursuant to this subsection (B), at any annual
or other special meeting of Members and, to the extent and in
the manner permitted by applicable law,
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<PAGE> 31
pursuant to a written consent in lieu of a meeting of Members.
Such special right shall continue until such time as there is
no longer any Event of Noncompliance in existence, at which
time such special right shall terminate subject to revesting
upon the occurrence and continuation of any Event of
Noncompliance which gives rise to such special right
hereunder.
At any time when such special right has vested in the holders
of Series M Class 2 Interests, a proper officer of LLC shall, upon the
written request of the holders of at least 10% of the Series M Class 2
Interests then outstanding, addressed to the secretary of LLC, call a
special meeting of the holders of Series M Class 2 Interests for the
purpose of electing a Director pursuant to this subsection. Such
meeting shall be held at the earliest legally permissible date at the
principal executive office of LLC, or at such other place designated
by the holders of at least 10% of the Series M Class 2 Interests then
outstanding. If such meeting has not been called by a proper officer
of LLC within 10 days after personal service of such written request
upon the secretary of LLC or within 20 days after mailing the same to
the secretary of LLC at its principal executive office, then the
holders of at least 10% of the Series M Class 2 Interests then
outstanding may designate in writing one of their number to call such
meeting at the expense of LLC, and such meeting may be called by such
Person so designated upon the notice required for annual meetings of
Members and shall be held at LLC's principal executive office, or at
such other place designated by the holders of at least 10% of the
Series M Class 2 Interests then outstanding. Any holder of Series M
Class 2 Interests so designated shall be given access to the Members'
Interests Register for the purpose of causing a meeting of Members to
be called pursuant to this section.
At any meeting or at any adjournment thereof at which the
holders of Series M Class 2 Interests have the special right to elect
Directors, the presence, in person or by proxy, of the holders of a
majority of the Series M Class 2 Interests then outstanding shall be
required to constitute a quorum for the election or removal of any
Director by the holders of the Series M Class 2 Interests exercising
such special right. The vote of a majority of such quorum shall be
required to elect or remove any such Director.
Any Director so elected by the holders of Series M Class 2
Interests shall continue to serve as a Director until the expiration
of the lesser of (a) a period of one month following the date on which
there is no longer any Event of Noncompliance in existence or (b) the
remaining period of the full term for which such Director has been
elected. After the expiration of such one-month period or when the
full term for which such Director has been elected ceases (provided
that the special right to elect Directors has terminated), as the case
may be, the number of Directors of LLC shall decrease to such number
as constituted the total number of Directors of LLC immediately prior
to the occurrence of the Event or Events of Noncompliance giving rise
to the special right to elect Directors.
(C) If any Event of Noncompliance exists, each holder of Series M
Class 2 Interests shall also have any other rights which such holder
is entitled to under any contract or agreement at any time and any
other rights which such holder may have pursuant to applicable law.
(h) Registration of Transfer. LLC shall keep at its principal
executive office the Members' Interest Register. Upon the surrender of any
Certificate representing Series M Class 2 Interests at such place, LLC shall,
at the request of the record holder of such Certificate, execute and deliver
(at the LLC's expense) a new Certificate or Certificates in exchange therefor
representing in the aggregate the number of Series M Class 2 Interests
represented by the surrendered Certificate. Each such new Certificate shall be
registered in such name and shall represent such number of Series M Class 2
Interests as is requested by the holder of the surrendered Certificate and
shall be substantially identical in form to the surrendered Certificate, and
dividends shall accrue on the Series M Class 2 Interests
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<PAGE> 32
represented by such new Certificate from the date to which dividends have been
fully paid on such Series M Class 2 Interests represented by the surrendered
Certificate.
(i) Replacement. Upon receipt of evidence reasonably satisfactory
to LLC (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any Certificate
evidencing Series M Class 2 Interests, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to LLC
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such Certificate, LLC shall (at its expense)
execute and deliver in lieu of such Certificate a new Certificate of like kind
representing the number of Series M Class 2 Interests of such class represented
by such lost, stolen, destroyed or mutilated Certificate and dated the date of
such lost, stolen, destroyed or mutilated Certificate, and dividends shall
accrue on the Series M Class 2 Interests represented by such new Certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated Certificate.
(j) Amendment and Waiver. No amendment, modification or waiver
shall be binding or effective with respect to any provision of Sections (a) to
(i) hereof without the prior written consent of the holders of at least a
majority of the Series M Class 2 Interests outstanding at the time such action
is taken; provided, that no such action shall change (i) the rate at which or
the manner in which dividends on the Series M Class 2 Interests accrue or the
times at which such dividends become payable or the amount payable on
redemption of the Series M Class 2 Interests or the times at which redemption
of Series M Class 2 Interests is to occur, without the prior written consent of
the holders of at least 90% of the Series M Class 2 Interests then outstanding,
(ii) the Series M Conversion Price of the Series M Class 2 Interests or the
number of interests or class of Interests into which the Series M Class 2
Interests are convertible, without the prior written consent of the holders of
at least 90% of the Series M Class 2 Interests then outstanding, or (iii) the
percentage required to approve any change described in clauses (i) and (ii)
above, without the prior written consent of the holders of at least 90% of the
Series M Class 2 Interests then outstanding; and provided further that no
change in the terms hereof may be accomplished by merger or consolidation of
LLC with another limited liability company or entity unless LLC has obtained
the prior written consent of the holders of the applicable percentage of the
Series M Class 2 Interests then outstanding.
(k) Notices. Except as otherwise expressly provided hereunder,
all notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to LLC, at its principal executive
offices and (ii) to any holder of Series M Class 2 Interests, at such holder's
address as it appears in the records of LLC (unless otherwise indicated by any
such holder).
Section 4.05 Series A Class 2 Interests
(a) Ranking. The Series A Class 2 Interests shall rank, with
respect to dividends and distributions upon the liquidation, dissolution and
winding-up of LLC:
(i) senior to all classes or series of Junior Interests
(Series A);
(ii) on a parity with all classes of Parity Interests
(Series A); and
(iii) junior to all classes of Senior Interests
(Series A).
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<PAGE> 33
(b) Dividends.
(i) Beginning on the Original Issue Date, holders of Series A
Class 2 Interests shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for
the payment of dividends, dividends on each outstanding Series A Class
2 Interest, at a rate per annum equal to 14 1/2% of the Series A
Liquidation Preference per Series A Class 2 Interest, payable with
respect to each Series A Dividend Period. All dividends shall be
cumulative and shall be payable in arrears for each Series A Dividend
Period on each Series A Dividend Payment Date. For all Series A
Dividend Periods through and including the Series A Dividend Period
ending on February 28, 2001, LLC may, at its option, pay the dividend
on the Series A Class 2 Interests in cash or in newly issued Series A
Class 2 Interests with an aggregate Series A Liquidation Preference
equal to the amount of such dividend. Commencing with the Series A
Dividend Period beginning on March 1, 2001, dividends on the Series A
Class 2 Interests will be payable only in cash.
(ii) Each dividend paid on the Series A Class 2 Interests
shall be payable to holders of record as their names shall appear in
the Members' Interest Register of LLC on the Series A Dividend Record
Date for such dividend, except that dividends in arrears for any past
Series A Dividend Payment Date may be declared and paid at any time
without reference to such regular Series A Dividend Payment Date to
holders of record on a later dividend record date determined by the
Board of Directors.
(iii) Dividends shall cease to accumulate in respect of
Series A Class 2 Interests on the day prior to the Series A Redemption
Date with respect thereto, unless LLC shall have failed to pay the
Series A Optional Redemption Price on the Series A Redemption Date
with respect to such Series A Class 2 Interests.
(iv) All dividends paid with respect to the Series A Class 2
Interests shall be paid pro rata to the holders entitled thereto based
upon the number of Series A Class 2 Interests held by each such holder
on the relevant Series A Dividend Record Date.
(v) No full dividends shall be declared by the Board of
Directors or paid or funds set apart for payment by LLC on the Series
A Class 2 Interests or any Parity Interests (Series A) for any period
unless full cumulative dividends have been or contemporaneously are
declared and paid, or declared and a sum set apart sufficient for such
payment, on all Senior Interests (Series A) and on the Series A Class
2 Interests and any Parity Interests (Series A) for all dividend
periods terminating on or prior to the date of payment of such full
dividends on the Series A Class 2 Interests or such Parity Interests
(Series A). If any dividends are not paid in full, as aforesaid, upon
the Series A Class 2 Interests and any other Parity Interests (Series
A) but all dividends are paid in full, as aforesaid, upon the Senior
Interests, all dividends declared upon the Series A Class 2 Interests
and any other Parity Interests (Series A) shall be declared pro rata
so that the amount of dividends declared per interest on the Series A
Class 2 Interests and such Parity Interests (Series A) shall in all
cases bear to each other the same ratio that accrued and unpaid
dividends per Interest on the Series A Class 2 Interests and such
Parity Interests (Series A) bear to each other. Except as
contemplated herein, no interest or additional dividends, or sum of
money in lieu of interest or additional dividends, shall be payable in
respect of any dividend payment or payments on the Series A Class 2
Interests or any other Parity Interests (Series A) which may be in
arrears.
(vi) So long as any Series A Class 2 Interests are
outstanding, except with respect to (i) repurchases of Class 1
Interests or Rights to acquire Class 1 Interests issued under an
employee incentive or benefit plan of LLC or a Subsidiary of LLC, (ii)
dividends or distributions payable in additional Junior Interests
(Series A) or Rights to acquire Junior Interests (Series A)
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<PAGE> 34
and (iii) repurchases of Junior Interests (Series A) or Rights to
acquire Junior Interests (Series A) pursuant to provisions of the
agreements under which those interests or securities were issued or
under this Agreement allowing LLC to repurchase such securities at a
discount to their issue price upon a default of any Person in its
obligations thereunder, LLC shall not declare, pay or set apart for
payment any dividend on any Junior Interests, or make any payment on
account of, or set apart for payment money for a sinking or other
similar fund for, the purchase, redemption or other retirement of, any
of the Junior Interests (Series A) or any Rights to acquire Junior
Interests (Series A), and shall not permit any corporate or other
entity directly or indirectly controlled by LLC to purchase or redeem
any Junior Interests (Series A) or Rights to acquire Junior Interests
(Series A), unless prior to or concurrently with such declaration,
payment, setting apart for payment, purchase, redemption or
distribution, as the case may be, all accrued and unpaid dividends on
the Series A Class 2 Interests not paid on the dates provided for in
Section 4.05(b)(i) hereof (and, to the extent previously due but not
yet paid, any and all redemption payments on the Series A Class 2
Interests) shall have been or are concurrently being paid.
(vii) Dividends payable on Series A Class 2 Interests for any
period less than a year shall be computed on the basis of a 360-day
year of twelve 30-day months and the actual number of days elapsed in
the period for which payable. If any Series A Dividend Payment Date
occurs on a day that is not a Business Day, any accrued dividends
otherwise payable on such Series A Dividend Payment Date shall be paid
on the next succeeding Business Day.
(c) Liquidation Rights.
(i) Upon any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of LLC, holders of Series A
Class 2 Interests will be entitled to receive out of the assets of LLC
available for distribution to the holders of Interests in LLC, after
satisfaction of the liquidation preference of Senior Interests (Series
A), whether such assets are capital, surplus or earnings, an amount in
cash equal to the Series A Liquidation Preference, before any payment
shall be made or any assets distributed to the holders of any of the
Junior Interests (Series A). Except as set forth in the preceding
sentence, holders of Series A Class 2 Interests shall not be entitled
to any distribution in the event of voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of LLC. If upon
any voluntary or involuntary liquidation, dissolution or winding-up of
the affairs of LLC, the assets of LLC are not sufficient to pay in
full the liquidation payments payable to the holders of outstanding
Series A Class 2 Interests and all Parity Interests (Series A), then
the holders of all such Interests shall share equally and ratably in
any distribution of assets in proportion to the full liquidation
preferences, determined as of the date of such voluntary or
involuntary liquidation, dissolution or winding-up, to which they are
entitled.
(ii) For the purposes of this Section 4.05(c) only, neither
the sale, lease, conveyance, exchange or transfer (for cash, shares of
stock, limited liability company interests, securities or other
consideration) of all or substantially all of the property or assets
of LLC nor the consolidation or merger of LLC with or into one or more
corporations, limited liability companies or other entities shall be
deemed to be a liquidation, dissolution or winding-up of the affairs
of LLC.
(d) Redemption.
(i) Optional Redemption.
(A) LLC may, at its option, redeem, at any time
after March 1, 2001, from any source of funds legally
available therefor, in whole or in part, in the manner
provided in Section 4.05(d)(ii) hereof, any or all of the
Series A Class 2 Interests, at the redemption prices
(expressed as a percentage of the Series A Liquidation
Preference thereof) set
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<PAGE> 35
forth below plus an amount in cash equal to all accumulated
and unpaid dividends per Series A Class 2 Interest for the
period from the Series A Dividend Payment Date immediately
prior to the Series A Redemption Date to the day prior to the
Series A Redemption Date (the "Series A Optional Redemption
Price"), if redeemed during the 12-month period beginning
March 1 of the years indicated:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2001 107.5%
2002 105.625
2003 103.75
2004 101.875
2005 and thereafter 100.0
</TABLE>
(B) In the event of a redemption pursuant to this
Section 4.05(d)(i) of only a portion of the then outstanding
Series A Class 2 Interests, LLC shall effect such redemption
pro rata according to the percentage of all outstanding Series
A Class 2 Interests held by each holder of such Interests.
(ii) Procedure for Redemption.
(A) Not more than sixty (60) and not less than
thirty (30) days prior to the date fixed for any redemption of
the Series A Class 2 Interests, written notice (the "Series A
Redemption Notice") shall be given by first-class mail,
postage prepaid, to each holder of record of Series A Class 2
Interests to be redeemed on the record date fixed for such
redemption at such holder's address as the same appears on the
Members' Interest Register of LLC; provided, that no failure
to give such notice nor any deficiency therein shall affect
the validity of the procedure for the redemption of any Series
A Class 2 Interests to be redeemed except as to the holder or
holders to whom LLC has failed to give such notice or except
as to the holder or holders whose notice was defective. The
Redemption Notice shall state:
(I) the Series A Optional Redemption Price;
(II) whether all or less than all the
outstanding Series A Class 2 Interests are to be
redeemed and the total number of Series A Class 2
Interests being redeemed;
(III) the number of Series A Class 2
Interests held by the holder that LLC intends to
redeem;
(IV) the date fixed for redemption (the
"Series A Redemption Date");
(V) that the holder is to surrender to LLC,
at the place or places which shall be designated in
such Series A Redemption Notice, its Certificates
representing the Series A Class 2 Interests to be
redeemed;
(VI) that dividends on the Series A Class 2
Interests to be redeemed shall cease to accrue on the
day prior to such Series A Redemption Date unless LLC
defaults in the payment of the Series A Optional
Redemption Price; and
(VII) the name of any bank or trust company
performing the duties referred to in Section
4.05(d)(ii)(E) below.
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<PAGE> 36
(B) On or before the Series A Redemption Date,
each holder of Series A Class 2 Interests to be redeemed shall
surrender the Certificate or Certificates representing such
Series A Class 2 Interests to LLC, in the manner and at the
place designated in the Series A Redemption Notice, and on the
Series A Redemption Date the full Series A Optional Redemption
Price for such Interests shall be payable in cash to the
Person whose name appears on such Certificate or Certificates
as the owner thereof, and each surrendered Certificate shall
be returned to authorized but unissued Interests. In the
event that less than all of the Interests represented by any
such Certificate are redeemed, a new Certificate shall be
issued representing the unredeemed Interests.
(C) Unless LLC defaults in the payment in full of
the Series A Optional Redemption Price, dividends on the
Series A Class 2 Interests called for redemption shall cease
to accumulate on the day prior to the Series A Redemption
Date, and the holders of such Interests shall cease to have
any further rights with respect thereto on the Series A
Redemption Date, other than the right to receive the Series A
Optional Redemption Price, without interest.
(D) If a Series A Redemption Notice shall have
been duly given, and if, on or before the Series A Redemption
Date specified therein, all funds necessary for such
redemption shall have been set aside by LLC, separate and
apart from its other funds, in trust for the pro rata benefit
of the holders of the Series A Class 2 Interests called for
redemption so as to be and continue to be available therefor,
then, notwithstanding that any Certificate for Interests so
called for redemption shall not have been surrendered for
cancellation, all Interests so called for redemption shall no
longer be deemed outstanding, and all rights with respect to
such Interests shall forthwith on such Series A Redemption
Date cease and terminate, except only the right of the holders
thereof to receive the amount payable on redemption thereof,
without interest.
(E) If a Series A Redemption Notice shall have
been duly given or if LLC shall have given to the bank or
trust company hereinafter referred to irrevocable
authorization promptly to give such notice, and if on or
before the Series A Redemption Date specified therein the
funds necessary for such redemption shall have been deposited
by LLC with such bank or trust company in trust for the pro
rata benefit of the holders of the Series A Class 2 Interests
called for redemption, then, notwithstanding that any
Certificate for Interests so called for redemption shall not
have been surrendered for cancellation, from and after the
time of such deposit, all Interests so called, or to be so
called pursuant to such irrevocable authorization, for
redemption shall no longer be deemed to be outstanding and all
rights with respect to such Interests shall forthwith cease
and terminate, except only the right of the holders thereof to
receive from such bank or trust company at any time after the
time of such deposit the funds so deposited, without interest,
and the right of the holders thereof to convert such Interests
as provided in Section 4.05(f) hereof to and including the
Business Day preceding the date fixed for redemption. The
aforesaid bank or trust company shall be organized and in good
standing under the laws of the United States of America or of
the State of New York, shall be doing business in the Borough
of Manhattan, The City of New York or in Washington D.C.,
shall have capital, surplus and undivided profits aggregating
at least $100,000,000 according to its last published
statement of condition, and shall be identified in the Series
A Redemption Notice. Any interest accrued on such funds shall
be paid to LLC from time to time. Any funds so set aside or
deposited, as the case may be, in respect of Series A Class 2
Interests that are subsequently converted shall be promptly
returned to LLC. Any funds so set aside or deposited, as the
case may be, and unclaimed at the end of three years from such
Series A Redemption Date shall, to the
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<PAGE> 37
extent permitted by law, be released or repaid to LLC, after
which repayment the holders of the Interests so called for
redemption shall look only to LLC for payment thereof.
(F) In connection with any redemption of Series
A Class 2 Interests, LLC may arrange for the purchase and
conversion of any such Interests by an agreement with one or
more investment banks or other purchasers to purchase such
Interests by paying to the holders or to the Series A
Conversion Agent in trust for such holders, on or before the
close of business on the day prior to the Series A Redemption
Date, an amount, in cash, not less than the Series A Optional
Redemption Price payable by LLC on redemption of such
Interests. Notwithstanding anything to the contrary contained
herein, the obligation of LLC to pay the Series A Optional
Redemption Price of such Series A Class 2 Interests shall be
satisfied and discharged to the extent such amount is so paid
by such purchasers. Pursuant to such an agreement, any such
Series A Class 2 Interests tendered by the holders for
redemption or not duly surrendered for conversion by such
holders shall be deemed acquired by such purchasers from such
holders and surrendered by such purchasers for conversion, all
as of immediately prior to the close of business on the day
prior to the Series A Redemption Date, subject to payment of
the Series A Optional Redemption Price as aforesaid.
(e) Voting Rights.
(i) Holders of the Series A Class 2 Interests, except as
otherwise required under Delaware law and as set forth in Sections
4.05(e)(ii) and (iii) below, shall not be entitled or permitted to
vote on any matter required or permitted to be voted upon by the Class
1 Members of LLC.
(ii) Without the approval of holders of at least a
majority of the Series A Class 2 Interests then outstanding, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purposes, LLC will not (A) except in
connection with the Series M Class 2 Interests, create, authorize or
issue any Senior Interests (Series A) or Rights to acquire Senior
Interests (Series A), including in connection with a merger,
consolidation or other reorganization or (B) reclassify any Junior
Interests (Series A), Parity Interests (Series A) or other outstanding
Interests of LLC into any Senior Interests (Series A) or Rights to
acquire Senior Interests (Series A).
(iii) Without the approval of holders of at least a majority
of the Series A Class 2 Interests then outstanding, voting or
consenting, as the case may be, as one class, given in person or by
proxy, either in writing or by resolution adopted at an annual or
special meeting called for the purpose, LLC will not amend, modify or
repeal this Agreement or any other specified designations, rights
preferences or powers of the Series A Class 2 Interests in a manner
adverse to holders of the Series A Class 2 Interests; provided, that
the amendment of the provisions of this Agreement so as to authorize
or create, or to increase the authorized amount of, any Junior
Interests (Series A) or any Parity Interests (Series A) shall not be
deemed to affect adversely the holders of the Series A Class 2
Interests; and provided further the authorization of the issuance from
time to time of additional Series A Class 2 Interests, which are
included in the number of Series A Class 2 Interests authorized under
this Agreement, shall not be subject to the requirements of this
Section 4.05(e)(iii).
(iv) The holders of at least a majority of the Series A
Class 2 Interests then outstanding, voting or consenting, as the case
may be, as one class, whether voting in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting
called for the purpose, may waive compliance with any provision of
this Section 4.05.
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<PAGE> 38
(v) Notwithstanding anything herein to the contrary, (A)
the creation, authorization or issuance of any Series M Class 2
Interests, Parity Interests (Series A) or Junior Interests (Series A),
or (B) the increase or decrease in the amount of authorized Interests
of any class, including any Class 2 Interests, shall not require the
consent of the holders of the Series A Class 2 Interests and shall not
be deemed to affect adversely the rights, preferences, privileges or
voting rights of holders of the Series A Class 2 Interests.
(f) Conversion.
(i) General Rights. Each Series A Class 2 Interest shall
be convertible, at any time, at the option of the holder thereof (but
if such Interest is called for redemption pursuant to Section 4.05(d),
then only to and including but (except as provided in Section
4.05(d)(ii)(E)) not after the close of business on the Business Day
preceding the date fixed for such redemption, provided that no default
by LLC in the payment of the applicable Optional Redemption Price
shall have occurred and be continuing on the date fixed for such
redemption, in which case such right of conversion shall be
reinstated), into that number of Class 1 Interests of LLC (calculated
as to each conversion to the nearest 1/100th of an Interest) obtained
by dividing the Original Series A Liquidation Preference of the Series
A Class 2 Interests surrendered for conversion by the Series A
Conversion Price (as defined below) then in effect (such date of
conversion, a "Series A Conversion Date").
The conversion price per Series A Class 2 Interest shall
initially be U.S. $4,051.86 (the "Series A Conversion Price").
In order to exercise the conversion privilege, a holder shall
surrender the Certificate(s) representing such Interests, accompanied
by transfer instrument(s) satisfactory to LLC and sufficient to
transfer the Series Class 2 Interests being converted to LLC free of
any adverse interest, at any of the offices or agencies maintained for
such purpose by the conversion agent designated by LLC (the "Series A
Conversion Agent") and shall give written notice to LLC that the
holder elects to convert such Interests. LLC may, at its option, act
as Series A Conversion Agent. Such notice shall also state the
name(s), together with address(es), in which the Certificate(s) for
Class 1 Interests shall be issued. As promptly as practicable after
the surrender of such Series A Class 2 Interests as aforesaid, LLC
shall issue and deliver at the office of such Series A Conversion
Agent to such holder, or on his written order, Certificate(s)
representing the number of full Class 1 Interests issuable upon the
conversion of such Interests in accordance with the provisions hereof,
and any fractional interest in respect of a Class 1 Interest arising
upon such conversion shall be settled as provided for below.
Certificates will be issued representing the balance of any remaining
Series A Class 2 Interests in any case in which fewer than all of the
Series A Class 2 Interests represented by a Certificate are converted.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which Series A Class 2
Interests shall have been surrendered and notice received by LLC as
aforesaid, and the Person(s) in whose name(s) any Certificate(s) for
Class 1 Interests shall be issuable upon such conversion shall be
deemed to have become the holder(s) of record of the Class 1 Interests
represented thereby at such time, unless the Members' Interest
Register shall be closed on the date on which Series A Class 2
Interests are so surrendered for conversion, in which event such
conversion shall be deemed to have been effected immediately prior to
the close of business on the next succeeding day on which the Members'
Interest Register is open, and such person(s) shall be deemed to have
become such holder(s) of record of the Class 1 Interests at the close
of business on such later day. In either circumstance, such
conversion shall be at the Series A Conversion Price in effect on the
date upon which such Interest shall have been surrendered and such
notice received by LLC.
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The dividend payable on a Series A Class 2 Interest on a
Series A Dividend Payment Date shall be payable to the holder of
record of such Interest at the close of business on the Series A
Dividend Record Date applicable thereto, notwithstanding the
conversion of such Interest after such Series A Dividend Record Date
and prior to the opening of business on such Series A Dividend Payment
Date or the default by LLC in the payment of the dividend due on such
Series A Dividend Payment Date. Except as provided in the next
sentence, Series A Class 2 Interests surrendered for conversion during
the period from the close of business on any Series A Dividend Record
Date to the opening of business on the Series A Dividend Payment Date
with respect to such dividend shall be accompanied by payment in
immediately available funds or other funds acceptable to LLC of an
amount equal to the dividend payable on such Series A Dividend Payment
Date on the Series A Class 2 Interests being surrendered for
conversion. The dividend with respect to a Series A Class 2 Interest
called for redemption on a Series A Redemption Date during the period
from the close of business on a Series A Dividend Record Date to the
opening of business on the Series A Dividend Payment Date shall be
payable on such Series A Dividend Payment Date to the holder of record
of such Interest on such Series A Dividend Record Date notwithstanding
the conversion of such Series A Class 2 Interest after the close of
business on such Series A Dividend Record Date and prior to the
opening of business on such Series A Dividend Payment Date, and the
holder converting such Series A Class 2 Interest need not include a
payment of such dividend amount upon surrender of such Series A Class
2 Interest for conversion. A holder of Series A Class 2 Interests
surrendered for conversion into Class 1 Interests on a Series A
Dividend Payment Date will receive the dividend payable by LLC on such
Series A Class 2 Interests on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender
of Series A Class 2 Interests for conversion. Except as provided in
this section, no payment or adjustment shall be made upon any
conversion on account of any dividends accrued on Series A Class 2
Interests surrendered for conversion or on account of any dividends on
the Class 1 Interests issued upon conversion.
No fractional interest in a Class 1 Interest shall be issued
by LLC upon the conversion of any Series A Class 2 Interest(s). Any
fractional interest in a Class 1 Interest resulting from conversion of
any Series A Class 2 Interest(s) shall be paid in cash (computed to
the nearest cent) based on the Closing Price of the Class 1 Interest
on the last Business Day prior to the date on which such Series A
Class 2 Interest(s) are surrendered for conversion in the manner set
forth above. If more than one Certificate representing Series A Class
2 Interests shall be surrendered for conversion at one time by the
same holder, the number of full Interests issuable upon conversion
thereof shall be computed on the basis of the aggregate number of
Series A Class 2 Interests represented by such Certificates which are
to be converted.
(ii) Series A Conversion Price Adjustments. The
Conversion Price shall be adjusted from time to time as follows:
(A) In case LLC shall pay or make a dividend or
other distribution on any Interests of LLC in Class 1
Interests, the Conversion Price in effect at the opening of
business on the day following the date fixed for the
determination of holders of Interests entitled to receive such
dividend or other distribution shall be reduced by multiplying
such Series A Conversion Price by a fraction 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
and the denominator of which shall be the sum of such number
of Interests and the total number of Interests constituting
such dividend or other distribution, such reduction 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 Class 1
Interests at any time outstanding shall not
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include Interests held in the treasury of LLC. LLC will not
pay any dividend or make any distribution on Class 1 Interests
held in the treasury of LLC.
(B) In case LLC shall issue rights or warrants to
all holders of its Class 1 Interests entitling them to
subscribe for, purchase or acquire Class 1 Interests at a
price per Interest less than the current market price per
Interest (determined as provided in subsection (F) below) of
the Class 1 Interests on the date fixed for the determination
of holders of Interests entitled to receive such rights or
warrants, the Series A Conversion Price in effect at the
opening of business on the day following the date fixed for
such determination shall be reduced by multiplying such Series
A Conversion Price by a fraction 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 or acquisition would
purchase at such current market price and 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, such reduction 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 Interests
held in the treasury of LLC. LLC will not issue any Rights in
respect of Class 1 Interests held in the treasury of LLC.
(C) In case the outstanding Class 1 Interests
shall be subdivided into a greater number of Class 1
Interests, the Series A Conversion Price in effect at the
opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately
reduced, and, conversely, in case the outstanding Class 1
Interests shall each be combined into a smaller number of
Class 1 Interests, the Series A Conversion Price in effect at
the opening of business on the day following the day upon
which such combination becomes effective shall be
proportionately increased, 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.
(D) In case LLC shall, by dividend or otherwise,
distribute to all holders of its Class 1 Interests (I)
evidences of its indebtedness and/or (II) cash or other assets
(excluding (x) any rights or warrants referred to in
subsection (B) above, (y) any dividend or distribution
referred to in subsection (A) above, and (z) cash dividends or
distributions from current or accumulated earnings, then in
each case, the Series A Conversion Price 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 Series A Conversion Price by a fraction of which the
numerator shall be the current market price per Class 1
Interest (determined as provided in subsection (F) below) on
such date of determination (or, if earlier, on the date on
which the Class 1 Interest goes "ex-dividend" in respect of
such distribution) less the then Fair Market Value as
determined by the Board of Directors (whose determination
shall be conclusive) of the portion of the other assets or
evidences of indebtedness so distributed (and for which an
adjustment to the Series A Conversion Price has not previously
been made pursuant to the terms of this Section 4.05(f))
applicable to one Class 1 Interest, and the denominator shall
be such current market price per Class 1 Interest, such
adjustment to become effective immediately after the opening
of business on the day following such date of determination.
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(E) The reclassification or change of Class 1
Interests into Interests including Interests other than Class
1 Interests (other than any reclassification upon a
consolidation or merger to which Section 4.05(f)(ii)(I) below
applies) shall be deemed to involve (I) a distribution of such
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
(D) above), and (II) a subdivision or combination, as the case
may be, of the number 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 combination becomes effective," as
the case may be, and "the day upon which such subdivision or
combination becomes effective" within the meaning of
subsection (C) above).
(F) For the purpose of any computation under
subsection (B) or (D) above, the current market price per
Class 1 Interest on any day shall be deemed to be the average
of the Closing Prices of the Class 1 Interests for the 20
consecutive Business Days selected by the Board of Directors
commencing no more than 30 Business Days before and ending no
later than the day before the day in question; provided, that
in the case of clause (D), 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 1 Interests
entitled to receive such dividend or distribution (or, if
earlier, the date on which the Class 1 Interests go
"ex-dividend" in respect of such dividend or distribution)
shall be less than 20 Business Days, the period shall be such
lesser number of Business Days but, in any event, not less
than five Business Days.
(G) No adjustment in the Series A Conversion
Price shall be required unless such adjustment would require
an increase or decrease of at least 1% of such price;
provided, that any adjustments which by reason of this
Subsection (G) 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 Section 4.05(f)
(other than this Subsection (G)) not later than such time as
may be required in order to preserve the tax free nature of a
distribution to the holders of Class 1 Interests. Anything in
this Subsection (G) to the contrary notwithstanding, LLC shall
be entitled, at its option, to make such reductions in the
Series A Conversion Price, in addition to those required by
this Section 4.05(f), as it in its discretion shall determine
to be advisable in order that any dividend of Interests,
subdivision or combination of Interests, distribution of
Interests or rights or warrants to purchase Interests or
securities, or distribution of evidences of indebtedness or
assets (other than cash dividends or distributions paid from
earnings) or other event shall be a tax free distribution for
federal income tax purposes. All calculations under this
Subsection (G) shall be made to the nearest cent.
(H) Whenever the Series A Conversion Price is
adjusted as herein provided, LLC shall promptly mail a
certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment and the manner of computing same,
which certificate shall constitute conclusive evidence, absent
manifest error, of the correctness of such adjustment. The
certificate shall be mailed to each holder at his last address
as the same appears on the Members' Interest Register of LLC
and to the Series A Conversion Agent.
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(I) In case of (X) any consolidation of LLC with,
or merger of LLC into, any other entity, (Y) any merger of
another entity into LLC (other than a merger which does not
result in any reclassification, conversion, exchange or
cancellation of outstanding Class 1 Interests) or (Z) any sale
or transfer of all or substantially all of the assets of LLC,
each holder shall have the right thereafter to convert such
Interest 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 Class 1
Interests into which such Series A Class 2 Interest might have
been converted immediately prior to such consolidation,
merger, sale or transfer, assuming such holder of Class 1
Interests is not an entity with which LLC consolidated or into
which LLC merged or which merged into LLC or to which such
sale or transfer was made, as the case may be (a "constituent
entity"), or an Affiliate of a constituent entity 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 Class 1 Interest held immediately
prior to such consolidation, merger, sale or transfer by other
than a constituent entity or an Affiliate thereof and in
respect of which such rights of election shall not have been
exercised (a "non-electing interest"), then for the purpose of
this Section 4.05(f)(ii)(I) the kind and amount of securities,
cash and other property receivable upon such consolidation,
merger, sale or transfer by each non-electing Interest shall
be deemed to be the kind and amount so receivable per Interest
by a plurality of the non-electing Interests). 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 the holders, to the end that the
provisions set forth herein shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in
relation to any Interests, securities or property thereafter
deliverable on the conversion of the Interests. Any such
adjustment shall be evidenced by a certificate of LLC and a
notice of such adjustment filed and mailed in the manner set
forth in subsection (H) above and containing the information
set forth in such subsection (H), and any adjustment so
certified, shall for all purposes hereof conclusively be
deemed to be an appropriate adjustment, absent manifest error.
The above provisions shall similarly apply to successive
consolidations, mergers, sales or transfers.
For purposes of this Section 4.05(f), "Class 1
Interests" includes any interests of any class of LLC which
have no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of LLC and which are
not subject to redemption by LLC. However, subject to the
provisions of Section 4.05(f)(ii)(I) above, Interests issuable
on conversion of Series A Class 2 Interests shall include only
Interests of the class designated as Class 1 Interests of LLC
on the date of the initial issuance of Series A Class 2
Interests by LLC, or Interests 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 LLC and which are not subject to redemption
by LLC; provided, that if at any time there shall be more than
one such resulting class, the Interests of each such class
then so issuable shall be substantially in the proportion
which the total number of Interests of such class resulting
from all such reclassifications bears to the total number of
Interests of all such classes resulting from all such
reclassifications.
(iii) Notice of Certain Events. In case:
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(A) LLC shall take any action that would result in
an adjustment to the Series A Conversion Price; or
(B) of any consolidation, merger or share or
Interest exchange to which LLC is a party and for which
approval of any members of LLC is required, or of the sale or
transfer of all or substantially all of the assets of LLC; or
(C) of the voluntary or involuntary dissolution,
liquidation or winding-up of LLC;
then LLC shall cause to be filed with any Series A Conversion Agent
and shall cause to be mailed to each holder of Series A Class 2
Interests at its last address as the same appears on the Members'
Interest Register at least 15 days prior to the applicable record or
effective date hereinafter specified, a notice stating (I) 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
Class 1 Interests of record are to be determined, or (II) the date on
which such consolidation, merger, share exchange, 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 1 Interests of record shall be entitled to exchange their Class
1 Interests for securities, cash or other property deliverable upon
such consolidation, merger, share exchange, 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 (A) through (C)
above.
(iv) Payment of Taxes. LLC will pay any and all
documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of Class 1 Interests on conversion of
Series A Class 2 Interests pursuant hereto; provided, that LLC shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Class 1 Interests in a
name other than that of the holder of the Series A Class 2 Interests
to be converted, and no such issue or delivery shall be made unless
and until the Person requesting such issue or delivery has paid to LLC
the amount of any such tax or has established, to the satisfaction of
LLC, that such tax has been paid.
(v) Interests Issuable Upon Conversion. LLC covenants
that all Class 1 Interests which may be issued upon conversions of
Series A Class 2 Interests will, upon issue, be duly and validly
issued, free of all liens and charges and not subject to any
preemptive rights. LLC covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Class 1 Interests, for the purpose of
effecting conversions of Series A Class 2 Interests, the full number
of Class 1 Interests deliverable upon the conversion of all
outstanding Series A Class 2 Interests not theretofore converted.
(g) Mutilated or Missing Series A Class 2 Interests Certificates.
If any Series A Class 2 Interest Certificate shall be mutilated, lost, stolen
or destroyed, LLC shall issue, in exchange and in substitution for and upon
cancellation of the mutilated Series A Class 2 Interest Certificate, or in lieu
of and substitution for the Series A Class 2 Interest Certificate lost, stolen
or destroyed, a new Series A Class 2 Interest Certificate of like tenor and
representing an equivalent number of Series A Class 2 Interests, but only upon
receipt of evidence of such loss, theft or destruction of such Series A Class 2
Interest Certificate and indemnity, if requested, satisfactory to LLC.
(h) Reissuance; Preemptive Rights.
(i) Series A Class 2 Interests that have been issued and
reacquired in any manner, including Interests purchased or redeemed,
shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized and unissued
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Class 2 Interests undesignated as to series and may be redesignated
and reissued as part of any series of Class 2 Interests other than the
Series A Class 2 Interests.
(ii) No Series A Class 2 Interests shall have any rights
of preemption whatsoever as to any securities of LLC, or any Rights
issued or granted with respect thereto, regardless of how such
securities or such Rights may be designated, issued or granted.
