<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IRIDIUM OPERATING LLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4800 52-2066319
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
</TABLE>
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
IRIDIUM CAPITAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4800 52-2048739
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
</TABLE>
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
IRIDIUM ROAMING LLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4800 52-2048734
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
</TABLE>
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
IRIDIUM IP LLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4800 52-2048736
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Identification Number)
</TABLE>
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
IRIDIUM FACILITIES CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4800 52-2083969
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
</TABLE>
1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
F. THOMAS TUTTLE, ESQ.
IRIDIUM OPERATING LLC, 1575 EYE STREET, N.W., WASHINGTON, DC 20005
(202) 408-3800
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each Registrant)
------------------------
Please send copies of all communications to:
<TABLE>
<S> <C>
DENNIS C. SULLIVAN, ESQ. ARNOLD B. PEINADO, III
SULLIVAN & CROMWELL MILBANK, TWEED, HADLEY & MCCLOY
1701 PENNSYLVANIA AVENUE, N.W. 1 CHASE MANHATTAN PLAZA
WASHINGTON, D.C. 20006 NEW YORK, NY 10005
(202) 956-7500 (212) 530-5000
</TABLE>
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<PAGE> 2
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 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 the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
<CAPTION>
<S> <C> <C> <C> <C>
% Senior Notes due 2005, Series
D.................................. $350,000,000 100% $350,000,000 $103,250
Subsidiary Guarantees................ $350,000,000 (2) (2) None
</TABLE>
(1) Estimated solely for purposes of determining the registration fee.
(2) No separate consideration will be received for the Subsidiary Guarantees.
------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 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, DATED APRIL 27, 1998
PROSPECTUS
IRIDIUM LOGO
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
$350,000,000 % SENIOR NOTES DUE 2005, SERIES D
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
IRIDIUM FACILITIES CORPORATION
Iridium Operating LLC ("Iridium") and Iridium Capital Corporation ("Capital"
and, together with Iridium, the "Issuers") are offering (the "Offering") %
Senior Notes due 2005, Series D (the "Notes").
Interest on the Notes will accrue from , 1998 at the rate of % per
annum. Interest on the Notes is payable in cash semi-annually on January 15 and
July 15 of each year, commencing on July 15, 1998. The Notes will be redeemable
at the option of either Issuer, in whole or in part, at any time on or after
July 15, 2002 at the redemption prices set forth herein, together with, as
applicable, accrued and unpaid interest, if any, to the redemption date. At any
time on or prior to January 15, 2000, either Issuer may redeem in the aggregate
up to 33 1/3% of the original aggregate principal amount of the Notes, with the
cash proceeds to Iridium of one or more Equity Offerings (as defined), at a
redemption price equal to % of the principal amount of any Notes being
redeemed plus accrued and unpaid interest to the date of redemption; provided
that at least 66 2/3% of the original aggregate principal amount of the Notes
must remain outstanding after each such redemption. See "Description of
Notes -- Optional Redemption."
(continued on next page)
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SEE "RISK FACTORS" ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
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THE NOTES 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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<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) IRIDIUM(1)(3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SERIES D SENIOR NOTE % % %
TOTAL $ $ $
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</TABLE>
(1) Plus accrued and unpaid interest on the Notes, if any, from the date of
issuance.
(2) The Issuers and the Initial Guarantors (as defined) have agreed to jointly
and severally indemnify the Underwriters (as defined) against certain
liabilities, including liabilities under the Securities Act. See
"Underwriting."
(3) Before deducting estimated expenses of $850,000 payable by Iridium.
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The Notes are being offered by Chase Securities, Inc., Barclays Capital Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriters"), subject
to prior sale, when, as and if issued by the Issuers and delivered to and
accepted by the Underwriters. 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 Notes will be made in New York, New York in
book-entry form through the facilities of The Depository Trust Company on or
about , 1998.
CHASE SECURITIES INC.
BARCLAYS CAPITAL
MERRILL LYNCH & CO.
, 1998
<PAGE> 4
(continued from previous page)
Upon the occurrence of a Change of Control (as defined), each holder of
Notes may require the Issuers to repurchase all or a portion of such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, to the purchase date. See "Description of Notes -- Change of
Control."
The Notes will be senior obligations of the Issuers ranking pari passu in
right of payment to the Initial Senior Notes (as defined) and all other existing
and future senior Indebtedness (as defined) of the Issuers, other than
Indebtedness that is expressly subordinated to the Notes. However, subject to
certain limitations set forth in the Indenture (as defined), Iridium and its
Subsidiaries (as defined) may incur other senior Indebtedness, including
Indebtedness that is secured by the assets of Iridium and its Subsidiaries. The
Notes will be effectively subordinated to any secured Indebtedness of the
Issuers to the extent of the value of the assets securing such Indebtedness. The
Notes will be fully and unconditionally guaranteed, on an unsecured senior
basis, by Iridium Roaming LLC ("Roaming"), Iridium IP LLC ("IP") and Iridium
Facilities Corporation ("Facilities" and, together with Roaming and IP, the
"Initial Guarantors" and, together with the Issuers, the "Iridium Parties").
Each of Roaming and IP is a Delaware limited liability company, Facilities is a
Delaware corporation and each of Roaming, Facilities and IP is a wholly owned
subsidiary of Iridium. In addition, the Notes will be fully and unconditionally
guaranteed (the "Subsidiary Guarantees") on an unsecured, senior basis by all
future Guarantor Subsidiaries (as defined). As of March 31, 1998, after giving
pro forma effect to the issuance of $350 million in aggregate principal amount
of Notes and the application of $175 million of the net proceeds from the Notes
to a permanent reduction of the Guaranteed Bank Facility (as defined), the
Iridium Parties would have had outstanding (i) approximately $350 million of
senior secured Indebtedness, (ii) approximately $1,210 million of unsecured
senior Indebtedness (other than the Notes) that ranks pari passu with the Notes
(including $1,100 million in aggregate principal amount of Initial Senior Notes
and borrowings of $110 million under the Guaranteed Bank Facility), and (iii)
approximately $285 million of Indebtedness that is subordinated to the Notes.
Such outstanding amounts of Indebtedness do not reflect the anticipated
temporary reduction in the Guaranteed Bank Facility. See "Use of Proceeds,"
"Risk Factors -- Significant Additional Funding Needs," "-- Ranking of the
Notes" and "Description of Notes."
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVERALLOTMENT, STABILIZING TRANSACTIONS AND SYNDICATE SHORT COVERING
TRANSACTIONS AT LEVELS WHICH MIGHT NOT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
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FORWARD LOOKING INFORMATION
Iridium is a development stage enterprise with no operating history.