(i) Business Day. If any payment or redemption shall be required
by the terms hereof to be made on a day that is not a Business Day, such
payment, redemption or exchange shall be made on the immediately succeeding
Business Day and no further dividends shall accumulate after the day payment
was required.
(j) Limitations. Except as may otherwise be required by law, the
Series A Class 2 Interests shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this Agreement (as such Agreement may be amended from time to
time).
Section 4.06 Series B Class 2 Interests
(a) Issuance and Sale. The banking and financing committee has the
authority to issue, sell and deliver one Series B Class 2 Interest to any
Guarantor that provides $250 million or more of Guarantees to the extent such
issuance is provided for in the Agreement Regarding Guarantee between LLC and
such Guarantor.
(b) Voting Rights. Except as herein provided, the voting rights of
the Series B Class 2 Interests shall be limited to the right to appoint one
Director to the Board of Directors per Series B Class 2 Interest at every
annual or special meeting of Members (the Directors so elected are referred to
herein as the "Series B Directors"). Such Series B Directors shall be in
addition to, and not in the place of, any existing Directors or Director
vacancies. Any vacancies in the number of Series B Directors created by death,
resignation, removal or for any other reason (except if caused by the reduction
of the number of such Directors upon redemption of any Series B Class 2
Interests) may be filled only by the Guarantor that appointed such Director.
(c) Redemption. LLC shall redeem for $.01 per Series B Class 2
Interest any and all Series B Class 2 Interests held by a Guarantor or its
affiliates as soon as the Guarantee Agreement of such Guarantor is terminated
or expires and any previous payments thereunder by the Guarantor have been
reimbursed.
(d) Certificate of Designations and Other Terms. The banking and
financing committee is authorized to exercise all the powers and authority of
the Board of Directors with respect to the issuance of the Series B Class 2
Interests including, without limitation, (i) the authority to establish the
specific terms of the Series B Class 2 Interests, to the extent not set forth
herein, or in lieu thereof, to authorize Authorized Officers of LLC to
establish such matters, to the extent that the delegation of such authority to
Authorized Officers is not inconsistent with applicable law or this Agreement,
and (ii) without limiting the generality of the foregoing, the banking and
financing committee is expressly authorized to fix the designations and
preferences of the Series B Class 2 Interests and to authorize the attachment
hereto of certificates of designations with respect thereto.
Section 4.07 Series C Class 2 Interests
(a) Issuance and Sale. The banking and financing committee has the
authority to issue, sell and deliver one Series C Class 2 Interest (in addition
to a Series B Class 2 Interest if provided pursuant to the preceding Section
4.06) to each Guarantor for each $10 million of Guarantees provided by such
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Guarantor to the extent such issuance is provided for in the Agreement
Regarding Guarantee Class 2 Interests shall be issued (a Series C Class 2
Interest shall only be issued in respect of each full $10 million incremental
amount of Guarantees);
(b) Voting Rights. Except as herein provided, the sole and exclusive
voting rights of the Series C Class 2 Interests shall be the right to appoint
one or more Directors as follows: if, as a result of a Payment Event (as
defined below), any Guarantor is required to make a payment pursuant to the
terms of the Guarantee Agreement entered into by such Guarantor pursuant to
such Guarantor's Agreement Regarding Guarantee, such Guarantor shall have the
right to call a special meeting of the Members (pursuant to the notice
requirements provided herein) at which the holders of Series C Class 2
Interests shall be entitled to appoint a number of Directors (the "Series C
Directors") in addition to the Series B Directors and any other directors
appointed pursuant to Section 1.05(a) or otherwise by the Guarantors and their
affiliates in their capacity as members (the "Other Guarantor Directors") such
that the Series B Directors and the Series C Directors (together, the
"Guarantor Directors") together with any such Other Guarantor Directors will
constitute a majority of the Directors on the Board of Directors and the
holders of Series C Class 2 Interests shall have the right to continue to
appoint, as a class, such Series C Directors at each succeeding annual meeting
of Members, until such time as no Payment Event exists or remains unremedied
and all amounts paid by all Guarantors pursuant to their Guarantees have been
reimbursed to them (the "Time of Cure"). Holders of Series C Class 2 Interests
shall elect Series C Directors by cumulative voting with the minimum number of
Series C Class 2 Interests required to elect a Series C Director equal to the
quotient of the number of Series C Class 2 Interests outstanding divided by the
number of Series C Directors to be elected. Upon the installation of such
Series C Directors, the Board of Directors shall call a special meeting of the
Board of Directors for the purpose of appointing the members of each committee
of the Board of Directors (excepting the Related Party Contracts Committee
which shall be constituted as provided in Section 2.03(g)). In any class vote
of the Series C Class 2 Interests, each outstanding Series C Class 2 Interest
shall be entitled to one vote. The term "Payment Event" shall mean a payment
by a Guarantor in respect of debt of LLC pursuant to such Guarantor's Guarantee
Agreement; provided, however, that no Payment Event shall exist if and so long
as Motorola is in default under (i) the Space System Contract, the O&M
Contract, the Terrestrial Network Development Contract or any other Project
Document (as defined in any bank credit agreement in respect of which the
Guarantee is made), or (ii) a Gateway Equipment Purchase Agreement if such
default was not excused and was not caused by a default on the part of the
purchaser under such Gateway Equipment Purchase Agreement. At the Time of
Cure, all Series C Directors shall immediately cease to be Directors.
Vacancies in the number, if any, of Series C Directors created by death,
resignation, removal or for any other reason (except by the reduction of the
number of such Directors at the Time of Cure or upon redemption of any Series C
Class 2 Interests) may be filled only by the holders of Series C Class 2
Interests.
(c) Redemption. LLC shall redeem for $.01 per Series C Class 2
Interest any and all Series C Class 2 Interests held by a Guarantor or its
affiliates as soon as the Guarantee Agreement of such Guarantor is terminated
or expires and any previous payments thereunder by the Guarantor have been
reimbursed.
(d) Certificate of Designation and Other Terms. The banking and
financing committee is authorized to exercise all the powers and authority of
the Board of Directors with respect to the issuance of the Series C Class 2
Interests including, without limitation, (i) the authority to establish the
specific terms of the Series C Class 2 Interests, to the extent not set forth
herein, or in lieu thereof, to authorize Authorized Officers of LLC to
establish such matters, to the extent that the delegation of such authority to
Authorized Officers is not inconsistent with applicable law or this Agreement,
and (ii) without limiting the generality of the foregoing, the banking and
financing committee is expressly authorized to fix the designations and
preferences of the Series C Class 2 Interests and to authorize the attachment
hereto of certificates of designations with respect thereto.
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Section 4.08 Issuance of Interests Upon the
Admission of Additional Members
Subject to the rights of the existing Members as set forth in this
Agreement, additional Interests may be issued to an Additional Member only upon
the admission of an Additional Member pursuant to Article VII of this
Agreement.
Section 4.09 Fractional Interests
LLC may, but shall not be required to, issue fractions of an Interest.
If it does not issue fractions of an Interest, it shall (a) arrange for the
disposition of fractional Interests by those entitled thereto, (b) pay in cash
the fair value of fractions of an Interest as of the time when those entitled
to receive such fractions are determined or (c) issue scrip or warrants in
registered form (either represented by a Certificate or uncertificated) or in
bearer form (represented by a Certificate) which shall entitle the holder to
receive a full Interest upon the surrender of such scrip or warrants
aggregating a full Interest. A certificate for a fractional Interest or an
uncertificated fractional Interest shall, but scrip or warrants shall not
unless otherwise provided therein, entitle the holder to exercise voting
rights, to receive dividends thereon and to participate in any of the assets of
LLC in the event of liquidation. The Board of Directors may cause scrip or
warrants to be issued subject to the conditions that they shall become void if
not exchanged for Certificates representing the full Interests or
uncertificated full Interests before a specified date, or subject to the
conditions that the Interests for which scrip or warrants are exchangeable may
be sold by LLC and the proceeds thereof distributed to the holders of scrip or
warrants, or subject to any other conditions which the Board of Directors may
impose.
Section 4.10 Certificates for Interests
The Interests of LLC shall be represented by Certificates; provided,
that the Board of Directors may provide by resolution or resolutions that some
or all of any or all Interests of the classes or series of its Interests shall
be uncertificated. Any such resolution shall not apply to Interests
represented by a Certificate until such Certificate is surrendered to LLC.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of Interests represented by Certificates and upon request every
holder of uncertificated Interests shall be entitled to have a Certificate
signed by, or in the name of, LLC by the chairman of the Board of Directors,
the vice chairman and chief executive officer, or the president or
vice-president, and by the treasurer or an assistant treasurer, or the
secretary or an assistant secretary of LLC representing the number of Interests
registered in Certificate form. Any or all of the signatures on the
Certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
Certificate shall have ceased to be such officer, transfer agent or registrar
before such Certificate is issued, it may be issued by LLC with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
ARTICLE V
DISSOLUTION AND WINDING-UP
Section 5.01 Dissolution
LLC shall be dissolved and its affairs wound up upon the occurrence of
the earliest of following events:
(a) December 31, 2095, subject to amendment by an affirmative
vote of 66 2/3 of the Class 1 Members.
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(b) The death, retirement, resignation, bankruptcy or dissolution
of any Member or the occurrence of any other event which terminates the
continued membership of any Member, unless, within 90 days of the later of (i)
the occurrence of such event or (ii) the receipt by LLC of any written notice
provided below in this subsection (b) (but in any event no longer than 120 days
from the occurrence of an event requiring such notice), the Board of Directors
and the remaining Members exercise their right hereunder to continue the
business of LLC in accordance with this subsection (b), and in the event of
such continuation LLC shall not be dissolved.
The continuation right provided above may be exercised upon the
consent of both (i) a majority of the Board of Directors and (ii) a "majority
in interest" (as defined in IRS Revenue Procedure 94-46, 1994-2 C.B. 688) of
the remaining Members, who shall number at least two.
The Board of Directors may determine whether such consents have been
provided in any manner they deem reasonable and need not call a meeting of
Members or communicate with all Members therefor; provided, that the Board of
Directors shall reflect such determination and the manner of determination in
the books and records of LLC.
Each Member hereby covenants that within 30 days of an event of
bankruptcy which would cause such Member to cease to be a Member under Section
18-304 of the Delaware Act or of any action taken to dissolve such Member, it
will provide written notice thereof to the Secretary of LLC and to each other
Member.
(c) The adoption of a resolution by 66 2/3% of the entire Board of
Directors that it is deemed advisable in the judgment of the Board of Directors
that LLC be dissolved followed by the affirmative vote at a meeting duly called
for such purpose of 66 2/3% of the Class 1 Interests approving the dissolution;
provided, that the resolution of the Board of Directors authorizing a proposed
dissolution may provide that notwithstanding authorization or consent to the
proposed dissolution by the Class 1 Members, the Board of Directors may abandon
such proposed dissolution without further action by the Class 1 Members.
Section 5.02 Resignation of Members
A Member may resign from LLC only by Transferring its interests
pursuant to Article VI hereof. No Member shall be able to resign or be deemed
to resign if it ceases to be a Member due to bankruptcy or for any other reason
(a "Former Member") except upon the consent of 66 2/3 of the other Members, if
LLC continues, pursuant to Section 5.01(b) or otherwise, to exist. Such Former
Member, if not permitted or deemed to resign, shall not be entitled to any of
the rights granted to a Member hereunder or under applicable law but shall be,
to the extent not otherwise provided by this Agreement or applicable law,
entitled to receive distributions and allocations of items of income, gain,
loss, deduction, expense and credit as if such Former Member continued to be a
Member hereunder.
Section 5.03 Winding-Up
(a) Upon dissolution of LLC, LLC's affairs shall be wound up by
the chairman of the Board of Directors (as liquidating trustee) or, if there is
no chairman of the Board of Directors, or vice chairman and cheif executive
officer (as liquidating trustee), or, if there no chairman of the Board of
Directors or vice chairman and chief executive officer, by the person who may
be elected by a vote of the Class 1 Members.
(b) Upon the winding-up of LLC, any amounts permitted to be
distributed to Members (other than distributions to any Member upon
resignation, interim distributions to any Member and distributions to Members
in their capacity as creditors, each of which shall be distributed prior to the
distribution provided for in this Section 5.03(b), as provided in the Delaware
Act) shall be distributed first to the Class
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2 Members, if any, to the extent of the liquidation preference of their Class 2
Interests as provided herein, and second to the Class 1 Members in proportion
to the number of Class 1 Interests held by each such Class 1 Member.
ARTICLE VI
TRANSFERS
Section 6.01 Notice to LLC and to Other Holders
Except as otherwise provided in this Agreement, a Person shall not
Transfer Class 1 Interests, Class 2 Interests, Notes or Warrants ("Restricted
Interests") except pursuant to the provisions of this Article VI; provided,
that, except as permitted by Section 6.02 of this Agreement, in no event shall
any Transfer of Restricted Interests pursuant to this Article VI be made for
any consideration other than cash payable upon consummation of such Transfer or
in installments over time. Prior to making any Transfer, the Person seeking to
make such Transfer (the "Transferring Person") shall give written notice (the
"Sale Notice") to LLC and to all other holders of Restricted Interests (each an
"Other Holder" and collectively, the "Other Holders"). The Sale Notice will
disclose in reasonable detail the identity of the prospective transferee(s),
the amount of Restricted Interests to be transferred and the terms and
conditions of the proposed Transfer. The Transferring Person will not
consummate any Transfer until 40 days after the relevant Sale Notice has been
received by LLC and the Other Members, unless the parties to the Transfer have
been finally determined pursuant to this Article VI prior to the expiration of
such 40-day period. The date of the first to occur of such events is referred
to herein as the "Authorization Date".
Section 6.02 Right to Reject Transfer; First Refusal Rights
(a) Subject to subsection (b) below, LLC may reject any Transfer
if such Transfer does not receive the approval of a majority of the Directors
by giving the Transferring Person notice to such effect (a "Rejection Notice")
within 20 days after the Sale Notice has been received by LLC and, in the event
of the timely issuance of a Rejection Notice, the Transferring Person shall not
make the Transfer described in the Sale Notice; provided, that no Transfer
shall have effect if the result of such Transfer is a termination of LLC under
Section 708 of the Code. If LLC does not issue a timely Rejection Notice, LLC
may elect to purchase all (but not less than all) of the Restricted Interests
to be transferred upon the same terms and conditions as those set forth in the
Sale Notice by delivering a written notice of such election to the Transferring
Person and the Other Holders within 20 days after the Sale Notice has been
received by LLC. If LLC has not issued a Rejection Notice and has not elected
to purchase the Restricted Interests to be transferred, the Other Holders may
elect to purchase all (but not less than all) of the Restricted Interests to be
transferred upon the same terms and conditions as those set forth in the Sale
Notice by giving written notice of such election to the Transferring Person
within 30 days after the Sale Notice has been received by the Other Holders.
If more than one Other Holder elects to purchase the Restricted Interests, the
Restricted Interests to be sold will be allocated among such Other Holders pro
rata (which for this purpose shall be determined on the basis of the
Liquidation Value of Series M Class 2 Interests, the Series A Liquidation
Preference of Series A Class 2 Interests, the Accreted Value of Notes and the
purchase price paid to LLC in respect of Class 1 Interests, in each case held
by the Other Holders); provided, that no Other Holder shall be allowed to
purchase any Class 1 Interests pursuant to this Section 6.02 which, together
with the other Class 1 Interests owned by such Other Holder, would cause such
Other Holder (together with its Affiliates) to beneficially own and/or have the
current right to acquire more than 45% of the Class 1 Interests Deemed
Outstanding at such time or more than 45% of the Class 1 Interests actually
outstanding at such time. If neither LLC nor any of the Other Holders elects
to purchase the Restricted Interests specified in the Sale Notice, the
Transferring Person may transfer the Restricted Interests specified in the Sale
Notice at a price and on terms no more favorable to the transferee(s) thereof
than as specified in the Sale Notice during the 60-day period immediately
following the Authorization Date. Any Restricted Interests
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not transferred within such 60-day period will be subject to the provisions of
this Section 6.02 upon subsequent transfer.
(b) A Transferring Person shall have the right to Transfer to any
of its Affiliates, and such Affiliate shall automatically become a substituted
Member pursuant to Section 6.07 (without approval pursuant to subsection (a) of
this Section 6.02 and without being subject to the notice provisions of Section
6.01 or to LLC's or any other Member's right to elect to purchase described in
subsection (a) of this Section 6.02, for any consideration, including cash), up
to 79% of its Restricted Interests but only to the extent that this provision
shall not result in over 79% of all Class 1 Interests or 79% of all Restricted
Interests becoming transferrable without approval; provided, further that no
Transfer shall have effect if the result is a termination of LLC under Section
708 of the Code. Upon the approval of a substitution of such Affiliate as a
Member pursuant to Section 6.07, however, a Transferring Person may Transfer to
any of its Affiliates all of its Restricted Interests upon the same terms as
provided in the preceding sentence but such Transfer will not be counted toward
the 79% of all Class 1 Interests or 79% of all Restricted Interests provided
above.
Section 6.03 No Transfers Above 45%
Each Member hereby agrees not to Transfer any Class 1 Interests to any
person if after giving effect to any such Transfer such Person (together with
its Affiliates) would beneficially own and/or have the current right to acquire
more than 45% of the Class 1 Interests Deemed Outstanding at such time or more
than 45% of the Class 1 Interests actually outstanding at such time.
Section 6.04 Obligations of Transferees and Transferors
Each Person that becomes the owner of Restricted Interests pursuant to
any Transfer shall execute an agreement in form and substance satisfactory to
LLC which shall include such Person's agreement to be bound by the provisions
of this Agreement; provided, that such Person shall not be obligated to assume
any obligations to purchase additional Restricted Interests under Section 4.02
to the extent such obligations are being retained by such Person's transferor.
No Transfer shall relieve a party hereto of its contractual obligations under
this Agreement or relieve any Indirect Owner of its contractual obligations
under its Agreement of Indirect Owner unless the relief of such obligations is
approved by the holders of at least 66 2/3% of the then outstanding Class 1
Interests, but so long as Motorola is a principal supplier to LLC, such
approval shall be effective only if such holders include Motorola.
Section 6.05 Certain Motorola Transfer Restrictions
Motorola agrees that as long as it is the principal supplier to LLC
and/or Motorola or one of its subsidiaries is the holder for the benefit of LLC
of any FCC license to construct, operate or launch the IRIDIUM system, Motorola
will not Transfer (other than pursuant to an Exempt Transfer as such term is
defined in the VEBA Stock Purchase Agreement) any of its Class 1 Interests that
were issued in respect of Common Stock of Iridium, Inc. purchased under the
1993 Stock Purchase Agreement; provided, that this restriction does not apply
to any Class 1 Interests purchased by Motorola pursuant to Section 4.02 of this
Agreement. In the event that Motorola is no longer the principal supplier to
LLC and neither Motorola nor one of its subsidiaries is the holder for the
benefit of LLC of any FCC license and Motorola desires to Transfer any such
Class 1 Interests prior to July 19, 2003, at least 30 days prior to any such
Transfer, Motorola shall deliver a written notice (the "Motorola Sale Notice")
to LLC and the other Class 1 Members (the "Other Class 1 Members"), specifying
in reasonable detail the identity of the prospective transferee(s) and the
terms and conditions of the Transfer. The Other Class 1 Members may elect to
participate in the contemplated Transfer by delivering written notice to
Motorola within 30 days after delivery of the Motorola Sale Notice. If any
Other Class 1 Members have elected to participate in such Transfer, Motorola
and such Other Class 1 Members shall be entitled to sell in the contemplated
Transfer, at the same price and on the same terms, a number of Class 1
Interests equal to the product of (i) the quotient determined by dividing the
percentage of Class 1 Interests owned by such Person by
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the aggregate percentage of Class 1 Interests owned by Motorola and all of the
Other Class 1 Members participating in such sale and (ii) the number of Class 1
Interests to be sold in the contemplated Transfer.
For example, if the Sale Notice contemplated a sale of 100
Class 1 Interests by Motorola, and if Motorola at such time
owns 30% of all the Class 1 Interests outstanding and if one
Other Class 1 Member elects to participate and owns 20% of all
the Class 1 Interests outstanding, Motorola would be entitled
to sell 60 Class 1 Interests (30% / 50% x 100 interests) and
the Other Class 1 Member would be entitled to sell 40 Class 1
Interests (20% / 50% x 100 interests).
Motorola shall use its reasonable best efforts to obtain the agreement of the
prospective transferee(s) to the participation of the Other Class 1 Members in
any contemplated Transfer, and Motorola shall not transfer any of its Class 1
Interests to the prospective transferee(s) if the prospective transferee(s)
declines to allow the participation of the Other Class 1 Members.
Section 6.06 Inapplicability of Article
Article VI shall not apply to a Transfer by any Person of any
ownership interest in a Member.
Section 6.07 Substituted Members
Unless otherwise provided in this Agreement, a transferee of any Class
1 Interest or Class 2 Interest shall not become a substituted Member without
the consent of a "majority in interest" (as defined in IRS Revenue Procedure
94-46, 1994-2 C.B. 688) of the non-transferring Members, which consent may be
given or withheld in the discretion of the Members, whether or not reasonable.
Unless and until a transferee becomes a Member pursuant to this Section 6.07,
the transferee shall not be entitled to any of the rights granted to a Member
hereunder or under applicable law, other than the right to receive
distributions and allocations of items of income, gain, loss, deduction,
expense, and credit as if such transferee were a Member. However, such
transferee shall be bound by any limitations and obligations contained herein
with respect to Members.
ARTICLE VII
ADMISSION OF ADDITIONAL MEMBERS
Section 7.01 Admission of Additional Members
(a) Admission of Members. With the consent of Class 1 Members
holding a majority of the Class 1 Interests, the Board of Directors may at any
time cause LLC to admit additional Members ("Additional Members").
(b) Time of Admission. An Additional Member shall be deemed
admitted as a member upon the later of:
(i) the later of (a) the written request by such Person that
the Members' Interest Register reflect such admission and (b) the
execution by such Person of this Agreement or a counterpart hereof
whereby such person agrees to be bound by the provisions of this
Agreement, and
(ii) the time such person is listed as a Member in the
Members' Interest Register of LLC and a Certificate or Certificates
evidencing such person's ownership of such Interest is issued.
(c) Required Contribution. The Board of Directors shall determine
what, if any, contribution the Additional Member need make and the number and
class of Interests to be issued to such Member."The Board
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of Directors may provide that the required contribution may be paid prior to,
at the time of, or subsequent to, the issuance of the interest to such Member
and that any subsequent contribution may be made from distributions paid or
payable in respect of such interest. If any portion of a required contribution
is payable after the issuance of the interest, the Board of Directors may
determine that any rights otherwise incident to such interest (including,
without limitation, voting, distribution, inspection and transfer rights) will
not come into effect until such required contribution has been made. At any
time that the voting rights in respect of such interest have been suspended, in
determining whether a required percentage of Class 1 Membership Interests have
approved any action, such interests shall be excluded from both the numerator
and the denominator of such percentage computation."
(d) Affiliated Purchasers. The Affiliated Purchasers are not
Members on the date hereof but are parties to the 1996 Securities Purchase
Agreement and pursuant to that agreement have acquired Notes and Warrants.
Each Member hereby consents to the admission of each of the Affiliated
Purchasers as a Member upon the acquisition by such Affiliated Purchaser of
Class 1 Interests upon the exercise of Warrants or otherwise.
(e) Motorola Eligible Transferee. Each Member hereby consents to
the admission of each Motorola Eligible Transferee as a Member upon the
acquisition by such Person of Class 1 Interests or Class 2 Interests pursuant
to the terms of this Agreement.
Section 7.02 Preemptive Rights
(a) Offer to Sell. If LLC authorizes the issuance or sale of any
Class 1 Interests (or Rights to acquire any Class 1 Interests), then LLC shall
first offer to sell to each Class 1 Member a portion of such Class 1 Interests
(or such Rights) equal to (i) the number of Class 1 Interests held by such
Class 1 Member divided by (ii) the sum of the number of Class 1 Interests
Deemed Outstanding as of the date of such offer plus the number of Class 1
Interests issuable upon exercise, conversion or exchange of all outstanding
Rights to acquire Class 1 Interests.
(b) Right to Purchase. In order to accept an offer under Section
7.02(a), each Class 1 Member must, within 15 days after receipt of written
notice from LLC describing in reasonable detail the Class 1 Interests (or
Rights) being offered, the purchase price thereof, the payment terms and such
Class 1 Member's percentage allotment, deliver a written notice to LLC
accepting such offer.
(c) Sale of Unsubscribed Interests. During the 90 days following
the expiration of such 15 day offering period, LLC shall be entitled to sell
any such Class 1 Interests (or any such Rights) which the holders of Class 1
Interests have not elected to purchase on terms and conditions no more
favorable to the purchasers thereof than those offered to such holders. Any
Class 1 Interests or securities offered or sold by LLC after such 90 day period
must be reoffered to the holders of Class 1 Interests pursuant to the terms of
this Section 7.02.
(d) Limitation on Preemptive Right. Notwithstanding the other
provisions of this Section 7.02, each Class 1 Member shall be entitled to
purchase such Class 1 Interests (or any such Rights) under this Section 7.02
only to the extent that, immediately after such purchase, neither such holder
nor any of its Affiliates beneficially owns more than 45 percent of the Class 1
Interests Deemed Outstanding at such time.
(e) Exclusion from Preemptive Rights. The provisions of this
Section 7.02 shall not apply to any issuance of Class 1 Interests (or Rights to
acquire any Class 1 Interests) (i) to employees of LLC, (ii) in connection with
the acquisition of another business (whether by purchase of stock, purchase of
assets, merger or otherwise), (iii) pursuant to the Motorola Warrant, (iv)
pursuant to conversion of the Series M Class 2 Interests, (v) pursuant to any
obligation of LLC's Members to purchase additional securities as a result of a
capital call by LLC, (vi) pursuant to the conversion of the Series A Class 2
Interests, (vii) pursuant to exercise of the Warrants, (viii) in connection
with a debt financing, (ix) as a dividend on the outstanding Class 1
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Interests, (x) pursuant to any agreement in effect on the date of this
Agreement, (xi)(A) in connection with the issuance and conversion of warrants
to purchase Class 1 Interests issued by LLC to Guarantor pursuant to Guarantee
Agreements to be executed by August 30, 1996 and (B) certain gateway territory
owners as incentive to complete construction of their gateways by September
1998 and to achieve specified revenues by January 1, 2000, (xii) to Iridium
Bermuda if such issuance has been approved by a majority of the Board of
Directors excluding any directors designated by Iridium Bermuda, or (xiii) in
an amount up to 600,000 Class 1 Interests in private equity placements pursuant
to a purchase agreement or purchase agreements by February 1, 1997.
ARTICLE VIII
GATEWAY RIGHTS AND SPECTRUM ACCESS OBLIGATIONS
Section 8.01 Gateway Rights and Service Provider Rights
(a) Gateway Allocation. Subject to the terms and conditions set
forth below, LLC hereby authorizes each Class 1 Member and its Affiliates, to
the extent permitted by applicable law (including United States law), to
provide Gateway services and to retain Service Providers (and/or act as a
Service Provider) in the Gateway Service Territory allocated to such Class 1
Member on the Gateway Service Territory Allocation Schedule attached hereto as
Annex E and to construct an unlimited number of Gateways in such Gateway
Service Territory subject to any applicable technical and operational
limitations as determined by LLC. Subject to the terms and conditions set forth
below, to the extent permitted by applicable law (including United States law),
LLC will not authorize any other Person to provide Gateway services or
construct Gateways in any Class 1 Member's Gateway Service Territory except on
a basis consistent with the allocations set forth in Annex E hereto.
(b) Class 1 Members Gateway Covenants.
(i) Each Class 1 Member who has been allocated a Gateway
Service Territory agrees to use its best efforts to obtain the
necessary authorizations (the "Gateway Authorizations") to provide
Gateway services in each of the jurisdictions included in its Gateway
Service Territory and to construct and operate such Class 1 Member's
Gateway on a timely basis consistent with the terms of such Class 1
Member's Gateway Authorization Agreement.
(ii) Each Class 1 Member who has been allocated a Gateway
Service Territory agrees to require any Service Provider it retains in
its Gateway Service Territory to use its best efforts to obtain the
necessary authorizations to act as a Service Provider to the extent
required in such Class 1 Member's Gateway Authorization Agreement.
(c) Termination of Gateway Rights and Service Provider Rights.
(i) The allocation pursuant to Section 8.01(a) of Gateway
rights and Service Provider rights to a Class 1 Member for any
particular country will cease with respect to such country (without
any compensation whatsoever being payable in connection therewith
except to the extent set forth in Section 8.01(c)(ii) below) if such
Class 1 Member has not obtained the Gateway Authorizations in such
country within the sooner of (A) 48 months (plus any period of an
"excusable delay" that may occur under Article II of the Space System
Contract prior to the expiration of such 48 months) after the Closing
Date or (B) the date on which appropriate authorizing agencies have
finally determined, after exhaustion of all available appeals being
pursued by such Class 1 Member in good faith, that such Class 1 Member
will not be granted the Gateway Authorizations in such country;
provided, that the Board of Directors may grant to a Class 1 Member an
extension of the time period for obtaining the
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Gateway Authorizations if the Board of Directors concludes that
sufficient progress in obtaining the Gateway Authorizations has been
demonstrated by such Class 1 Member.
(ii) In the event that an allocation of rights pursuant to
Section 8.01(a) ceases with respect to a Class 1 Member's Home Gateway
Country pursuant to Section 8.01(c)(i) above and such Class 1 Member
has used its best good faith efforts to obtain the Gateway
Authorizations in such country and is not in breach of this Agreement
or such Class 1 Member's Gateway Authorization Agreement, such Class 1
Member shall be entitled to compensation for the loss of such
allocation to the extent provided in this Section 8.01(c)(ii). In such
event, such Class 1 Member shall (A) promptly enter into negotiations
in good faith with any Person designated by the Board of Directors to
agree upon the nature and amount of compensation to be paid by such
Person to such Class 1 Member for such rights, (B) use its reasonable
best efforts to conclude such negotiations within six months after
LLC's notice to such Class 1 Member of the identity of such Person and
(C) in the event that such Class 1 Member and such Person are unable
to conclude such negotiations and enter into a binding agreement with
respect thereto within such six-month period, relinquish all such
rights to such Person for the compensation determined by an
Independent Appraiser.
(iii) Notwithstanding any provision in this Agreement to the
contrary, the allocation of all Gateway rights and Service Provider
rights to a Class 1 Member pursuant to Section 8.01(a) will cease if
(A) such Class 1 Member has failed to comply in any material respect
with the terms of its Gateway Authorization Agreement, provided that
notice in writing has been given to the Class 1 Member specifying such
failure to comply and that such failure to comply continues for a
period of thirty (30) days from the date of receipt of said notice or
(B) such Class 1 Member has failed to comply in any material respect
with the terms of this Agreement, provided that notice in writing has
been given to the Class 1 Member specifying such failure to comply and
that such failure to comply continues for a period of thirty (30) days
from the date of receipt of said notice.
The loss of Gateway and Service Provider rights will not diminish a Class 1
Member's other obligations hereunder, including obligations to purchase Class 1
Interests and other interests or securities pursuant to this Agreement.
(d) Assignment of Rights; Assignment of Unallocated Gateway
Service Territories. No Class 1 Member may assign its rights granted under this
Section 8.01 to any Person other than a Person that is an Affiliate of such
Class 1 Member or a Person that would be an Affiliate of such Class 1 Member
and one or more other Members if such Class 1 Member and such other Members
were together considered as one Person; provided, that nothing in this Section
8.01(d) shall prohibit two or more Class 1 Members or their Affiliates from
sharing the rights granted under this Section 8.01 through a joint venture or
otherwise.
(e) Service Provider Rights. To the extent permitted by
applicable law (including United States law) and subject to obtaining the
necessary Government authorizations to do so and to the execution of
documentation (including the Gateway Authorization Agreement) that is
acceptable to LLC and such Class 1 Member, each Class 1 Member to which a
Gateway Service Territory has been allocated hereunder will have the exclusive
right (together with all other Class 1 Members, if any, to which such Gateway
Service Territory has been allocated hereunder) to act as, and to designate
others to act as, a Service Provider in such Gateway Service Territory.
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Section 8.02 Obligations Relating to Spectrum Access
(a) If a Class 1 Member is allocated a Gateway Service Territory
hereunder and is not a Government, such Class 1 Member hereby agrees with
respect to each jurisdiction in its Gateway Service Territory and with respect
to each other jurisdiction in which it conducts any material part of its
business (i) to use its reasonable best efforts to cause the Government of such
jurisdiction and other relevant authorities in such jurisdiction to ratify and
adopt the spectrum allocation and service definitions for low earth orbiting
satellites adopted at the World Administrative Radio Conference organized by
the International Telecommunications Union and held in February 1992, (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 the
jurisdictions of such Governments and authorities.
(b) If a Class 1 Member is a Government, such Class 1 Member
hereby agrees (i) to use its reasonable best efforts to ratify and adopt the
spectrum allocation and service definitions for low earth orbiting satellites
adopted at the World Administrative Radio Conference organized by the
International Telecommunications Union and held in February 1992, (ii) to use
its reasonable best efforts to facilitate the allocation of the frequencies
necessary to operate and use the IRIDIUM system within such Government's
jurisdiction, (iii) to use its reasonable best efforts to facilitate the
coordination of the use of such frequencies with such Government's jurisdiction
and (iv) to take all of the actions specified in Section 8.02(a) above with
respect to each country in the Gateway Service Territory allocated to it
hereunder which is not within such Government's jurisdiction.
ARTICLE IX
AMENDMENT AND TERMINATION OF VARIOUS AGREEMENTS
Section 9.01 Termination of Stock Purchase Agreements
Each of the Stock Purchase Agreements is hereby terminated except that
the representations and warranties included therein shall survive as provided
in each such agreement and except that the obligations thereunder of any
investor shall not be terminated until such investor or its
successor-in-interest has executed a counterpart of this Agreement.
Section 9.02 Amendments to Outstanding Notes and Warrants
Pursuant to the LLC Merger, LLC has succeeded to all of the rights and
obligations of Iridium, Inc. including the rights and obligations of Iridium,
Inc. under the Notes and Warrants issued by Iridium, Inc. on or prior to the
date of this Agreement. Each such Note and Warrant will be deemed to be
amended as provided in Exhibits 1-A and 2-A, respectively, and LLC has issued
Notes and Warrants, as so amended, on the date hereof in replacement of each
outstanding Note and Warrant.
Section 9.03 Amendments to Gateway Authorization Agreements
Each Gateway Authorization Agreement is hereby amended to substitute
LLC for Iridium, Inc. as a party thereto and to effect such other changes as
may be necessary to refer to LLC as a limited liability company rather than a
corporation. Except as so amended each of such Gateway Authorization
Agreements shall remain in full force and effect.
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Section 9.04 Amendments to Contracts with Motorola
Each of the Space System Contract, the O&M Contract and the
Terrestrial Network Development Contract is hereby amended to substitute LLC
for Iridium, Inc. as a party thereto and to effect such other changes as may be
necessary to refer to LLC as a limited liability company rather than a
corporation. Except as so amended each of such contracts shall remain in full
force and effect.
Section 9.05 Amendments to Motorola Warrant
The Motorola Warrant shall be amended as provided in Exhibit 3-A and
LLC has issued a new Motorola Warrant, as so amended, on the date hereof in the
form of Exhibit 3-B.
ARTICLE X
MERGER AND APPRAISAL RIGHTS; SALE OF ASSETS
Section 10.01 Authority
LLC may merge or consolidate with one or more limited liability
companies, corporations, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other jurisdiction, pursuant to a written agreement of
merger or consolidation ("Merger Agreement") in accordance with this Article X.
Section 10.02 Procedure for Merger or Consolidation
Merger or consolidation of LLC pursuant to this Article X requires the
prior approval of the Board of Directors. If the Board of Directors shall
determine, in the exercise of its sole discretion, to consent to the merger or
consolidation, the Board of Directors shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of
each of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or
consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partnership or limited liability company interests, rights,
securities or obligations of the Surviving Business Entity; and (i) if any
general or limited partnership or limited liability company interests, rights,
securities or obligations of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or general or
limited partnership or limited liability company interests, rights, securities
or obligations of the Surviving Business Entity - the cash, property or general
or limited partnership or limited liability company interests, rights,
securities or obligations of any general or limited partnership, limited
liability company, corporation, trust or other entity (other than the Surviving
Business Entity) which the holders of such interests, rights, securities or
obligations of the constituent business entity are to receive in exchange for,
or upon conversion of, their interests, rights, securities or obligations and
(ii) in the case of securities represented by certificates, upon the surrender
of such certificates - which cash, property or general or limited partnership
or limited liability company interests, rights, securities or obligations of
the Surviving Business Entity or any general or limited partnership, limited
liability company,
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corporation, trust or other entity (other than the Surviving Business Entity),
or evidences thereof, are to be delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or
agreement of limited partnership or limited liability company or other similar
charter or governing document) of the Surviving Business Entity to be effected
by such merger or consolidation;
(f) The effective time of the merger or consolidation, which may
be the date of the filing of the certificate of merger pursuant to Section
10.04 or a later date specified in or determinable in accordance with the
Merger Agreement (provided, that if the effective time of the merger or
consolidation is to be later than the date of the filing of the certificate of
merger or consolidation, the effective time shall be specified in the
certificate of merger or consolidation); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the Board of Directors.
Section 10.03 Approval by Class 1 Members of
Merger or Consolidation
(a) General. The Board of Directors, upon its approval of the Merger
Agreement, shall direct that the Merger Agreement be submitted to a vote of the
Class 1 Members whether at a meeting or by written consent, in either case in
accordance with the requirements of Section 1.06(m). A copy or a summary of
the Merger Agreement shall be included in or enclosed with the notice of a
meeting or the written consent.