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,
technical capabilities, funding needs, financing sources, pricing, launch
schedule, commercial operations schedule, estimates of the size of addressable
markets for mobile satellite services, estimates of customer counts, estimates
of retail usage fees for Iridium World Satellite Services, 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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<PAGE> 5
PREVIOUS SENIOR NOTE OFFERINGS AND
SERIES C EXCHANGE OFFER
Iridium is a wholly owned subsidiary of Iridium LLC, a Delaware Limited
Liability Company ("Iridium LLC" or "Parent"). On July 11, 1997, Parent, Capital
and Iridium World Communications Ltd. ("IWCL") consummated a private offering of
(i) 300,000 Units (the "Units") each consisting of $1,000 principal amount of
13% Senior Notes due 2005, Series A (the "Series A Notes") and one warrant (a
"Warrant"), representing the right to purchase 5.2 shares of Class A Common
Stock of IWCL, and (ii) $500 million aggregate principal amount of 14% Senior
Notes due 2005, Series B (the "Series B Notes"). On October 17, 1997, Parent and
Capital consummated a private offering of $300 million aggregate principal
amount of 11 1/4% Senior Notes, Series C (the "Series C Notes" and, together
with the Series A Notes and the Series B Notes, the "Initial Senior Notes"). See
"Description of Other Indebtedness."
In October, 1997, the Series A Notes and the Series B Notes were exchanged
for Series A/EN Notes and Series B/EN Notes, respectively, bearing substantially
the same terms as the Series A Notes and the Series B Notes, respectively. An
exchange offer has been made by Iridium pursuant to which the Series C Notes may
be exchanged for Series C/EN Notes bearing substantially the same terms as the
Series C Notes (the "Series C Exchange Offer"). The Series C Exchange Offer is
expected to be consummated no later than May 15, 1998. References herein to the
Series A Notes, Series B Notes and Series C Notes shall (unless the context
otherwise requires) be interpreted to include the Series A/EN Notes, Series B/EN
Notes and Series C/EN Notes. See "Description of Other Indebtedness."
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ASSET DROP-DOWN TRANSACTION
On December 18, 1997, Parent entered into an asset drop-down transaction
(the "Asset Drop-Down Transaction") with Iridium, a newly formed wholly owned
subsidiary of Parent. Pursuant to the Asset Drop-Down Transaction, substantially
all of the assets and liabilities of Parent were transferred to Iridium,
including, without limitation, all liabilities with respect to the outstanding
Initial Senior Notes, and the Parent was released from such liabilities.
Pursuant to the indentures relating to the Initial Senior Notes, Iridium has
been substituted for Parent, and Parent has been released from all obligations
under those indentures and under the Initial Senior Notes. Unless otherwise
specified, references herein to Iridium relating to any action or event prior to
the date of the Asset Drop-Down Transaction should be construed as references to
Parent, as predecessor of Iridium. See "Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction."
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In this Prospectus, references to "dollars" and "$" are United States
dollars.
IRIDIUM and IRIDIUM LOGOare registered trademarks and service marks of
Iridium IP LLC, a wholly owned subsidiary of Iridium.
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto included elsewhere in this Prospectus. Prospective
investors are urged to read this Prospectus in its entirety. See "Glossary" for
definitions of certain terms used in this Prospectus.
IRIDIUM
Iridium Operating LLC ("Iridium") is developing and commercializing a
global mobile wireless communications system that will enable subscribers to
send and receive telephone calls virtually anywhere in the world -- all with one
phone, one phone number and one customer bill. The IRIDIUM communications system
(the "IRIDIUM System") will combine the convenience of terrestrial wireless
systems with the global reach of Iridium's satellite system. The IRIDIUM System
encompasses four components: the "space segment," which will include the low
earth orbit satellite constellation and the related control facilities; the
ground stations or "gateways," which will link the satellites to terrestrial
communications systems; the Iridium subscriber equipment, which will provide
mobile access to the satellite system and terrestrial wireless systems; and the
terrestrial wireless interprotocol roaming infrastructure, which will facilitate
roaming among the Iridium satellite system and multiple terrestrial wireless
systems that use different wireless protocols. The first launch of Iridium
satellites occurred on May 5, 1997. Iridium expects to commence commercial
operations in September 1998. The satellite constellation is being designed,
assembled and delivered in orbit by Motorola, Inc. ("Motorola"), a leading
international provider of wireless communications systems, phones and pagers,
semiconductors and other electronic equipment. Motorola also is the principal
investor in Iridium, having provided investments, guarantees and conditional
agreements to provide guarantees totaling over $1.1 billion, including its
conditional commitment to guarantee up to an additional $350 million of
borrowings under the Guaranteed Bank Facility described below. Other strategic
investors include leading wireless communications service providers from around
the world, as well as experienced satellite manufacturers and experienced launch
providers. Iridium is a wholly owned subsidiary of Iridium LLC, a Delaware
limited liability company ("Iridium LLC" or "Parent"). On December 18, 1997,
substantially all of the assets and liabilities of Parent were transferred to
Iridium pursuant to the Asset Drop-Down Transaction. See "Ownership Structure
and Strategic Investors -- Asset Drop-Down Transaction."
Iridium Capital Corporation ("Capital"), a Delaware corporation, is a
wholly owned subsidiary of Iridium. The Notes will be the joint and several
obligations of Iridium and Capital (the "Issuers"), although Capital will not
receive any of the net proceeds from the issuance of the Notes. Capital has no
assets and does not conduct any operations. The Notes will be guaranteed by
Iridium Roaming LLC ("Roaming"), Iridium IP LLC ("IP") and Iridium Facilities
Corporation ("Facilities" and, together with Roaming and IP, the "Initial
Guarantors" and, together with the Issuers, the "Iridium Parties"). Each of
Roaming and IP is a Delaware limited liability company, Facilities is a Delaware
corporation and each of Roaming, Facilities and IP is a wholly owned subsidiary
of Iridium.
The principal executive office for each of the Iridium Parties is located
at 1575 Eye Street, N.W., Washington, DC 20005, telephone (202) 408-3800.
IRIDIUM SERVICES AND MARKET
Global mobile satellite service ("MSS") systems such as the IRIDIUM System
are designed to address two broad trends in the communications market: (i) the
worldwide growth in the demand for portable wireless communications -- according
to industry sources, the worldwide wireless communications market had
approximately 200 million subscribers at year-end 1997 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
1
<PAGE> 7
paging 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 World Cellular Services, Iridium
World Satellite Services and Iridium World Page Services 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. Iridium World Cellular Services is expected to
enable customers to roam on an international basis among terrestrial wireless
networks, including those using different protocols, that have roaming
agreements with Iridium. Iridium World Satellite Services will extend voice
services to the regions of the world not served by terrestrial systems. Iridium
intends to offer global paging (Iridium World Page Services) both in combination
with its 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 World Services to governmental, industrial and rural
users of wireless communications systems. Iridium believes it will be the only
wireless communications system in operation prior to 2000 that will be able to
offer this array of global communications services. See "Risk
Factors -- Consequences of Satellite Service Limitations on Customer Acceptance"
and "-- Consequences of Iridium Phone and Pager Characteristics on Customer
Acceptance."
To estimate potential demand for its services, Iridium has engaged in
extensive market analysis, including primary market research which involved
screening over 200,000 persons and interviewing more than 23,300 individuals
from 43 countries and 3,000 corporations with remote operations. Based on this
market analysis, Iridium has identified five target markets for Iridium World
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 World
Services. Iridium believes that individuals in these markets are more likely to
need and have the ability to afford hand-held, global mobile communications
capability than, for example, individuals who live in remote areas outside
existing distribution channels for wireless communications services.
Iridium estimates that the addressable traveling professional market, which
it defines as all employed adults living in urban areas who own a wireless phone
and travel at least four times per year beyond the coverage of their current
wireless phone, will include approximately 42 million individuals by 2002. The
global corporate/industrial addressable market, which consists of companies with
more than 1,000 employees in industries with operations that are likely to need
mobile satellite services, is estimated by Iridium to include over 8,800
companies by 2002. Iridium believes that its market analysis was properly
designed, appropriate in scope and implemented in a systematic basis and,
accordingly, provides a reasonable basis for Iridium's marketing and strategic
planning. 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. Based upon its market analysis, Iridium
estimates that it will have customer counts in the year 2002 in the range of 2.2
million to 2.5 million for Iridium World Satellite Services (satellite voice and
paging) and Iridium World Services (the combination of Iridium World Satellite
Services and Iridium World Cellular Services), 1.0 million to 1.3 million for
stand-alone Iridium World Cellular Services and 350,000 to 500,000 for
stand-alone Iridium World Page Services.
2
<PAGE> 8
Iridium currently has no customers and its estimates of target markets and
customer counts are based upon a number of assumptions, one or more of which is
likely to be incorrect. The assumptions underlying Iridium's market analysis
relate to the expected performance characteristics of the IRIDIUM System, the
expected competition in the markets for personal satellite communications
services and terrestrial cross protocol wireless services and the accuracy of
the respondents' responses to Iridium's market research questions. Such
assumptions include, without limitation, (i) that the IRIDIUM System will
provide continuous service to virtually anywhere in the world with service
characteristics at least as favorable as those described in this Prospectus from
September 23, 1998 forward, (ii) that Iridium will face competition from
satellite systems, terrestrial wireless systems and other communications systems
that is no greater than Iridium's expectations regarding competition as
described in this Prospectus and (iii) that Iridium's market research was
properly designed and implemented to determine actual market interest and that
the respondents provided truthful responses. There can be no assurance that
actual target markets and actual customer counts will not be materially
different from Iridium's estimates or that Iridium will not revise such
estimates substantially from time to time. For a more detailed description of
Iridium's target markets see "Business -- The Iridium Market," and for further
discussion of the forward looking nature of Iridium's estimates, and various of
the factors which could cause actual addressable markets and actual customer
counts 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 coverage with a relatively small number of gateways, thereby lowering
total ground segment build-out and operating costs and (iv) provide enhanced
ability to track the location of a voice customer, allowing Iridium to direct
calls and pages as customers travel globally. In addition, the communications,
station keeping and control systems of the Iridium satellites can be upgraded,
maintained and reconfigured in orbit through the remote loading of software.
Iridium believes that its primary technological challenge in implementing the
IRIDIUM System is the integration of these proven technologies into a single
system.
Iridium expects to provide virtually global service initially through up to
12 gateways, although it will be able to provide such global service with fewer
than nine gateways. Each of these gateways will be owned, operated and financed
by one or more investors in Iridium or their affiliates. See "Risk
Factors -- Potential for Delay and Cost Overruns -- Construction and Operation
of Gateways."
Iridium subscriber equipment will support voice, data and paging services.
Iridium expects that portable, hand-held Iridium phones and pagers will be
manufactured by at least two experienced
3
<PAGE> 9
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 are being developed for GSM 900 MHz and
CDMA/AMPS/NAMPS 800 MHz so that with a single multi-mode phone and the
appropriate TRC, a subscriber will be able to access the IRIDIUM System and
those 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 will have
the capability to receive alphanumeric messages virtually anywhere in the world.
In an effort to ensure that sufficient quantities of phones and pagers are
available for distribution in advance of the commencement of commercial
operations, Iridium intends to enter into standby commitments with Motorola (the
"Motorola Standby Purchase Commitment") and Kyocera (the "Kyocera Standby
Purchase Commitment" and together with the Motorola Standby Purchase Commitment,
the "Standby Equipment Purchase Commitments") to purchase an aggregate of up to
approximately $400 million of subscriber equipment. These Commitments would be
triggered on or after January 1, 1999, but only to the extent such subscriber
equipment is not purchased by and shipped to gateway operators or service
providers prior to January 1, 1999. In the event Iridium is required to make
significant purchases pursuant to these Commitments, it expects to use (i) up to
approximately $175 million in additional borrowings guaranteed by Motorola (in
respect of purchases from Motorola) and (ii) up to approximately $122.5 million
in additional borrowings guaranteed by Kyocera (in respect of purchases by
Kyocera). See "Certain Relationships and Related Transactions of Iridium" and
"Risk Factors -- Significant Additional Funding Needs."
Iridium World Cellular Services will support roaming among the two
principal types of terrestrial wireless protocols -- IS-41 (AMPS, NAMPS and
CDMA) and GSM 900. Roaming between these protocols requires cross protocol
translation which will be accomplished for Iridium World Cellular Services
through the Iridium Interoperability Unit ("IIU"), being developed under the
direction of Motorola. The IIU will permit system management information,
including customer authentication and location, to be relayed between systems
that use different technologies.
PRICING STRATEGY, DISTRIBUTION AND MARKETING
Iridium intends to implement a pricing strategy for its voice services
similar to the prevailing pricing structure for terrestrial wireless calls.
Prices for terrestrial wireless calls generally reflect two components -- a
charge based on the landline "dial-up" rate for a comparable call (primarily the
long distance charges) and a mobility premium for the convenience of wireless
service (including any roaming charges). Pricing for both Iridium World
Satellite Services and Iridium World Cellular Services is expected to be based
on this structure.
For international Iridium World 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 telecommunica-
4
<PAGE> 10
tions 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 Iridium World Cellular Services 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 Iridium World Cellular Services
suggested retail prices will be comparable to prices charged by other
cross-protocol roaming services.
In addition to airtime charges, Iridium subscribers will pay a monthly
subscription fee in the same manner that terrestrial wireless customers pay
monthly charges. Iridium will permit service providers that are wireless network
operators to offer Iridium World Satellite 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 World Page Services 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 World Cellular Services and Iridium World Services.