(b) Required Vote. The Merger Agreement shall be approved upon
receiving the affirmative vote or consent of Class 1 Members holding not less
than 66 2/3% of the outstanding Class 1 Interests unless the Merger Agreement
contains any provision which, if contained in an amendment to this Agreement,
the provisions of this Agreement or the Delaware Act would require the vote or
consent of a greater percentage of the Interests or of any class thereof, in
which case such greater percentage vote or consent shall be required for
approval of the Merger Agreement.
(c) Abandonment of Merger or Consolidation. After such approval
by vote or consent of the Class 1 Members, and at any time prior to the filing
of the certificate of merger or consolidation pursuant to Section 10.04, the
merger or consolidation may be abandoned pursuant to provisions therefor, if
any, set forth in the Merger Agreement. The Merger Agreement shall also
require the approval of any other class of Members if such approval is
specifically required by this Agreement or a Certificate of Designations
adopted pursuant to this Agreement.
Section 10.04 Certificate of Merger or Consolidation
Upon the required approval by the Board of Directors and the Class 1
Members of a Merger Agreement, a certificate of merger or consolidation shall
be executed and filed with the Secretary of State of the State of Delaware in
conformity with the requirements of the Delaware Act.
Section 10.05 Effect of Merger or Consolidation
(a) Effect of Merger. At the effective time of the certificate of
merger or consolidation:
(1) all of the rights, privileges and powers of each of
the business entities that has merged or consolidated, and all
property, real, personal and mixed, and all debts due to any of those
business entities and all other things and causes of action belonging
to each of those business entities shall be
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vested in the Surviving Business Entity and after the merger or
consolidation shall be the property of the Surviving Business Entity
to the extent they were property of each constituent business entity;
(2) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and is not in any way impaired because of the merger or
consolidation;
(3) all rights of creditors and all liens on or security
interest in property of any of those constituent business entities
shall be preserved unimpaired; and
(4) all debts, liabilities and duties of those
constituent business entities shall attach to the Surviving Business
Entity, and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted by it.
(b) No Transfer of Assets or Liabilities. A merger or
consolidation effected pursuant to this Article X shall not be deemed to result
in a transfer or assignment of assets or liabilities from one entity to another
having occurred.
Section 10.06 Appraisal Rights
(a) Members Entitled. Any Member who holds Interests on the date of
the making of a demand pursuant to subsection (d) of this Section 10.06 with
respect to such Interests, who continuously holds such Interests through the
effective date of the merger or consolidation referred to below (a "Merger"),
who has otherwise complied with subsection (d) of this Section 10.06 and who
has neither voted in favor of the Merger nor consented thereto in writing
pursuant to Section 1.06(m) shall be entitled to an appraisal of the fair value
of his Interest under the circumstances described in subsections (b) and (c) of
this Section 10.06.
(b) Certain Exceptions. Appraisal rights shall be available for the
Interests in a Merger in which LLC is a constituent entity;
(i) provided, however, that no appraisal rights under this
section shall be available for Interests of any class or series which,
at the record date, if any, fixed to determine the Members entitled to
receive notice of and to vote upon the Merger or, if no such record
date is fixed, the date of the Merger, were either (x) listed on a
national securities exchange or designated as a national market system
security on a interdealer quotation system by the National Association
of Securities Dealers, Inc. or (y) held of record by more than 2,000
Members; and further provided that no appraisal rights shall be
available for any Interests of LLC if LLC is the surviving entity and
the Merger would not have required the approving vote of stockholders,
pursuant to subsection (f) and (g) of Section 251 of the Delaware
General Corporation Law if LLC were a corporation under Delaware Law;
(ii) notwithstanding paragraph (i) of this subsection,
appraisal rights under this section shall be available for the
Interests of any class or series if the holders thereof are required
by the terms of the agreement of merger to accept for such Interests
anything except:
a. Shares of stock of the corporation, or membership
interests in a nonstock entity, surviving or resulting from
such Merger, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or
membership interests in a nonstock entity, or depository
receipts in respect thereof, which shares of stock, membership
interests or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
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c. Cash in lieu of fractional Interests; or
d. Any combination of the shares of stock,
membership interests, depository receipts and cash in lieu of
fractional Interests.
(c) Perfection. Appraisal rights shall be perfected as follows: if a
proposed Merger for which appraisal rights are provided under this section is
to be submitted for approval at a meeting of Members or Directors, or is to be
approved by written consent, LLC, not less than 20 days prior to the meeting or
the effective date of the written consent, shall notify each of its Members
that appraisal rights are available for any or all of the Interests of LLC, and
shall include in such notice a copy of this Section 10.06. Each Member
electing to demand the appraisal of his Interests shall deliver to LLC, before
the taking of the vote on the Merger, a written demand for appraisal of his
Interests. Such demand will be sufficient if it reasonably informs LLC of the
identity of the Member and that the Member intends thereby to demand the
appraisal of his Interests. A vote against the Merger or the withholding of a
written consent by the Member or by a Director appointed by the Member shall
not constitute such a demand. A Member electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such Merger, the surviving or resulting entity in the Merger
shall notify each Member who has complied with this subsection and has not
voted in favor of or consented to the Merger of the date that the Merger has
become effective;
(d) Right to Petition Court. Within 120 days after the effective
date of the Merger, the surviving or resulting entity or any Member who has
complied with Sections 10.06(a) and (d) and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the Interests of all such Members.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the Merger, any Member shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the Merger. Within 120 days
after the effective date of the Merger, any Member who has complied with the
requirements of Sections 10.06(a) and (d), upon written request, shall be
entitled to receive from the entity surviving the Merger or resulting from the
Merger a statement setting forth the aggregate number of Interests not voted in
favor of the Merger and with respect to which demands for appraisal have been
received and the aggregate number of Members holding such Interests. Such
written statement shall be mailed to the Member within 10 days after his
written request for such a statement is received by the surviving or resulting
entity or within 10 days after expiration of the period for delivery of demands
for appraisal under Section 10.06(c), whichever is later.
(e) Service of Petition; Notice. Upon the filing of any such
petition by a Member, service of a copy thereof shall be made upon the
surviving or resulting entity, which shall within 20 days after such service
file in the office of the Register in Chancery in which the petition was filed
a duly verified list containing the names and addresses of all Members who have
demanded payment for their Interests and with whom agreements as to the value
of their Interests have not been reached by the surviving or resulting entity.
If the petition shall be filed by the surviving or resulting entity, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice to the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting entity and to the Members shown on the list at the
addresses therein stated. Such notice shall also be given by one or more
publications at least one week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(f) Court Determines Members Entitled to Appraisal. At the hearing
on such petition, the Court shall determine the Members who have complied with
this Section 10.06 and who have become entitled to appraisal rights. The Court
may require the Members who have demanded an appraisal for their Interests and
who hold Interests represented by Certificates to submit their Certificates to
the Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any Member fails to comply with such direction, the Court
may dismiss the proceedings as to such Member.
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(g) Court to Appraise Interests. After determining the Members
entitled to an appraisal, the Court shall appraise the Interests, determining
their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining such fair value, the Court shall take into account
all relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money during
the pendency of the proceedings. Upon application by the surviving or
resulting entity or by any Member entitled to participate in the appraisal
proceeding, the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal prior to the
final determination of the Member entitled to an appraisal. Any Member whose
name appears on the list filed by the surviving or resulting entity pursuant to
Section 10.06(e) and who has submitted his Certificates to the Register in
Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under this
Section 10.06.
(h) Payment and Interest. The Court shall direct the payment of the
fair value of the Interests, together with interest, if any, by the surviving
or resulting entity to the Members entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
Member, in the case of Members of uncertificated Interests forthwith, and in
the case of Members holding Interests represented by Certificates upon the
surrender to LLC of the Certificates representing such Interests. The Court's
decree may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting entity be organized under the
laws of the State of Delaware or any other state.
(i) Costs. The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in the
circumstances. Upon application of a Member, the Court may order all or a
portion of the expenses incurred by any Member in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the Interests entitled to an appraisal.
(j) Rights in Surviving Entity. From and after the effective date of
the Merger, no Member who has demanded his appraisal rights as provided in
Section 10.06(c) shall be entitled to the rights of a Member owing Interests;
provided, however, that if no petition for an appraisal shall be filed within
the time provided in Section 10.06(d), or if such Member shall deliver to the
surviving or resulting entity a written withdrawal of his demand for an
appraisal and an acceptance of the Merger, either within 60 days after the
effective date of the Merger as provided in Section 10.06(d) or thereafter with
the written approval of LLC, then the right of such Member to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any Member without the approval of
the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(k) Status of Unissued Shares. The shares or interests of the
surviving or resulting entity to which the Interests of such objecting Members
would have been converted had they or the Director(s) appointed by them
assented to the Merger shall have the status of authorized and unissued shares
or interests of the surviving or resulting entity.
Section 10.07 Sale of Substantially All Assets
(a) Required Vote. LLC may at any meeting of the Board of
Directors sell, lease or exchange all or substantially all of its property and
assets, including its goodwill and its corporate franchises, upon such terms
and conditions and for such consideration, which may consist in whole or in
part of money or other property, including shares of stock in, and/or other
securities of, another corporation, corporations or other entity, as the Board
of Directors deems expedient and for the best interests of LLC, when and as
authorized by a resolution adopted by the holders of 66 2/3% of the outstanding
Class 1 Interests, at a meeting duly called upon at least 20 days' notice. The
notice of the meeting shall state that such a resolution will be considered.
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(b) Abandonment of Sale. Notwithstanding authorization or consent
to a proposed sale, lease or exchange of LLC's property and assets by the Class
1 Members, the Board of Directors may abandon such proposed sale, lease or
exchange without further action by the Class 1 Members, subject to the rights,
if any, of third parties under any contract relating thereto.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Amendments to the Agreement
(a) General. This Agreement may not be changed or amended or the
observance of any provisions by LLC waived without the consent of Class 1
Members holding not less than 66 2/3% of the outstanding Class 1 Interests;
provided, that each Class 1 Member hereby consents to any change or amendment
to, or restatement of, this Agreement approved by a majority of the Board of
Directors which becomes effective on or after the date of the Class 1 Member's
cessation as a Member.
(b) Amendments Affecting Certain Voting Rights. Notwithstanding
the provisions of Section 11.01(a), the provisions of the second sentence of
Section 1.05(a), of Section 1.05(c) and of this Section 11.01(b) (and any
definitions related thereto) may not be changed or amended without the consent
of Class 1 Members holding not less than 95% of the outstanding Class 1
Interests.
(c) Amendments Affecting Contracts Committee. Notwithstanding the
provisions of Section 11.01(a), the provisions of Section 2.03(g) and of this
Section 11.01(c) (and any definitions related thereto) may not be changed or
amended without the consent of (i) at least 66- 2/3% of the Directors serving
on the Contracts Committee, and (ii) Class 1 Members holding not less than 66
2/3% of the outstanding Class 1 Interests entitled to vote on such matter
excluding (i) for so long as Motorola's representatives are not permitted to
serve on the Contracts Committee, any such Interests held by Motorola and its
Affiliates, (ii) for so long as Lockheed Martin's representatives are not
permitted to serve on the Contracts Committee, any such Interests held by
Lockheed Martin and its Affiliates and (iii) for so long as Raytheon's
representatives are not permitted to serve on the Contracts Committee, any such
Interests held by Raytheon and its Affiliates.
(d) Amendments Affecting One or More Classes. Notwithstanding the
provisions of Section 11.01(a), Section 4.04(a), Section 4.05(e) and the
provisions of any other series of Class 2 Interests relating to voting rights
and of this Section 11.01(d), the holders of the outstanding Interests of a
class shall be entitled to vote as a class upon a proposed amendment to this
Agreement, whether or not entitled to vote thereon by any other provision of
this Agreement, if the amendment would increase or decrease the aggregate
number of authorized Interests of such class, or alter or change the powers,
preferences, or special rights of the Interests of such class so as to affect
them adversely. If any proposed amendment would alter or change the powers,
preferences, or special rights of one or more series of any class so as to
affect them adversely, but shall not so affect the entire class, then only the
Interests of the series so affected by the amendment shall be considered a
separate class for purposes of this Section 11.01(d). The number of authorized
Interests in any such class or classes may be increased or decreased (but not
below the number of Interests thereof then outstanding) by the affirmative vote
of the holders of a majority of the Interests entitled to vote irrespective of
this subsection, if so provided by this Agreement or a Certificate of
Designations adopted pursuant to this Agreement.
(e) Amendments Affecting Capital Contributions and Reserve Capital
Call. Notwithstanding the provisions of Section 11.01(a), the provisions of
Sections 3.02, 3.03, 4.02 and this Section 11.01(e) (and any definitions
related thereto) may be amended only with the consent of LLC and each party
whose rights and obligations thereunder are directly affected by such
amendment(s), except that the first and second proviso
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clauses to the first sentence of Section 4.02 may only be amended by the vote
of 85% of the entire Board of Directors.
(f) Amendments Affecting Appraisal Rights. Notwithstanding the
provisions of Section 11.01(a), no amendments to the provisions of Section
10.06 or this Section 11.01(f) may be made without the unanimous consent of the
Members.
(g) Amendments Affecting Gateway Rights Obligations. Notwithstanding
the provisions of Section 11.01(a), no amendments to the provisions of Section
8.01, other than Section 8.01(d), may be made without the consent of any party
whose rights and obligations thereunder are directly affected by such
amendment(s).
(h) Amendments Affecting the Purpose of LLC. Notwithstanding the
provisions of Section 11.01(a), Section 1.03 may be amended to permit LLC to
engage in a business other than as set forth in such section only with the
unanimous consent of the Board of Directors.
(i) Amendments Affecting Indemnification. Notwithstanding the
provisions of Section 11.01(a), the provisions of Section 1.07 shall be deemed
a contract between LLC and each director or officer who serves in any such
capacity at any time while such Section 1.07 and the relevant provisions of the
Delaware Act or other applicable law are in effect, and any repeal or
modification of Section 1.07 or any change in the Delaware Act shall not affect
any rights or obligations then existing with respect to any state of facts or
proceeding then exisiting.
(j) Amendments to Annexes by Secretary. The secretary of LLC is
permitted to amend the annexes to this Agreement to reflect changes in the
information contained therein without obtaining a separate consent of the Class
1 Members.
Section 11.02 Governing Law; Severability
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED 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. In particular, it shall be
construed to the maximum extent possible to comply with all of the terms and
conditions of the Delaware Act. If, nevertheless, it shall be determined by a
court of competent jurisdiction that any provision or wording of this Agreement
shall be invalid or unenforceable under said Act or other 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 11.03 Remedies
(a) Remedies Available. If any entity fails to pay any of the
amounts required to be paid pursuant to Section 4.02 for the purchase of
Interests, LLC shall deliver a written notice to such entity specifying the
amount owed by the entity. If such entity fails to pay all of such amount
within 30 days of the date of such written notice, such entity shall be deemed
to be in default under this Agreement and a "Defaulting Party" and LLC may, in
its sole and absolute discretion, elect to pursue one or more of the following
alternative remedies against such Defaulting Party:
(i) Revoke all of the Defaulting Party's rights under this
Agreement and, under any Gateway Authorization Agreement to which it
is a party, and redeem the Defaulting Party's Class 1 Interests for an
amount equal to $100 per Interest. The Interests that are redeemable
under this Section 11.03(a)(i)
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are hereinafter referred to as the "Default Interests". The
redemption contemplated hereby may be effected whether or not the
Default Interests are then redeemable according to their terms.
(ii) Set-off any cash or property otherwise distributable to
the Defaulting Party by LLC against all amounts due from the
Defaulting Party to LLC and treat such defaulted amounts as a demand
loan from LLC to the Defaulting Party bearing interest compounded
annually, from the date of default until paid in full at a fluctuating
rate determined on the date of default and quarterly thereafter equal
to (A) the three-month LIBOR rate in effect from time to time plus (B)
200 basis points.
(iii) Offer Default Interests theretofore purchased or
otherwise acquired by the Defaulting Party to the Members (other than
the Defaulting Party) pro rata (which, for this purpose shall be
determined on the basis of the Liquidation Preference of the
outstanding Series A Class 2 Interests and any Series A Class 2
Interests issued as dividends, the Liquidation Value of any
outstanding Series M Class 2 Interests, the liquidation preference of
any other outstanding Class 2 Interests, the Accreted Value of the
outstanding Notes (Warrants will be disregarded for this purpose) and
the purchase price of outstanding Class 1 Interests). The other
Members may purchase the Defaulting Party's Default Inter ests for an
amount equal to the lower of the original cost or fair market value
(as of the date of default) of the Defaulting Party's Default
Interests (other than Underlying Class 1 Interests) and the fair
market value of Underlying Class 1 Interests included in the Default
Interests.
(iv) Recover damages resulting from such default and pursue
any other right or remedy of LLC. Each party to this Agreement
acknowledges that such damages may include (A) interest and loan fees
on funds borrowed on account of such default, (B) LLC expenses
(including fees and expenses of counsel) relating to its efforts (I)
to exercise its rights and remedies upon such default, (II) to offer
and sell such Defaulting Party's Default Interests to Members or any
third party, or (III) to amend this Agreement, and (C) profits which
may be lost or liability which may be incurred by LLC if, by reason of
such default, LLC is unable to meet its contractual payment
obligations or satisfy its other commitments, including, without
limitation, its commitments under the Space System Contact, the O&M
Contract and the Terrestrial Network Development Contract.
(b) Notice of Default and Remedies. LLC shall deliver written
notice to the Members of the existence of a default which notice shall also
specify the remedy or remedies LLC is pursuing or intends to pursue as a result
of such default.
(c) Appropriateness of Remedies. Each party to this Agreement
acknowledges that the failure of any such party to perform its obligations
hereunder (including in particular the failure of such party to pay any of the
amounts required to be paid pursuant to Section 4.02) will result in
substantial damages to LLC and each of the Members. Each such party further
acknowledges the actual damages incurred in the event of any such failure would
be extremely impractical or impossible to determine and that the remedies set
forth in this Section 11.03 do not constitute a penalty; they reflect a good
faith and reasonable attempt to estimate the actual damages which would be
incurred due to any such failure.
(d) Performance Prohibited. Notwithstanding any provision in this
Agreement to the contrary, in the event that a party to this Agreement (or an
Indirect Owner) is prohibited under any law, rule, regulation, finding or order
of any Government from owning Interests in LLC or otherwise performing its
obligations hereunder (or under an Agreement of Indirect Owner) and such party
(or Indirect Owner) has used its good faith reasonable efforts to seek to own
interests in LLC and to perform its obligations hereunder in a manner that is
not so prohibited and to seek to appeal any finding or order for which an
appeal can be made, then LLC shall not exercise any of the remedies described
in this Section 11.03 until at least nine months shall have passed during which
LLC shall use its reasonable efforts to work with such party to find a Person
to purchase the Interests to be purchased under Section 4.02 and assume such
party's obligations hereunder (and, if applicable, such party's Indirect
Owner's obligations under the Agreement of Indirect Owner entered into by such
Indirect Owner). LLC, however, shall have no obligation to use such efforts and
shall have the right to
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exercise such remedies immediately if such party (or such Party's Indirect
Owner) fails to cooperate in good faith with LLC in such efforts.
Section 11.04 Jurisdiction and Service of Process; Arbitration
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. The party 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 LLC (the "Process Agent") and the party 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 LLC. If the party
is a Government, it hereby 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 the event the foregoing provisions of this Section
11.04 are for any reason unenforceable or otherwise do not permit a party
hereto to become subject to the jurisdiction of the courts contemplated hereby,
then in the event any dispute arises in connection with the interpretation or
implementation of this Agreement which the parties are unable to resolve within
60 days, (a) any party may submit the dispute for arbitration in Stockholm,
Sweden in accordance with the Rules of the Arbitration Institute of the
Stockholm Chamber of Commerce with instructions that the arbitration be
conducted in the English language; (b) the arbitration award shall be final and
binding on the parties and shall be enforced in accordance with its terms; and
(c) the arbitration fee shall be borne by the party as designated by the
arbitration award. In the course of such arbitration, this Agreement shall be
continuously performed except with respect to the part hereof which is the
subject of, or which is directly and substantially affected by, the
arbitration. In any such arbitration proceeding, any legal proceeding to
enforce any arbitration award and any other legal action between or among the
parties hereto pursuant to or relating to this Agreement or the transactions
contemplated hereby, each party expressly waives the defense of sovereign
immunity and any other defense based on the fact or allegation that it is an
agency or instrumentality of a sovereign state. Any award of the arbitrators
shall be enforceable by any court having jurisdiction over the party against
which the award has been rendered and such award shall be enforceable in
accordance with the United Nations Convention on the Reciprocal Enforcement of
Arbitral Awards (1958).
Section 11.05 Power of Attorney and
Other Authorizations
Each party does hereby constitute and appoint any vice president of
LLC and the secretary of LLC as the true and lawful representative and
attorney-in-fact of such party, in the name, place and stead of such party,
with full power of substitution, to make, execute, sign and file a Certificate
of Formation, any amendment thereof and such other instruments, documents and
certificates which may from time to time be required by the laws of the United
States of America, the State of Delaware or any other state or country in which
LLC shall determine to do business or any political subdivision or agency
thereof, to effectuate, implement and continue
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the valid and subsisting existence or qualification to do business of LLC or in
connection with any tax returns, filings or related matters.
Such representative and attorney-in-fact shall not, however, have any
right, power or authority to amend or modify this Agreement when acting in such
capacities.
The power of attorney granted hereby is coupled with an interest and
shall survive and not be affected by the subsequent dissolution, incapacity or
disability of such Member.
Each Director is hereby deemed to be an authorized person within the
meaning of the Delaware Act; the execution, delivery and filing of the
Certificate of Formation of LLC by LLC is hereby authorized, approved and
ratified; and the Directors are hereby authorized to execute, deliver and file
any amendment to and restatements of the Certificate of Formation of LLC that
are required or permitted by the Delaware Act and any and all certificates or
documents required by the Delaware Act.
Section 11.06 Actions of Members
Except as otherwise stated in this Agreement or as required by law,
any act of a party hereto that may be or is required to be taken under either
this Agreement or the Delaware Act may be taken by their respective duly
authorized officers.
Section 11.07 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 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 shall have furnished in writing to any
Member and (b) if to any Member, at the address indicated on Exhibit B or at
such other address as the Member shall have furnished in writing to the
Company. All such notices and other communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; five business
days after being deposited with a reputable express courier service (charges
prepaid); seven business days after being deposited in the mail, postage
prepaid, if delivered by mail; and when receipt acknowledged (by a facsimile
machine or otherwise), if telecopied.
Section 11.08 Counterparts
This Agreement may be executed in any number of counterparts and by
different parties to this Agreement in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
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<PAGE> 65
ARTICLE XII
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the following
meanings:
"Accreted Value" means, (a) as of any date of determination prior to
the date on which a Note first bears or accrues interest, the sum of (i) the
initial offering price of such Note and (ii) the portion of the excess of the
principal amount of such Note over such initial offering price which shall have
been accreted thereon through such date, such amount to be so accreted on a
daily basis at the rate of 14 1/2% per annum of the initial offering price of
such Note, compounded semi-annually on each March 1 and September 1 from the
date of issuance of such Note through the date of determination or (b) as of
any date of determination on or after the date on which such Note first bears
or accrues interest, 100% of the principal amount at maturity of such Note.
"Affiliate" means any person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
"Affiliated Purchasers" means The Inamori Foundation and VEBA Telecom
Verwaltungsgesellschaft mbH.
"Agreement" means this Limited Liability Company Agreement as it may
be amended, restated or supplemented from time to time.
"Agreement of Indirect Owner" means an Agreement of Indirect Owner
executed and delivered by an Indirect Owner in connection with a Stock Purchase
Agreement, as amended on the date of this Agreement.
"Agreement Regarding Guarantee" means any agreement entered into by
LLC and a Guarantor on or prior to October 16, 1996 providing a Guarantee of
debt incurred by LLC under a bank credit facility.
"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.
"Certificates" means (a) with respect to an Interest, the certificate
therefor in fully registered definitive form, (b) with respect to a Note, a
note in fully registered definitive form, without coupons, in denominations of
$1,000 or any integral multiple thereof, (c) with respect to Warrants, a
warrant certificate in fully registered definitive form, and (d) with respect
to any other interests in or securities of LLC, such instruments as the Board
of Directors may authorize.
"Class 1 Interests" means Interests in LLC which represent common
limited liability company interests in LLC and are described in this Agreement.
"Class 1 Interests Deemed Outstanding" means, at any given time, the
number of Class 1 Interests actually outstanding at such time, plus the number
of Class 1 Interests for which LLC has received written commitments to
purchase, regardless of whether there are any unfulfilled conditions to any
such commitments.
"Class 1 Member" means a Member that owns one or more Class 1
Interests.
"Class 2 Interests" means Interests which are represented by Series M
Class 2 Interests, Series A Class 2 Interests or any other preferred limited
liability company interests in LLC and are described in, or issued pursuant to,
this Agreement.
"Class 2 Member" means a Series M Class 2 Interest Member, a Series A
Class 2 Member or a holder of any other Class 2 Interests of LLC.
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<PAGE> 66
"Closing Price" means, for each Business Day, the last reported sale
price regular way on the principal national securities exchange on which the
Class 1 Interests are listed or admitted for trading, or, if the Class 1
Interests are not so listed or admitted for trading on a national securities
exchange, on the NASDAQ National Market System or, if the Class 1 Interests are
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 LLC for that purpose
or, if the Class 1 Interests are not traded in the over-the-counter market, the
Fair Market Value per Class 1 Interest as determined by the Board of Directors
(whose determination shall be conclusive).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Director" means any person authorized to act as a director of LLC
pursuant to Section 1.05.
"Eligible Transferee" means a Person who was a party to a Stock
Purchase Agreement with Iridium, Inc. on February 16, 1996 or an Affiliate of
such a Person.
"Fair Market Value" means, with respect to any Interest, asset or
property, the sale value that would be obtained in an arm's-length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy.
"FCC" means the United States Federal Communication Commission, or any
entity or body succeeding to the functions of the Federal Communications
Commission.
"First Round Stock Purchase Agreement" means a Stock Purchase
Agreement other than the 1994 Stock Purchase Agreement and the 1996 Securities
Purchase Agreement.
"Gateway" means a terrestrial interconnection point between the
IRIDIUM satellite constellation and a public switched telephone network.
"Gateway Authorization Agreement" means a written, executed agreement
between a Person and LLC pursuant to which such Person is authorized to operate
a Gateway for the IRIDIUM system.
"Gateway Equipment Purchase Agreement" means any one of those
agreements entered into by Motorola on the one hand and a Gateway Service
Territory Operator on the other pursuant to which Motorola agrees to provide
equipment to such Gateway Service Territory Operator.
"Gateway Service Territory" means a territory allocated to a Member on
the Gateway Service Territory Allocation Schedule attached hereto as Annex E.
"Government" means any nation or government, any state or other
political subdivision thereof, any ministry thereof, any wholly-owned Person
thereof, and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to government.
"Guarantee" means a guarantee of LLC's debt made pursuant to an
Agreement to Provide Guarantee.
"Guarantee Agreement" means the agreement between a Guarantor and a
lender to LLC, entered into pursuant to an Agreement to Provide Guarantee,
providing a Guarantee.
"Guarantor" means any entity providing a Guarantee.
"Home Gateway Country" means the country within a Gateway Service
Territory that constitutes a Member's principal place of business on the date
of this Agreement or as otherwise designated in writing
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<PAGE> 67
(which designation shall be irrevocable) by such Member to the Board of
Directors prior to the commencement of construction of the first Gateway by
such Member pursuant to the Gateway Authorization Agreement between LLC and
such Member.
"IL&FS Stock Purchase Agreement" means the Supplemental 1994 Stock
Purchase Agreement dated as of September 15, 1994 between LLC and
Infrastructure Leasing & Financing Services.
"Independent Appraiser" means a Person mutually acceptable to the
Member which is to be compensated pursuant to Section 8.01(c)(ii) and at least
66 2/3% of the members of the Board of Directors, which has been retained to
make the compensation determinations referred to in Section 8.01(c)(ii), as
applicable. If such Member and the Board of Directors are unable to mutually
agree upon such a Person within 30 days after the obligation arises to submit
the determination of such compensation to an Independent Appraiser, each of such
Member and the Board of Directors shall select a Person of recognized
international standing with the ability to make such a determination. The two
Persons so selected shall then select a third Person of such standing who shall
act as the Independent Appraiser and such Member and LLC shall be bound by the
determination of such third Person. In the event that such two Persons are
unable to select a third Person, each of such two Persons shall select two other
Persons of such standing and one of the four Persons so selected shall be
selected by lot to become the Independent Appraiser.
"Indirect Owner" means each Person, if any, that has executed an
Agreement of Indirect Owner.
"Initial Series A Dividend Period" means the dividend period
commencing on and including the Original Issue Date and ending on and including
the day immediately preceding the next subsequent Series A Dividend Payment
Date.
"Interests" means Class 1 Interests and Class 2 Interests.
"Iridium Bermuda" means Iridium Limited, a Bermuda corporation and any
successor toall or substantially all of its assets.
"Iridium Bermuda Change of Control" means an event or series of events
not approved either by Members owning a majority of the Class 1 Member-ship
Interests or by a majority of the Board of Directors of LLC, at a time when
Iridium Bermuda owns Class 1 Membership Interests representing less than 50% of
the outstanding Class 1 Membership 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 United States Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than LLC 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
Iridium Bermuda's outstanding common stock (or equivalent securities), (b)
Iridium Bermuda consolidates with or merges into another coporation or conveys,
transfers or leases all or substantially all of its assets to any person, or
any corporation consolidates with or merges into Iridium Bermuda, in either
event pursuant to a transaction in which Iridium Bermuda's outstanding common
stock is changed into or exchanged for cash, securities or other property,
other than any transaction (i) between Iridium Bermuda and either LLC, an
affiliate of LLC or a wholly-owned subsidiary of LLC, or (ii) after which the
shareholders who beneficially owned Iridium Bermuda'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 board of directors of Iridium Bermuda (together with any new
directors whose election by the board of directors of Iridium Bermuda or whose
nomination for election was approved by a vote of 66 2/3% of the members of the
board of directors of Iridium Bermuda 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 board of directors of Iridium Bermuda then in office.
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<PAGE> 68
"Iridium Bermuda Reduction in Interest" means the sale or other
disposition by Iridium Bermuda of Class 1 Membership Interests which results in
a reduction of the ownership interest of Iridium Bermuda from five percent or
more of the total outstanding Class 1 Membership Interests to below such
percent.
"Iridium Bermuda Special Rights Period" means the period commencing on
the first date on which Iridium Bermuda's Class 1 Membership Interests
represent five percent or more of the total outstanding Class 1 Membership
Interests and ending on the date of delivery by LLC of an Iridium Bermuda
Termination Notice.
"Iridium Bermuda Special Rights Termination Event" means the
occurrence of an Iridium Bermuda Change of Control or an Iridium Bermuda
Reduction in Interest.
"Iridium Bermuda Termination Notice" means a written notice from LLC
to Iridium Bermuda following an Iridium Bermuda Special Rights Termination
Event.
"ISC Stock Purchase Agreement" means the Supplemental Offering Stock
Purchase Agreement dated as of September 19, 1994 between LLC and Iridium
SudAmerica Corporation.
"Junior Interests (Series A)" means any Interests in LLC the terms of
which do not expressly provide that such Interests rank senior to or on a
parity with Series A Class 2 Interests as to dividends and distributions upon
liquidation, dissolution and winding-up of LLC.
"Junior Interests (Series M)" means any Interests in LLC other than
the Series M Class 2 Interests.
"KMTC Stock Purchase Agreement" means the Supplemental Offering Stock
Purchase Agreement dated as of September 19, 1994 between LLC and Korean Mobile
Telecommunications Corporation.
"Liquidation Value" of any Series M Class 2 Interest as of any
particular date shall be equal to $1,000.
"LLC" means Iridium LLC, a limited liability company organized under
the laws of the State of Delaware, and when used with respect to actions,
events or circumstances occurring or existing prior to July 29, 1996 means
Iridium, Inc., a corporation organized under the laws of the State of Delaware.
"Member" means any Person that holds an Interest in the Company and is
admitted as a member of LLC pursuant to the provisions of this Agreement, in
its capacity as a member of LLC. For purposes of the Delaware Act, the Class 1
Members and the Class 2 Members shall constitute separate classes or groups of
Members.
"1993 Stock Purchase Agreement" means the Stock Purchase Agreement,
dated as of July 26, 1993, between Iridium, Inc. and 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,
Sprint Corporation, Pacific Electric Wire & Cable Co., Ltd., STET -- Societa
Finanziaria Telefonica per Azioni, and Thai Satellite Telecommunications Co.,
Ltd.
"1994 Stock Purchase Agreement" means the 1994 Stock Purchase
Agreement, dated as of August 15, 1994, between Iridium, Inc. and 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.
"1996 Securities Purchase Agreement" means the Securities Purchase
Agreement, dated as of February 16, 1996, between Iridium, Inc., BCE Mobile
Communications, Inc., The Inamori Foundation, Iridium
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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.
"Notes" means LLC's 14 1/2% Senior Subordinated Notes due 2006 having
the terms and provisions set forth in Exhibit 1B hereto. Such term shall also
include the 14 1/2% Senior Subordinated Notes due 2006 of Iridium, Inc. which,
by virtue of Section 9.02 have been amended to become Notes of LLC having terms
identical to those specified in Exhibit 1B.
"Officer" means persons designated as such pursuant to Section 2.05.
"O&M Contract" means the Operations and Maintenance Contract between
LLC and Motorola effective July 29, 1993, as amended from time to time.
"Original Issue Date" means the date on which each particular share of
Series A Convertible Preferred Stock which was converted into a Series A Class
2 Interest pursuant to the LLC Merger was first issued by Iridium, Inc.
"Original Series A Liquidation Preference" means U.S. $1,000 per
Series A Class 2 Interest.
"Parity Interests (Series A)" means any series of Class 2 Interests
(other than Series M Class 2 Interests), the terms of which expressly provide
that it ranks on a parity with the Series A Class 2 Interests as to dividends
and distributions upon the liquidation, dissolution and winding-up of LLC.
"Person" shall mean 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.
"Private Placement Memorandum" means any of LLC's Private Placement
Memoranda used in connection with an offering of securities of LLC, including
the exhibits and annexes thereto, as amended and supplemented.
"Public Offering" means any offering by LLC directly or indirectly of
its Interests to the public pursuant to an effective registration statement
under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar United States federal statute then in force.
"Quarterly Series A Dividend Period" means the quarterly period
commencing on and including a Series A Dividend Payment Date and ending on and
including the day immediately preceding the next subsequent Series A Dividend
Payment Date.
"Right" means a warrant, right, call or option or security exercisable
for or convertible into an interest or security.
"Senior Interests (Series A)" means the Series M Class 2 Interests and
any other series of Class 2 Interests the terms of which expressly provide that
it ranks senior to the Series A Class 2 Interests as to dividends and
distributions upon the liquidation, dissolution and winding-up of LLC.
"Series A Class 2 Member" means a Member which holds one or more
Series A Class 2 Interests.
"Series A Class 2 Interests" means the Interests which represent
preferred limited liability company interests in LLC and are described in this
Agreement.
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"Series A Dividend Payment Date" means each March 1, June 1, September
1 and December 1 of each year on which dividends shall be paid or are payable,
any Series A Redemption Date and any other date on which dividends in arrears
may be paid.
"Series A Dividend Period" means the Initial Series A Dividend Period
and, thereafter, each Quarterly Series A Dividend Period.
"Series A Dividend Record Date" means, with respect to the dividend
payable on each Series A Dividend Payment Date, the close of business on the
fifteenth day immediately preceding such Series A Dividend Payment Date, or
such other record date as may be designated by the Board of Directors with
respect to the dividend payable on such Series A Dividend Payment Date;
provided, that such record date may not be more than 60 days or less than ten
days prior to such Series A Dividend Payment Date.
"Series A Liquidation Preference" means the Original Series A
Liquidation Preference, plus an amount equal to all accrued and unpaid
dividends from and after the Series A Dividend Payment Date on which such
dividends were to be paid. The Series A Liquidation Preference of a Series A
Class 2 Interests will increase by the amount of dividends that accrue on such
Interest on a Series A Dividend Payment Date and will decrease only to the
extent such dividends are actually paid, all as provided in Section 4.05(b)
hereof. Notwithstanding the foregoing, in determining the amount to be paid on
a Series A Redemption Date, Series A Liquidation Preference shall not be deemed
to include any dividends to the extent such dividends are to be paid on such
date in accordance with the requirements of this Agreement.
"Series M Class 2 Member" means a Member which holds one or more
Series M Class 2 Interests.
"Series M Class 2 Interests" means the Interests which represent
preferred limited liability company interests in LLC and are described in this
Agreement.
"Service Provider" means any provider of IRIDIUM services to end
customers.
"Space System Contract" means the Space System Contract between LLC
and Motorola effective July 29, 1993, as amended from time to time.
"Stock Purchase Agreements" means the 1993 Stock Purchase Agreement,
the 1994 Stock Purchase Agreement, the 1996 Securities Purchase Agreement, the
VEBA Stock Purchase Agreement, the IL&FS Stock Purchase Agreement, the ISC
Stock Purchase Agreement, the KMTC Stock Purchase Agreement.