Iridium's distribution strategy reflects its role as a wholesaler of
Iridium World 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 World Services to their
customers. Iridium will implement the distribution of Iridium World 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 World Services within their territories in accordance with marketing
policies and programs established by Iridium. They will also be responsible for
customer service, billing and collection. Iridium anticipates its gateway
operators will generally seek to utilize more than one method of distribution in
their markets. Iridium expects that its service providers also will include
affinity partners (e.g., airlines, hotels and car rental companies).
Iridium's marketing strategy is to position Iridium as the premier brand in
global wireless communications services. Iridium believes that its principal
target markets -- traveling professional and corporate/industrial -- can be
accessed through established marketing channels, which will permit more
effective marketing compared to MSS systems targeting individuals in remote
areas where marketing opportunities and distribution channels are limited.
Iridium is coordinating with its gateway partners to determine the optimum
allocation of marketing expenditures based on the market analysis that Iridium
has conducted. Iridium plans to engage in direct marketing to certain markets,
such as the utility, oil and gas, mining and maritime industries. Based on a
review of its marketing plan, Iridium intends to increase its global advertising
budget, in order to promote its brand identity, by approximately $80 million, a
substantial portion of which is expected to be utilized prior to commencement of
commercial operations (the "Global Advertising Program Increase"). See "Risk
Factors -- Significant Additional Funding Needs." 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.
5
<PAGE> 11
STRATEGIC INVESTOR GROUP AND IRIDIUM WORLD COMMUNICATIONS LTD.
Iridium LLC is the parent and sole member of Iridium. Each of the strategic
investors in the IRIDIUM System is a member of Parent. See "Ownership Structure
and Strategic Investors." The Iridium investor team includes enterprises from
around the world with skills and experience in developing, manufacturing,
licensing and distributing satellite and telecommunications products and
services. IWCL, the publicly held member of Parent, and the Iridium strategic
investors have collectively invested, or committed to invest, approximately $3.1
billion in Iridium (directly or indirectly through Parent), including equity,
debt, guarantees (other than in respect of subscriber equipment purchases) and
the Reserve Capital Call (as defined). These investments represent approximately
69% of Iridium's projected total funding needs through September 23, 1998, the
date on which Iridium expects to commence commercial operations, and
approximately 56% of Iridium's projected total funding needs through December
31, 1999, the last year in which Iridium projects negative cash flow and a net
increase in year-end borrowings. By partnering with strategic investors, Iridium
benefits from the development, manufacturing and launch expertise of leading
worldwide satellite development and launch organizations and from the wireless
telecommunications distribution and regulatory expertise of leading
telecommunications companies. The Iridium investor team includes leading
telecommunications companies in North America (Motorola, Sprint and BCE Mobile
Communications Inc.), Europe (Telecom Italia and o.tel.o communications GmbH &
Co.) and Asia (DDI in Japan, UCOM in Thailand, P.T. Bakrie Communications
Corporation in Indonesia and SK Telecom in South Korea). Iridium expects that
these investors will use their wireless communications sales and services
organizations to market Iridium World Services and equipment in their
territories, which include their existing base of approximately 33 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, Telespazio, Khrunichev and China Aerospace. Iridium expects subscriber
equipment for use with the IRIDIUM System will be manufactured and sold by
Motorola and Kyocera, two of the world's leading manufacturers of wireless
phones.
IWCL was formed to act as a publicly held member of Parent and to have no
other business. On June 13, 1997, IWCL consummated an initial public offering
(the "IWCL IPO"), whereby IWCL issued 12,000,000 shares of its Class A Common
Stock and applied the net proceeds of approximately $225 million to purchase
12,000,000 Class 1 Membership Interests in Parent ("Class 1 Interests"). In
connection with the IWCL IPO, IWCL was admitted as a member of Parent. IWCL owns
approximately 8.5% of the outstanding Class 1 Interests. See "Ownership
Structure and Strategic Investors" and "Certain Matters Regarding Relationship
Among IWCL, Parent and Iridium."
PROGRESS TO DATE
Iridium, Motorola and the various gateway owners have made substantial
progress in the development and implementation of the IRIDIUM System and related
activities and expect to commence global commercial service on schedule in
September 1998. As of April 15, 1998, Motorola had launched 65 Iridium
satellites in 13 separate launches. Motorola has informed Iridium that, as of
April 23, 1998, four of those 65 satellites are not functioning and will not
become part of the constellation, but that Iridium will not bear the financial
impact of the loss of the four satellites and that such loss will not affect the
scheduled completion date for commercial service in September 1998. Motorola
currently plans to launch seven satellites before the end of May 1998 in two
launches in order to complete the initial deployment of the 66 satellite
constellation. Motorola also has contracted with launch service providers to
perform launches to replace non-functioning satellites.
6
<PAGE> 12
In early July of 1997, the IRIDIUM System logged its first test paging
message to a prototype pager from orbiting satellites. In addition, the
north-south and east-west satellite cross-links have been tested using data
packets and limited voice testing has occurred. See "Risk Factors -- Potential
for Delay and Cost Overruns -- Deployment of Satellites," "-- Limited Life of
Satellites; Cost of Maintaining the Space Segment; Risk of Satellite Failure or
Damage" and "-- Satellite Launch Risks -- Number of Launches; Compressed Launch
Schedule."
Motorola has completed construction of most of the terrestrial facilities
necessary to command the in-space movements of the IRIDIUM System's satellites,
including the Satellite and Network Operations Center (the "SNOC") and the
associated tracking, telemetry and command ("TT&C") facilities. Iridium expects
to provide virtually global service initially through up to 12 gateways. The
construction of the 12 gateway facilities is substantially complete and the
telecommunications equipment has been installed at 11 locations. However, two
gateways are significantly behind schedule in their preparations for the
commencement of commercial operations. See "Risk Factors -- Potential for Delay
and Cost Overruns -- Construction and Operation of Gateways." Motorola has
produced a functional 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. Iridium expects to begin internal voice trials in May 1998 and
customer trials in August 1998. See "Risk Factors" for a description of certain
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 Radio Communication Conference ("WARC-92"), the
International Telecommunications Union (the "ITU") allocated 16.5 MHz of
spectrum in the 1610-1626.5 MHz band to MSS systems. The U.S. Federal
Communications Commission (the "FCC") conditionally assigned the IRIDIUM System
exclusive use of 5.15 MHz of the 16.5 MHz for use in the United States. The
space segment of the IRIDIUM System has been licensed in the United States.
Iridium believes that coordination through the ITU has been completed
successfully between the IRIDIUM System and all existing or planned systems that
have been identified under the ITU's coordination process. No other action is
required from any other country to license the space segment. Seven licenses and
two experimental licenses to build and operate gateways have been received. 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 conditional license covering Iridium World Satellite Services
in the United States and as of March 15, 1998, 57 additional administrations had
granted all or a substantial portion of the authorizations necessary to operate
the IRIDIUM System in their territories. Iridium's gateway owners are dedicating
substantial effort to obtaining licensing for Iridium World Services in the
countries in their service territories with particular focus on obtaining
licenses by the commencement of commercial operations in those countries which
are expected to account for most of the demand for and usage of Iridium World
Services. See "Risk Factors -- Risks Associated with Licensing and Spectrum
Allocation -- Significant Regulatory Approvals Required for Operation of the
IRIDIUM System," "-- Significant Remaining Regulatory Approvals" and "Regulation
of Iridium" for a discussion of the conditions to these licenses and the
additional regulatory approvals outside the United States that remain to be
obtained.
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 World
Satellite Services will complement terrestrial wireless services and provide the
traveling professional with communications capability in
7
<PAGE> 13
areas where terrestrial wireless service is unavailable, inconvenient, of poor
quality or unreliable. Iridium intends to offer Iridium World Cellular Services
and Iridium World Page Services as complements to Iridium World Satellite
Services and as stand-alone services. Iridium believes that it will be the only
wireless communications system in operation prior to 2000 that will be able to
offer virtually global mobile voice and paging services, including:
- Global coverage. An Iridium World Services subscriber will generally
have worldwide wireless coverage wherever Iridium World Services are
authorized, including mid-ocean and remote areas. The availability of the
Iridium World Satellite Services will not be limited by the customer's
proximity to a gateway. Iridium believes this feature will make Iridium
World 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 World Satellite Services and
Iridium World Cellular Services. With the addition of Iridium World
Cellular Services, 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 200
characters and numeric messages of up to 20 digits virtually anywhere in
the world. With Iridium World Page Services, users of Iridium World
Satellite Services or Iridium World Cellular Services 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 World Services to market at the earliest
practicable date, which is currently expected to be September 23, 1998. Iridium
believes that it will be the only wireless communications system in operation
prior to 2000 that will be able to offer global mobile voice and paging services
in each country in which Iridium World Services are authorized.
Adapt proven technologies through an industrial team led by Motorola. The
IRIDIUM System adapts proven technology, including GSM cellular call processing
technology, intersatellite links, FDMA/TDMA radio transmission technology, a
2,400 bps vocoder and business support software. Iridium believes that the
primary technological challenge is the integration of these proven technologies
into a single system. Motorola, the principal investor in Iridium, is a leading
international provider of wireless communications systems, cellular phones,
pagers, semiconductors and other electronic equipment. The industrial team
assembled by Motorola to build and deliver in orbit the IRIDIUM System consists
of major companies experienced in aerospace and telecommunications, including
Telespazio, Lockheed Martin, Raytheon, Boeing, Khrunichev and China Aerospace.
Capitalize on the strengths of its strategic investors. A number of the
Iridium 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
8
<PAGE> 14
to market and distribute Iridium World 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> 15
SOURCES AND USES OF FUNDS BY IRIDIUM
The following table and the accompanying notes describe the currently
estimated sources and uses of funds by Iridium from inception of its
predecessors through September 23, 1998 (the date on which Iridium expects to
commence commercial operations) giving pro forma effect to the Offering and the
use of $175 million of the net proceeds therefrom to permanently reduce the
Guaranteed Bank Facility (and, therefore, the corresponding Motorola Guarantee).
Prospective investors are urged to read the notes accompanying the table and
should note that significant additional funds will be needed to service
Iridium's cash needs prior to its expected generation of positive cash flow from
operations. The projection of total sources and total uses of funds is forward
looking and could vary, perhaps substantially, from actual results, due to
events outside Iridium's control, including unexpected costs and unforeseen
delays. See "Risk Factors -- Risk of Error in Forward Looking Statements."
PRE-OPERATIONAL PERIOD(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
----------------
<S> <C>
Secured Bank Facility(2)........... $ 629
The Notes(3)....................... 342
The Units, Series B Notes and
Series C Notes(4)................ 1,038
Guaranteed Bank Facility(5)........ 270
14 1/2% Senior Subordinated Notes
due 2006......................... 238
Series A Class 2 Interests of
Parent(6)........................ 31
Class 1 Interests of Parent(7)..... 1,952
------
Total Pre-operational
Sources..................... $4,500
======
Additional pre-operational amounts
available under Secured Bank
Facility......................... $ 121
</TABLE>
<TABLE>
<CAPTION>
USES OF FUNDS
-------------
<S> <C>
Space System Contract(8)........... $3,450
Terrestrial Network Development
Contract(9)...................... 151
Business support systems and other
expenditures(10)(13)............. 177
Net interest and financing
costs(11)(13).................... 259
Net expenses and working
capital(12)(13).................. 463
------
Total Pre-operational net
uses(13).................... $4,500
======
</TABLE>
- ---------------
(1) Assumes that the IRIDIUM System will commence commercial operations on
September 23, 1998. Iridium anticipates total cash needs of $5.5 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 and purchases
under its Standby Equipment Purchase Commitments, could affect this
estimate. See "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Iridium currently expects
to satisfy its additional funding requirements through the incurrence of
debt. Iridium expects to seek additional secured bank financing in order to
meet its expected funding requirements following the commencement of
commercial operations. Such additional bank financing may require credit
support from the Iridium strategic investors, vendors or others for which
Iridium will be required to pay compensation. There can be no assurance
that such additional bank financing will be obtained by Iridium on terms
and conditions that are acceptable to it, and if such additional bank
financing is unavailable, there can be no assurance that Iridium will be
able to obtain alternative financing on terms and conditions acceptable to
it. The availability of any financing is subject to, among other things,
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."
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<PAGE> 16
(2) As of March 31, 1998 Iridium had drawn $350 million under a Credit
Agreement with Chase Securities Inc., The Chase Manhattan Bank, Barclays
Bank PLC and a syndicate of lenders with respect to a senior bank facility
in a principal amount of $1 billion (the "Secured Bank Facility"), of which
$250 million is not available prior to the defined commercial activation
date. The Secured Bank Facility is secured by substantially all of
Iridium's assets. The Secured Bank Facility is further secured by the
Reserve Capital Call (as defined) and all of the membership interests in
Iridium. See "Description of Other Indebtedness -- Secured Bank Facility."
The availability of additional amounts under the Secured Bank Facility is
subject to significant conditions, including technical conditions relating
to the IRIDIUM System, conditions relating to regulatory approvals and
conditions relating to other financing sources. In connection with the
Offering, Iridium has requested that the lenders under the Secured Bank
Facility agree to amendments to the Secured Bank Facility (the "Requested
SBF Amendments") that would increase the approved budget under the Secured
Bank Facility for the development, construction and commercialization of
the IRIDIUM System by $175 million (and would make corresponding
adjustments in various covenants restricting the amount Iridium is
permitted to spend on project costs) and would increase the amount of
Indebtedness Iridium is permitted to incur during the term of the Secured
Bank Facility. The Offering is not contingent on Iridium receiving the
Requested SBF Amendments and there can be no assurance that the lenders
under the Secured Bank Facility will agree to the Requested SBF Amendments.