"Subsidiary" means any corporation or other entity of which the shares
of outstanding capital stock or other interests possessing the voting power
(under ordinary circumstances) in electing the board of directors are, at the
time as of which any determination is being made, owned by LLC either directly
or indirectly through Subsidiaries.
"Terrestrial Network Development Contract" means the Terrestrial
Network Development Contract between LLC and Motorola, effective January 1,
1993, as amended from time to time.
"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;
provided, that a lien arising with respect to Interests in connection with a
general lien on all or substantially all of the assets of the holder of
Interests shall not constitute a Transfer.
"Transfer Agent" means the transfer agent for the Series A Class 2
Interests. LLC will initially act as Transfer Agent.
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"Underlying Class 1 Interests" means Class 1 Interests into which, or
for which, rights to acquire Class 1 Interests may be converted or exercised.
"Unit" means the combination of a Note in a principal amount of $1,000
and one Warrant.
"VEBA Stock Purchase Agreement" means the Supplemental Offering Stock
Purchase Agreement dated as of August 31, 1994 between LLC and VEBA Telecom
GmbH.
"Warrants" means the Warrants, each entitling the holder to purchase
.13877 Class 1 Interests and having the rights and other terms and provisions
set forth in Exhibit 2b hereto. Such terms shall also include the Warrants of
Iridium, Inc. which, by virtue of Section 9.02 have been amended to become
Warrants of LLC having terms identical to those specified in Exhibit 2b.
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Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Additional Members" 7.01(a)
"Authorization Date" 6.01
"constituent entity" 4.05(f)
"Contract Committee" 2.03(g)
"Default Interests" 11.03(a)
"Defaulting Party" 11.03(a)
"Delaware Act" Preamble
"dividends" (a)
"Event of Noncompliance" 4.04(g)
"Fiscal Year" 1.04
"Former Member" 5.02
"Gateway Authorizations" 8.01(b)
"Loan Agreements" 4.02
"Guarantor Directors" 4.07(b)
"Iridium Brazil" 2.03(b)
"LLC Merger" Preamble
"Liquidating Dividends" 4.05(e)
"Loan Agreements" 4.02
"Lockheed Martin" 2.03(b)
"Mandatory Call" 4.02
"Members' Interest Register" 2.07(a)
"Merger Agreement" 10.01
"Minimum Dividend" (c)
"Motorola" 2.03(g)
"Motorola Sale Notice" 6.05
"Motorola Warrant" 4.01(c)
"non-electing interest" 4.05(f)
"Organic Change" 4.04(d)
"Other Class 1 Members" 6.05
"Other Guarantor Directors" 4.07(b)
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Other Holder" 6.01
"Payment Event" 4.07(b)
"proceeding" 2.08(a)
"Process Agent" 11.04
"Raytheon" 2.03(b)
"Rejection Notice" 6.02(a)
"Restricted Interests" 6.01
"Sale Notice" 6.01
"Series A Conversion Agent" 4.05(f)
"Series A Conversion Date" 4.05(f)
"Series A Conversion Price" 4.05(f)
"Series A Optional Redemption Price" 4.05(d)
"Series A Redemption Date" 4.05(d)
"Series A Redemption Notice" 4.05(d)
"Series B Directors" 4.06(b)
"Series C Directors" 4.07(b)
"Series M Conversion Price" 4.04(d)
"Series M Dividend Reference Date" 4.05(c)
"Series M Dividends 4.05(c)
"Surviving Business Entity" 10.02(b)
"Tax Matters Partner" 3.10
"Third Round Warrants" 4.01(c)
"Time of Cure" 4.07(b)
"Transferring Person" 6.01
</TABLE>
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as
of the day and year first above written.
MEMBERS
-------
BCE MOBILE COMMUNICATIONS, INC.
By: /s/Robert A. Ferchat
--------------------
Name:Robert A. Ferchat
Title: Chairman
IRIDIUM AFRICA CORPORATION
By: /s/George Medawar
-----------------
Name: George Medawar
Title: Managing Director
IRIDIUM ANDES CARIBE, LTD.
By: /s/Alberto Finol
----------------
Name: Alberto Finol
Title: Chairman
IRIDIUM BRASIL S/A
By: /s/Atilano de Oms Sobrinho
--------------------------
Name: Atilano de Oms Sobrinho
Title: President
IRIDIUM CANADA, INC.
By: /s/Robert Ferchat
-----------------
Name: Robert Ferchat
Title: Chairman
IRIDIUM CHINA (HONG KONG) LTD.
By: /s/Wang Mei Yue
---------------
Name: Wang Mei Yue
Title: Chairman & President
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<PAGE> 77
IRIDIUM MIDDLE EAST CORPORATION
By: /s/Hasan M Binladin
-------------------
Name: Hasan M. Binladin
Title: Board Member
IRIDIUM INDIA TELECOM LIMITED
By: /s/Jaydev H. Raja
-----------------
Name: Jaydey H. Raja
Title: Managing Director
IRIDIUM SUDAMERICA CORPORATION
By: /s/Alberto Finol
----------------
Name: Alberto Finol
Title: Chairman
KHRUNICHEV STATE RESEARCH AND
PRODUCTION SPACE CENTER
By: /s/A. Kiselev
----------------
Name: A. Kiselev
KOREA MOBILE TELECOMMUNICATIONS
CORPORATION
By: /s/Jung L. Mok
--------------
Name: Jung L. Mok
Title: Senior Managing Director
LOCKHEED MARTIN CORPORATION
By: /s/Lillian M. Trippett
----------------------
Name: Lillian M. Trippett
Title: Vice President & Secretary
MOTOROLA, INC.
By: /s/Edward Gams
--------------
Name: Edward Gams
Title: Vice President and Director
of Investor Relations
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<PAGE> 78
NIPPON IRIDIUM (BERMUDA) LIMITED
By: /s/Yoshiharu Yasuda
-------------------
Name: Yoshiharu Yasuda
Title: Vice President
PACIFIC ELECTRIC WIRE & CABLE CO., LTD.
By: /s/Jack T. Sun
--------------
Name: Jack T. Sun
Title: President
RAYTHEON COMPANY
By: /s/Jack R. Kelbe
----------------
Name: Jack R. Kelbe
Title: Manager Command, Control,
Communications & Surveillance
Systems, Raytheon Electronic
Systems Division
STET -- SOCIETA FINANZIARIA TELEFONICA PER
AZIONI
By: /s/Giuseppe Morganti
--------------------
Name: Giuseppe Morganti
Title: Co-Director Strategic Planning
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<PAGE> 79
SPRINT IRIDIUM, INC.
By: /s/Theodore H. Schell
---------------------
Name: Theodore H. Schell
Title: Vice President
THAI SATELLITE TELECOMMUNICATIONS CO.,
LTD.
By: /s/Sribhumi Sukhanetr
---------------------
Name: Dr. Sribhumi Sukhanetr
Title: Chairman
By: /s/Piyabutra Vasudhara
----------------------
Name: Piyabutra Vasudhara
Title: President
VEBACOM GMBH
By: /s/Ulf Bohla
------------
Name: Ulf Bohla
Title: Chairman
By: /s/H. Wilchens
--------------
Name: H. Wilchens
Title: Chief Financial Officer
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<PAGE> 80
OTHER PARTIES
- -----------------------------------
Solely for purposes of Sections
4.03, 6.02, 6.03, 6.04, 6.05, 6.06,
7.01(d), 9.02, 9.03 and Article X
THE INAMORI FOUNDATION
By: /s/Kazuo Inamori
-----------------------------------
Name: Kazuo Inamori
Title: President
VEBA TELECOM VERWALTUNGSGESELLSCHAFT MBH
By: /s/ Huppe By: /s/ Pohlig
----------------------------------- ----------------------
Name: Huppe Name: Pohlig
Title: Managing Director Title: Managing Director
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<PAGE> 81
OTHER PARTIES
- -------------------------------------------------------
Solely for purposes of Article VIII and Section 11.01(h)
NIPPON IRIDIUM CORPORATION
By: /s/Yoshiharu Yasuda
-----------------------------------
Name: Yoshiharu Yasuda
Title: President
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<PAGE> 82
ANNEX A
DIRECTORS
<TABLE>
<CAPTION>
DESIGNATING MEMBER DIRECTOR(S) ALTERNATE(S)
<S> <C> <C>
Selected by Directors in Robert W. Kinzie (Chairman)
accordance with Section 2.03
Edward F. Staiano
(Vice Chairman)
Iridium Africa Corporation George S. Medawar
Iridium Canada, Inc. Robert A. Ferchat Maurice Rompre
Iridium China (Hong Kong) Wang Mei Yue
Ltd.
Iridium India Telecom Limited S.H. Kahn
Iridium Middle East Hassan Binladin Basil Al-Rahim
Corporation
Iridium SudAmerica Alberto Finol Jose Manual Lopez-Ona
Corporation Atilano de Oms Sobrinho Donald W. Murden
Khrunichev State Research and Anatoli I. Kiselev
Production Space Center
Korea Mobile Jung L. Mok
Telecommunications
Corporation
Motorola, Inc. Gordon Comerford
Edward Gams
John F. Mitchell
Jack M. Scanlon
J. Michael Norris (Class B
Shares)
Nippon Iridium (Bermuda) Kazuo Inamori
Limited Yusai Okuyama
Yoshiharu Yasuda
Pacific Electric Wire & Cable Tao-Tsun Sun
Co., Ltd.
Raytheon Company and Lockheed Jack R. Kelble
Martin Corporation
Sprint Iridium, Inc. Theodore H. Schell C. Sue Love
STET--Societa Finanziaria Giuseppe Morganti
Telefonica per Azioni
Thai Satellite Sribhumi Sukhanetr
Telecommunications
Co., Ltd.
</TABLE>
A-1
<PAGE> 83
Vebacom Holdings, Inc. Ulf Bohla
Ludwig Hoffmann
A-2
<PAGE> 84
OFFICERS
<TABLE>
<S> <C> <C>
Edward F. Staiano - Chief Executive Officer
Jerrold D. Adams - President and Chief Operating Officer
Paul V. Daverio - Vice President, Chief Financial Officer and Treasurer
F. Thomas Tuttle - Vice President, General Counsel and Secretary of the Board
Bruce Dale - Vice President, Network Operations
Dale Hogg - Vice President, Human Resources
Mark Gercenstein - Vice President, Business Operations
Leo Mondale - Vice President, Marketing & Strategic Planning
Larry G. Rands - Vice President, Engineering
Francis J.P. Latapie - Vice President, Government Affairs
Robert N. Beury, Jr. - Deputy General Counsel and
Assistant Secretary
</TABLE>
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<PAGE> 85
ANNEX B
INTERESTS
<TABLE>
<CAPTION>
SERIES M SERIES A SERIES B SERIES C
CLASS 1 CONVERTIBLE CLASS 2 CLASS 2 CLASS 2
NAME AND BUSINESS ADDRESS INTERESTS CLASS 2 INTERESTS INTERESTS INTERESTS INTERESTS
------------------------- --------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BCE Mobile Communications, Inc. ............... -- -- 8,000 -- --
8501 Trans Canada Highway
ST - Laurent, Quebec
Canada
Iridium Africa Corporation..................... 40,000 -- -- -- --
c/o Mawarid Services (UK) Ltd.
Berkeley Square House, 6th Floor
Berkeley Square
London W1X 5PN England
Iridium Andes-Caribe........................... 2,000 -- -- -- --
Ed. Maploca II -- Piso 4
Av. Principal de Los Cortijos de Lourdes
Caracas, Venezuela
Iridium Brasil S/A............................. 2,523 -- -- -- --
CX. Postal 7060
80021 - Curitiba - PR -
Brazil
Iridium Canada, Inc. .......................... 70,000 -- -- -- --
c/o BCE Mobile
20 Carlson Court
Etobioke, Ontario
Canada M9W 6V4
Iridium China (Hong Kong) Ltd. 70,000 -- -- -- --
12/F Conic Investment Building
13 Hok Yuen Street
Hunghom, Kowloon, Hong Kong
</TABLE>
B-1
<PAGE> 86
<TABLE>
<CAPTION>
SERIES M SERIES A SERIES B SERIES C
CLASS 1 CONVERTIBLE CLASS 2 CLASS 2 CLASS 2
NAME AND BUSINESS ADDRESS INTERESTS CLASS 2 INTERESTS INTERESTS INTERESTS INTERESTS
------------------------- --------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Iridium Middle East Corporation.................. 80,000 -- -- -- --
c/o Carlyle International
1001 Pennsylvania Ave., N.W.
Washington, D.C. 20004
-or-
c/o Mawarid Services (UK) Ltd. .................
Berkeley Square House, 6th Floor
Berkeley Square
London W1X 5PN England
Iridium India Telecom Limited..................... 70,000 -- -- -- --
c/o Industrial Development Bank of India
IDBI Tower, Cuffe Parade
Bombay -- 400 005 India
Iridium SudAmerica Corporation.................... 140,000 -- -- -- --
Ed. Maploca II -- Piso 4
Av. Principal de Los Cortijos de Lourdes
Caracas, Venezuela
Khrunichev State Research and.....................
Production Space Center 70,000 -- 11,775 -- --
18, Novozavodskaja St.
Moscow 121309
Russian Federation
Korea Mobile Telecommunications Corporation....... 70,000 -- 11,775 -- --
6th Floor, Namsan Green Building 267
5-ga, Namdaemunno
Chung-gue, Seoul Korea
Lockheed Martin Corporation....................... 20,000 -- -- -- --
1111 Lockheed Way
ORGN 50-01, Bldg. 104
Sunnyvale, CA 94089
Motorola, Inc. ................................... 318,919 -- -- 1 75
1303 East Algonquin Rd.
Schaumburg, IL 60196
</TABLE>
B-2
<PAGE> 87
<TABLE>
<CAPTION>
SERIES M SERIES A SERIES B SERIES C
CLASS 1 CONVERTIBLE CLASS 2 CLASS 2 CLASS 2
NAME AND BUSINESS ADDRESS INTERESTS CLASS 2 INTERESTS INTERESTS INTERESTS INTERESTS
------------------------- --------- ----------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Nippon Iridium (Bermuda) Limited................... 210,000 -- -- -- --
c/o NIPPON IRIDIUM CORPORATION
Ichibancho FS Building 8
Ichibancho Chiyoda-ku
Tokyo 102 Japan
Pacific Electric Wire & Cable, Co., Ltd. .......... 70,000 -- -- -- --
4th Floor, Pacific Commercial Bldg.
285, Chung Hsiao East Road, Section 4
Taipei 106, Taiwan
Raytheon Company................................... 12,000 -- -- -- --
1001 Boston Post Road
Marlboro, MA 01752
STET--Societa Finanziaria Telefonica per Azioni.... 60,000 -- -- -- --
c/o Telecom Italia SpA
Via Flaminia 189
00196 Rome Italy
Sprint Iridium, Inc. .............................. 70,000 -- 11,775 -- --
2330 Shawnee Mission Parkway
Westwood, KS 66205
Thai Satellite Telecommunications Co., Ltd. ....... 70,000 -- -- -- --
c/o United Communication
Industry Co. Ltd.
20 Phahonyothin Rd.
Soi 11 Phayathai
Bangkok 10400, Thailand
VEBACOM Holdings, Inc. ............................ 165,705 -- -- -- --
c/o VEBACOM GmbH
Am Bonneshof 35
D-40474 Dusseldorf Germany
Totals..................................... 1,611,147 -- 43,325 -- --
</TABLE>
B-3
<PAGE> 88
ANNEX C
PURCHASER ACKNOWLEDGEMENTS AND AGREEMENTS
Purchaser Acknowledgments and Agreements. In
connection with the acquisition of Class 1 Interests, Class 2 Interests or
Units consisting of Notes and Warrants ("Offered Interests") under the Limited
Liability Company Agreement (the "Agreement") to which this Annex C is
attached, each purchaser (a "Purchaser", with respect to itself only,
acknowledges and agrees that:
(i) Such Purchaser (1) received and read a copy of
the Private Placement Memorandum issued in connection with the issuance of
such Offered Interests (including in particular the disclaimers set forth in
the forepart thereof and the disclosures set forth in or referred to under
the caption "RISK FACTORS" and, in the case of securities issued under
Section 4.03 of the Agreement, "Recent Developments"), (2) understands that
such Private Placement Memorandum did not contain all of the information
which may be of interest to a prospective investor and did not explain
completely the complexities of the technologies or the regulatory and
licensing considerations involved in the IRIDIUM system, (3) had an
opportunity to ask questions and receive answers concerning the IRIDIUM
system generally, the risks inherent in an investment in such Offered
Interests and the terms and conditions of the sale of such Offered Interests
and (4) had full access to such other information concerning the Company and
the IRIDIUM system as such Purchaser has requested.
(ii) Such Purchaser (1) received and read a copy of
the Space System Contract, the O&M Contract and the Terrestrial Network
Development Contract, (2) had full access to such other information
concerning the Space System Contract, the O&M Contract and the Terrestrial
Network Development Contract as such Purchaser requested, (3) understands
that LLC is bound by the provisions of the Space System Contract, the O&M
Contract and the Terrestrial Network Development Contract and hereby ratifies
LLC's execution of the Space System Contract, the O&M Contract and the
Terrestrial Network Development Contract and (4) agrees to the terms of the
Space System Contract, the O&M Contract and the Terrestrial Network
Development Contract and will not take any action in contravention of the
enforcement of, and LLC's full compliance with, the terms thereof.
(iii) Such Purchaser shall not transfer any of such
Offered Interests or Underlying Common Shares unless (1) such Transfer is
effected in accordance with the terms of the Agreement and (2)(x) such
Offered Interests and Underlying Common Shares are registered under the
United States Securities Act of 1933, as amended (the "1933 Act") and
applicable state securities laws in the United States or (y) the Transfer
does not violate any United States Federal or state securities laws or any of
the rules and regulations
C-1
<PAGE> 89
promulgated thereunder (collectively, the "U.S. Securities Laws") and the
request for Transfer is accompanied by an opinion of counsel satisfactory to
LLC that such Transfer is in accordance with the U.S. Securities Laws.
(iv) Such Offered Interests have not been registered
under the U.S. Securities Laws. Such securities are offered and sold in
reliance upon the exemptions from registration provided in Section 4(2) of
the 1933 Act and Regulation S under the 1933 Act and applicable exemptions
under state securities laws and neither LLC nor any Person acting on its
behalf has offered or sold such Offered Interests to such Purchaser by means
of any general solicitation or general advertising within the meaning of Rule
502(c) under the 1933 Act.
(v) Such Purchaser must bear the economic risk of an
investment in such Offered Interests for an indefinite period of time
because:
(A) there is presently no public market for any
interests in or securities of LLC and LLC
does not anticipate that any public market
for such interests or securities will develop
in the future, and
(B) such Offered Interests have not been
registered under any U.S. Securities Laws
and, therefore, cannot be sold in a
transaction subject to the jurisdiction of
any of the U.S. Securities Laws unless such
securities are subsequently registered (which
is unlikely to occur) under applicable U.S.
Securities Laws or an exemption from
registration under such laws is available.
(vi) LLC has the right to deny a Transfer of Offered
Interests and Underlying Common Shares as provided in the Agreement. If so
provided in the Agreement, the certificates representing such Offered
Interests and Underlying Common Shares purchased and to be purchased by such
Purchaser pursuant to the Agreement will be held by LLC until such time as
the purchase price for all of such Purchaser's Offered Interests has been
fully paid.
(vii) The certificates representing such Offered
Interests and Underlying Class 1 Interests will bear such legend or legends,
consistent with the terms of the Agreement, as LLC or its legal counsel deems
necessary or desirable.
(viii) No securities commission or similar authority
has approved or recommended an investment in such Offered Interests or
guaranteed or passed upon the fairness of the terms of the offering of such
Offered Interests, the safety of such Offered Interests as an investment, the
realization of any economic return from an investment of such Offered
Interests or the accuracy or
C-2
<PAGE> 90
adequacy of the disclosures set forth in the applicable Private Placement
Memorandum.
(ix) Such Purchaser will make any required filings
under the HSR Act and will comply with any requests for additional
information by the United States Federal Trade Commission or Department of
Justice pursuant to the HSR Act.
(x) LLC shall have the right to disclose to other
Persons the contents of the Agreement, including the identity of each Member
and its Indirect Owner(s), if any, the size of each Purchaser's commitment to
purchase Offered Interests and the scope of its Gateway Service Territory.
All capitalized terms which are not defined in this
Annex shall have the meanings ascribed thereto in the Agreement.
C-3
<PAGE> 91
ANNEX D
RESERVE CAPITAL CALL COMMITMENTS
<TABLE>
<CAPTION>
Class 1 Member(1) Capital Call Commitment
-------------- -----------------------
<S> <C>
Iridium Africa Corporation 10,000
Iridium Canada Inc. 10,000
Iridium China (Hong Kong) Ltd. 10,000
Iridium India Telecom Limited 10,000
Iridium Middle East Corporation 20,000
Iridium SudAmerica Corporation 20,000
Khrunichev State Research and Production 10,000
Space Center
Korea Mobile Telecommunications Corporation 10,000
Lockheed Martin Corporation 5,000
Motorola, Inc. 44,500
Nippon Iridium (Bermuda) Limited 30,000
Pacific Electric Wire & Cable Co., Ltd. 10,000
Raytheon 3,000
Sprint Iridium, Inc. 10,000
STET- Societa Finanziaria Telefonica 7,500
per Azioni
Thai Satellite Telecommunications 10,000
Co., Ltd.
Vebacom Holdings, Inc. 22,754
</TABLE>
- -----------------
(1) Members without Capital Call obligations are not listed.
D-1
<PAGE> 92
ANNEX E
GATEWAY SERVICE TERRITORY ALLOCATION SCHEDULE
<TABLE>
<S> <C> <C>
Iridium Africa Algeria Madagascar
Angola Malawi
Benin Mali
Botswana Mauritania
Burkina Faso Mozambique
Burundi Namibia
Cameroon Niger
Cape Verde Nigeria
Central African Reunion Island
Republic Rwanda
Chad Sao Tome and
Comoro Principe
Congo Senegal
Cote d'Ivoire Seychelles
Cyprus Sierra Leone
Djibouti Somalia
Equatorial Guinea South Africa
Ethiopia Sudan
Gabon Swaziland
Gambia Tanzania
Ghana Togo
Guinea Tunisia
Guinea-Bissau Turkey
Kenya Uganda
Lesotho Zaire
Liberia Zambia
Libya Zimbabwe
Iridium Canada Canada+
St. Pierre and
Miquelon+
Bermuda+
Puerto Rico+
United States+
Iridium China (Hong Kong) Ltd. China
Hong Kong
Macau
Mongolia
</TABLE>
E-1
<PAGE> 93
<TABLE>
<S> <C> <C>
Iridium India Telecom Limited Bangladesh
Bhutan
India
Maldives
Nepal
Sri Lanka
Iridium Middle East Corporation Afghanistan Morocco
Armenia Oman
Azerbaijan Pakistan
Bahrain Qatar
Egypt Saudi Arabia
Iran Syria
Iraq Tajikistan
Jordan Turkmenistan
Kuwait United Arab
Kyrgyzstan Emirates
Lebanon Yemen
Iridium SudAmerica Corporation Anguilla Martinique
Aruba Montserrat
Antigua and Netherlands Antilles
Barbuda (Bonaire Curacao,
Argentina St. Maarten and
Bahamas St. Eustatius)
Barbados Paraguay
Bolivia Peru
Brazil Saint Kitts and
Cayman Islands Nevis
Chile Saint Lucia
Colombia Saint Martin
Cuba Saint Vincent and
Dominica the Grenadines
Dominican Suriname
Republic Trinidad and
Ecquador Tobago
French Guiana Turks and Caicos
Grenada Islands
Guadaloupe Uruguay
Guyana Venezuela
Haiti Virgin Islands
Jamaica
</TABLE>
E-2
<PAGE> 94
<TABLE>
<S> <C> <C>
Khrunichev State Research and Belorussia Lithuania
Production Space Center Estonia Moldovia
Georgia Russian Federation
Kazakhstan Uzbekistan
Latvia
Korea Mobile Telecommunications North Korea
Corporation South Korea
Motorola, Inc. Belize Mexico
Canada+ Nicaragua
Costa Rica Panama
El Salvador Puerto Rico+
Bermuda+ St. Pierre and
Guatemala Miquelon+
Honduras United States+
NIPPON IRIDIUM Japan
CORPORATION
Pacific Electric Wire & Cable Brunei
Co., Ltd. Indonesia
Papua New
Guinea
Philippines
Taiwan
STET- Societa Finanziaria Belgium Liechtenstein
Telefonica per Azioni Bosnia and Luxembourg
Herzegovina Macedonia
Croatia Malta
Denmark Monaco
Faroe Islands Netherlands
France San Marino
Greece Slovenia
Holy See Switzerland
Italy Yugoslavia
Sprint Iridium, Inc. Canada+
St. Pierre and
Miquelon+
Bermuda+
Puerto Rico+
United States+
</TABLE>
E-3
<PAGE> 95
<TABLE>
<S> <C> <C>
Thai Satellite Telecommunications Cambodia
Co., Ltd. Laos
Malaysia
Myanmar
Singapore
Thailand
Vietnam
VEBACOM GmbH Albania Ireland
Andorra Israel
Austria Norway
Bulgaria Poland
Czech Republic Portugal
Finland Romania
Germany Gibraltar Spain
Greenland Sweden
Hungary Slovakia
Iceland Ukraine
United Kingdom
</TABLE>
+Some or all of these jurisdictions are expected to be shared by a North
American gateway consortium consisting of Iridium Canada, Inc., Motorola, Inc.
and Sprint Corporation.
Note: The South Pacific Territory, which consists of American Samoa,
Antarctica, Australia, Cook Islands, Fiji, French Polynesia, Kiribati, Marshall
Islands, Micronesia, Nauru, New Caledonia, New Zealand, Solomon Islands,
Tahiti, Tonga, Tuvalu, Vanuatu, Western Samoa, Wallis and Futuna, has not yet
been allocated
E-4
<PAGE> 96
EXHIBIT 1-A
Amendments to Outstanding Notes
FORM OF NOTE
THIS SECURITY MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM THOSE REGISTRATION
REQUIREMENTS. ACCORDINGLY, THE HOLDER OF THIS SECURITY SHALL NOT BE ENTITLED TO
TRANSFER THIS SECURITY AT ANY TIME UNLESS, AT THE TIME OF SUCH TRANSFER OR
EXERCISE, (I) A REGISTRATION STATEMENT UNDER THE ACT RELATING TO THIS SECURITY
HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC OR (II) THE TRANSFER OF THIS
SECURITY IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
TRANSFER OF THIS SECURITY IS ALSO RESTRICTED BY THE TERMS OF A LIMITED
LIABILITY COMPANY AGREEMENT OF IRIDIUM LLC, DATED AS OF JULY 1, 1996, BY AND
AMONG THE PARTIES NAMED THEREIN (THE " LLC AGREEMENT"). A COPY OF THE LLC
AGREEMENT IS ON FILE AND AVAILABLE FOR INSPECTION BY THE HOLDER OF THIS SECURITY
AT THE PRINCIPAL EXECUTIVE OFFICES OF IRIDIUM LLC.
IRIDIUM LLC
14 1/2% SENIOR SUBORDINATED DISCOUNT NOTE
DUE 2006
No. _________ $ _________
Iridium LLC, A LIMITED LIABILITY COMPANY duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person hereunder), for value received, hereby promises to pay to
_________________________, or registered assigns, the principal sum of
______________________ Dollars on ______________, 2006, and to pay interest
thereon from ___________, 2001 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on March 1 and
September 1 in each year, commencing September 1, 2001, at the rate of 14 1/2%
per annum, until the principal hereof is paid or made available for payment,
provided that any principal and premium, and any such instalment of interest,
which is overdue shall bear
1-A-1
<PAGE> 97
interest at the rate of 14 1/2% per annum (to the extent that the payment of
such interest shall be legally enforceable), from the dates such amounts are
due until they are paid or made available for payment, and such interest shall
be payable on demand.
Payment of the principal of (and premium, if any) and any such interest on
this Security will be made at the office or agency of the Company maintained
for that purpose in either the Borough of Manhattan, the City of New York or
Washington, D.C., in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
This Security is one of a duly authorized issue of 14 1/2% Senior
Subordinated Discount Notes due 2006 of the Company (herein called the
"Security"), issued and to be issued under instruments substantially identical
hereto and limited in aggregate principal amount to $ million.
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
"Accreted Value" means with respect to any Security, (i) as of any date of
determination prior to the date on which the Security first bears or accrues
interest, the sum of (a) the initial purchase price of each Security and (b)
the portion of the excess of the principal amount of each Security over such
initial purchase price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at the rate of 14 1/2% per
annum of the initial purchase price of such Security, compounded semi- annually
on each March 1 and September 1 from the date of issuance of such Security
through the date of determination or (ii) as of any date of determination on or
after the date on which the Security first bears or accrues interest, 100% of
the principal amount at maturity of each Security.
"Act", when used with respect to any Holder, has the meaning specified in
Section 102.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, (i) "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; (ii) the terms "controlling" and
"controlled" have meanings correlative to the foregoing; and (iii) a Person
shall be deemed to be controlled by any other Person which owns more than 15%
1-A-2
<PAGE> 98
of such Person's outstanding Common Stock or which has the right, contractually
or otherwise, to elect more than 15% of the members of such Person's board of
directors.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary or
an Assistant Secretary of the Company to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such certification.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by
law or executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participation or other equivalents (however designated) of corporate stock OR
SIMILAR EQUITY INTERESTS of such Person. IN THE CASE OF THE COMPANY, CAPITAL
STOCK INCLUDES CLASS 1 MEMBERSHIP INTERESTS AND CLASS 2 MEMBERSHIP INTERESTS.
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of
such Person, to shares of Capital Stock of any other class of such Person. IN
THE CASE OF THE COMPANY, "COMMON STOCK" MEANS THE CLASS 1 MEMBERSHIP INTERESTS.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Security, and thereafter "Company" shall mean
such successor Person.
"corporation" means a corporation, association, company, joint-stock company
or business trust.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations
1-A-3
<PAGE> 99
Incurred in connection with the acquisition of property, assets or businesses,
(iii) every reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) every obligation of such Person issued or assumed as the
deferred purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith), (v) every Capital
Lease Obligation of such Person, (vi) the maximum fixed redemption or
repurchase price of Disqualified Stock of such Person outstanding at the time
of determination, (vii) every obligation under Interest Rate Protection
Agreements or Currency Protection Agreements of such Person and (viii) every
obligation of the type referred to in clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has Guaranteed or is responsible or liable, directly or
indirectly, as obligor, Guarantor or otherwise. The term "Debt" shall not
include any obligations of the Company or any Restricted Subsidiary under the
Space System Contract, the Operations and Maintenance Contract or the
Terrestrial Network Development Contract.
"Defeasance" has the meaning specified in Section 302.
"Defeasance and Satisfaction Payments" has the meaning specified in Section
1002.
"Designated Senior Debt" means (i) all secured Senior Debt which is Incurred
pursuant to any agreement (or series of related agreements), (ii) any other
issue of Senior Debt which is Incurred pursuant to an agreement (or series of
related agreements) providing for indebtedness, or commitments to lend, of at
least $100 million and (iii) at any time that there is no Senior Debt that
falls within either clause (i) or (ii) above, any Senior Debt, in each case
which is specifically designated in the instrument evidencing such Senior Debt
or the agreement under which such Senior Debt arises as "Designated Senior
Debt" by the Company.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the
Securities.
"Event of Default" has the meaning specified in Section 501.
"Generally accepted accounting principles" means generally accepted
principles in the United States, which are applicable as of the date of
determination.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person, to
create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee
or otherwise
1-A-4
<PAGE> 100
become liable in respect of such Debt or other obligation or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
any such Debt or other obligation on the balance sheet of such Person (and
"Incurrence", "Incurred", "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing).
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Interest Rate Protection Agreement or Currency Protection Agreement" of any
Person means any interest rate protection agreement (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements),
and/or other types of interest hedging agreements designed to protect such
Person against fluctuations in interest rates and which have a notional amount
no greater than the payments due with respect to the Debt being hedged thereby,
and any currency protection agreement (including foreign exchange contracts,
currency swap agreements or other currency hedging arrangements) entered into
in the ordinary course of business.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Major Bank Financing" means an arrangement under which one or more
commercial banks or other institutional lenders extend or commit to extend
credit to the Company in an aggregate amount exceeding $1 billion.
"Maturity" means when used with respect to any Security, the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at Stated Maturity or the Redemption Date and whether by
declaration of acceleration, call for redemption or otherwise.
"Motorola" means Motorola, Inc., a Delaware corporation.
"Notice of Default" means a written notice of the kind specified in Section
501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company.
"Operations and Maintenance Contract" means the IRIDIUM System Operations and
Maintenance Contract between the Company and Motorola, dated as of July 29,
1993, as amended from time to time.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company.
"Outstanding Securities" means, as of the date of determination, all
Securities theretofore authenticated and delivered, except:
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<PAGE> 101
(1) Securities theretofore cancelled;
(2) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly given
pursuant to such Security or provision therefor has been made;
(3) Securities as to which Defeasance has been effected
pursuant to Section 302; and
(4) Securities which have been paid pursuant to Section 203
or in exchange for or in lieu of which other Securities have been
authenticated and delivered, other than any such Securities in respect of
which there shall have been presented to the Company proof satisfactory to it
that such Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of a Security which
shall be deemed to be Outstanding shall be the amount of the principal thereof
which would be due and payable as of such date upon acceleration of the
Maturity thereof to such date pursuant to Section 502 and (B) Securities owned
by the Company or any other obligor upon the Securities shall be disregarded
and deemed not to be Outstanding. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company. The Company will initially act as its own Paying Agent.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means either the Borough of Manhattan, the City of New
York or Washington, DC.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 203 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
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"Proceeding" has the meaning specified in Section 1002.
"Public Offering" means an underwritten public offering of Common Stock
which, if offered primarily in the United States, is registered under the
Securities Act of 1933, as amended.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Security.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Security.
"Refinancing" means any renewal, extension, refinancing or refunding of Debt
or Preferred Stock; and the terms "Refinance"and "Refinanced" shall have
meanings correlative to the foregoing.
"Security" means this Security.
"Securities" means the Security and all other Securities constituting one of
the Company's 14 1/2% Senior Subordinated Discount Notes due 2005.
"Security Register" has the meaning specified in Section 202.
"Securities Payment" has the meaning specified in Section 1002.
"Senior Debt" means the principal of, premium, if any, and interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding) on, or other
amount of, or fees, costs and expenses incurred in connection with, (i) Debt
for money borrowed of the Company, whether Incurred on or prior to March 1,
1996 or thereafter incurred, other than the Securities, (ii) Debt of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including Debt Incurred in connection with the acquisition of property, assets
or businesses, (iii) matured and unmatured reimbursement or other obligations
of the Company with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of the Company, (iv) obligations of
the Company under Interest Rate Protection Agreements or Currency Protection
Agreements, (v) Capital Lease Obligations of the Company, (vi) guarantees by
the Company of Debt for money borrowed and (vii) amendments, modifications and
Refinancings of any such Debt; provided, however, the following does not
constitute Senior Debt: (A) any Debt which by the terms of the instrument
creating or evidencing the same is not superior in right of payment to the
Securities, (B) any Debt which is represented by Disqualified Stock, (C) any
Debt of the Company owed to a Subsidiary, (D) any Debt which is subordinated in
right of payment in respect to any other Debt of the Company, or (E) any
obligations of the Company under the Space System Contract, the Operations and
Maintenance Contract or the Terrestrial Network Development Contract.
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"Space System Contract" means the IRIDIUM Space System Contract between the
Company and Motorola, dated as of July 29, 1993, as amended from time to time.
"Stated Maturity", when used with respect to any Debt or any instalment of
principal thereof or interest thereon, means the date specified in such Debt as
the fixed date on which the principal of such Debt or such instalment of
principal or interest is deemed payable.
"Subordinated Debt" means Debt of the Company that is subordinated in right of
payment to Securities.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and one or more other
Subsidiaries thereof, directly or indirectly, has at least a majority ownership
and power to direct the policies, management and affairs thereof.
"Terrestrial Network Development Contract" means the Terrestrial Network
Development Contract between the Company and Motorola, entered into in June
1995, as amended from time to time.
"U.S. Government Obligation" has the meaning specified in Section 303.
"Vice President", when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added
before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency with respect to the Company. With respect to the Company, Voting
Stock means the Company's Common Stock , and any OTHER class of Common Stock
having comparable voting rights on all matters other than the election of
directors
SECTION 102. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by the Securities to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such
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instrument or instruments are delivered to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by the Securities to be given, made or taken by
Holders of Securities, provided that the Company may not set a record date for,
and the provisions of this paragraph shall not apply with respect to, the
giving or making of any notice, declaration, request or direction referred to
in the next paragraph. With regard to any record date set pursuant to this
paragraph, the Holders of Outstanding Securities on such record date, and no
other Holders, shall be entitled to take the relevant action, whether or not
such Holders remain Holders after such record date; provided that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date (as defined below) by Holders of the requisite principal amount
of Outstanding Securities. Nothing in this paragraph shall be construed to
prevent the Company from setting a new record date for any action for which a
record date has previously been set pursuant to this paragraph (whereupon the
record date previously set shall automatically and with no action by any Person
be cancelled and of no effect), and nothing in this paragraph shall be
construed to render ineffective any action taken by Holders of the requisite
principal amount of Outstanding Securities on the date such action is taken.
Promptly after any record date is set pursuant to this paragraph, the Company,
at its own expense, shall cause notice of such record date, the proposed action
by Holders and the applicable Expiration Date to be given to each Holder of
Securities.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the Company in writing, and to each
Holder of Securities, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the party hereto which set such record date shall be deemed to
have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing,
no Expiration Date shall be later than the 180th day after the applicable
record date.