Borrowings under the Secured Bank Facility mature on September 30, 1998,
subject to Iridium's right to extend such maturity up to June 30, 1999 if
it can demonstrate by July 1, 1998 that it has sufficient available or
committed funding for the budgeted project costs through such extended
maturity. See "Use of Proceeds" and "Description of Other Indebtedness."
(3) Reflects the net proceeds of the Offering to Iridium, after deducting the
expenses of the Offering and the discounts to the Underwriters. See "Use of
Proceeds."
(4) Reflects the net proceeds received directly or indirectly by Parent from
the offering of (i) 300,000 Units, each consisting of $1,000 principal
amount of Series A Notes and one Warrant, representing the right to
purchase 5.2 shares of Class A Common Stock of IWCL, (ii) $500 million
aggregate principal amount of Series B Notes, and (iii) $300 million
aggregate principal amount of Series C Notes. See "Description of Other
Indebtedness."
(5) As of March 31, 1998, Iridium had $285 million outstanding under a $450
million unsecured borrowing facility with a syndicate of banks (the
"Guaranteed Bank Facility"). Borrowings under the Guaranteed Bank Facility
are guaranteed by Motorola (the "Motorola Guarantee"). A portion of the
proceeds from the issuance of the Initial Senior Notes was used to
permanently reduce the Guaranteed Bank Facility from $750 million to $450
million. Iridium intends to use approximately $175 million of the net
proceeds from the Offering to permanently reduce the Guaranteed Bank
Facility from $450 million to $275 million. See "Use of Proceeds." The
Guaranteed Bank Facility matures on June 30, 1999. Parent, Iridium and
Motorola are parties to a Memorandum of Understanding, and, in connection
with the Offering, Parent, Iridium and Motorola intend to enter into an
Amended and Restated Memorandum of Understanding (as amended and restated
the "Motorola MOU"). Pursuant to the Motorola MOU, Motorola is expected to
agree to extend the Motorola Guarantee until after the Stated Maturity (as
defined) of the Initial Senior Notes (which is the same date as the Stated
Maturity of the Notes) if the Guaranteed Bank Facility is so extended.
There can be no assurance, however, that the bank lenders would agree to
extend the term of the Guaranteed Bank Facility if requested by Iridium.
Pursuant to the Motorola MOU, Motorola is expected to agree that Motorola
will (i) guarantee up to $350 million of additional Indebtedness (including
principal and interest) of Iridium under the Guaranteed Bank Facility or
another credit agreement with identical terms (the "Motorola Additional
Guarantee"), provided that such increase (or separate credit agreement) is
put in place prior to February 28, 1999, and
11
<PAGE> 17
(ii) guarantee up to $175 million of additional Indebtedness (including
principal and interest) under the Guaranteed Bank Facility or a credit
agreement having the identical terms (other than maturity) as the
Guaranteed Bank Facility to be used by Iridium only for payments to
Motorola in respect of the Motorola Standby Purchase Commitment and other
amounts overdue to Motorola (the "Motorola Equipment Guarantee"). For a
description of the Motorola MOU, the Motorola Additional Guarantee and the
Motorola Equipment Guarantee see "Certain Relationships and Related
Transactions of Iridium -- Motorola Related Matters." There can be no
assurance that the bank lenders would agree to increase the amount of their
commitments under the Guaranteed Bank Facility in respect of the Motorola
Additional Guarantee or the Motorola Equipment Guarantee. See "Description
of Other Indebtedness."
Pursuant to the existing covenants under the Secured Bank Facility, and
assuming that $270 million is outstanding under the Guaranteed Bank
Facility, Iridium would have the ability to borrow no more than $175
million of the additional $350 million in borrowings under the Motorola
Additional Guarantee. Pursuant to the Requested SBF Amendments, however,
the relevant debt limit would be raised to permit the entire amount of any
such additional $350 million of borrowings. See "Risk
Factors -- Significant Additional Funding Needs" and "-- Risk of Highly
Leveraged Capital Structure."
(6) The Series A Class 2 Interests of Parent pay a 14 1/2% dividend which, at
the option of Parent, may be paid in-kind until 2001 and paid in cash
thereafter. The Series A Class 2 Interests are convertible at any time into
Class 1 Interests. If all dividends permitted to be paid in-kind are paid
in-kind, at the time when the Series A Class 2 Interests convert to a cash
dividend, there will be 62,668 Series A Class 2 Interests outstanding
convertible into 1,159,985 Class 1 Interests, subject to anti-dilution
adjustments. The Series A Class 2 Interests are not obligations of Iridium.
(7) Includes approximately $224 million net proceeds to Parent from the
issuance of Class 1 Interests in connection with the IWCL IPO consummated
on June 13, 1997. Includes approximately $41 million (exclusive of
interest) due from South Pacific Iridium Holdings Limited ("SPI"), an
affiliate of P.T. Bakrie Communications Corporation, an Indonesian
corporation, pursuant to a definitive purchase agreement under which SPI
purchased 7,500,000 Class 1 Interests at $13.33 per Class 1 Interest on May
30, 1997. SPI paid $40 million on May 30, 1997. Payment of the second
installment occurred on August 26, 1997 in the amount of $10 million
(including interest), and a partial prepayment of the third installment in
the amount of $9 million (including interest) occurred on September 9,
1997. The outstanding amount of $41 million (plus interest) becomes due on
May 15, 1998. See "Risk Factors -- Risks Associated with International
Operations and Developing Markets" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(8) As of March 31, 1998, $3.1 billion of this amount had been incurred. See
"Risk Factors -- Potential for Delay and Cost Overruns," "-- Risks
Associated with Principal Supply Contracts" and "-- Satellite Launch
Risks -- Impact of Excusable Delays."
(9) As of March 31, 1998, $148 million of this amount had been incurred. The
total cost of the Terrestrial Network Development Contract is estimated to
be approximately $284 million, with approximately $133 million of such
total due at or after September 23, 1998, the expected date of the
commencement of commercial operations. See "Risk Factors -- Risks
Associated with Principal Supply Contracts."
(10) As of March 31, 1998, $105 million of this amount had been incurred. See
"Risk Factors -- Potential for Delay and Cost Overruns -- Development and
Implementation of Software."
(11) Based on assumed interest payment obligations, interest rates and borrowing
levels and Iridium's estimates of associated costs. Actual interest and
financing costs will depend upon applicable interest rates and the amount
and timing of actual borrowings.
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(12) Comprised of operating expenses of $683 million and net of interest income
of $18 million and working capital of $202 million.
(13) Amounts in these categories include increased financing expenses of
approximately $6 million, comprised of higher interest expenses resulting
from the refinancing of a portion of the Guaranteed Bank Facility with net
proceeds of the Offering and a change in the form of Iridium's payments to
Motorola in respect of the Motorola Guarantee from the issuance of warrants
to purchase Class 1 Interests to the payment in cash and a substantially
reduced amount of warrants (the "High Yield Compensation"), and increased
working capital and expenses of approximately $86 million. Such increased
working capital expenses include a portion of the expenditures associated
with (i) the Global Advertising Program Increase; (ii) the provision of
software by Iridium in connection with the construction and operation of
the China gateway; (iii) the cost of an IRIDIUM System software upgrade for
capacity enhancement; and (iv) contingency funding to cover other expenses
prior to September 23, 1998. Iridium will not effect a substantial portion
of the Global Advertising Program Increase if it does not receive the
Requested SBF Amendments. See "Use of Proceeds," "Description of Other
Indebtedness," "Certain Relationships and Related Transactions of
Iridium -- Motorola MOU and Agreement Regarding Guarantee" and
"-- Agreements Regarding the China Gateway," and "Risk
Factors -- Significant Additional Funding Needs."
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THE OFFERING
Issuers.................... Iridium Operating LLC, a Delaware limited liability
company, and Iridium Capital Corporation, a
Delaware corporation.
Notes Offered.............. $350 million aggregate principal amount of %
Senior Notes due 2005, Series D, of Iridium and
Capital, as joint and several obligors.
Maturity Date.............. July 15, 2005.
Interest Payment Dates..... Interest on the Notes will accrue from
, 1998 at an annual rate of %. Interest on
each Note will be payable semi-annually in arrears
on January 15 and July 15 of each year, commencing
July 15, 1998.
Security................... None.
Optional Redemption........ Except as described below, the Issuers may not
redeem the Notes prior to July 15, 2002. On or
after such date, either Issuer may redeem the
Notes, in whole or in part, at any time at the
redemption prices set forth herein, together with
accrued and unpaid interest to the date of
redemption.
At any time and from time to time on or prior to
July 15, 2000, either Issuer may, subject to
certain requirements, redeem in the aggregate up to
33 1/3% of the original aggregate principal amount
of the Notes with the cash proceeds to Iridium of
one or more Equity Offerings (as defined) at a
redemption price equal to % of the principal
amount of the Notes being redeemed, plus accrued
and unpaid interest thereon to the date of
redemption; provided that at least 66 2/3% of the
original aggregate principal amount of the Notes
must remain outstanding immediately after each such
redemption. See "Description of Notes -- Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the option
to require the Issuers to repurchase all or a
portion of such holder's Notes at 101% of the
principal amount of the Notes, plus accrued and
unpaid interest to the purchase date. However,
certain highly leveraged transactions may not be
deemed to be a Change of Control, including,
without limitation, transactions with affiliates
which comply with the other covenants included in
the Indenture. See "Description of Notes -- Change
of Control." Additionally, there can be no
assurance that the Issuers will have the financial
resources necessary to repurchase the Notes upon a
Change of Control. See "Risk Factors -- Change of
Control" and "Description of Notes -- Change of
Control."
Subsidiary Guaranties...... The Notes will be fully guaranteed on an unsecured,
senior basis by all present or future Guarantor
Subsidiaries. Iridium currently has no subsidiaries
other than Capital, Roaming, Facilities and IP.
Roaming, Facilities and IP are Guarantor
Subsidiaries. Neither Capital nor any of the
Guarantor Subsidiaries has any outstanding
Indebtedness other than as co-issuers or guarantors
of outstanding Indebtedness of Iridium. See
"Description of Notes -- Subsid-
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<PAGE> 20
iary Guarantees" and "-- Certain
Covenants -- Future Guarantor Subsidiaries."
Ranking.................... The Notes will be senior obligations of the
Issuers. The Notes will rank pari passu in right of
payment with the Initial Senior Notes and all other
existing and future senior Indebtedness of the
Issuers, other than any Subordinated Obligations
(as defined). The Notes will be effectively
subordinated to any secured Indebtedness of the
Issuers to the extent of the value of the assets
securing such Indebtedness. The Subsidiary
Guarantees will be unsecured, senior obligations of
the Guarantor Subsidiaries. Neither Capital nor any
of the Initial Guarantors has any outstanding
Indebtedness other than as co-issuers or guarantors
of outstanding Indebtedness of Iridium. As of March
31, 1998, after giving pro forma effect to the
issuance of $350 million in aggregate principal
amount of Notes and the application of $175 million
of the net proceeds from the Notes to a permanent
reduction of the Guaranteed Bank Facility, the
Iridium Parties would have had outstanding (i)
approximately $350 million of senior secured
Indebtedness and (ii) approximately $1,210 million
of unsecured senior Indebtedness (other than the
Notes) that ranks pari passu with the Notes
(including the Initial Senior Notes and borrowings
of $110 million under the Guaranteed Bank
Facility). In addition, as of March 31, 1998,
Iridium had approximately $285 million of
Indebtedness that is subordinated to the Notes.
Such outstanding amounts of Indebtedness do not
reflect the anticipated temporary reduction in the
Guaranteed Bank Facility. See "Use of Proceeds,"
"Description of Other Indebtedness" and "Risk
Factors -- Significant Additional Funding Needs."
Use of Proceeds............ The net proceeds from the Offering to be received
by Iridium are estimated to be approximately $342
million. Iridium will use $175 million of the net
proceeds from the Offering to permanently reduce
the commitment of the bank lenders under the
Guaranteed Bank Facility from $450 million to $275
million (and, therefore, correspondingly reduce the
Motorola Guarantee) and will use the remainder of
the net proceeds primarily to make milestone
payments in connection with the construction and
deployment of the IRIDIUM System and to a lesser
extent for other general corporate purposes.
Pending such use, Iridium intends to temporarily
reduce the amount outstanding under the revolving
Guaranteed Bank Facility and to invest the
remainder in short-term investment grade debt
securities. See "Summary -- Sources and Uses of
Funds by Iridium" and "Use of Proceeds."
Restrictive Covenants...... The Indenture governing the Notes will limit (i)
the incurrence of additional Indebtedness by
Iridium and the Restricted Subsidiaries (as
defined); (ii) the payment of dividends on, and
redemption of, Capital Stock (as defined) of
Iridium and the Restricted Subsidiaries and the
redemption of certain Subordinated Obligations (as
defined) of Iridium and the Restricted
Subsidiaries; (iii) certain other restricted
payments, including certain investments; (iv) sales
of assets and Restricted Subsidiary stock; (v)
certain transactions with affiliates; (vi) the sale
or issuance of capital
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<PAGE> 21
stock of Restricted Subsidiaries; (vii) the
creation of liens; (viii) the lines of business in
which Iridium and the Restricted Subsidiaries may
operate; and (ix) consolidations, mergers and
transfers of all or substantially all of the
Issuers' assets. The Indenture will also prohibit
certain restrictions on distributions from
Restricted Subsidiaries. However, all of these
limitations and prohibitions are subject to a
number of important qualifications and exemptions.