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SECTION 103. Notice to Holders; Waiver.
Where this Security provides for notice to Holders of any event, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder affected by
such event, at its address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the sufficiency of
such notice with respect to other Holders and any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given.
Where this Security provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Company, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 104. Effect of Headings.
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 105. Successors and Assigns.
All covenants and agreements in this Security by the Company shall bind its
successors and assigns, whether so expressed or not.
SECTION 106. Separability Clause.
In case any provision in this Security shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 107. Benefits of Security.
Nothing in this Security, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, the holders of Senior
Debt and the Holders, any benefit or any legal or equitable right, remedy or
claim under this Security.
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SECTION 108. Governing Law.
This Security shall be governed by and construed in accordance with the law
of the State of New York without regard to principles of conflict of laws.
SECTION 109. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Security) payment of interest
or principal (and premium, if any) need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date
or Redemption Date, or at the Stated Maturity, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, or Stated Maturity, as the case may be.
SECTION 110. No Recourse Against Others.
A director, officer, employee, consultant, contractor or MEMBER as such, of
the Company shall not have any liability for any obligations of the Company
under the Securities or for any claim based on, in respect of or by reason of
such obligations or their creation. Each Holder by accepting any of the
Securities waives and releases all such liability.
ARTICLE TWO
THE SECURITIES
SECTION 201. Denominations.
The Securities are issuable only in registered form without coupons and only
in integral multiples of $1,000.
SECTION 202. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept a register (the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of
Securities.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits, as the Securities surrendered upon
such registration of transfer or exchange.
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Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed, by the Holder thereof or his attorney duly authorized in
writing. The Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Securities.
If the Securities are to be redeemed in part, the Company shall not be
required (A) to issue, register the transfer of or exchange any Securities
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of any such Securities selected for
redemption and ending at the close of business on the day of such mailing, or
(B) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 203. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Company, the Company shall
execute and deliver in exchange therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding. If
there shall be delivered to the Company (i) evidence to its satisfaction of the
destruction, loss or theft of any Security and (ii) such security or indemnity
as it may require to save it harmless, then, in the absence of notice to the
Company that such Security has been acquired by a bona fide purchaser, the
Company shall execute, in lieu of any such destroyed, lost or stolen Security,
a new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding. In case any such mutilated, destroyed, lost or
stolen Security has become or is about to become due and payable, the Company
in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone. The provisions of
this Section are exclusive and shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION 204. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company and any agent of the Company may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and any
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premium and any interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
nor any agent of the Company shall be affected by notice to the contrary.
SECTION 205. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year of
twelve 30-day months.
ARTICLE THREE
DEFEASANCE
SECTION 301. Company's Option to Effect Defeasance.
The Company may elect, at its option at any time, to have Section 302 apply
to the Securities upon compliance with the conditions set forth below in this
Article.
SECTION 302. Defeasance and Discharge.
Upon the Company's exercise of its option to have this Section applied to the
Securities, the Company shall be deemed to have been discharged from any and
all of its obligations, and the provisions of Article Ten shall cease to be
effective, with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 303 are satisfied
(hereinafter called "Defeasance"). For this purpose, such Defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Securities and to have satisfied all its other obligations
under this Security, subject to the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of the Holder of
this Security to receive, solely from the trust fund described in Section 303
and as more fully set forth in such Section, payments in respect of the
principal of and any premium and interest on such Securities when payments are
due, (2) the Company's obligations with respect to such Securities under
Sections 202, 203, 802 and 803 and (3) this Article.
SECTION 303. Conditions to Defeasance.
The following shall be the conditions to the application of Section 302 to
the Securities:
(1) The Company shall irrevocably have deposited or
caused to be deposited in trust with a trustee (who shall agree to comply
with the provisions of this Article applicable to it) as trust funds for the
purpose of making the following payments,
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specifically pledged as security for, and dedicated solely to, the benefit of
the Holders of the Securities, (A) money in an amount, or (B) U.S. Government
Obligations which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later than
one day before the due date of any payment, money in an amount, or (C) a
combination thereof, in each case sufficient, in the opinion of a nationally
recognized firm of independent certified public accountants expressed in a
written certification thereof delivered to the Holders, to pay and discharge,
and which shall be applied by such trustee to pay and discharge, the
principal of (premium, if any) and each installment of interest, if any, on
the Securities on the respective Stated Maturities, in accordance with the
terms of this Security. As used herein, "U.S. Government Obligation" means
(x) any security which is (i) a direct obligation of the United States of
America for the payment of which the full faith and credit of the United
States of America is pledged or (ii) an obligation of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
(i) or (ii), is not callable or redeemable at the option of the issuer
thereof, and (y) any depositary receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with
respect to any U.S. Government Obligation which is specified in clause (x)
above and held by such bank for the account of the holder of such depositary
receipt, or with respect to any specific payment of principal of or interest
on any U.S. Government Obligation which is so specified and held, provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depositary receipt
from any amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by such
depositary receipt.
(2) In the event of an election to have Section 302 apply
to the Securities, the Company shall have delivered to the Holders an Opinion
of Counsel stating that (A) the Company has received from, or there has been
published by, the IRS a ruling or (B) since March 1, 1996, there has been a
change in the applicable Federal income tax law, in either case (A) or (B) to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit, Defeasance and discharge to be
effected with respect to the Securities and will be subject to Federal income
tax on the same amount, in the same manner and at the same times as would be
the case if such deposit, Defeasance and discharge were not to occur.
(3) At the time of such deposit, (A) no default in the
payment of any principal of or premium or interest on any Senior Debt shall
have occurred and be continuing, (B) no event of default with respect to any
Senior Debt shall have resulted in such Senior Debt becoming, and continuing
to be, due and payable prior to the date on which it would otherwise have
become due and payable (unless payment of such Senior Debt has been made or
duly provided for), and (C) no other event of default with respect to any
Senior Debt shall have occurred and be continuing permitting (after notice or
lapse of time or both) the holders of such Senior Debt (or a trustee on
behalf of such
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holders) to declare such Senior Debt due and payable prior to the date on
which it would otherwise have become due and payable.
(4) No event which is, or after notice or lapse of time
or both would become, an Event of Default shall have occurred and be
continuing at the time of such deposit or, with regard to any such event
specified in Sections 501(7) and (8), at any time on or prior to the 90th day
after the date of such deposit (it being understood that this condition shall
not be deemed satisfied until after such 90th day).
(5) Such Defeasance shall not result in a breach or
violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(6) Such Defeasance shall not result in the trust arising
from such deposit constituting an investment company within the meaning of
the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such act or exempt from registration thereunder.
(7) The Company shall have delivered to the Holders an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent with respect to such Defeasance have been complied with.
SECTION 304. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 803, all money and
U.S. Government Obligations (including the proceeds thereof) deposited with a
trustee (solely for purposes of this Section and Section 305, such trustee is
referred to as the "Trustee") pursuant to Section 303 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance
with the provisions of the Securities, to the payment, either directly or
through any such Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Holders of such Securities, of all
sums due and to become due thereon in respect of principal and any premium and
interest, but money so held in trust need not be segregated from other funds
except to the extent required by law. Money and U.S. Government Obligations so
held in trust shall not be subject to the provisions of Article Ten.
The Company shall pay and indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 303 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon the Company's request any
money or U.S.
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Government Obligations held by it as provided in Section 303 with respect to
any Securities which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance with respect to such
Securities.
SECTION 305. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in accordance
with this Article with respect to any Securities by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the obligations under this
Security from which the Company has been discharged or released pursuant to
Section 302 shall be revived and reinstated as though no deposit had occurred
pursuant to this Article with respect to such Securities, until such time as
the Trustee or Paying Agent is permitted to apply all money held in trust
pursuant to Section 304 with respect to such Securities in accordance with this
Article; provided, however, that if the Company makes any payment of principal
of or any premium or interest on any such Security following such reinstatement
of its obligations, the Company shall be subrogated to the rights (if any) of
the Holders of such Securities to receive such payment from the money so held
in trust.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge.
This Security shall, upon the written election by the Company, cease to be of
further effect (except as to any surviving rights of registration of transfer
or exchange of Securities herein expressly provided for), when:
(1) either (A) all Securities theretofore authenticated
and delivered (other than (i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as provided in Section 203 and
(ii) Securities for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust, as provided in Section 803) have
been cancelled; or (B) all such Securities not theretofore cancelled (i) have
become due and payable, or (ii) will become due and payable at their Stated
Maturity within one year, or (iii) are to be called for redemption within one
year under arrangements for the giving of notice of redemption in the name,
and at the expense, of the Company, and the Company, in the case of (i), (ii)
or (iii), has irrevocably deposited or caused to be deposited with a trustee,
as trust funds in trust for the purpose of such redemption, money in an
amount sufficient to pay and discharge the entire Debt on the
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Securities not theretofore cancelled, including principal of, premium, if
any, and accrued interest, if any, on such Securities at such Maturity,
Stated Maturity or Redemption Date;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Holder of this Security
an Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Security have been complied with and that such satisfaction
and discharge will not result in a breach or violation of, or constitute a
default under, this Security or any other material agreement to which the
Company or any Subsidiary is a party.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Ten or other subordination provisions
applicable to Securities or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure to pay principal of (or premium, if any, on) any
Security when due, continued for two Business Days; or
(2) failure to pay any interest on any Security when due,
continued for 30 days; or
(3) failure to perform any covenant or agreement of the
Company under this Security (other than a covenant or agreement a default in
whose performance or whose breach is elsewhere in this Section specifically
dealt with) and continuance of such default or breach for a period of 60 days
after there has been given notice to the Company by the Holders of at least
25% in aggregate principal amount of the Outstanding Securities written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder;
(4) default under the terms of any instrument evidencing or
securing Debt for money borrowed by the Company or any Subsidiary having an
outstanding principal amount of $10 million individually or in the aggregate
which default has resulted in the
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acceleration of the payment of the principal amount of such Debt or
constitutes the failure to pay the principal amount of such Debt when due;
(5) the rendering of a final judgment or judgments (not
subject to appeal) against the Company or any Subsidiary in an amount in
excess of $10 million which remains undischarged or unstayed for a period of
60 days after the date on which the right to appeal has expired;
(6) termination by Motorola of the Space System Contract
prior to delivery thereunder by Motorola of the Space System (as defined
therein), provided that such termination has not been contested by the
Company in accordance with the Space System Contract or by appropriate
proceedings and, if such termination is so contested, within 180 days of such
notice, such termination has not been withdrawn or declared ineffective by
any court or mediator having jurisdiction;
(7) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable Federal
or state bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Subsidiary a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Subsidiary under any applicable Federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Subsidiary or of any substantial part
of the property of the Company or any Subsidiary, or ordering the winding up
or liquidation of the affairs of the Company or any Subsidiary, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
(8) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the consent
by it to the entry of a decree or order for relief in respect of the Company
or any Subsidiary in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by it to the filing of such peti tion or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its
inability to pay its debts generally as they become due, or the taking of
FORMAL action by the Company or any Subsidiary in furtherance of any such
action.
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SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501(7) or 501(8)) occurs and is continuing, then in every such case the Holders
of not less than 25% in principal amount of the Outstanding Securities may
declare the Accreted Value of all the Securities to be due and payable
immediately, by a notice in writing to the Company, and upon any such
declaration such specified amount shall become immediately due and payable;
provided, however, that so long as any secured Senior Debt remains outstanding,
if any such Event of Default shall have occurred and be continuing, any such
acceleration shall not be effective until the earlier of (a) five Business Days
following a notice of acceleration given to the Company and to the holders of
the secured Senior Debt and only if upon such fifth Business Day such Event of
Default shall be continuing or (b) the acceleration of any secured Senior Debt.
If an Event of Default specified in Section 501(7) or 501(8) occurs, the
Accreted Value of all the Securities will ipso facto become immediately due and
payable without any declaration or other act on the part of any Holder.
At any time after such a declaration of acceleration has been made and before
a judgment or decree for payment of the money due has been obtained, the
Holders of a majority in principal amount of the Outstanding Securities, by
written notice to the Company, may rescind and annul such declaration and its
consequences if: (1) the Company has paid or deposited in trust a sum
sufficient to pay: (A) all overdue interest on all Securities, and (B) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate set forth in the first paragraph of this Security; and (2) all
Events of Default, other than the non-payment of the principal of Securities
which have become due solely by such declaration of acceleration, have been
cured or waived.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default in the
payment of the principal of (or premium, if any) or interest on any Security.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 504. Waiver of Usury, Stay or Extension Laws.
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The Company covenants (to the extent that it may lawfully do so) that it will
not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of its obligations under this Security; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Holder or Holders, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 505. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to rights created under the Securities
(other than any right to institute such a proceeding to enforce the Company's
obligation to pay principal (and premium, if any) and interest on such Holder's
Securities and such Holder's rights under Sections 202 and 203), or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have joined in such proceedings or consented to the
institution thereof.
ARTICLE SIX
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 601. Mergers, Consolidation and Certain Sales of Assets.
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or permit any
other Person (other than a Subsidiary) to consolidate with or merge into the
Company, (ii) directly or indirectly, transfer, sell, lease or otherwise
dispose of all or substantially all of its assets, (iii) permit any of its
Subsidiaries to enter into any transaction or transactions described in clause
(i) or (ii) above, if such transaction or transactions, in the aggregate, would
result in a sale, assignment, transfer, lease or disposal of all or
substantially all the properties and assets of the Company and its Subsidiaries
taken as a whole to any other Person or group of affiliated Persons, unless:
(1) in a transaction in which the Company does not survive or
in which the Company sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to the Company is
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by a written agreement all of the Company's obligations under this
Security; and
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(2) immediately before and after giving effect to such
transaction and treating any Debt which becomes a direct obligation of the
Company or a Subsidiary as a result of such transaction as having been
Incurred by the Company or such Subsidiary at the time of the transaction, no
Event of Default or event that with the passing of time or the giving of
notice, or both, would constitute an Event of Default shall have occurred and
be continuing.
SECTION 602. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any transfer, sale, lease or other disposition of all or
substantially all of the assets of the Company in accordance with Section 601,
the successor Person formed by such consolidation or into which the Company is
merged or to which such transfer, sale, lease or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Security with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Security.
ARTICLE SEVEN
AMENDMENTS
SECTION 701. Amendments With Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, the Company may amend the terms of the
Securities for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Securities or of modifying
in any manner the rights of the Holders of Securities; provided, however, that
no such amendment shall, without the consent of the Holder of each Outstanding
Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
instalment of interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable thereon, or
reduce the amount of the principal of a Security which would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 502, or change any Place of Payment where, or the coin or currency
in which, any Security or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment on
or after the Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date), or
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(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for any such
amendment, or the consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Security or certain defaults
hereunder and their consequences), or
(3) modify any of the provisions of this Section or Section
503 except to increase any such percentage or to provide that certain other
provisions of this Security cannot be modified or waived without the consent
of the Holder of each Outstanding Security affected thereby.
ARTICLE EIGHT
COVENANTS
SECTION 801. Payment of Principal, Premium and Interest.
The Company covenants and agrees that it will duly and punctually pay the
principal of (and premium, if any) and any interest on the Securities in
accordance with the terms of the Securities.
SECTION 802. Maintenance of Office or Agency.
The Company will maintain in either Place of Payment an office or agency
where Secu rities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company will give prompt written notice to the Holders of the location, and
any change in the location, of such office or agency.
The Company may also from time to time designate one or more other offices or
agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities for such purposes. The Company will give prompt written
notice to the Holders of any such designation or rescission and of any change
in the location of any such other office or agency.
SECTION 803. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of (and premium, if any) or any interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient
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to pay the principal (and premium, if any) and any interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as
herein provided.
Any money then held by the Company in trust for the payment of the principal
of (and premium, if any) or any interest on any Security and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall be discharged from such trust; and the Holder
of such Security shall thereafter, as an unsecured general creditor, look only
to the Company for payment thereof, and all liability of the Company as trustee
thereof, shall thereupon cease.
SECTION 804. Existence.
Subject to Article Six, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 805. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the
income, profits or property of the Company or any Subsidiary, and (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
ARTICLE NINE
REDEMPTION OF SECURITIES
SECTION 901. Optional Redemption.
The Securities are subject to redemption upon not less than 30 nor more than
60 days' notice mailed to each Holder of the Securities to be redeemed at his
or her address
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appearing in the Security Register, at any time on or after March 1, 2001, as a
whole or in part, at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If redeemed during
the 12-month period beginning March 1 of the years indicated,
<TABLE>
<CAPTION>
Redemption
Year Price
---- -------------
<S> <C>
2001 107.5%
2002 105.0%
2003 102.5%
2004 and thereafter 100.0%
</TABLE>
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date.
Notwithstanding the limitations on redemption in the preceding paragraph, in
the event that on or prior to March 1, 1999 the Company completes a Public
Offering of its Common Stock, up to one-third of the Outstanding Securities
will also be subject to redemption, at the option of the Company, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Securities to be
redeemed at his address appearing in the Security Register, in amounts of
$1,000 or any integral multiple thereof at a Redemption Price equal to 107.5%
of their Accreted Value. Notice of redemption will be mailed not later than 90
days after the date of consummation of the Public Offering. The aggregate
Redemption Price shall not exceed the gross proceeds to the Company in the
Public Offering.
Notwithstanding the limitations on redemption in the first paragraph of this
Section 901, in the event that the Company consummates a Major Bank Financing
on or prior to March 1, 2001, the Outstanding Securities will also be subject
to redemption in whole or in part, at the option of the Company, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Securities to be
redeemed at his address appearing in the Security Register, in amounts of
$1,000 or any integral multiple thereof at a Redemption Price equal to 107.5%
of their Accreted Value. Notice of redemption will be mailed not later than 90
days after the date of the initial extension of credit under the Major Bank
Financing.
SECTION 902. Selection of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular Securities
to be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Company,
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from all Holders pro rata on the basis of the aggregate principal amount of all
Outstanding Securities held by such Holders.
For all purposes of this Security, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case
of any Securities redeemed or to be redeemed only in part, to the portion of
the principal amount of such Securities which has been or is to be redeemed.
SECTION 903. Notice of Redemption.
Notice of redemption shall be given by the Company by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption of any
such Securities, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and, if
applicable, that interest thereon will cease to accrue on and after said
date, and
(5) the place or places where each such Security is to be
surrendered for payment of the Redemption Price.
SECTION 904. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with a Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust) an amount of money sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) any
applicable accrued interest on, all the Securities which are to be redeemed on
that date.
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SECTION 905. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price) such Securities
shall not bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with any applicable accrued interest to the
Redemption Date.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the first
paragraph of this Security.
SECTION 906. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company
duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute and deliver to the Holder of such
Security without service charge, a new Security or Securities of like tenor, as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 1001. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance hereof or thereof, likewise covenants and agrees that, to the extent
and in the manner hereinafter set forth in this Article (subject to the
provisions of Articles Three and Four), the payment of the principal of (and
premium, if any on) and any interest on the Securities, and any other
obligations of the Company in respect of the Securities are hereby expressly
made subordinate and subject in right of payment to the prior payment in full,
in cash or cash equivalents or in any other form acceptable to the holders of
Designated Senior Debt, of all Senior Debt that the subordination is for the
benefit of, and shall be enforceable directly by, the holders of Senior Debt,
and that each holder of Senior Debt, whether now outstanding or hereafter
created, Incurred or assumed shall be deemed to have acquired and continued to
hold, or shall have continued to hold, Senior Debt in reliance upon the
covenants and provisions contained in this Security.
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SECTION 1002. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relative to the Company or to its creditors, as such,
or to its assets, or (b) any liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event, if any, herein
sometimes referred to as a "Proceeding") the holders of Senior Debt will first
be entitled to receive payment in full, in cash or cash equivalents or in any
form acceptable to the holders of Designated Senior Debt, of all amounts due or
to become due thereon before the Holders of the Securities will be entitled to
receive any payment or distribution of any assets of the Company of any kind or
character, whether in cash, property or securities (including any payment or
distribution which may be payable or deliverable by reason of the payment of
any other Debt of the Company subordinated to the payment of the Securities,
such payment or distribution being hereinafter referred to as a "Junior
Subordinated Payment"), on account of the principal of, premium, if any, or
interest on such Securities and any other obligations in respect of such
Securities (including any obligation to repurchase such Securities, but
excluding any payments previously made pursuant to Article Three ("Defeasance
and Satisfaction Payments")) (all such payments, distributions, purchases and
acquisitions herein (other than payments and distributions of Permitted Junior
Interests as hereinafter defined) referred to, individually and collectively,
as a "Securities Payment").
In the event that, notwithstanding the foregoing provisions of this Section,
the Holder of any Security shall have received any Securities Payment before
all Senior Debt is paid in full or payment thereof provided for in cash or cash
equivalents or in any form acceptable to the holders of Designated Senior Debt,
then and in such event such Securities Payment shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay all Senior Debt in full, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Debt.
For purposes of this Article only, the words "any payment or distribution of
any assets of the Company of any kind or character, whether in cash, property
or securities" shall not be deemed to include a payment or distribution of
INTERESTS or securities of the Company provided for by a plan of reorganization
or readjustment authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy law
or of any other ENTITY OR corporation provided for by such plan of
reorganization or readjustment which stock or securities are subordinated in
right of payment to all then outstanding Senior Debt to substantially the same
extent as the Securities are so subordinated as provided in this Article (such
stock or subordinated securities are referred to herein as "Permitted Junior
Interests"). The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or
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<PAGE> 123
dissolution of the Company following the conveyance or transfer of all or
substantially all of its properties and assets as an entirety to another Person
upon the terms and conditions set forth in Article Six shall not be deemed a
Proceeding for the purposes of this Section if the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer such properties and assets as an entirety, as the
case may be, shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions set forth in Article Six.
SECTION 1003. No Payment When Senior Debt in Default.
In the event that any Senior Payment Default (as defined below) shall have
occurred and be continuing, then no Securities Payment may be made unless and
until such Senior Payment Default shall have been cured or waived or shall have
ceased to exist or the Designated Senior Debt that is the subject of such
Senior Payment Default shall have been discharged or paid in full in cash or
cash equivalents or in any other form acceptable to the holders of such
Designated Senior Debt, after which the Company shall resume making any and all
required Securities Payments, including any missed payments. "Senior Payment
Default" means any default beyond the applicable grace period in the payment of
principal of, premium, if any, or interest, or any other obligation in respect
of Designated Senior Debt when due, whether at the Stated Maturity of any such
payment or by declaration of acceleration, call for redemption or otherwise.
In the event that any Senior Nonmonetary Default (as defined below) shall
have occurred and be continuing, then, upon the receipt by the Company of
written notice of such Senior Nonmonetary Default from a holder of Designated
Senior Debt (or a trustee, agent or other representative for such a holder duly
authorized in writing) which is the subject of such Senior Nonmonetary Default,
no Securities Payment, may be made for a period (the "Payment Blockage Period")
commencing on the date of receipt of such notice and ending on the earlier of
(i) the date on which such Senior Nonmonetary Default (and all other Senior
Nonmonetary Defaults that have occurred and of which the Company is aware) has
been cured or waived or ceases to exist and any acceleration of Designated
Senior Debt shall have been rescinded or annulled or all Designated Senior Debt
that is the subject of such Senior Nonmonetary Default has been discharged or
paid in full, in cash or cash equivalents or in any other form acceptable to
the holders of such Designated Senior Debt; (ii) the 179th day after the date
of such receipt of such notice; and (iii) the date on which such Payment
Blockage Period (and all other Senior Nonmonetary Defaults as to which notice
is given after such Payment Blockage Period is initiated) shall have been
terminated by written notice to the Company from a representative of the
holders of at least a majority of Designated Senior Debt initiating such
Payment Blockage Period, after which, in the case of clauses (i), (ii) and
(iii), the Company will promptly resume making any and all required Securities
Payments in respect of such Securities, including any missed payments;
provided, however, that no more than one Payment Blockage Period may be
commenced with respect to such Securities during any 360-day period and there
shall be a period of at least 181 days in each 360-day period when no Payment
Blockage Period is in effect; provided further, that no Senior Nonmonetary
Default which existed
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or was continuing on the date of the commencement of a Payment Blockage Period
may be made the basis of the commencement of a subsequent Payment Blockage
Period by holders of Designated Senior Debt or their representatives, whether
or not within a period of 360 consecutive days, unless such Senior Nonmonetary
Default shall have been cured or waived for a period of not less than 90
consecutive days. "Senior Nonmonetary Default" means a default with respect to
Designated Senior Debt, other than a Senior Payment Default, which the giving
of notice or the passage of time, or both, gives the holders of the Designated
Senior Debt (or a trustee or agent on behalf of the holders thereof) the right
to declare the Debt under such Designated Senior Debt due and payable prior to
the date on which it matures or is subject to scheduled repayment.
In the event that, notwithstanding the foregoing, the Company shall make any
Securities Payment to any Holder prohibited by the foregoing provisions of this
Section, then and in such event such Securities Payment shall be paid over and
delivered forthwith to the holders of Designated Senior Debt or their
representatives or as a court of competent jurisdiction shall determine.
The provisions of this Section shall not apply to any Securities Payment with
respect to which Section 1002 would be applicable.
SECTION 1004. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Security shall prevent
the Company, at any time except during the pendency of any Proceeding referred
to in Section 1002 or under the conditions described in Section 1003, from
making Securities Payments.
SECTION 1005. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on or in
respect of Senior Debt, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Designated
Senior Debt, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Debt pursuant
to the provisions of this Article (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordi nated to
indebtedness of the Company to substantially the same extent as the Securities
are subordinated to the Senior Debt and is entitled to like rights of
subrogation by reason of any payments or distributions made to holders of such
Senior Debt) to the rights of the holders of such Senior Debt to receive
payments and distributions of cash, property and securities applicable to the
Senior Debt until the principal of (and premium, if any) and any interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the Holders of the Securities would be entitled
except for the provisions of this Article, and no payments over pursuant to the
provisions of this Article to the
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holders of Senior Debt by Holders of the Securities, shall, as among the
Company, its creditors other than holders of Senior Debt and the Holders of the
Securities, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.
If any payment or distribution to which the Holder of any Security would
otherwise have been entitled but for the provisions of this Article shall have
been applied, pursuant to the provisions of this Article, to the payment of all
amounts payable under the Senior Debt, then and in such case, the Holder of any
Security shall be entitled to receive from the holders of such Senior Debt at
the time outstanding any payments or distributions received by such holders of
Senior Debt in excess of the amount sufficient to pay all amounts due or to
become due on or in respect of Senior Debt in full.
SECTION 1006. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders on the one hand and the holders of
Senior Debt on the other hand. Nothing contained in this Article or elsewhere
in this Security is intended to or shall (a) impair, as among the Company, its
creditors other than holders of Senior Debt and the Holders of the Securities,
the obligation of the Company, which is absolute and unconditional (and which,
subject to the rights under this Article of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Company), to
pay to the Holders of the Securities the principal of (and premium, if any) and
any interest on the Securities as and when the same shall become due and
payable in accordance with their terms; or (b) affect the relative rights
against the Company of the Holders of the Securities and creditors of the
Company other than the holders of Senior Debt; or (c) prevent the Holder of any
Securities from exercising all remedies otherwise permitted by applicable law
upon default under this Security, subject to the rights, if any, under this
Article of the holders of Senior Debt to receive cash, property and securities
otherwise payable or deliverable to such Holder.
SECTION 1007. Company to Effectuate Subordination.
Each Holder of this Security by his acceptance hereof authorizes and directs
the Company on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article.
SECTION 1008. No Waiver of Subordination Provisions.
No right of any present or future holder of any Designated Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms,
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provisions and covenants of this Security, regardless of any knowledge thereof
any such holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Holders of the Securities, without incurring
responsibility to the Holders of the Securities and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do
any one or more of the following: (i) change the manner, place or terms of
payment or extend the time of payment of, or renew or alter, Senior Debt, or
otherwise amend or supplement in any manner Senior Debt or any instrument
evidencing the same or any agreement under which Senior Debt is outstanding or
secured; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person
liable in any manner for the collection of Senior Debt; and (iv) exercise or
refrain from exercising any rights against the Company and any other Person;
provided, however, that in no event shall any such actions limit the right of
the Holders of the Securities to take any action to accelerate the maturity of
the Securities in accordance with the provisions set forth in Article Five or
to pursue any rights or remedies under this Security or under applicable laws
if the taking of such action does not otherwise violate the terms of this
Article.
SECTION 1009. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in this
Article, the Holders of the Securities shall be entitled to rely upon any order
or decree entered by any court of competent jurisdiction in which such
Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
SECTION 1010. Defeasance of this Article Ten.
The subordination provided by this Article Ten is expressly made subject to
the provisions for defeasance in Article Three hereof and, anything herein to
the contrary not withstanding, upon the effectiveness of any such defeasance or
covenant defeasance, the Securities then outstanding shall thereupon cease to
be subordinated pursuant to this Article Ten.
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IN WITNESS WHEREOF, the Company has caused this Security to be duly executed,
and its corporate seal to be hereunto affixed and attested, all as of the day
and year first above written.
IRIDIUM, INC.
By
------------------------------
Attest:
- -----------------------------------
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- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE *-
Insert March 1 if this Note is purchased with an Accreted Value
Payment; otherwise the Date will be set to result in a maturity date on the
tenth anniversary of the issued date and interest from the fifth anniversary of
the issue date. Annex A sets forth appropriate insertions if purchased
without an Accreted Value Payment.
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EXHIBIT 1-B
Form of Note
FORM OF NOTE
THIS SECURITY MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM THOSE REGISTRATION
REQUIREMENTS. ACCORDINGLY, THE HOLDER OF THIS SECURITY SHALL NOT BE ENTITLED TO
TRANSFER THIS SECURITY AT ANY TIME UNLESS, AT THE TIME OF SUCH TRANSFER OR
EXERCISE, (I) A REGISTRATION STATEMENT UNDER THE ACT RELATING TO THIS SECURITY
HAS BEEN FILED WITH, AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE
COMMISSION (THE "SEC"), AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT HAS BEEN ISSUED BY THE SEC OR (II) THE TRANSFER OF THIS
SECURITY IS PERMITTED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.
TRANSFER OF THIS SECURITY IS ALSO RESTRICTED BY THE TERMS OF A LIMITED
LIABILITY COMPANY AGREEMENT OF IRIDIUM LLC, DATED AS OF JULY 1, 1996, BY AND
AMONG THE PARTIES NAMED THEREIN (THE "LLC AGREEMENT"). A COPY OF THE LLC
AGREEMENT IS ON FILE AND AVAILABLE FOR INSPECTION BY THE HOLDER OF THIS
SECURITY AT THE PRINCIPAL EXECUTIVE OFFICES OF IRIDIUM LLC.
IRIDIUM LLC
14 1/2% SENIOR SUBORDINATED DISCOUNT NOTE
DUE 2006
No. _________ $ _________
Iridium LLC, a limited liability company duly organized and existing under
the laws of Delaware (herein called the "Company", which term includes any
successor Person hereunder), for value received, hereby promises to pay to
_________________________, or registered assigns, the principal sum of
______________________ Dollars on _________, 2006, and to pay interest thereon
from ______________, 2001 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on March 1 and
September 1 in each year, commencing September 1, 2001, at the rate of 14 1/2%
per annum, until the principal hereof is paid or made available for payment,
provided that any principal and premium, and any such instalment of interest,
which is overdue shall bear interest at the rate of 14 1/2% per annum (to the
extent that the payment of such interest shall be legally enforceable), from
the dates such amounts are due until they are paid or made available for
payment, and such interest shall be payable on demand.
Payment of the principal of (and premium, if any) and any such interest on
this Security will be made at the office or agency of the Company maintained
for that purpose in either the Borough of Manhattan, the City of New York or
Washington, D.C., in such coin or currency of the United States of America as
at the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
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This Security is one of a duly authorized issue of 14 1/2% Senior
Subordinated Discount Notes due 2006 of the Company (herein called the
"Security"), issued and to be issued under instruments substantially identical
hereto and limited in aggregate principal amount to $ million.
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
"Accreted Value" means with respect to any Security, (i) as of any date of
determination prior to the date on which the Security first bears or accrues
interest, the sum of (a) the initial purchase price of each Security and (b)
the portion of the excess of the principal amount of each Security over such
initial purchase price which shall have been accreted thereon through such
date, such amount to be so accreted on a daily basis at the rate of 14 1/2% per
annum of the initial purchase price of such Security, compounded semi-annually
on each March 1 and September 1 from the date of issuance of such Security
through the date of determination or (ii) as of any date of determination on or
after the date on which the Security first bears or accrues interest, 100% of
the principal amount at maturity of each Security.
"Act", when used with respect to any Holder, has the meaning specified in
Section 102.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, (i) "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; (ii) the terms "controlling" and
"controlled" have meanings correlative to the foregoing; and (iii) a Person
shall be deemed to be controlled by any other Person which owns more than 15%
of such Person's outstanding Common Stock or which has the right, contractually
or otherwise, to elect more than 15% of the members of such Person's board of
directors.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking
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institutions in that Place of Payment are authorized or obligated by law or
executive order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face
of a balance sheet of such Person in accordance with generally accepted
accounting principles. The stated maturity of such obligation shall be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participation or other equivalents (however designated) of corporate stock or
similar equity interests of such Person. In the case of the Company, Capital
Stock includes Class 1 Membership Interests and Class 2 Membership Interests.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
In the case of the Company, "Common Stock" means the Class 1 Membership
Interests.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Security, and thereafter "Company" shall mean
such successor Person.
"corporation" means a corporation, association, company, joint-stock company
or business trust.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations Incurred in connection with the
acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not overdue or
which are being contested in good faith), (v) every Capital Lease Obligation of
such Person, (vi) the maximum fixed redemption or repurchase price of
Disqualified Stock of such Person outstanding at the time of determination,
(vii) every obligation under Interest Rate Protection Agreements or Currency
Protection Agreements of such Person and (viii) every obligation of the type
referred to in clauses (i) through (vii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible
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or liable, directly or indirectly, as obligor, Guarantor or otherwise. The term
"Debt" shall not include any obligations of the Company or any Restricted
Subsidiary under the Space System Contract, the Operations and Maintenance
Contract or the Terrestrial Network Development Contract.
"Defeasance" has the meaning specified in Section 302.
"Defeasance and Satisfaction Payments" has the meaning specified in Section
1002.
"Designated Senior Debt" means (i) all secured Senior Debt which is Incurred
pursuant to any agreement (or series of related agreements), (ii) any other
issue of Senior Debt which is Incurred pursuant to an agreement (or series of
related agreements) providing for indebtedness, or commitments to lend, of at
least $100 million and (iii) at any time that there is no Senior Debt that
falls within either clause (i) or (ii) above, any Senior Debt, in each case
which is specifically designated in the instrument evidencing such Senior Debt
or the agreement under which such Senior Debt arises as "Designated Senior
Debt" by the Company.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the
Securities.
"Event of Default" has the meaning specified in Section 501.
"Generally accepted accounting principles" means generally accepted
principles in the United States, which are applicable as of the date of
determination.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation or the recording, as required pursuant to generally accepted
accounting principles or otherwise, of any such Debt or other obligation on the
balance sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and
"Incurring" shall have meanings correlative to the foregoing).
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an instalment of interest on such Security.
"Interest Rate Protection Agreement or Currency Protection Agreement" of any
Person means any interest rate protection agreement (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements),
and/or other types of interest hedging
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agreements designed to protect such Person against fluctuations in interest
rates and which have a notional amount no greater than the payments due with
respect to the Debt being hedged thereby, and any currency protection agreement
(including foreign exchange contracts, currency swap agreements or other
currency hedging arrangements) entered into in the ordinary course of business.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Major Bank Financing" means an arrangement under which one or more
commercial banks or other institutional lenders extend or commit to extend
credit to the Company in an aggregate amount exceeding $1 billion.
"Maturity" means when used with respect to any Security, the date on which
the principal of such Security becomes due and payable as therein or herein
provided, whether at Stated Maturity or the Redemption Date and whether by
declaration of acceleration, call for redemption or otherwise.
"Motorola" means Motorola, Inc., a Delaware corporation.
"Notice of Default" means a written notice of the kind specified in Section
501(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company.
"Operations and Maintenance Contract" means the IRIDIUM System Operations
and Maintenance Contract between the Company and Motorola, dated as of July 29,
1993, as amended from time to time.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company.
"Outstanding Securities" means, as of the date of determination, all
Securities theretofore authenticated and delivered, except:
(1) Securities theretofore cancelled;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to such
Security or provision therefor has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 302; and
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(4) Securities which have been paid pursuant to Section 203 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered, other than any such Securities in respect of which there
shall have been presented to the Company proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such Securities
are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of a Security which
shall be deemed to be Outstanding shall be the amount of the principal thereof
which would be due and payable as of such date upon acceleration of the
Maturity thereof to such date pursuant to Section 502 and (B) Securities owned
by the Company or any other obligor upon the Securities shall be disregarded
and deemed not to be Outstanding. Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company. The Company will initially act as its own Paying Agent.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment" means either the Borough of Manhattan, the City of New
York or Washington, DC.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 203 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Proceeding" has the meaning specified in Section 1002.
"Public Offering" means an underwritten public offering of Common Stock
which, if offered primarily in the United States, is registered under the
Securities Act of 1933, as amended.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Security.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Security.
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"Security" means this Security.
"Securities" means the Security and all other Securities constituting one of
the Company's 14 1/2% Senior Subordinated Discount Notes due 2005.
"Security Register" has the meaning specified in Section 202.
"Securities Payment" has the meaning specified in Section 1002.
"Senior Debt" means the principal of, premium, if any, and interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding) on, or other
amount of, or fees, costs and expenses incurred in connection with, (i) Debt
for money borrowed of the Company, whether Incurred on or prior to March 1,
1996 or thereafter incurred, other than the Securities, (ii) Debt of the
Company evidenced by bonds, debentures, notes or other similar instruments,
including Debt Incurred in connection with the acquisition of property, assets
or businesses, (iii) matured and unmatured reimbursement or other obligations
of the Company with respect to letters of credit, bankers' acceptances or
similar facilities issued for the account of the Company, (iv) obligations of
the Company under Interest Rate Protection Agreements or Currency Protection
Agreements, (v) Capital Lease Obligations of the Company, (vi) guarantees by
the Company of Debt for money borrowed and (vii) amendments, modifications and
Refinancings of any such Debt; provided, however, the following does not
constitute Senior Debt: (A) any Debt which by the terms of the instrument
creating or evidencing the same is not superior in right of payment to the
Securities, (B) any Debt which is represented by Disqualified Stock, (C) any
Debt of the Company owed to a Subsidiary, (D) any Debt which is subordinated in
right of payment in respect to any other Debt of the Company, or (E) any
obligations of the Company under the Space System Contract, the Operations and
Maintenance Contract or the Terrestrial Network Development Contract.
"Space System Contract" means the IRIDIUM Space System Contract between the
Company and Motorola, dated as of July 29, 1993, as amended from time to time.
"Stated Maturity", when used with respect to any Debt or any instalment of
principal thereof or interest thereon, means the date specified in such Debt as
the fixed date on which the principal of such Debt or such instalment of
principal or interest is deemed payable.
"Subordinated Debt" means Debt of the Company that is subordinated in right
of payment to Securities.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries thereof or (ii) any
other Person (other than a corporation) in which such Person, or one or more
other Subsidiaries of such Person or such Person and
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one or more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"Terrestrial Network Development Contract" means the Terrestrial Network
Development Contract between the Company and Motorola, entered into in June
1995, as amended from time to time.
"U.S. Government Obligation" has the meaning specified in Section 303.
"Vice President", when used with respect to the Company, means any vice
president, whether or not designated by a number or a word or words added
before or after the title "vice president".
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency with respect to the Company. With respect to the Company, Voting
Stock means the Company's Common Stock, and any other class of Common Stock
having comparable voting rights on all matters other than the election of
directors.
SECTION 102. Acts of Holders; Record Dates.
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by the Securities to be given, made or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Company. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Company in reliance
thereon, whether or not notation of such action is made upon such Security.
The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities entitled to give, make or take any
request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by the Securities to be given, made or taken by
Holders of Securities, provided that the
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Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. With
regard to any record date set pursuant to this paragraph, the Holders of
Outstanding Securities on such record date, and no other Holders, shall be
entitled to take the relevant action, whether or not such Holders remain
Holders after such record date; provided that no such action shall be effective
hereunder unless taken on or prior to the applicable Expiration Date (as
defined below) by Holders of the requisite principal amount of Outstanding
Securities. Nothing in this paragraph shall be construed to prevent the Company
from setting a new record date for any action for which a record date has
previously been set pursuant to this paragraph (whereupon the record date
previously set shall automatically and with no action by any Person be
cancelled and of no effect), and nothing in this paragraph shall be construed
to render ineffective any action taken by Holders of the requisite principal
amount of Outstanding Securities on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its
own expense, shall cause notice of such record date, the proposed action by
Holders and the applicable Expiration Date to be given to each Holder of
Securities.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record date may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; provided that no such change shall be effective unless notice of the
proposed new Expiration Date is given to the Company in writing, and to each
Holder of Securities, on or prior to the existing Expiration Date. If an
Expiration Date is not designated with respect to any record date set pursuant
to this Section, the party hereto which set such record date shall be deemed to
have initially designated the 180th day after such record date as the
Expiration Date with respect thereto, subject to its right to change the
Expiration Date as provided in this paragraph. Notwithstanding the foregoing,
no Expiration Date shall be later than the 180th day after the applicable
record date.
SECTION 103. Notice to Holders; Waiver.
Where this Security provides for notice to Holders of any event, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder affected by
such event, at its address as it appears in the Security Register, not later
than the latest date (if any), and not earlier than the earliest date (if any),
prescribed for the giving of such notice. In any case where notice to Holders
is given by mail, neither the failure to mail such notice, nor any defect in
any notice so mailed, to any particular Holder shall affect the sufficiency of
such notice with respect to other Holders and any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given.
Where this Security provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Company,
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but such filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
SECTION 104. Effect of Headings.
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 105. Successors and Assigns.
All covenants and agreements in this Security by the Company shall bind its
successors and assigns, whether so expressed or not.
SECTION 106. Separability Clause.
In case any provision in this Security shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
SECTION 107. Benefits of Security.
Nothing in this Security, express or implied, shall give to any Person,
other than the parties hereto and their successors hereunder, the holders of
Senior Debt and the Holders, any benefit or any legal or equitable right,
remedy or claim under this Security.
SECTION 108. Governing Law.
This Security shall be governed by and construed in accordance with the law
of the State of New York without regard to principles of conflict of laws.
SECTION 109. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Security) payment of interest
or principal (and premium, if any) need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the Interest Payment Date
or Redemption Date, or at the Stated Maturity, provided that no interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date, or Stated Maturity, as the case may be.
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SECTION 110. No Recourse Against Others.
A manager, officer, employee, consultant, contractor or member, as such, of
the Company shall not have any liability for any obligations of the Company
under the Securities or for any claim based on, in respect of or by reason of
such obligations or their creation. Each Holder by accepting any of the
Securities waives and releases all such liability.
ARTICLE TWO
THE SECURITIES
SECTION 201. Denominations.
The Securities are issuable only in registered form without coupons and only
in integral multiples of $1,000.
SECTION 202. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept a register (the "Security Register") in
which, subject to such reasonable regulations as it may prescribe, the Company
shall provide for the registration of Securities and of transfers of
Securities.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits, as the Securities surrendered upon
such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed, by the Holder thereof or his attorney duly authorized in
writing. The Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Securities.
If the Securities are to be redeemed in part, the Company shall not be
required (A) to issue, register the transfer of or exchange any Securities
during a period beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of any such Securities selected for
redemption and ending at the close of business on the day of such mailing, or
(B) to register the transfer of or exchange any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
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SECTION 203. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Company, the Company shall
execute and deliver in exchange therefor a new Security of like tenor and
principal amount and bearing a number not contemporaneously outstanding. If
there shall be delivered to the Company (i) evidence to its satisfaction of the
destruction, loss or theft of any Security and (ii) such security or indemnity
as it may require to save it harmless, then, in the absence of notice to the
Company that such Security has been acquired by a bona fide purchaser, the
Company shall execute, in lieu of any such destroyed, lost or stolen Security,
a new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding. In case any such mutilated, destroyed, lost or
stolen Security has become or is about to become due and payable, the Company
in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone. The provisions of
this Section are exclusive and shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION 204. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company and any agent of the Company may treat the Person in whose name such
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of and any premium and any interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, nor any agent of the Company shall be
affected by notice to the contrary.
SECTION 205. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day year of
twelve 30-day months.
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ARTICLE THREE
DEFEASANCE
SECTION 301. Company's Option to Effect Defeasance.
The Company may elect, at its option at any time, to have Section 302 apply
to the Securities upon compliance with the conditions set forth below in this
Article.
SECTION 302. Defeasance and Discharge.
Upon the Company's exercise of its option to have this Section applied to
the Securities, the Company shall be deemed to have been discharged from any
and all of its obligations, and the provisions of Article Ten shall cease to be
effective, with respect to such Securities as provided in this Section on and
after the date the conditions set forth in Section 303 are satisfied
(hereinafter called "Defeasance"). For this purpose, such Defeasance means that
the Company shall be deemed to have paid and discharged the entire indebtedness
represented by such Securities and to have satisfied all its other obligations
under this Security, subject to the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of the Holder of
this Security to receive, solely from the trust fund described in Section 303
and as more fully set forth in such Section, payments in respect of the
principal of and any premium and interest on such Securities when payments are
due, (2) the Company's obligations with respect to such Securities under
Sections 202, 203, 802 and 803 and (3) this Article.
SECTION 303. Conditions to Defeasance.
The following shall be the conditions to the application of Section 302 to
the Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited in trust with a trustee (who shall agree to comply with the
provisions of this Article applicable to it) as trust funds for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the Securities, (A) money
in an amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of any
payment, money in an amount, or (C) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent
certified public accountants expressed in a written certification thereof
delivered to the Holders, to pay and discharge, and which shall be applied
by such trustee to pay and discharge, the principal of (premium, if any) and
each installment of interest, if any, on the Securities on the respective
Stated Maturities, in accordance with the terms of this Security. As used
herein, "U.S. Government Obligation" means (x) any security which is (i) a
direct
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obligation of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) an
obligation of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case (i) or (ii), is not callable
or redeemable at the option of the issuer thereof, and (y) any depositary
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities
Act of 1933, as amended) as custodian with respect to any U.S. Government
Obligation which is specified in clause (x) above and held by such bank for
the account of the holder of such depositary receipt, or with respect to any
specific payment of principal of or interest on any U.S. Government
Obligation which is so specified and held, provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depositary receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or
the specific payment of principal or interest evidenced by such depositary
receipt.
(2) In the event of an election to have Section 302 apply to the
Securities, the Company shall have delivered to the Holders an Opinion of
Counsel stating that (A) the Company has received from, or there has been
published by, the IRS a ruling or (B) since March 1, 1996, there has been a
change in the applicable Federal income tax law, in either case (A) or (B)
to the effect that, and based thereon such opinion shall confirm that, the
Holders of the Securities will not recognize gain or loss for Federal income
tax purposes as a result of the deposit, Defeasance and discharge to be
effected with respect to the Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit, Defeasance and discharge were not to
occur.
(3) At the time of such deposit, (A) no default in the payment of any
principal of or premium or interest on any Senior Debt shall have occurred
and be continuing, (B) no event of default with respect to any Senior Debt
shall have resulted in such Senior Debt becoming, and continuing to be, due
and payable prior to the date on which it would otherwise have become due
and payable (unless payment of such Senior Debt has been made or duly
provided for), and (C) no other event of default with respect to any Senior
Debt shall have occurred and be continuing permitting (after notice or lapse
of time or both) the holders of such Senior Debt (or a trustee on behalf of
such holders) to declare such Senior Debt due and payable prior to the date
on which it would otherwise have become due and payable.
(4) No event which is, or after notice or lapse of time or both would
become, an Event of Default shall have occurred and be continuing at the
time of such deposit or, with regard to any such event specified in Sections
501(7) and (8), at any time on or prior to the 90th day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 90th day).
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(5) Such Defeasance shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to which the
Company is a party or by which it is bound.
(6) Such Defeasance shall not result in the trust arising from such
deposit constituting an investment company within the meaning of the
Investment Company Act of 1940, as amended, unless such trust shall be
registered under such act or exempt from registration thereunder.
(7) The Company shall have delivered to the Holders an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance have been complied with.
SECTION 304. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 803, all money
and U.S. Government Obligations (including the proceeds thereof) deposited with
a trustee (solely for purposes of this Section and Section 305, such trustee is
referred to as the "Trustee") pursuant to Section 303 in respect of any
Securities shall be held in trust and applied by the Trustee, in accordance
with the provisions of the Securities, to the payment, either directly or
through any such Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Holders of such Securities, of all
sums due and to become due thereon in respect of principal and any premium and
interest, but money so held in trust need not be segregated from other funds
except to the extent required by law. Money and U.S. Government Obligations so
held in trust shall not be subject to the provisions of Article Ten.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 303 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon the Company's request any
money or U.S. Government Obligations held by it as provided in Section 303 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance with respect to such
Securities.
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SECTION 305. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with this Article with respect to any Securities by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the obligations under this
Security from which the Company has been discharged or released pursuant to
Section 302 shall be revived and reinstated as though no deposit had occurred
pursuant to this Article with respect to such Securities, until such time as
the Trustee or Paying Agent is permitted to apply all money held in trust
pursuant to Section 304 with respect to such Securities in accordance with this
Article; provided, however, that if the Company makes any payment of principal
of or any premium or interest on any such Security following such reinstatement
of its obligations, the Company shall be subrogated to the rights (if any) of
the Holders of such Securities to receive such payment from the money so held
in trust.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge.
This Security shall, upon the written election by the Company, cease to be
of further effect (except as to any surviving rights of registration of
transfer or exchange of Securities herein expressly provided for), when:
(1) either (A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 203 and (ii)
Securities for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 803) have been
cancelled; or (B) all such Securities not theretofore cancelled (i) have
become due and payable, or (ii) will become due and payable at their Stated
Maturity within one year, or (iii) are to be called for redemption within
one year under arrangements for the giving of notice of redemption in the
name, and at the expense, of the Company, and the Company, in the case of
(i), (ii) or (iii), has irrevocably deposited or caused to be deposited with
a trustee, as trust funds in trust for the purpose of such redemption, money
in an amount sufficient to pay and discharge the entire Debt on the
Securities not theretofore cancelled, including principal of, premium, if
any, and accrued interest, if any, on such Securities at such Maturity,
Stated Maturity or Redemption Date;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Holder of this Security an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction and
discharge of this Security have been complied with and that such
satisfaction and discharge will not result in a breach or violation of, or
constitute a default under, this Security or any other material agreement to
which the Company or any Subsidiary is a party.
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
occasioned by the provisions of Article Ten or other subordination provisions
applicable to Securities or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure to pay principal of (or premium, if any, on) any Security
when due, continued for two Business Days; or
(2) failure to pay any interest on any Security when due, continued for
30 days; or
(3) failure to perform any covenant or agreement of the Company under
this Security (other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with) and continuance of such default or breach for a period of 60 days
after there has been given notice to the Company by the Holders of at least
25% in aggregate principal amount of the Outstanding Securities written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder;
(4) default under the terms of any instrument evidencing or securing Debt
for money borrowed by the Company or any Subsidiary having an outstanding
principal amount of $10 million individually or in the aggregate which
default has resulted in the acceleration of the payment of the principal
amount of such Debt or constitutes the failure to pay the principal amount
of such Debt when due;
(5) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any Subsidiary in an amount in excess of $10
million which remains undischarged or unstayed for a period of 60 days after
the date on which the right to appeal has expired;
(6) termination by Motorola of the Space System Contract prior to
delivery thereunder by Motorola of the Space System (as defined therein),
provided that such termination has not been contested by the Company in
accordance with the Space System Contract or by appropriate proceedings and,
if such termination is so contested, within 180 days of such notice, such
termination has not been withdrawn or declared ineffective by any court or
mediator having jurisdiction;
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(7) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Subsidiary in an
involuntary case or proceeding under any applicable Federal or state
bankruptcy, insolvency, reorganization or other similar law or (B) a decree
or order adjudging the Company or any Subsidiary a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable Federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Subsidiary or of any substantial part of the
property of the Company or any Subsidiary, or ordering the winding up or
liquidation of the affairs of the Company or any Subsidiary, and the
continuance of any such decree or order for relief or any such other decree
or order unstayed and in effect for a period of 60 consecutive days; or
(8) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it
to the entry of a decree or order for relief in respect of the Company or
any Subsidiary in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, or the
consent by it to the filing of such peti tion or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or
of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due, or the
taking of formal action by the Company or any Subsidiary in furtherance of
any such action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
501(7) or 501(8)) occurs and is continuing, then in every such case the Holders
of not less than 25% in principal amount of the Outstanding Securities may
declare the Accreted Value of all the Securities to be due and payable
immediately, by a notice in writing to the Company, and upon any such
declaration such specified amount shall become immediately due and payable;
provided, however, that so long as any secured Senior Debt remains outstanding,
if any such Event of Default shall have occurred and be continuing, any such
acceleration shall not be effective until the earlier of (a) five Business Days
following a notice of acceleration given to the Company and to the holders of
the secured Senior Debt and only if upon such fifth Business Day such Event of
Default shall be continuing or (b) the acceleration of any secured Senior Debt.
If an Event of Default specified in Section 501(7) or 501(8) occurs, the
Accreted Value of all the Securities will ipso facto become
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immediately due and payable without any declaration or other act on the part of
any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained, the
Holders of a majority in principal amount of the Outstanding Securities, by
written notice to the Company, may rescind and annul such declaration and its
consequences if: (1) the Company has paid or deposited in trust a sum
sufficient to pay: (A) all overdue interest on all Securities, and (B) to the
extent that payment of such interest is lawful, interest upon overdue interest
at the rate set forth in the first paragraph of this Security; and (2) all
Events of Default, other than the non-payment of the principal of Securities
which have become due solely by such declaration of acceleration, have been
cured or waived.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default in the
payment of the principal of (or premium, if any) or interest on any Security.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured; but no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereon.
SECTION 504. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of its obligations under this Security; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Holder or Holders, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
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SECTION 505. Limitation on Suits.
No Holder of any Security shall have any right to institute any proceeding,
judicial or otherwise, with respect to rights created under the Securities
(other than any right to institute such a proceeding to enforce the Company's
obligation to pay principal (and premium, if any) and interest on such Holder's
Securities and such Holder's rights under Sections 202 and 203), or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
the Holders of not less than 25% in principal amount of the Outstanding
Securities shall have joined in such proceedings or consented to the
institution thereof.
ARTICLE SIX
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 601. Mergers, Consolidation and Certain Sales of Assets.
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or permit any
other Person (other than a Subsidiary) to consolidate with or merge into the
Company, (ii) directly or indirectly, transfer, sell, lease or otherwise
dispose of all or substantially all of its assets, (iii) permit any of its
Subsidiaries to enter into any transaction or transactions described in clause
(i) or (ii) above, if such transaction or transactions, in the aggregate, would
result in a sale, assignment, transfer, lease or disposal of all or
substantially all the properties and assets of the Company and its Subsidiaries
taken as a whole to any other Person or group of affiliated Persons, unless:
(1) in a transaction in which the Company does not survive or in which
the Company sells, leases or otherwise disposes of all or substantially all
of its assets, the successor entity to the Company is organized and validly
existing under the laws of the United States of America, any State thereof
or the District of Columbia and shall expressly assume, by a written
agreement all of the Company's obligations under this Security; and
(2) immediately before and after giving effect to such transaction and
treating any Debt which becomes a direct obligation of the Company or a
Subsidiary as a result of such transaction as having been Incurred by the
Company or such Subsidiary at the time of the transaction, no Event of
Default or event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default shall have occurred and be
continuing.
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SECTION 602. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into,
any other Person or any transfer, sale, lease or other disposition of all or
substantially all of the assets of the Company in accordance with Section 601,
the successor Person formed by such consolidation or into which the Company is
merged or to which such transfer, sale, lease or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Security with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except
in the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Security.
ARTICLE SEVEN
AMENDMENTS
SECTION 701. Amendments With Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities, the Company may amend the terms of the
Securities for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Securities or of modifying
in any manner the rights of the Holders of Securities; provided, however, that
no such amendment shall, without the consent of the Holder of each Outstanding
Security affected thereby,
(1) change the Stated Maturity of the principal of, or any instalment of
interest on, any Security, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable thereon, or reduce the
amount of the principal of a Security which would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502,
or change any Place of Payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such amendment,
or the consent of whose Holders is required for any waiver (of compliance
with certain provisions of this Security or certain defaults hereunder and
their consequences), or
(3) modify any of the provisions of this Section or Section 503 except
to increase any such percentage or to provide that certain other provisions
of this Security cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby.
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ARTICLE EIGHT
COVENANTS
SECTION 801. Payment of Principal, Premium and Interest.
The Company covenants and agrees that it will duly and punctually pay the
principal of (and premium, if any) and any interest on the Securities in
accordance with the terms of the Securities.
SECTION 802. Maintenance of Office or Agency.
The Company will maintain in either Place of Payment an office or agency
where Secu rities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company will give prompt written notice to the Holders of the location, and
any change in the location, of such office or agency.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in each Place of
Payment for Securities for such purposes. The Company will give prompt written
notice to the Holders of any such designation or rescission and of any change
in the location of any such other office or agency.
SECTION 803. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or
before each due date of the principal of (and premium, if any) or any interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) and any interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided.
Any money then held by the Company in trust for the payment of the principal
of (and premium, if any) or any interest on any Security and remaining
unclaimed for two years after such principal (and premium, if any) or interest
has become due and payable shall be discharged from such trust; and the Holder
of such Security shall thereafter, as an unsecured general creditor, look only
to the Company for payment thereof, and all liability of the Company as trustee
thereof, shall thereupon cease.
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SECTION 804. Existence.
Subject to Article Six, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(charter and statutory) and franchises; provided, however, that the Company
shall not be required to preserve any such right or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 805. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (1) all taxes, assessments and governmental
charges levied or imposed upon the Company or any Subsidiary or upon the
income, profits or property of the Company or any Subsidiary, and (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
ARTICLE NINE
REDEMPTION OF SECURITIES
SECTION 901. Optional Redemption.
The Securities are subject to redemption upon not less than 30 nor more than
60 days' notice mailed to each Holder of the Securities to be redeemed at his
or her address appearing in the Security Register, at any time on or after
March 1, 2001, as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as percentages of the principal amount):
If redeemed during the 12-month period beginning March 1 of the years
indicated,
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<TABLE>
<CAPTION>
Redemption
Year Price
---- -------------
<S> <C>
2001 107.5%
2002 105.0%
2003 102.5%
2004 and thereafter 100.0%
</TABLE>
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date.
Notwithstanding the limitations on redemption in the preceding paragraph, in
the event that on or prior to March 1, 1999 the Company completes a Public
Offering of its Common Stock, up to one-third of the Outstanding Securities
will also be subject to redemption, at the option of the Company, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Securities to be
redeemed at his address appearing in the Security Register, in amounts of
$1,000 or any integral multiple thereof at a Redemption Price equal to 107.5%
of their Accreted Value. Notice of redemption will be mailed not later than 90
days after the date of consummation of the Public Offering. The aggregate
Redemption Price shall not exceed the gross proceeds to the Company in the
Public Offering.
Notwithstanding the limitations on redemption in the first paragraph of this
Section 901, in the event that the Company consummates a Major Bank Financing
on or prior to March 1, 2001, the Outstanding Securities will also be subject
to redemption in whole or in part, at the option of the Company, upon not less
than 30 nor more than 60 days' notice mailed to each Holder of Securities to be
redeemed at his address appearing in the Security Register, in amounts of
$1,000 or any integral multiple thereof at a Redemption Price equal to 107.5%
of their Accreted Value. Notice of redemption will be mailed not later than 90
days after the date of the initial extension of credit under the Major Bank
Financing.
SECTION 902. Selection of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Company, from all Holders pro rata on the basis of the
aggregate principal amount of all Outstanding Securities held by such Holders.
For all purposes of this Security, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
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SECTION 903. Notice of Redemption.
Notice of redemption shall be given by the Company by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at his address
appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be redeemed, the
identification (and, in the case of partial redemption of any such
Securities, the principal amounts) of the particular Securities to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date, and
(5) the place or places where each such Security is to be surrendered
for payment of the Redemption Price.
SECTION 904. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with a Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust) an amount of money sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) any
applicable accrued interest on, all the Securities which are to be redeemed on
that date.
SECTION 905. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to be
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price) such Securities
shall not bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with any applicable accrued interest to the
Redemption Date.
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If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the first
paragraph of this Security.
SECTION 906. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at a
Place of Payment therefor (with, if the Company so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company
duly executed by, the Holder thereof or his attorney duly authorized in
writing), and the Company shall execute and deliver to the Holder of such
Security without service charge, a new Security or Securities of like tenor, as
requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE TEN
SUBORDINATION OF SECURITIES
SECTION 1001. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by his
acceptance hereof or thereof, likewise covenants and agrees that, to the extent
and in the manner hereinafter set forth in this Article (subject to the
provisions of Articles Three and Four), the payment of the principal of (and
premium, if any on) and any interest on the Securities, and any other
obligations of the Company in respect of the Securities are hereby expressly
made subordinate and subject in right of payment to the prior payment in full,
in cash or cash equivalents or in any other form acceptable to the holders of
Designated Senior Debt, of all Senior Debt that the subordination is for the
benefit of, and shall be enforceable directly by, the holders of Senior Debt,
and that each holder of Senior Debt, whether now outstanding or hereafter
created, Incurred or assumed shall be deemed to have acquired and continued to
hold, or shall have continued to hold, Senior Debt in reliance upon the
covenants and provisions contained in this Security.
SECTION 1002. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding
in connection therewith, relative to the Company or to its creditors, as such,
or to its assets, or (b) any liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshalling of assets and liabilities of the Company, then and in any
such event specified in (a), (b) or (c) above (each such event,
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if any, herein sometimes referred to as a "Proceeding") the holders of Senior
Debt will first be entitled to receive payment in full, in cash or cash
equivalents or in any form acceptable to the holders of Designated Senior Debt,
of all amounts due or to become due thereon before the Holders of the
Securities will be entitled to receive any payment or distribution of any
assets of the Company of any kind or character, whether in cash, property or
securities (including any payment or distribution which may be payable or
deliverable by reason of the payment of any other Debt of the Company
subordinated to the payment of the Securities, such payment or distribution
being hereinafter referred to as a "Junior Subordinated Payment"), on account
of the principal of, premium, if any, or interest on such Securities and any
other obligations in respect of such Securities (including any obligation to
repurchase such Securities, but excluding any payments previously made pursuant
to Article Three ("Defeasance and Satisfaction Payments")) (all such payments,
distributions, purchases and acquisitions herein (other than payments and
distributions of Permitted Junior Interests as hereinafter defined) referred
to, individually and collectively, as a "Securities Payment").
In the event that, notwithstanding the foregoing provisions of this Section,
the Holder of any Security shall have received any Securities Payment before
all Senior Debt is paid in full or payment thereof provided for in cash or cash
equivalents or in any form acceptable to the holders of Designated Senior Debt,
then and in such event such Securities Payment shall be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay all Senior Debt in full, after
giving effect to any concurrent payment or distribution to or for the holders
of Senior Debt.
For purposes of this Article only, the words "any payment or distribution of
any assets of the Company of any kind or character, whether in cash, property
or securities" shall not be deemed to include a payment or distribution of
interests or securities of the Company provided for by a plan of reorganization
or readjustment authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy law
or of any other entity or corporation provided for by such plan of
reorganization or readjustment which stock or securities are subordinated in
right of payment to all then outstanding Senior Debt to substantially the same
extent as the Securities are so subordinated as provided in this Article (such
stock or subordinated securities are referred to herein as "Permitted Junior
Interests"). The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance or transfer of all or substantially all of its
properties and assets as an entirety to another Person upon the terms and
conditions set forth in Article Six shall not be deemed a Proceeding for the
purposes of this Section if the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer such properties and assets as an entirety, as the case may be, shall,
as a part of such consolidation, merger, conveyance or transfer, comply with
the conditions set forth in Article Six.
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SECTION 1003. No Payment When Senior Debt in Default.
In the event that any Senior Payment Default (as defined below) shall have
occurred and be continuing, then no Securities Payment may be made unless and
until such Senior Payment Default shall have been cured or waived or shall have
ceased to exist or the Designated Senior Debt that is the subject of such
Senior Payment Default shall have been discharged or paid in full in cash or
cash equivalents or in any other form acceptable to the holders of such
Designated Senior Debt, after which the Company shall resume making any and all
required Securities Payments, including any missed payments. "Senior Payment
Default" means any default beyond the applicable grace period in the payment of
principal of, premium, if any, or interest, or any other obligation in respect
of Designated Senior Debt when due, whether at the Stated Maturity of any such
payment or by declaration of acceleration, call for redemption or otherwise.
In the event that any Senior Nonmonetary Default (as defined below) shall
have occurred and be continuing, then, upon the receipt by the Company of
written notice of such Senior Nonmonetary Default from a holder of Designated
Senior Debt (or a trustee, agent or other representative for such a holder duly
authorized in writing) which is the subject of such Senior Nonmonetary Default,
no Securities Payment, may be made for a period (the "Payment Blockage Period")
commencing on the date of receipt of such notice and ending on the earlier of
(i) the date on which such Senior Nonmonetary Default (and all other Senior
Nonmonetary Defaults that have occurred and of which the Company is aware) has
been cured or waived or ceases to exist and any acceleration of Designated
Senior Debt shall have been rescinded or annulled or all Designated Senior Debt
that is the subject of such Senior Nonmonetary Default has been discharged or
paid in full, in cash or cash equivalents or in any other form acceptable to
the holders of such Designated Senior Debt; (ii) the 179th day after the date
of such receipt of such notice; and (iii) the date on which such Payment
Blockage Period (and all other Senior Nonmonetary Defaults as to which notice
is given after such Payment Blockage Period is initiated) shall have been
terminated by written notice to the Company from a representative of the
holders of at least a majority of Designated Senior Debt initiating such
Payment Blockage Period, after which, in the case of clauses (i), (ii) and
(iii), the Company will promptly resume making any and all required Securities
Payments in respect of such Securities, including any missed payments;
provided, however, that no more than one Payment Blockage Period may be
commenced with respect to such Securities during any 360-day period and there
shall be a period of at least 181 days in each 360-day period when no Payment
Blockage Period is in effect; provided further, that no Senior Nonmonetary
Default which existed or was continuing on the date of the commencement of a
Payment Blockage Period may be made the basis of the commencement of a
subsequent Payment Blockage Period by holders of Designated Senior Debt or
their representatives, whether or not within a period of 360 consecutive days,
unless such Senior Nonmonetary Default shall have been cured or waived for a
period of not less than 90 consecutive days. "Senior Nonmonetary Default" means
a default with respect to Designated Senior Debt, other than a Senior Payment
Default, which the giving of notice or the passage of time, or both, gives the
holders of the Designated Senior Debt (or a trustee or agent on behalf of the
holders
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thereof) the right to declare the Debt under such Designated Senior Debt due
and payable prior to the date on which it matures or is subject to scheduled
repayment.
In the event that, notwithstanding the foregoing, the Company shall make any
Securities Payment to any Holder prohibited by the foregoing provisions of this
Section, then and in such event such Securities Payment shall be paid over and
delivered forthwith to the holders of Designated Senior Debt or their
representatives or as a court of competent jurisdiction shall determine.
The provisions of this Section shall not apply to any Securities Payment
with respect to which Section 1002 would be applicable.
SECTION 1004. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Security shall
prevent the Company, at any time except during the pendency of any Proceeding
referred to in Section 1002 or under the conditions described in Section 1003,
from making Securities Payments.
SECTION 1005. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all amounts due or to become due on or in
respect of Senior Debt, or the provision for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Designated
Senior Debt, the Holders of the Securities shall be subrogated to the extent of
the payments or distributions made to the holders of such Senior Debt pursuant
to the provisions of this Article (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordi nated to
indebtedness of the Company to substantially the same extent as the Securities
are subordinated to the Senior Debt and is entitled to like rights of
subrogation by reason of any payments or distributions made to holders of such
Senior Debt) to the rights of the holders of such Senior Debt to receive
payments and distributions of cash, property and securities applicable to the
Senior Debt until the principal of (and premium, if any) and any interest on
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of the Senior Debt of any cash,
property or securities to which the Holders of the Securities would be entitled
except for the provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Debt by Holders of the
Securities, shall, as among the Company, its creditors other than holders of
Senior Debt and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
If any payment or distribution to which the Holder of any Security would
otherwise have been entitled but for the provisions of this Article shall have
been applied, pursuant to the provisions of this Article, to the payment of all
amounts payable under the Senior Debt, then and in such case, the Holder of any
Security shall be entitled to receive from
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the holders of such Senior Debt at the time outstanding any payments or
distributions received by such holders of Senior Debt in excess of the amount
sufficient to pay all amounts due or to become due on or in respect of Senior
Debt in full.
SECTION 1006. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders on the one hand and the holders
of Senior Debt on the other hand. Nothing contained in this Article or
elsewhere in this Security is intended to or shall (a) impair, as among the
Company, its creditors other than holders of Senior Debt and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional
(and which, subject to the rights under this Article of the holders of Senior
Debt, is intended to rank equally with all other general obligations of the
Company), to pay to the Holders of the Securities the principal of (and
premium, if any) and any interest on the Securities as and when the same shall
become due and payable in accordance with their terms; or (b) affect the
relative rights against the Company of the Holders of the Securities and
creditors of the Company other than the holders of Senior Debt; or (c) prevent
the Holder of any Securities from exercising all remedies otherwise permitted
by applicable law upon default under this Security, subject to the rights, if
any, under this Article of the holders of Senior Debt to receive cash, property
and securities otherwise payable or deliverable to such Holder.
SECTION 1007. Company to Effectuate Subordination.
Each Holder of this Security by his acceptance hereof authorizes and directs
the Company on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article.
SECTION 1008. No Waiver of Subordination Provisions.
No right of any present or future holder of any Designated Senior Debt to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Security, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Holders of the Securities, without incurring
responsibility to the Holders of the Securities and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Holders of the Securities to the holders of Senior Debt, do
any one or more of the following: (i) change the manner, place or terms of
payment
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or extend the time of payment of, or renew or alter, Senior Debt, or otherwise
amend or supplement in any manner Senior Debt or any instrument evidencing the
same or any agreement under which Senior Debt is outstanding or secured; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Debt; (iii) release any Person liable in any
manner for the collection of Senior Debt; and (iv) exercise or refrain from
exercising any rights against the Company and any other Person; provided,
however, that in no event shall any such actions limit the right of the Holders
of the Securities to take any action to accelerate the maturity of the
Securities in accordance with the provisions set forth in Article Five or to
pursue any rights or remedies under this Security or under applicable laws if
the taking of such action does not otherwise violate the terms of this Article.
SECTION 1009. Reliance on Judicial Order or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Holders of the Securities shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of creditors, agent or
other Person making such payment or distribution, delivered to the Holders of
Securities, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of the Senior Debt and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article.
SECTION 1010. Defeasance of this Article Ten.
The subordination provided by this Article Ten is expressly made subject to
the provisions for defeasance in Article Three hereof and, anything herein to
the contrary not withstanding, upon the effectiveness of any such defeasance or
covenant defeasance, the Securities then outstanding shall thereupon cease to
be subordinated pursuant to this Article Ten.
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IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed, and its corporate seal to be hereunto affixed and attested, all as of
the day and year first above written.
IRIDIUM, INC.
By
----------------------------------
Attest:
- ------------------------------------
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EXHIBIT 2-A
Amendments to Outstanding Warrants
FORM OF WARRANT
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE CLASS 1
MEMBERSHIP INTERESTS OF IRIDIUM LLC (THE "COMPANY") FOR WHICH THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE ARE EXERCISABLE (THE "WARRANT SHARES")
MAY BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM THOSE REGISTRATION REQUIREMENTS.
ACCORDINGLY, THE HOLDER OF THIS WARRANT CERTIFICATE SHALL NOT BE ENTITLED TO
TRANSFER OR EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF
SUCH TRANSFER OR EXERCISE, (I) A REGISTRATION STATEMENT UNDER THE ACT RELATING
TO THE WARRANTS OR THE WARRANT SHARES, AS THE CASE MAY BE, HAS BEEN FILED WITH,
AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"),
AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT
HAS BEEN ISSUED BY THE SEC OR (II) THE TRANSFER OF THE WARRANTS REPRESENTED BY
THIS CERTIFICATE OR THE ISSUANCE OF THE WARRANT SHARES IS PERMITTED PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
TRANSFER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE
WARRANT SHARES IS ALSO RESTRICTED BY THE TERMS OF A LIMITED LIABILITY COMPANY
AGREEMENT, DATED AS OF JULY 1, 1996 BY AND AMONG THE PARTIES NAMED THEREIN
(THE "LLC AGREEMENT"). A COPY OF THE LLC AGREEMENT IS ON FILE AND AVAILABLE
FOR INSPECTION BY THE HOLDER OF THIS WARRANT CERTIFICATE AT THE COMPANY'S
PRINCIPAL EXECUTIVE OFFICES.
No. __________ Warrants
WARRANT TO PURCHASE CLASS 1 MEMBERSHIP INTERESTS
of
IRIDIUM LLC
This Warrant Certificate certifies that __________, or registered permitted
assigns, is the registered holder of _____ warrants expiring March 1, 2006 to
purchase an aggregate of ________ Class 1 Membership Interests in the Company
(the "Common Interests"), of Iridium LLC, a delaware limited liability company
(the "Company"). The Warrants evidenced hereby are part of a duly authorized
issue of Warrants of the Company (the "Warrants") all evidenced by Warrant
Certificates substantially similar to this Warrant Certificate. Each Warrant
entitles the holder upon exercise to purchase from the Company at any time on
or after March 1, 2001 and prior to 5:00 p.m. New York City time on March 1,
2006, .13877 Common Interests (each a "Warrant Share") upon surrender of this
Warrant Certificate to the Warrant Agent, subject to the conditions set forth
herein. The number of Warrant Shares purchasable upon exercise thereof are
subject to adjustment upon the occurrence of certain events set forth herein.
Exercise of a Warrant by a person other than the registered holder named above
is subject to the approval of such person for admission as a Member of the
company by the Members of the Company who may grant or withhold such consent in
their absolute discretion.
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SECTION 1. EXERCISE OF THE WARRANTS. Warrants may be exercised at any time
on or after March 1, 2001 and prior to 5:00 p.m. New York City time on March 1,
2006 (the "Expiration Date"). The holder of Warrants evidenced by this Warrant
Certificate may exercise such Warrants by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment to the Company of the Exercise
Price for each Warrant then exercised. Exercise of this Warrant by a person
other than the registered holder named in the preamble of this warrant is
subject to the approval of such person for admission as a member of the company
by the members of the company who may grant or withhold such consent in their
absolute discretion. In the event that upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, the Company shall issue to the holder hereof or his
permitted assignee a new Warrant Certificate evidencing the number of Warrants
not exercised. No cash dividend shall be paid to a holder of Warrants Shares
issuable upon the exercise of Warrants unless such holder was, as of the record
date for the declaration of such dividend, the record holder of such Warrant
Shares.
No Warrant may be exercised after the Expiration Date, and to the extent not
exercised by such time, such Warrants shall become void. The Company shall give
notice of expiration not less than 90 nor more than 120 days prior to the
Expiration Date to the registered holders of the then outstanding Warrants;
provided, however, that if the Company fails to give such notice, the Warrants
shall still terminate and become void on the Expiration Date.
SECTION 3. REGISTRATION OF TRANSFER AND EXCHANGE. The Company and its
agents may deem and treat the registered holder(s) of this Warrant Certificate
as the absolute owner(s) hereof (notwithstanding any notation of ownership or
other writing hereon made by anyone), for all purposes, and neither the Company
nor its agents shall be affected by any notice to the contrary.
References herein to "Warrant holder(s)" or "holders of the Warrant
Certificates" means in each case registered holders of Warrant Certificates.
Subject to the restrictions on transfer referred to in the Legend on page 1
of this Warrant Certificate, Warrant Certificates, when surrendered at the
office maintained by the Company for such purpose by the registered holder
thereof in person or by legal representative or attorney duly authorized in
writing, may be presented for exchange or registration of transfer without
payment of any service charge (except for stamp or any other governmental tax
or charge that may be imposed in connection with any such transfer or
exchange), for another Warrant Certificate or Warrant Certificates representing
a like tenor executed by the Company in the aggregate a like number of
Warrants.
Every Warrant Certificate surrendered for registration of transfer or
exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in any form satisfactory to the
Company, duly executed by the Warrant holder or his attorney duly authorized in
writing (with, in the case of transfer and if requested by the Company, such
signature guaranteed by an eligible guarantor institution).
All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
Certificate, as the Warrant Certificates surrendered for such registration of
transfer
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or exchange, except for the limitation on right of exercise set forth in the
third sentence of Section 1.
SECTION 4. RETIREMENT OF WARRANTS. The Company may purchase Warrants. Any
Warrants purchased by the Company may be retired by cancellation of such
Warrants and appropriate notation thereof in the Company's register.
SECTION 5. PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges attributable to the initial issuance of Common Interests
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any such taxes or charges which may be payable in respect of
any transfer involved in the issue of any Warrant Certificates or any
certificates for Common Interests in a name other than that of the registered
holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and
the Company shall not be required to issue or deliver such Warrant Certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such taxes or charges or shall have
established to the satisfaction of the Company that such taxes or charges have
been paid.
SECTION 6. MUTILATED OR MISSING WARRANT CERTIFICATES. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent number of Warrants, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction for such Warrant Certificate and indemnity and security therefor,
if requested, also satisfactory to the Company. Applicants for such substitute
Warrant Certificates shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company may prescribe.
SECTION 7. RESERVATIONS OF WARRANT SHARES. The Company (i) shall at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Class 1 Membership Interests, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of Common Interests which would then
be deliverable upon the exercise of all outstanding Warrants if all such
outstanding Warrants were then exercisable and (ii) shall not take any action
which results in any adjustment of the Exercise Rate if the total number of
Warrant Shares would exceed the total number of Common Interests then
authorized by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
The transfer agent for the Common Interests (which may be the Company if it
is acting as transfer agent) (the "Transfer Agent") and every subsequent
transfer agent for any interests of the Company issuable upon the exercise of
any of the rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized interests as shall
be required for such purpose.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price and issuance, be
duly and validly issued,
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free of preemptive rights and free from all taxes, liens, charges and security
interests with respect to the issue thereof.
SECTION 8. ADJUSTMENT OF WARRANT SHARES ISSUABLE. The Warrants
represented by this Warrant Certificate will initially be exercisable by the
holder thereof to purchase .13877 Common Interests at $.01 per interest. The
number of Warrant Shares that may be purchased upon the exercise of each
Warrant (the "Exercise Rate") will be subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 8. For purposes of
this Section 8, "Common Interests" means the Common Interests and any other
interests in the Company for which the Warrants may be exercised and where, as
a result of this definition, the term refers to more than one class of
interests, the adjustment provisions of this Section 8 shall be equitably
adjusted to achieve as nearly as practicable the intended result as evidenced
by the text of such adjustment provisions.
(a) Adjustments for Change in Common Interests.
If at any time after March 1, 1996 the Company:
(1) pays a dividend or makes a distribution on its Common Interests in
Common Interests;
(2) subdivides its outstanding Common Interests into a greater number of
Common Interests;
(3) combines its outstanding Common Interests into a smaller number of
common Interests;
(4) pays a dividend or makes a distribution on its Common interests
other than Common Interests; or
(5) issues by reclassification of its Common Interests any of its other
interests;
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of, or interests in, the
Company which such holder would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment and upon exercise of a Warrant the holder may receive
two or more classes of interests in the Company, the Company shall determine
the allocation of the adjusted Exercise Price between the classes.
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Notwithstanding any other provision hereof, the Exercise Price with respect to
the issuance of any Warrant Share shall not be less than $.01 per share. After
such allocation, the exercise privilege and the Exercise Rate with respect to
each class of interests shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Interests in this Section 8.
Such adjustment shall be made successively whenever any event listed above
occurs.
(b) Adjustment for Rights Issue.
If the Company distributes any rights, options or warrants to all holders of
its Common Interests entitling them for a period expiring within 60 days after
the record date mentioned below to purchase Common Interests or securities
convertible into, or exchangeable or exercisable for, Common Interests at a
price per interest less than the Current Market Value (as defined in subsection
(d)) per interest as of the Time of Determination (as defined in subsection
(d)), the Exercise Rate shall be adjusted in accordance with the formula:
E' = E x O+N
--------------
N x P
O -----
+ M
where:
E' = the adjusted Exercise Rate.
E = the current Exercise Rate.
O = the number of Common Interests outstanding on the record date.
N = the number of additional Common Interests offered.
P = the offering price per additional Common Interests.
M = the Current Market Value per interest (as defined in Subsection (d)).
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the rights, warrants or
options to which this subsection (b) applies. To the extent that Common
Interests are not delivered after the expiration of such rights or warrants,
the Exercise Rate shall be readjusted to the Exercise Rate which would
otherwise be in effect had the adjustment made upon the issuance of such rights
or warrants been made on the basis of delivery of only the number of Common
Interests actually delivered. In the event that such rights or warrants are not
so issued, the Exercise Rate shall again be adjusted to be the Exercise Rate
which would then be in effect if such date fixed for determination of holders
entitled to receive such rights or warrants had not been so fixed.
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No adjustment shall be made under this subsection (b) if the application of
the formula stated above in this subsection (b) would result in a value of E'
that is lower than the value of E.
(c) Adjustment for Other Distributions.
If the Company distributes to all holders of its Common Interests any of its
assets, debt securities or any rights, options or warrants to purchase debt
securities, assets or other interests in or securities of the Company
(including securities or cash, but excluding (1) distributions of Common
Interests or interests referred to in subsection (a) and distributions of
rights, warrants or options referred to in subsection (b) and (2) cash
dividends or other cash distributions that are paid out of current or
accumulated earnings), the Exercise Rate shall be adjusted in accordance with
the formula:
E' = E x M
---
M-F
where:
E' = the adjusted Exercise Rate.
E = the current Exercise Rate.
M = the Current Market Value per Common Interest on the record date for
the determination of holders entitled to receive the distribution.
F = the fair market value (as determined by the Board of Directors whose
determination shall be conclusive) of the assets, securities,
interests, rights or warrants applicable to one Common Interest as of
the Time of Determination for the determination of holders entitled to
receive the distribution.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of holders entitled to receive the distribution.
The Company shall give the Warrant holders at least 10 days notice of a
record date for any dividend payment or other distribution on the Common
Interests.
(d) Current Market Value; Time of Determination.
"Current Market Value" per Common Interest or any other Interest or security
at any date means, on any date of determination the average of the Closing
Prices of the Common Interests (or such interest or security) for the 20
consecutive Business Days selected by the Board of Directors commencing no
more than 30 Business Days before and ending no later than the day before the
day in question; provided that, in the case of clause (c), if the period
between the date of the public announcement of the dividend or distribution and
the date for the determination of holders of Common Interests (or such interest
or security) entitled to
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receive such dividend or distribution (or, if earlier, the date on which the
Common Interests (or such interest or security) go "ex-dividend" in respect of
such dividend or distribution) shall be less than 20 Business Days, the period
shall be such lesser number of Business Days but, in any event, not less than
five Business Days.
"Closing Price" means, for each Business Day, the last reported sale price
regular way on the principal national securities exchange on which the Common
Interests (or such other Interest OR security) are listed or admitted for
trading, or, if the Common Interests (or such other interest or security) are
not so listed or admitted for trading on a national securities exchange, on the
NASDAQ National Market System or, if the Common Interests (or such other
interest or security) are 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 the Company for that purpose or, if the Common Interests (or such other
interest or security) are not traded in the over-the-counter market, the Fair
Market Value per Common Interest (or such other Interest or security) as
determined by the Board of Directors whose determination shall be conclusive.
"Time of Determination") means the time and date of the earlier of (i) the
determination of holders entitled to receive rights, warrants, or options or a
distribution, in each case, to which subsection (b) or (c) applies and (ii) the
time ("Ex-Dividend Time") immediately prior to the commencement of
"ex-dividend" trading for such rights, warrants or distribution on such
national or regional exchange or market on which the Common Interests are then
listed or quoted.
(e) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the adjustment would
require an increase or decrease of at least 1% in the Exercise Rate; provided,
however, that any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment.
All calculations under this Section 8 shall be made to the nearest cent or
to the nearest 1/100th of a interest, as the case may be.
(f) When No Adjustment Required.
To the extent the Warrants become convertible into cash pursuant to
subsection (j), no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
(g) Notice of Adjustment.
Whenever the Exercise Rate is adjusted, the Company shall provide the
notices required by Section 11 hereof.
(h) Voluntary Increase or Reduction.
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The Company from time to time may increase the Exercise Rate by any amount
for any period of time if the period is at least 20 days and if the increase or
decrease, as the case may be, is irrevocable during the period.
Whenever the Exercise Rate is increased the Company shall mail to registered
Warrant holders a notice of the increase or decrease, as the case may be. The
Company shall mail the notice at least 15 days before the date the increased
Exercise Rate, takes effect. The Notice shall state the increased Exercise
Rate, and the period it will be in effect.
An increase in the Exercise Rate, does not change or adjust the Exercise
Rate, as the case may be, otherwise in effect, or as used for calculations, for
purposes of subsections (a), (b), and (c) of this Section 8.
(i) Notice of Certain Transactions.
If: (1) the Company takes any action that would require an adjustment in the
Exercise Rate pursuant to subsections (a), (b) or (c) of this Section 8 or (2)
the Company takes any action that would require a Supplemental Agreement
pursuant to subsection (j) of this Section 11, the Company shall mail to
registered Warrant holders a notice stating the proposed record date for a
dividend or distribution or the expected effective date of a subdivision,
combination, reclassification, consolidation, merger, transfer, lease,
liquidation or dissolution. The Company shall mail the notice at least 20 days
before such date. Failure to mail the notice or any defect in it shall not
affect the validity of the transaction.
(j) Consolidation, Merger or Reorganization of the Company.
If the Company consolidates or mergers with or into, or transfers or leases
all or substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind
and amount of securities, interests, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction and assuming such holder, as a holder of
Common Interests of the Company, failed to exercise its rights of election, if
any, as to the kind or amount of securities, interests, cash and other assets
receivable upon such consolidation, merger, transfer or lease (provided that if
the kind or amount of securities, interests, cash and other assets receivable
upon such consolidation, merger, sale, transfer or lease is not the same for
each Common Interest of the Company held immediately prior to such
consolidation, merger, transfer or lease by other than a constituent person or
an affiliate thereof and in respect of which such rights of election shall have
not been exercised ("non-electing interest"), then for the purpose of this
Section 8 the kind and amount of securities, cash and other assets receivable
upon such consolidation, merger, sale or transfer by each non-electing
interest shall be deemed to be the kind and amount so receivable per interest
by a plurality of the non-electing interests). Concurrently with the
consummation of such transaction, the entity formed by or surviving any such
consolidation or merger if other than the Company, or the person to which such
sale or conveyance shall have been made, shall enter into a Supplemental
Agreement (as defined in Section 13 so providing and further providing for
adjustments in the future which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Section 8.
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If the issuer of securities deliverable upon exercise of Warrants under the
Supplemental Agreement is an affiliate of the formed, surviving, transferee or
lessee corporation, that issuer shall join in the Supplemental Agreement.
Notwithstanding the first paragraph of this subsection (j), in the case of
any merger, reverse stock split, or other transaction in which the publicly
held Common Interests, if any, shall be converted into the right to receive a
consideration consisting solely of cash, (A) the Warrants shall terminate and
(B) each holder of a Warrant, without having to take any other action than the
surrendering of such Warrant to the Company, shall receive an amount equal to
the amount (if any) by which the price per interest payable to, or which would
be received by, any public holder of Common Interests in connection with such
transaction exceeds the Exercise Price effective at that time.
If this subsection (j) applies, subsections (a), (b) and (c) of this Section
8 shall not apply.
(k) When Issuance or Payment May Be Deferred.
In any case in which this Section 8 shall require that an adjustment in the
Exercise Rate be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Warrant Shares
and other interests in the Company, if any, issuable upon such exercise over
and above the Warrant Shares and other interests in the Company, if any,
issuable upon such exercise on the basis of the Exercise Rate and (ii) paying
to such holder any amount in cash in lieu of a fractional interest pursuant to
Section 10 hereof; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional Warrant Shares, other capital stock and cash
upon the occurrence of the event requiring such adjustment.
(l) Form of Warrants.
Irrespective of any adjustments in the Exercise Rate or kind of interests or
other assets purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
price and number and kind of interests or other assets as are stated in the
Warrant Certificates as initially issued.
SECTION 9. NO DILUTION OR IMPAIRMENT. If any event shall occur as to which
the provisions of Section 8 are not strictly applicable but the failure to make
any adjustment would adversely affect the purchase rights represented by the
Warrants in a way that is contrary to the manifest and essential intent and
principles of Section 8, then, in each such case, the Company shall appoint an
investment banking firm of recognized national standing, or any other financial
expert that does not (or whose directors, officers, employees, affiliates or
stockholders do not) have a direct or material indirect financial interest in
the Company, who has not been, and, at the time it is called upon to give
independent financial advice to the Company, is not (and none of its directors,
officers, employees, affiliates or stockholders are) a promoter, director or
officer of the Company, which shall give their opinion upon the adjustment, if
any, on a basis consistent with the manifest and essential intent
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and principles established in Section 8, necessary to preserve, without
dilution, the purchase rights, represented by the Warrant. Upon receipt of
such opinion, the Company will promptly mail a copy thereof to the Warrant
Agent and the Warrant holders and shall make the adjustment described therein.
SECTION 10. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Common Interests on the exercise of Warrants, although it may
do so in its sole discretion. If more than one Warrant shall be presented for
exercise in full at the same time by the same holder, the number of full
Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Common Interests purchasable
on exercise of the Warrants so presented. If any fraction of a Common Interest
would, except for the provisions of this Section 10, be issuable upon the
exercise of any such Warrants (or specified portion thereof), the Company shall
pay to the Warrant holder an amount in cash equal to the Current Market Value
per Common Interest, as determined on the day immediately preceding the date
the Warrant is presented for exercise, multiplied by such fraction, computed to
the nearest whole cent.
SECTION 11. NOTICES TO WARRANT HOLDERS; RIGHTS OF WARRANT HOLDERS. Upon
any adjustment of the Exercise Rate pursuant to Section 8, the Company shall
promptly thereafter cause to be given to each of the registered holders of the
Warrant certificates at his or her address appearing on the Warrant register
written notice of such adjustments by first-class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
In case:
(a) the Company shall authorize the issuance to all holders of Common
Interests of rights, options or warrants to subscribe for or purchase Common
Interests or of any other subscription rights or warrants and other than
issuances in exchange for equivalent consideration; or
(b) the Company shall authorize the distribution to all holders of
Common Interests of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in Common Interests or distributions
referred to in subsection (a) or Section 8 hereof) and other than
distributions in exchange for equivalent consideration; or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any holders of shares of or interests in the Company
is required, or of the conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any reclassification or
change of Common Interests issuable upon exercise of the Warrants (other
than as a result of a subdivision or combination), or a tender offer or
exchange offer by the Company for Common Interests; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
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(e) the Company proposes to take any action (other than actions of the
character described in Section 8(a)) which would require an adjustment of
the Exercise Rate pursuant to Section 8;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at the address appearing on the Warrant register, at
least 20 days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or promptly in the
case of events for which there is no record date, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of Common Interests to be entitled to receive any such rights, options,
warrants or distributions are to be determined, or (ii) the initial or record
expiration date set forth in any tender offer or exchange offer for Common
Interests, or (iii) the date on which any such consolidation, merger,
conveyance, transfer, reclassification, dissolution, liquidation, or winding up
is expected to become effective or consummated, and the date as of which it is
expected that holders of record of Common Interests shall be entitled to
exchange such shares for securities or other property, if any, deliverable upon
such consolidation, merger, conveyance, transfer, reclassification,
dissolution, liquidation or winding up. The failure to give the notice required
by this Section 11 or any defect therein shall not affect the legality or
validity of any issuance, right, option, warrant, distribution, tender offer,
exchange offer, consolidation, merger, conveyance, transfer, reclassification,
dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Warrant Certificate shall be construed as
conferring upon the holder hereof the right to vote or to consent or to receive
notice of meetings of members or the election of directors of the Company or
any other matter, or any other rights of members of the Company, including any
right to receive dividends. In addition, the holders of Warrant Certificates
shall have no preemptive rights and shall not be entitled to share in the
assets of the Company in the event of the liquidation, dissolution or winding
up of the Company's affairs in respect of Common Interests issuable upon
exercise hereof.
SECTION 12. NOTICES TO THE COMPANY. Any notice or demand authorized by
this Warrant Certificate to be given or made by the holder of any Warrant
Certificate to the Company shall be sufficiently given or made when deposited
in the mail, first class or registered, postage prepaid, addressed, as follows:
Iridium, Inc.
1401 H Street NW - 8th floor
Washington, DC 20005
Attention: General Counsel
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: John P. Mead
;or to such other addressee or at such other address or location as may be
notified by the Company to the holders of Warrant Certificates from time to
time.
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SECTION 13. SUPPLEMENTS AND AMENDMENTS. The Company by entering into a
supplemental agreement (a "Supplemental Agreement") signed by the Company may
amend the terms of this Warrant Certificate; provided that any amendment which
would adversely affect the interests of the holders of Warrants must be
approved by holders of a majority of the then outstanding Warrants. A copy of
any Supplemental Agreement shall be mailed by the Company to each Warrant
holder within 30 days of its effective date. The consent of each Warrant holder
affected shall be required for any amendment pursuant to which the Exercise
Rate would be decreased (other than in connection with a waiver of any
provisions of Section 8 or 10 hereof).
SECTION 14. GOVERNING LAW. This Warrant Certificate and the Warrants shall
be governed and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, Iridium LLC has caused this Warrant Certificate to be
signed by a duly authorized officer of the Company and has caused its seal to
be affixed hereunto or imprinted hereon.
Dated: IRIDIUM LLC
By:
-------------------------
Name:
Title:
Attested by: (seal)
- -------------------------
Name: F. Thomas Tuttle
Title: General Counsel
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Form of Election to Purchase
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to receive __________ Class 1 Membership Interests
("Common Shares") and hereby tenders payment for such Common Interests to the
order of Iridium LLC in the amount of $_____ in accordance with the terms
hereof.
The undersigned requests that a certificate for such Common Interests be
registered in the name of __________________, whose address is
_____________________________________ and that such shares be delivered to
_____________________________________________ whose address is
__________________________________________.
If said number of Common Interests is less than all of the Common Interests
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such Common Interests be registered in
the name of _________________________, whose address is
____________________________, and that such Warrant Certificate be delivered to
__________________________, whose address is _______________________
_______________.
_________________________(1) (Signature)
Date: ________________
Signature Guaranteed by:
_______________________
Name:
Title: (1)
(1) The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever, and, at the option of the Company,
must be guaranteed by an "eligible guarantor institution" which meets the
requirements of the Company (which requirements may include membership or
participation in STAMP or such other "signature guaranty program" as may
be determined by the Company in addition to, or in substitution for,
STAMP).
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EXHIBIT 2-B
Form of Warrant
FORM OF WARRANT
NEITHER THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE NOR THE CLASS 1
MEMBERSHIP INTERESTS OF IRIDIUM LLC (THE "COMPANY") FOR WHICH THE WARRANTS
REPRESENTED BY THIS WARRANT CERTIFICATE ARE EXERCISABLE (THE "WARRANT SHARES")
MAY BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION FROM THOSE REGISTRATION REQUIREMENTS.
ACCORDINGLY, THE HOLDER OF THIS WARRANT CERTIFICATE SHALL NOT BE ENTITLED TO
TRANSFER OR EXERCISE SUCH HOLDER'S WARRANTS AT ANY TIME UNLESS, AT THE TIME OF
SUCH TRANSFER OR EXERCISE, (I) A REGISTRATION STATEMENT UNDER THE ACT RELATING
TO THE WARRANTS OR THE WARRANT SHARES, AS THE CASE MAY BE, HAS BEEN FILED WITH,
AND DECLARED EFFECTIVE BY, THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"),
AND NO STOP ORDER SUSPENDING THE EFFECTIVENESS OF SUCH REGISTRATION STATEMENT
HAS BEEN ISSUED BY THE SEC OR (II) THE TRANSFER OF THE WARRANTS REPRESENTED BY
THIS CERTIFICATE OR THE ISSUANCE OF THE WARRANT SHARES IS PERMITTED PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
TRANSFER OF THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE
WARRANT SHARES IS ALSO RESTRICTED BY THE TERMS OF A LIMITED LIABILITY COMPANY
AGREEMENT, DATED AS OF JULY 1, 1996 BY AND AMONG THE PARTIES NAMED THEREIN (THE
"LLC AGREEMENT"). A COPY OF THE LLC AGREEMENT IS ON FILE AND AVAILABLE FOR
INSPECTION BY THE HOLDER OF THIS WARRANT CERTIFICATE AT THE COMPANY'S PRINCIPAL
EXECUTIVE OFFICES.
No. __________ Warrants
WARRANT TO PURCHASE CLASS 1 MEMBERSHIP INTERESTS
of
IRIDIUM LLC
This Warrant Certificate certifies that __________, or registered permitted
assigns, is the registered holder of _____ warrants expiring March 1, 2006 to
purchase an aggregate of ____________ Class 1 Membership Interests in the
Company (the "Common Shares"), of Iridium LLC, a Delaware limited liability
company (the "Company"). The Warrants evidenced hereby are part of a duly
authorized issue of Warrants of the Company (the "Warrants") all evidenced by
Warrant Certificates substantially similar to this Warrant Certificate. Each
Warrant entitles the holder upon exercise to purchase from the Company at any
time on or after March 1, 2001 and prior to 5:00 p.m. New York City time on
March 1, 2006, .13877 Common Interests (each a "Warrant Share") upon surrender
of this Warrant Certificate to the Warrant Agent, subject to the conditions set
forth herein. The number of Warrant Shares purchasable upon exercise thereof
are subject to adjustment upon the occurrence of certain events set forth
herein. Exercise of a Warrant by a person other than the registered holder
named above is subject to the approval of such person for admission as a Member
of the Company by the Members of the Company who may grant or withhold such
consent in their absolute discretion.
SECTION 1. EXERCISE OF THE WARRANTS. Warrants may be exercised at any time on
or after March 1, 2001 and prior to 5:00 p.m. New York City time on March 1,
2006 (the "Expiration Date"). The holder of Warrants evidenced by this Warrant
Certificate may exercise such Warrants by surrendering this Warrant
Certificate, with the form of election to purchase set forth hereon properly
completed and executed, together with payment to the Company of the Exercise
Price fo each Warrant
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then exercised. Exercise of this Warrant by a person other than the registered
holder named in the preamble of this Warrant is subject to the approval of such
person for admission as a Member of the Company by the Members of the Company
who may grant or withhold such consent in their absolute discretion. In the
event that upon any exercise of Warrants evidenced hereby the number of
Warrants exercised shall be less than the total number of Warrants evidenced
hereby, the Company shall issue to the holder hereof or his permitted assignee
a new Warrant Certificate evidencing the number of Warrants not exercised. No
cash dividend shall be paid to a holder of Warrants Shares issuable upon the
exercise of Warrants unless such holder was, as of the record date for the
declaration of such dividend, the record holder of such Warrant Shares.
No Warrant may be exercised after the Expiration Date, and to the extent not
exercised by such time, such Warrants shall become void. The Company shall give
notice of expiration not less than 90 nor more than 120 days prior to the
Expiration Date to the registered holders of the then outstanding Warrants;
provided, however, that if the Company fails to give such notice, the Warrants
shall still terminate and become void on the Expiration Date.
SECTION 3. REGISTRATION OF TRANSFER AND EXCHANGE. The Company and its
agents may deem and treat the registered holder(s) of this Warrant Certificate
as the absolute owner(s) hereof (notwithstanding any notation of ownership or
other writing hereon made by anyone), for all purposes, and neither the Company
nor its agents shall be affected by any notice to the contrary.
References herein to "Warrant holder(s)" or "holders of the Warrant
Certificates" means in each case registered holders of Warrant Certificates.
Subject to the restrictions on transfer referred to in the Legend on page 1
of this Warrant Certificate, Warrant Certificates, when surrendered at the
office maintained by the Company for such purpose by the registered holder
thereof in person or by legal representative or attorney duly authorized in
writing, may be presented for exchange or registration of transfer without
payment of any service charge (except for stamp or any other governmental tax
or charge that may be imposed in connection with any such transfer or
exchange), for another Warrant Certificate or Warrant Certificates representing
a like tenor executed by the Company in the aggregate a like number of
Warrants.
Every Warrant Certificate surrendered for registration of transfer or
exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in any form satisfactory to the
Company, duly executed by the Warrant holder or his attorney duly authorized in
writing (with, in the case of transfer and if requested by the Company, such
signature guaranteed by an eligible guarantor institution).
All Warrant Certificates issued upon any registration of transfer or
exchange of Warrant certificates shall be the valid obligations of the Company,
evidencing the same obligations, and entitled to the same benefits under this
Certificate, as the Warrant Certificates surrendered for such registration of
transfer or exchange, except for the limitation on right of exercise set forth
in the third sentence of Section 1.
SECTION 4. RETIREMENT OF WARRANTS. The Company may purchase Warrants. Any
Warrants purchased by the Company may be retired by cancellation of such
Warrants and appropriate notation thereof in the Company's register.
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SECTION 5. PAYMENT OF TAXES. The Company will pay all taxes and other
governmental charges attributable to the initial issuance of Common Interests
upon the exercise of Warrants; provided, however, that the Company shall not be
required to pay any such taxes or charges which may be payable in respect of
any transfer involved in the issue of any Warrant Certificates or any
certificates for Common Interests in a name other than that of the registered
holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and
the Company shall not be required to issue or deliver such Warrant Certificates
unless or until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of such taxes or charges or shall have
established to the satisfaction of the Company that such taxes or charges have
been paid.
SECTION 6. MUTILATED OR MISSING WARRANT CERTIFICATES. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate of
like tenor and representing an equivalent number of Warrants, but only upon
receipt of evidence satisfactory to the Company of such loss, theft or
destruction for such Warrant Certificate and indemnity and security therefor,
if requested, also satisfactory to the Company. Applicants for such substitute
Warrant Certificates shall also comply with such other reasonable regulations
and pay such other reasonable charges as the Company may prescribe.
SECTION 7. RESERVATIONS OF WARRANT SHARES. The Company (i) shall at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Class 1 Membership Interests, for the
purpose of enabling it to satisfy any obligation to issue Warrant Shares upon
exercise of Warrants, the maximum number of Common Interests which would then
be deliverable upon the exercise of all outstanding Warrants if all such
outstanding Warrants were then exercisable and (ii) shall not take any action
which results in any adjustment of the Exercise Rate if the total number of
Warrant Shares would exceed the total number of Common Interests then
authorized by the Company's certificate of incorporation and available for the
purpose of issue upon such exercise.
The transfer agent for the Common Interests (which may be the Company if it
is acting as transfer agent) (the "Transfer Agent") and every subsequent
transfer agent for any interests of the Company issuable upon the exercise of
any of the rights of purchase aforesaid will be irrevocably authorized and
directed at all times to reserve such number of authorized interests as shall
be required for such purpose.
The Company covenants that all Warrant Shares which may be issued upon
exercise of Warrants will, upon payment of the Exercise Price and issuance, be
duly and validly issued, free of preemptive rights and free from all taxes,
liens, charges and security interests with respect to the issue thereof.
SECTION 8. ADJUSTMENT OF WARRANT SHARES ISSUABLE. The Warrants
represented by this Warrant Certificate will initially be exercisable by the
holder thereof to purchase .13877 Common Interests at $.01 per interest. The
number of Warrant Shares that may be purchased upon the exercise of each
Warrant (the "Exercise Rate") will be subject to adjustment from time to time
upon the occurrence of the events enumerated in this Section 8. For purposes of
this Section 8, "Common Interests" means the Common Interests and any other
interests in the Company for which the Warrants
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may be exercised and where, as a result of this definition, the term refers to
more than one class of interests, the adjustment provisions of this Section 8
shall be equitably adjusted to achieve as nearly as practicable the intended
result as evidenced by the text of such adjustment provisions.
(a) Adjustments for Change in Common Interests.
If at any time after March 1, 1996 the Company:
(1) pays a dividend or makes a distribution on its Common Interests in
Common Interests;
(2) subdivides its outstanding Common Interests into a greater number of
Common Interests;
(3) combines its outstanding Common Interests into a smaller number of
Common Interests;
(4) pays a dividend or makes a distribution on its Common Interests in
interests other than Common Interests; or
(5) issues by reclassification of its Common Interests any of its other
interests;
then the Exercise Rate in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of, or interests in, the
Company which such holder would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action.
The adjustment shall become effective immediately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.
If after an adjustment and upon exercise of a Warrant the holder may receive
two or more classes of interests in the Company, the Company shall determine
the allocation of the adjusted Exercise Price between the classes.
Notwithstanding any other provision hereof, the Exercise Price with respect to
the issuance of any Warrant Share shall not be less than $.01 per share. After
such allocation, the exercise privilege and the Exercise Rate with respect to
each class of interests shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Interests in this Section 8.
Such adjustment shall be made successively whenever any event listed above
occurs.
(b) Adjustment for Rights Issue.
If the Company distributes any rights, options or warrants to all holders of
its Common Interests entitling them for a period expiring within 60 days after
the record date mentioned below to purchase Common Interests or securities
convertible into, or exchangeable or exercisable for, Common Interests at a
price per interest less than the Current Market Value (as defined in subsection
(d)) per interest as of the Time of Determination (as defined in subsection
(d)), the Exercise Rate shall be adjusted in accordance with the formula:
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E' = E x O+N
-------
N x P
O --------
+ M
where:
E' = the adjusted Exercise Rate.
E = the current Exercise Rate.
O = the number of Common Interests outstanding on the record date.
N = the number of additional Common Interests offered.
P = the offering price per additional Common Interests.
M = the Current Market Value per interest (as defined in Subsection (d)).
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the rights, warrants or
options to which this subsection (b) applies. To the extent that Common
Interests are not delivered after the expiration of such rights or warrants,
the Exercise Rate shall be readjusted to the Exercise Rate which would
otherwise be in effect had the adjustment made upon the issuance of such rights
or warrants been made on the basis of delivery of only the number of Common
Interests actually delivered. In the event that such rights or warrants are not
so issued, the Exercise Rate shall again be adjusted to be the Exercise Rate
which would then be in effect if such date fixed for determination of holders
entitled to receive such rights or warrants had not been so fixed.
No adjustment shall be made under this subsection (b) if the application of
the formula stated above in this subsection (b) would result in a value of E'
that is lower than the value of E.
(c) Adjustment for Other Distributions.
If the Company distributes to all holders of its Common Interests any of its
assets, debt securities or any rights, options or warrants to purchase debt
securities, assets or other interests in or securities of the Company
(including securities or cash, but excluding (1) distributions of Class 1
Membership Interests or interests referred to in subsection (a) and
distributions of rights, warrants or options referred to in subsection (b) and
(2) cash dividends or other cash distributions that are paid out of current or
accumulated earnings), the Exercise Rate shall be adjusted in accordance with
the formula:
E' = E x M
-----
M-F
where:
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E' = the adjusted Exercise Rate.
E = the current Exercise Rate.
M = the Current Market Value per Common Interest on the record date for
the determination of holders entitled to receive the distribution.
F = the fair market value (as determined by the Board of Directors whose
determination shall be conclusive) of the assets, securities,
interests, rights or warrants applicable to one Common Interest as of
the Time of Determination for the determination of holders entitled to
receive the distribution.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of holders entitled to receive the distribution.
The Company shall give the Warrant holders at least 10 days notice of a
record date for any dividend payment or other distribution on the Common
Interests.
(d) Current Market Value; Time of Determination.
"Current Market Value" per Common Interest or any other interest or security
at any date means, on any date of determination the average of the Closing
Prices of the Common Interests (or such interest or security) for the 20
consecutive Business Days selected by the Board of Directors commencing no more
than 30 Business Days before and ending no later than the day before the day in
question; provided that, in the case of clause (c), if the period between the
date of the public announcement of the dividend or distribution and the date
for the determination of holders of Common Interests (or such interest or
security) entitled to receive such dividend or distribution (or, if earlier,
the date on which the Common Interests (or such interest or security) go
"ex-dividend" in respect of such dividend or distribution) shall be less than
20 Business Days, the period shall be such lesser number of Business Days but,
in any event, not less than five Business Days.
"Closing Price" means, for each Business Day, the last reported sale price
regular way on the principal national securities exchange on which the Common
Interests (or such other interest or security) are listed or admitted for
trading, or, if the Common Interests (or such other interest or security) are
not so listed or admitted for trading on a national securities exchange, on the
NASDAQ National Market System or, if the Common Interests (or such other
interest or security) are 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 the Company for that purpose or, if the Common Interests (or such other
interest or security) are not traded in the over-the-counter market, the Fair
Market Value per Common Interest (or such other interest or security) as
determined by the Board of Directors whose determination shall be conclusive.
"Time of Determination") means the time and date of the earlier of (i) the
determination of holders entitled to receive rights, warrants, or options or a
distribution, in each case, to which subsection (b) or
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(c) applies and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such rights, warrants or distribution
on such national or regional exchange or market on which the Common Interests
are then listed or quoted.
(e) When De Minimis Adjustment May Be Deferred.
No adjustment in the Exercise Rate need be made unless the adjustment would
require an increase or decrease of at least 1% in the Exercise Rate; provided,
however, that any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment.
All calculations under this Section 8 shall be made to the nearest cent or
to the nearest 1/100th of a interest, as the case may be.
(f) When No Adjustment Required.
To the extent the Warrants become convertible into cash pursuant to
subsection (j), no adjustment need be made thereafter as to the cash. Interest
will not accrue on the cash.
(g) Notice of Adjustment.
Whenever the Exercise Rate is adjusted, the Company shall provide the
notices required by Section 11 hereof.
(h) Voluntary Increase or Reduction.
The Company from time to time may increase the Exercise Rate by any amount
for any period of time if the period is at least 20 days and if the increase or
decrease, as the case may be, is irrevocable during the period.
Whenever the Exercise Rate is increased the Company shall mail to registered
Warrant holders a notice of the increase or decrease, as the case may be. The
Company shall mail the notice at least 15 days before the date the increased
Exercise Rate, takes effect. The Notice shall state the increased Exercise
Rate, and the period it will be in effect.
An increase in the Exercise Rate, does not change or adjust the Exercise
Rate, as the case may be, otherwise in effect, or as used for calculations, for
purposes of subsections (a), (b), and (c) of this Section 8.
(i) Notice of Certain Transactions.
If: (1) the Company takes any action that would require an adjustment in the
Exercise Rate pursuant to subsections (a), (b) or (c) of this Section 8 or (2)
the Company takes any action that would require a Supplemental Agreement
pursuant to subsection (j) of this Section 11, the Company shall mail to
registered Warrant holders a notice stating the proposed record date for a
dividend or distribution or the expected effective date of a subdivision,
combination, reclassification, consolidation, merger,
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transfer, lease, liquidation or dissolution. The Company shall mail the notice
at least 20 days before such date. Failure to mail the notice or any defect in
it shall not affect the validity of the transaction.
(j) Consolidation, Merger or Reorganization of the Company.
If the Company consolidates or mergers with or into, or transfers or leases
all or substantially all its assets to, any person, upon consummation of such
transaction the Warrants shall automatically become exercisable for the kind
and amount of securities, interests, cash or other assets which the holder of a
Warrant would have owned immediately after the consolidation, merger, transfer
or lease if the holder had exercised the Warrant immediately before the
effective date of the transaction and assuming such holder, as a holder of
Common Interests of the Company, failed to exercise its rights of election, if
any, as to the kind or amount of securities, interests, cash and other assets
receivable upon such consolidation, merger, transfer or lease (provided that if
the kind or amount of securities, interests, cash and other assets receivable
upon such consolidation, merger, sale, transfer or lease is not the same for
each Common Interest of the Company held immediately prior to such
consolidation, merger, transfer or lease by other than a constituent person or
an affiliate thereof and in respect of which such rights of election shall have
not been exercised ("non-electing interest"), then for the purpose of this
Section 8 the kind and amount of securities, cash and other assets receivable
upon such consolidation, merger, sale or transfer by each non-electing interest
shall be deemed to be the kind and amount so receivable per interest by a
plurality of the non-electing interests). Concurrently with the consummation of
such transaction, the entity formed by or surviving any such consolidation or
merger if other than the Company, or the person to which such sale or
conveyance shall have been made, shall enter into a Supplemental Agreement (as
defined in Section 13 so providing and further providing for adjustments in the
future which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section 8.
If the issuer of securities deliverable upon exercise of Warrants under the
Supplemental Agreement is an affiliate of the formed, surviving, transferee or
lessee corporation, that issuer shall join in the Supplemental Agreement.
Notwithstanding the first paragraph of this subsection (j), in the case of
any merger, reverse stock split, or other transaction in which the publicly
held Common Interests, if any, shall be converted into the right to receive a
consideration consisting solely of cash, (A) the Warrants shall terminate and
(B) each holder of a Warrant, without having to take any other action than the
surrendering of such Warrant to the Company, shall receive an amount equal to
the amount (if any) by which the price per interest payable to, or which would
be received by, any public holder of Common Interests in connection with such
transaction exceeds the Exercise Price effective at that time.
If this subsection (j) applies, subsections (a), (b) and (c) of this Section
8 shall not apply.
(k) When Issuance or Payment May Be Deferred.
In any case in which this Section 8 shall require that an adjustment in the
Exercise Rate be made effective as of a record date for a specified event, the
Company may elect to defer until the occurrence of such event (i) issuing to
the holder of any Warrant exercised after such record date the Warrant Shares
and other interests in the Company, if any, issuable upon such exercise over
and above the
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Warrant Shares and other interests in the Company, if any, issuable upon such
exercise on the basis of the Exercise Rate and (ii) paying to such holder any
amount in cash in lieu of a fractional interest pursuant to Section 10 hereof;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional Warrant Shares, other capital stock and cash upon the occurrence of
the event requiring such adjustment.
(l) Form of Warrants.
Irrespective of any adjustments in the Exercise Rate or kind of interests or
other assets purchasable upon the exercise of the Warrants, Warrant
Certificates theretofore or thereafter issued may continue to express the same
price and number and kind of interests or other assets as are stated in the
Warrant Certificates as initially issued.
SECTION 9. NO DILUTION OR IMPAIRMENT. If any event shall occur as to which
the provisions of Section 8 are not strictly applicable but the failure to make
any adjustment would adversely affect the purchase rights represented by the
Warrants in a way that is contrary to the manifest and essential intent and
principles of Section 8, then, in each such case, the Company shall appoint an
investment banking firm of recognized national standing, or any other financial
expert that does not (or whose directors, officers, employees, affiliates or
stockholders do not) have a direct or material indirect financial interest in
the Company, who has not been, and, at the time it is called upon to give
independent financial advice to the Company, is not (and none of its managers,
officers, employees, affiliates or stockholders are) a promoter, manager or
officer of the Company, which shall give their opinion upon the adjustment, if
any, on a basis consistent with the manifest and essential intent and
principles established in Section 8, necessary to preserve, without dilution,
the purchase rights, represented by the Warrant. Upon receipt of such opinion,
the Company will promptly mail a copy thereof to the Warrant Agent and the
Warrant holders and shall make the adjustment described therein.
SECTION 10. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Common Interests on the exercise of Warrants, although it may
do so in its sole discretion. If more than one Warrant shall be presented for
exercise in full at the same time by the same holder, the number of full
Warrant Shares which shall be issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of Common Interests purchasable
on exercise of the Warrants so presented. If any fraction of a Common Interest
would, except for the provisions of this Section 10, be issuable upon the
exercise of any such Warrants (or specified portion thereof), the Company shall
pay to the Warrant holder an amount in cash equal to the Current Market Value
per Common Interest, as determined on the day immediately preceding the date
the Warrant is presented for exercise, multiplied by such fraction, computed to
the nearest whole cent.
SECTION 11. NOTICES TO WARRANT HOLDERS; RIGHTS OF WARRANT HOLDERS. Upon
any adjustment of the Exercise Rate pursuant to Section 8, the Company shall
promptly thereafter cause to be given to each of the registered holders of the
Warrant certificates at his or her address appearing on the Warrant register
written notice of such adjustments by first-class mail, postage prepaid. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this Section 11.
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In case:
(a) the Company shall authorize the issuance to all holders of Common
Interests of rights, options or warrants to subscribe for or purchase Common
Interests or of any other subscription rights or warrants and other than
issuances in exchange for equivalent consideration; or
(b) the Company shall authorize the distribution to all holders of
Common Interests of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or
earned surplus or dividends payable in Common Interests or distributions
referred to in subsection (a) or Section 8 hereof) and other than
distributions in exchange for equivalent consideration; or
(c) of any consolidation or merger to which the Company is a party and
for which approval of any holders of shares of or interests in the Company
is required, or of the conveyance or transfer of the properties and assets
of the Company substantially as an entirety, or of any reclassification or
change of Common Interests issuable upon exercise of the Warrants (other
than as a result of a subdivision or combination), or a tender offer or
exchange offer by the Company for Common Interests; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
(e) the Company proposes to take any action (other than actions of the
character described in Section 8(a)) which would require an adjustment of
the Exercise Rate pursuant to Section 8;
then the Company shall cause to be given to each of the registered holders of
the Warrant Certificates at the address appearing on the Warrant register, at
least 20 days (or 10 days in any case specified in clauses (a) or (b) above)
prior to the applicable record date hereinafter specified, or promptly in the
case of events for which there is no record date, by first-class mail, postage
prepaid, a written notice stating (i) the date as of which the holders of
record of Common Interests to be entitled to receive any such rights, options,
warrants or distributions are to be determined, or (ii) the initial or record
expiration date set forth in any tender offer or exchange offer for Common
Interests, or (iii) the date on which any such consolidation, merger,
conveyance, transfer, reclassification, dissolution, liquidation, or winding up
is expected to become effective or consummated, and the date as of which it is
expected that holders of record of Common Interests shall be entitled to
exchange such interests for securities or other property, if any, deliverable
upon such consolidation, merger, conveyance, transfer, reclassification,
dissolution, liquidation or winding up. The failure to give the notice required
by this Section 11 or any defect therein shall not affect the legality or
validity of any issuance, right, option, warrant, distribution, tender offer,
exchange offer, consolidation, merger, conveyance, transfer, reclassification,
dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Warrant Certificate shall be construed as
conferring upon the holder hereof the right to vote or to consent or to receive
notice of meetings of Members or the election of directors of the Company or
any other matter, or any other rights of Members of the Company, including any
right to receive dividends. In addition, the holders of Warrant Certificates
shall have no preemptive rights and shall not be entitled to share in the
assets of the Company in the event of the liquidation,
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dissolution or winding up of the Company's affairs in respect of Common
Interests issuable upon exercise hereof.
SECTION 12. NOTICES TO THE COMPANY. Any notice or demand authorized by
this Warrant Certificate to be given or made by the holder of any Warrant
Certificate to the Company shall be sufficiently given or made when deposited
in the mail, first class or registered, postage prepaid, addressed, as follows:
Iridium, Inc.
1401 H Street NW - 8th floor
Washington, DC 20005
Attention: F. Thomas Tuttle, Esq.
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: John P. Mead
;or to such other addressee or at such other address or location as may be
notified by the Company to the holders of Warrant Certificates from time to
time.
SECTION 13. SUPPLEMENTS AND AMENDMENTS. The Company by entering into a
supplemental agreement (a "Supplemental Agreement") signed by the Company may
amend the terms of this Warrant Certificate; provided that any amendment which
would adversely affect the interests of the holders of Warrants must be
approved by holders of a majority of the then outstanding Warrants. A copy of
any Supplemental Agreement shall be mailed by the Company to each Warrant
holder within 30 days of its effective date. The consent of each Warrant holder
affected shall be required for any amendment pursuant to which the Exercise
Rate would be decreased (other than in connection with a waiver of any
provisions of Section 8 or 10 hereof).
SECTION 14. GOVERNING LAW. This Warrant Certificate and the Warrants shall
be governed and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, Iridium LLC has caused this Warrant Certificate to be
signed by a duly authorized officer of the Company and has caused its seal to
be affixed hereunto or imprinted hereon.
Dated: IRIDIUM LLC
By:
---------------------------
Name:
Title:
Attested by: (seal)
- --------------------------
Name: F. Thomas Tuttle
Title: General Counsel
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Form of Election to Purchase
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented
by this Warrant Certificate, to receive __________ Class 1 Membership Interests
("Common Shares") and hereby tenders payment for such Common Shares to the
order of Iridium LLC in the amount of $_____ in accordance with the terms
hereof.
The undersigned requests that a certificate for such Common Shares be
registered in the name of __________________, whose address is
_____________________________________ and that such Common Shares be delivered
to _____________________________________________ whose address is
__________________________________________.
If said number of Common Shares is less than all of the Common Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of such Common Shares be registered in the
name of _________________________, whose address is
____________________________, and that such Warrant Certificate be delivered to
__________________________, whose address is _______________________
_______________.
(1)
----------------------
(Signature)
Date:
-------------------------
Signature Guaranteed by:
---------------------------
Name:
Title: (1)
(1) The signature must correspond with the name as written upon the face of
the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever, and, at the option of the Company,
must be guaranteed by an "eligible guarantor institution" which meets the
requirements of the Company (which requirements may include membership or
participation in STAMP or such other "signature guaranty program" as may
be determined by the Company in addition to, or in substitution for,
STAMP).
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EXHIBIT 3-A
Amendments to Motorola Warrant
MOTOROLA WARRANT
Date of Issuance: July 29, 1993 Certificate No. W-1
For value received, Iridium LLC, a Delaware limited liability company
(the "Company"), hereby grants to Motorola, Inc., a Delaware corporation
("Motorola") the right to purchase from the Company membership interests
denominated as Series M Class 2 Interests ("Series M Class 2 Interests")
representing 2.5% of the Class 1 Interests Deemed Outstanding at the Exercise
Time (as hereinafter defined) at a price per interest of $1,000 (as adjusted
from time to time in accordance herewith, the "Exercise Price"). Certain
capitalized terms used herein are defined in Section 5 hereof. The amount and
kind of interests and securities purchasable pursuant to the rights granted
hereunder and the purchase price for such Interests and securities are subject
to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. Motorola may exercise, in whole but
not in part, the purchase rights represented by this Warrant at any time and
from time to time during the period commencing on the third anniversary of the
Closing Date through and including July 29, 2006 (the "Exercise Period"). The
Company shall give Motorola written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of
the Exercise Period.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised
when the Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in
paragraph 1C below, executed by Motorola;
(b) this Warrant; and
(c) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of Series M
Class 2 Interests being purchased upon such exercise (the "Aggregate
Exercise Price").
(ii) Certificates for Series M Class 2 Interests purchased
upon exercise of this Warrant shall be delivered by the Company to Motorola
within five business days after the date of the Exercise Time.
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(iii) The Series M Class 2 Interests issuable upon the
exercise of this Warrant shall be deemed to have been issued to Motorola at the
Exercise Time, and Motorola shall be deemed for all purposes to have become the
record holder of such Series M Class 2 Interests at the Exercise Time.
(iv) The issuance of certificates for Series M Class 2
Interests upon exercise of this Warrant shall be made without charge to
Motorola for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of Series M
Class 2 Interests. Each Series M Class 2 Interest issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Series M Class 2 Interest issued or issuable
upon the exercise of this Warrant in any manner which interferes with the
timely exercise of this Warrant.
(vi) The Company shall assist and cooperate with Motorola in
making any governmental filings or obtaining any governmental approvals prior
to or in connection with any exercise of this Warrant (including, without
limitation, making any filings required to be made by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of this Warrant is to be made in connection with a public offering or
sale of the Company, the exercise of this Warrant may, at the election of
Motorola, be conditioned upon the consummation of the public offering or sale
of the Company in which case such exercise shall not be deemed to be effective
until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Series M Class 2 Interests solely
for the purpose of issuance upon the exercise of this Warrant, such number of
Series M Class 2 Interests issuable upon the exercise of this Warrant. All
Series M Class 2 Interests which are so issuable shall, when issued, be duly
and validly issued and free from all taxes, liens and charges. The Company
shall take all such actions as may be necessary to assure that all such Series
M Class 2 Interests may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which Series M Class 2 Interests may be listed (except for official notice
of issuance which shall be immediately delivered by the Company upon each such
issuance).
1C. Exercise Agreement. Upon any exercise of this
Warrant, the Exercise Agreement shall be substantially in the form set forth in
Exhibit 1 hereto. Such Exercise Agreement shall be dated the actual date of
execution thereof.
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Section 2. Adjustment of Exercise Price. In order to
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2.
2A. Subdivision or Combination of Series M Class 2
Interests. If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
Series M Class 2 Interests into a greater number of interests, the Exercise
Price in effect immediately prior to such subdivision shall be proportionately
reduced. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding Series M Class 2 Interests
into a smaller number of interests, the Exercise Price in effect immediately
prior to such combination shall be proportionately increased.
2B. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Series M Class 2 Interests are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Series M Class 2 Interests are referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the Company
shall make appropriate provision (in form and substance satisfactory to
Motorola) to insure that Motorola shall thereafter have the right to acquire
and receive in lieu of or addition to (as the case may be) the Series M Class 2
Interests immediately theretofore acquirable and receivable upon the exercise
of this Warrant, such interests, interests of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of
Series M Class 2 Interests immediately theretofore acquirable and receivable
upon exercise of this Warrant had such Organic Change not taken place. In any
such case, the Company shall make appropriate provision (in form and substance
satisfactory to Motorola) with respect to Motorola's rights and interests to
insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall
thereafter be applicable to this Warrant. The Company shall not effect any
such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from such
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to Motorola) the obligation to
deliver to each such holder such interests, interests of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
2C. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions, then the Company's board of directors shall make an
appropriate adjustment in the Exercise Price so as to protect the rights of
Motorola as the holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price as otherwise determined pursuant to this Section 2.
2D. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to Motorola, setting forth
in reasonable detail and certifying the calculation of such adjustment.
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(ii) The Company shall give written notice to Motorola at
least 20 days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Series M
Class 2 Interests or the Class 1 Interests, (B) with respect to any pro rata
subscription offer to holders of Series M Class 2 Interests or Class 1
Interests or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to Motorola
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Liquidating Dividends. If the Company declares or
pays a dividend or distribution upon the Series M Class 2 Interests or Class 1
Interests payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend or distribution payable in
Class 1 Interests (a "Liquidating Dividend"), then the Company shall pay to
Motorola at the time of payment thereof the Liquidating Dividend which would
have been paid to Motorola on the Series M Class 2 Interests or Class 1
Interests, as the case may be, had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Series M Class 2 Interests or Class 1 Interests, as the case may be, entitled
to such dividends or distributions are to be determined.
Section 4. Purchase Rights. If at any time the Company
grants, issues or sells any options, convertible securities or rights to
purchase interests, stock, warrants, securities or other property pro rata to
the record holders of any class of Interests (the "Purchase Rights"), then
Motorola shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which Motorola could have
acquired if Motorola had held the number of Series M Class 2 Interests
acquirable upon complete exercise of this Warrant immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Series M Class 2 Interests are to be determined for the grant, issue or sale
of such Purchase Rights.
Section 5. Definitions. The following terms have meanings
set forth below:
"Closing Date" means July 29, 1993.
"Class 1 Interests" means, collectively, the membership
interests in the Company denominated as Class 1 Interests, and any other class
of membership interests in the Company hereafter authorized which is not
limited to a fixed sum or percentage in respect to the rights of holders
thereof to participate in dividends or distributions or in the distribution of
assets upon any liquidation, dissolution or winding up of the
3-A-4
<PAGE> 193
Company. The Series A, Series B, Series C and Series M Class 2 Interests are
not Class 1 Interests.
"Class 1 Interests Deemed Outstanding" means, at any given
time, the number of Class 1 Interests actually outstanding at such time, plus
the number of Class 1 Interests for which the Company has received commitments
to purchase, regardless of whether there are any unfulfilled conditions
precedent to such commitments, plus the number of Class 1 Interests issuable
upon exercise of any rights or options to subscribe for or to purchase Class 1
Interests or any interests, stock or other securities convertible into or
exchangeable for Class 1 Interests regardless of whether such rights or options
are actually exercisable at such time, plus the number of Class 1 Interests
issuable upon conversion or exchange of any interests or securities
convertible into or exchangeable for Class 1 Interests regardless of whether
such interests or securities are actually convertible or exchangeable at such
time, but excluding any Class 1 Interests issuable upon exercise of this
Warrant.
"Person" means an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Series M Class 2 Interests Interests" means the membership
interests in the Company denominated as Series M Class 2 Interests.
Section 6. No Voting Rights; Limitations of Liability. This
Warrant shall not entitle Motorola to any voting rights or other rights as a
member in the Company. No provision hereof, in the absence of affirmative
action by Motorola to purchase Series M Class 2 Interests, and no enumeration
herein of the rights or privileges of Motorola shall give rise to any liability
of Motorola for the Exercise Price of Series M Class 2 Interests acquirable by
exercise hereof or as a member in the Company.
Section 7. Warrant Not Transferable. This Warrant is not
transferable, in whole or in part.
Section 8. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of Motorola shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of a Motorola indemnity agreement reasonably
satisfactory to the Company, or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided
herein, all notices referred to in this Warrant shall be in writing and shall
be delivered personally, sent by reputable express courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the
3-A-5
<PAGE> 194
U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
Motorola, at such holder's address as it appears in the records of the Company
(unless otherwise indicated by Motorola).
Section 10. Amendment and Waiver. Except as otherwise
provided herein, the provisions of the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of Motorola.
Section 11. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
The construction, validity and interpretation of this Warrant shall be governed
by the internal law, and not the conflicts law, of the State of Delaware.
* * * * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officers under its seal and to be
dated the Date of Issuance hereof.
IRIDIUM LLC
By:
------------------------
Its:
------------------------
[SEAL]
Attest:
- ---------------------------
3-A-6
<PAGE> 195
EXHIBIT 1
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-1), hereby agrees to subscribe for the
purchase of all of the Series M Class 2 Interests covered by such Warrant and
makes payment herewith in full therefor at the price per interest provided by
such Warrant.
MOTOROLA, INC.
By:
------------------------------
Its:
-----------------------------
EXHIBIT 1
3-A-7
<PAGE> 196
EXHIBIT 3-B
Form of Motorola Warrant
MOTOROLA WARRANT
Date of Issuance: July 29, 1993 Certificate No. W-1
For value received, Iridium LLC, a Delaware limited liability
company (the "Company"), hereby grants to Motorola, Inc., a Delaware
corporation ("Motorola") the right to purchase from the Company membership
interests denominated as Series M Class 2 Interests ("Series M Class 2
Interests") representing 2.5% of the Class 1 Interests Deemed Outstanding at
the Exercise Time (as hereinafter defined) at a price per interest of $1,000
(as adjusted from time to time in accordance herewith, the "Exercise Price").
Certain capitalized terms used herein are defined in Section 5 hereof. The
amount and kind of interests and securities purchasable pursuant to the rights
granted hereunder and the purchase price for such interests and securities are
subject to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
1A. Exercise Period. Motorola may exercise, in whole but
not in part, the purchase rights represented by this Warrant at any time and
from time to time during the period commencing on the third anniversary of the
Closing Date through and including July 29, 2006 (the "Exercise Period"). The
Company shall give Motorola written notice of the expiration of the Exercise
Period at least 60 days but not more than 90 days prior to the expiration of
the Exercise Period.
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised
when the Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in
paragraph 1C below, executed by Motorola;
(b) this Warrant; and
(c) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of Series M
Class 2 Interests being purchased upon such exercise (the "Aggregate
Exercise Price").
(ii) Certificates for Series M Class 2 Interests purchased
upon exercise of this Warrant shall be delivered by the Company to Motorola
within five business days after the date of the Exercise Time.
3-B-1
<PAGE> 197
(iii) The Series M Class 2 Interests issuable upon the
exercise of this Warrant shall be deemed to have been issued to Motorola at the
Exercise Time, and Motorola shall be deemed for all purposes to have become the
record holder of such Series M Class 2 Interests at the Exercise Time.
(iv) The issuance of certificates for Series M Class 2
Interests upon exercise of this Warrant shall be made without charge to
Motorola for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of Series M
Class 2 Interests. Each Series M Class 2 Interest issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any Series M Class 2 Interest issued or issuable
upon the exercise of this Warrant in any manner which interferes with the
timely exercise of this Warrant.
(vi) The Company shall assist and cooperate with Motorola in
making any governmental filings or obtaining any governmental approvals prior
to or in connection with any exercise of this Warrant (including, without
limitation, making any filings required to be made by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of this Warrant is to be made in connection with a public offering or
sale of the Company, the exercise of this Warrant may, at the election of
Motorola, be conditioned upon the consummation of the public offering or sale
of the Company in which case such exercise shall not be deemed to be effective
until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep
available out of its authorized but unissued Series M Class 2 Interests solely
for the purpose of issuance upon the exercise of this Warrant, such number of
Series M Class 2 Interests issuable upon the exercise of this Warrant. All
Series M Class 2 Interests which are so issuable shall, when issued, be duly
and validly issued and free from all taxes, liens and charges. The Company
shall take all such actions as may be necessary to assure that all such Series
M Class 2 Interests may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which Series M Class 2 Interests may be listed (except for official notice
of issuance which shall be immediately delivered by the Company upon each such
issuance).
1C. Exercise Agreement. Upon any exercise of this
Warrant, the Exercise Agreement shall be substantially in the form set forth in
Exhibit 1 hereto. Such Exercise Agreement shall be dated the actual date of
execution thereof.
Section 2. Adjustment of Exercise Price. In order to
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2.
2A. Subdivision or Combination of Series M Class 2
Interests. If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more
3-B-2
<PAGE> 198
classes of its outstanding Series M Class 2 Interests into a greater number of
interests, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced. If the Company at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding Series
M Class 2 Interests into a smaller number of interests, the Exercise Price in
effect immediately prior to such combination shall be proportionately
increased.
2B. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Series M Class 2 Interests are entitled to receive (either directly
or upon subsequent liquidation) stock, securities or assets with respect to or
in exchange for Series M Class 2 Interests are referred to herein as an
"Organic Change." Prior to the consummation of any Organic Change, the Company
shall make appropriate provision (in form and substance satisfactory to
Motorola) to insure that Motorola shall thereafter have the right to acquire
and receive in lieu of or addition to (as the case may be) the Series M Class 2
Interests immediately theretofore acquirable and receivable upon the exercise
of this Warrant, such interests, interests of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of
Series M Class 2 Interests immediately theretofore acquirable and receivable
upon exercise of this Warrant had such Organic Change not taken place. In any
such case, the Company shall make appropriate provision (in form and substance
satisfactory to Motorola) with respect to Motorola's rights and interests to
insure that the provisions of this Section 2 and Sections 3 and 4 hereof shall
thereafter be applicable to this Warrant. The Company shall not effect any
such consolidation, merger or sale, unless prior to the consummation thereof,
the successor entity (if other than the Company) resulting from such
consolidation or merger or the entity purchasing such assets assumes by written
instrument (in form and substance satisfactory to Motorola) the obligation to
deliver to each such holder such interests, interests of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
2C. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions, then the Company's board of directors shall make an
appropriate adjustment in the Exercise Price so as to protect the rights of
Motorola as the holder of this Warrant; provided that no such adjustment shall
increase the Exercise Price as otherwise determined pursuant to this Section 2.
2D. Notices.
(i) Immediately upon any adjustment of the Exercise
Price, the Company shall give written notice thereof to Motorola, setting forth
in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to Motorola at
least 20 days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Series M
Class 2 Interests or the Class 1 Interests, (B) with respect to any pro rata
subscription offer to holders of Series M Class 2 Interests or Class 1
Interests or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
3-B-3
<PAGE> 199
(iii) The Company shall also give written notice to Motorola
at least 20 days prior to the date on which any Organic Change, dissolution or
liquidation shall take place.
Section 3. Liquidating Dividends. If the Company declares or
pays a dividend or distribution upon the Series M Class 2 Interests or Class 1
Interests payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend or distribution payable in
Class 1 Interests (a "Liquidating Dividend"), then the Company shall pay to
Motorola at the time of payment thereof the Liquidating Dividend which would
have been paid to Motorola on the Series M Class 2 Interests or Class 1
Interests, as the case may be, had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such Liquidating
Dividend, or, if no record is taken, the date as of which the record holders of
Series M Class 2 Interests or Class 1 Interests, as the case may be, entitled
to such dividends or distributions are to be determined.
Section 4. Purchase Rights. If at any time the Company
grants, issues or sells any options, convertible securities or rights to
purchase interests, stock, warrants, securities or other property pro rata to
the record holders of any class of Interests (the "Purchase Rights"), then
Motorola shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which Motorola could have
acquired if Motorola had held the number of Series M Class 2 Interests
acquirable upon complete exercise of this Warrant immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Series M Class 2 are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 5. Definitions. The following terms have meanings
set forth below:
"Closing Date" means July 29, 1993.
"Class 1 Interests" means, collectively, the membership
interests in the Company denominated as Class 1 Interests, and any other class
of membership interests in the Company hereafter authorized which is not
limited to a fixed sum or percentage in respect to the rights of holders
thereof to participate in dividends or distributions or in the distribution of
assets upon any liquidation, dissolution or winding up of the Company. The
Series M, Series A, Series B, Series C and Series M Class 2 Interests are not
Clas 1 Interests.
"Class 1 Interests Deemed Outstanding" means, at any given
time, the number of Class 1 Interests actually outstanding at such time, plus
the number of Class 1 Interests for which the Company has received commitments
to purchase, regardless of whether there are any unfulfilled conditions
precedent to such commitments, plus the number of Class 1 Interests issuable
upon exercise of any rights or options to subscribe for or to purchase Class 1
Interests or any interests, stock or other securities convertible into or
exchangeable for Class 1 Interests regardless of whether such rights or options
are actually exercisable at such time, plus the number of Class 1 Interests
issuable upon conversion or exchange of any interests or securities convertible
into or exchangeable for Class 1 Interests regardless of whether such interests
or securities are actually convertible or exchangeable at such time, but
excluding any Class 1 Interests issuable upon exercise of this Warrant.
3-B-4
<PAGE> 200
"Person" means an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Series M Class 2 Interests" means the membership interests in
the Company denominated as Series M Class 2 Interests.
Section 6. No Voting Rights; Limitations of Liability. This
Warrant shall not entitle Motorola to any voting rights or other rights as a
member in the Company. No provision hereof, in the absence of affirmative
action by Motorola to purchase Series M Class 2 Interests, and no enumeration
herein of the rights or privileges of Motorola shall give rise to any liability
of Motorola for the Exercise Price of Series M Class 2 Interests acquirable by
exercise hereof or as a member in the Company.
Section 7. Warrant Not Transferable. This Warrant is not
transferable, in whole or in part.
Section 8. Replacement. Upon receipt of evidence reasonably
satisfactory to the Company (an affidavit of Motorola shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or
destruction, upon receipt of a Motorola indemnity agreement reasonably
satisfactory to the Company, or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided
herein, all notices referred to in this Warrant shall be in writing and shall
be delivered personally, sent by reputable express courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. Mail (i) to the Company, at its principal executive
offices and (ii) to Motorola, at such holder's address as it appears in the
records of the Company (unless otherwise indicated by Motorola).
Section 10. Amendment and Waiver. Except as otherwise
provided herein, the provisions of the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of Motorola.
Section 11. Descriptive Headings; Governing Law. The
descriptive headings of the several Sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
The construction, validity and interpretation of this Warrant shall be governed
by the internal law, and not the conflicts law, of the State of Delaware.
* * * * *
3-B-5
<PAGE> 201
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed and attested by its duly authorized officers under its seal and to be
dated the Date of Issuance hereof.
IRIDIUM LLC
By:
------------------------
Its:
-----------------------
[SEAL]
Attest:
- --------------------------
3-B-6
<PAGE> 202
EXHIBIT 1
EXERCISE AGREEMENT
To: Dated:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. W-1), hereby agrees to subscribe for the
purchase of all of the Series M Class 2 Interests covered by such Warrant and
makes payment herewith in full therefor at the price per interest provided by
such Warrant.
MOTOROLA, INC.
By:
------------------------
Its:
-----------------------
3-B-7
<PAGE> 203
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C> <C>
GENERAL PROVISIONS
Section 1.01 Formation and Name .................................................... 1
Section 1.02 Place of Business and Office:
Registered Agent ...................................................... 2
Section 1.03 Purpose of LLC ........................................................ 2
Section 1.04 Fiscal Year ........................................................... 2
Section 1.05 Directors: Number, Appointment, ......................................
Removal, Qualifications, Etc. ......................................... 2
Section 1.06 Members .............................................................. 3
Section 1.07 Liability of Members and Directors ................................... 7
Section 1.08 Certain Duties and Liabilities of
Members and Directors ................................................. 8
Section 1.09 Reliance by Third Parties ............................................. 9
Section 1.10 Organizational Expenses ............................................... 9
Section 1.11 Seal of LLC ........................................................... 9
Section 1.12 Ratification and Authorization
of Certain Actions .................................................... 9
ARTICLE II
MANAGEMENT AND OPERATIONS OF LLC
Section 2.01 Power and Authority of Members ........................................ 9
Section 2.02 Power and Authority of Directors....................................... 9
Section 2.03 Directors: Meetings, Committees, and Delegation....................... 10
Section 2.04 Compensation of the Directors ......................................... 15
Section 2.05 Officers .............................................................. 15
Section 2.06 Interested Directors .................................................. 19
Section 2.07 Books and Records ..................................................... 20
Section 2.08 Indemnification ....................................................... 20
ARTICLE III
CAPITAL CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
Section 3.01 Form of Contribution .................................................. 24
Section 3.02 Contributions by the Class 1 Members ................................. 24
Section 3.03 Contributions with Respect to
the Class 2 Members ................................................... 25
Section 3.04 Allocation of Distributions ........................................... 25
Section 3.05 Allocation of Tax Items ............................................... 25
</TABLE>
-i-
<PAGE> 204
<TABLE>
<S> <C> <C>
Section 3.06 Withholding ........................................................... 26
Section 3.07 Distributions ........................................................ 26
Section 3.08 Limitations on Distributions .......................................... 27
Section 3.09 Interests as Personal Property ........................................ 28
Section 3.10 Tax Matters Partner ................................................... 28
ARTICLE IV
INTERESTS AND OTHER SECURITIES
Section 4.01 Class 1 Interests and Class 2
Interests ............................................................. 30
Section 4.02 Reserve Capital Call .................................................. 32
Section 4.03 Class 1 Interests ..................................................... 33
Section 4.04 Series M Class 2 Interests ............................................ 34
Section 4.05 Series A Class 2 Interests ............................................ 44
Section 4.06 Series B Class 2 Interests ............................................ 62
Section 4.07 Series C Class 2 Interests ............................................ 63
Section 4.08 Issuance of Interests Upon the
Admission of Additional Members ....................................... 65
Section 4.09 Fractional Interests .................................................. 65
Section 4.10 Certificates for Interests ............................................ 65
ARTICLE V
DISSOLUTION AND WINDING-UP
Section 5.01 Dissolution ........................................................... 66
Section 5.02 Resignation of Members ................................................ 67
Section 5.03 Winding-Up ........................................................... 67
ARTICLE VI
TRANSFERS
Section 6.01 Notice to LLC and to Other Holders .................................... 68
Section 6.02 Right to Reject Transfer; First Refusal Rights ........................ 68
Section 6.03 No Transfers Above 45% ............................................... 70
Section 6.04 Obligations of Transferees and
Transferors ........................................................... 70
Section 6.05 Certain Motorola Transfer Restrictions ................................ 70
Section 6.06 Inapplicability of Article ............................................ 71
Section 6.07 Substituted Members ................................................... 71
</TABLE>
-ii-
<PAGE> 205
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VII
ADMISSION OF ADDITIONAL MEMBERS
Section 7.01 Admission of Additional Members ....................................... 72
Section 7.02 Preemptive Rights .................................................... 72
ARTICLE VIII
GATEWAY RIGHTS AND SPECTRUM ACCESS OBLIGATIONS
Section 8.01 Gateway Rights and Service Provider
Rights ................................................................ 74
Section 8.02 Obligations Relating to Spectrum
Access ............................................................... 76
ARTICLE IX
AMENDMENT AND TERMINATION OF VARIOUS AGREEMENTS
Section 9.01 Termination of Stock Purchase
Agreements ............................................................ 77
Section 9.02 Amendments to Outstanding Notes and Warrants .......................... 77
Section 9.03 Amendments to Gateway Authorization ...................................
Agreements ............................................................ 77
Section 9.04 Amendments to Contracts with Motorola ................................. 77
Section 9.05 Amendments to Motorola Warrant ....................................... 78
ARTICLE X
MERGER AND APPRAISAL RIGHTS; SALE OF ASSETS
Section 10.01 Authority.............................................................. 78
Section 10.02 Procedure for Merger or Consolidation ................................. 78
Section 10.03 Approval by Class 1 Members of ........................................
Merger or Consolidation ............................................... 79
Section 10.04 Certificate of Merger or Consolidation ................................ 80
Section 10.05 Effect of Merger or Consolidation ..................................... 80
Section 10.06 Appraisal Rights ...................................................... 81
Section 10.07 Sale of Substantially All Assets ..................................... 85
</TABLE>
-iii-
<PAGE> 206
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XI
MISCELLANEOUS
Section 11.01 Amendments to the Agreement ........................................... 85
Section 11.02 Governing Law; Severability ........................................... 87
Section 11.03 Remedies .............................................................. 88
Section 11.04 Jurisdiction and Service of Process;
Arbitration ........................................................... 90
Section 11.05 Power of Attorney and
Other Authorizations ................................................. 91
Section 11.06 Actions of Members .................................................... 91
Section 11.07 Notices ............................................................... 92
Section 11.08 Counterparts .......................................................... 92
ARTICLE XII
CERTAIN DEFINITIONS
ANNEX A DIRECTORS ............................................................. A-1
ANNEX B INTERESTS ............................................................. B-1
ANNEX C PURCHASER ACKNOWLEDGEMENTS AND AGREEMENTS ............................. C-1
ANNEX D RESERVE CAPITAL CALL COMMITMENTS ...................................... D-1
ANNEX E GATEWAY SERVICE TERRITORY ALLOCATION
SCHEDULE .............................................................. E-1
EXHIBIT 1-A Amendments to Outstanding Notes ....................................... 1-A-1
EXHIBIT 1-B Form of Note .......................................................... 1-B-1
EXHIBIT 2-A Amendments to Outstanding Warrants .................................... 2-A-1
EXHIBIT 2-B Form of Warrant ....................................................... 2-B-1
EXHIBIT 3-A Amendments to Motorola Warrant ........................................ 3-A-1
EXHIBIT 3-B Form of Motorola Warrant .............................................. 3-B-1
</TABLE>
-iv-
<PAGE> 1
Exhibit 11
IRIDIUM LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
COMPUTATIONS OF LOSS PER CLASS 1 INTEREST
(in thousands except interest data)
<TABLE>
<CAPTION>
Years ended December 31,
1994 1995 1996
-----------------------------------------
<S> <C> <C> <C>
NET LOSS APPLICABLE TO CLASS 1 INTERESTS:
Net loss $14,834 $23,645 $73,598
Preferred dividend requirement - - $3,652
--------- --------- ---------
Net loss applicable to Class 1 Interests $14,834 $23,645 $77,250
========= ========= =========
AVERAGE NUMBER OF CLASS 1 INTERESTS:
Average number of Class 1 Interests outstanding 520,537 1,175,505 1,601,541
Fully diluted adjustments (2):
Subscribed, but unissued, Class 1 Interests 609,787 417,273 5,779
Assumed exercise of options and warrants 13,013 29,388 91,013
Assumed conversion of Series A Class 2 Interest - - 10,693
--------- --------- ---------
Average number of Class 1 Interests assumed to be
outstanding, assuming full dilution 1,143,337 1,622,166 1,709,026
========= ========= =========
NET LOSS PER CLASS 1 INTEREST:
Primary (1) $28.50 $20.11 $48.23
Fully diluted (2) $12.97 $14.58 $43.06
</TABLE>
(1) The assumed exercise of options and warrants in periods of net loss are
anti-dilutive and are not included in the computation and presentation of
primary loss per Class 1 Interest.
(2) The assumed exercise of options, warrants, and conversion of Series A Class
2 Interests are anti-dilutive but are included in the calculation of fully
diluted loss per Class 1 Interest in accordance with Regulation S-K, Item
601(a)(11).
<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.
March 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited consolidated financial statements for the fiscal year ended December
31, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,889
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,519
<PP&E> 2,378,949
<DEPRECIATION> 2,279
<TOTAL-ASSETS> 2,434,081
<CURRENT-LIABILITIES> 118,500
<BONDS> 735,904
0
46,977
<COMMON> 1,659,625
<OTHER-SE> (134,573)
<TOTAL-LIABILITY-AND-EQUITY> 2,434,081
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 71,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (69,009)
<INCOME-TAX> 4,589
<INCOME-CONTINUING> (73,598)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,598)
<EPS-PRIMARY> (48.23)
<EPS-DILUTED> (48.23)
</TABLE>