See "Description of Notes -- Certain Covenants" and
"-- Merger and Consolidation."
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 17 for risks involved with an
investment in the Notes.
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<PAGE> 22
RISK FACTORS
The following risk factors, in addition to the other information contained
elsewhere in this Prospectus, should be carefully considered by prospective
investors in connection with an investment in the Notes.
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 Notes. Through March 31, 1998, Iridium had realized cumulative
net losses of approximately $631 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 23, 1998. Through
March 31, 1998, Iridium had incurred expenditures totaling $3.1 billion to
Motorola under the Space System Contract and expenditures totaling $148 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 sufficient to service its debt obligations. Until such
time as Iridium develops sufficient revenues from operations, Iridium will rely
on additional debt to satisfy its debt service obligations.
SIGNIFICANT ADDITIONAL FUNDING NEEDS
Iridium anticipates total cash funding requirements of approximately $4.5
billion through September 23, 1998, the date on which Iridium expects to
commence commercial operations, and $5.5 billion (net of assumed revenues
following commercial activation) through year-end 1999, the last year in which
Iridium projects negative cash flow and a net increase in year-end borrowings.
While Iridium has raised sufficient funds to meet its expected pre-commercial
operation project costs, Iridium expects to require substantial additional
funding after commencement of operations. See "Sources and Uses of Funds by
Iridium."
As of March 31, 1998, Iridium had indirectly received net proceeds of
$1.942 billion from equity investments in Parent and has the right to receive
the approximately $41 million (exclusive of interest) due from SPI pursuant to
the terms of a definitive purchase agreement. At March 31, 1998, Iridium's
Indebtedness equaled approximately $2.0 billion, including borrowings of $285
million under the $450 million (reduced from $750 million with a portion of the
net proceeds from the issuance of the Initial Senior Notes) Guaranteed Bank
Facility and $350 million under the $1 billion Secured Bank Facility. Iridium
will use $175 million of the net proceeds from the Offering to permanently
reduce the Guaranteed Bank Facility from $450 million to $275 million.
Borrowings under the Guaranteed Bank Facility are guaranteed by the Motorola
Guarantee. Depending on market conditions, Iridium may make additional senior
note offerings in order to further reduce the Guaranteed Bank Facility or for
other purposes. Pursuant to the Motorola MOU, however, Motorola is expected to
agree that it will (i) guarantee up to $350 million of additional Indebtedness
(including principal and interest) under the Guaranteed Bank Facility or another
credit facility with identical terms (the "Motorola Additional Guarantee"),
provided that such increase (or separate credit agreement) is put in place on or
prior to February 28, 1999 and (ii) guarantee up to approximately $175 million
of additional Indebtedness (including principal and interest) under the
Guaranteed Bank Facility or a credit agreement having the identical terms (other
than maturity) as the Guaranteed Bank Facility to be used by Iridium only for
payments to Motorola in respect of the Motorola Standby Purchase Commitment and
amounts overdue to Motorola (the "Motorola Equipment Guarantee"). The Guaranteed
Bank Facility matures on June 30, 1999. Pursuant to the Motorola MOU, Motorola
is expected to agree to extend the Motorola Guarantee (including the
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<PAGE> 23
Motorola Additional Guarantee, if committed) until after the Stated Maturity (as
defined) of the Initial Senior Notes (which is the same date as the Stated
Maturity of the Notes) if the Guaranteed Bank Facility is so extended. Iridium
believes it would be able to increase the Guaranteed Bank Facility if it so
requests. There can be no assurance, however, that the bank lenders would agree
to extend the term of the Guaranteed Bank Facility, that such bank lenders would
agree to any such requested increase or that any such other identical credit
facility would be available. See "Certain Relationships and Related Transactions
of Iridium -- Motorola Related Matters -- Motorola MOU and Agreement Regarding
Guarantee" and "-- Motorola Standby Purchase Commitment" and "Description of
Other Indebtedness."
As of March 31, 1998, Iridium had drawn $350 million under the $1 billion
Secured Bank Facility. The availability of additional amounts under the Secured
Bank Facility is subject to significant conditions, including technical
conditions relating to the IRIDIUM System, conditions relating to regulatory
approvals and conditions relating to other financing sources. $250 million of
the Secured Bank Facility is not available prior to the defined commercial
activation date. The Secured Bank Facility is secured by substantially all of
Iridium's assets. The Secured Bank Facility is further secured by the Reserve
Capital Call (as defined) and all of the membership interests in Iridium. In
addition, each of Iridium's Subsidiaries has guaranteed Iridium's obligations
thereunder. Borrowings under the Secured Bank Facility will mature on September
30, 1998, subject to Iridium's right to extend such maturity up to June 30, 1999
if it can demonstrate by July 1, 1998 that it has sufficient available or
committed funding for the budgeted project costs through such extended maturity.
See "Description of Other Indebtedness." After giving effect to the Offering and
the application of the net proceeds therefrom, and assuming approximately $270
million of borrowings under the Guaranteed Bank Facility and $629 million under
the Secured Bank Facility, Iridium expects to have sufficient cash to meet its
anticipated funding requirements through September 23, 1998, the date on which
Iridium expects to commence commercial operations. Iridium expects to seek other
senior secured bank financing in order to meet its expected funding requirements
through at least year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. There can be no assurance,
however, that funds under the Secured Bank Facility will be available to
Iridium, or that any such other bank financing will be obtained by Iridium on
terms and conditions acceptable to it, and, if any of such financing is
unavailable, there can be no assurance that Iridium will be able to obtain
alternative financing on terms and conditions acceptable to it. Iridium's
estimated funding requirements do not reflect any contingency amounts and
therefore those requirements will increase, perhaps substantially, in the event
of unexpected cost increases or schedule delays.
In connection with the Offering, Iridium has requested that the lenders
under the Secured Bank Facility agree to amendments to the Secured Bank Facility
(the "Requested SBF Amendments") that would increase the approved budget under
the Secured Bank Facility for the development, construction and
commercialization of the IRIDIUM System by $175 million (and would make
corresponding adjustments in various covenants restricting the amount Iridium is
permitted to spend on project costs) and would increase the amount of
Indebtedness Iridium can incur during the term of the Secured Bank Facility. The
Offering is not contingent on Iridium receiving the Requested SBF Amendments. If
Iridium receives the Requested SBF Amendments, it intends to effect the
approximately $80 million Global Advertising Program Increase, a substantial
portion of which is expected to be utilized prior to commencement of commercial
operations. If the Requested SBF Amendments are not received, Iridium will not
effect a substantial portion of the Global Advertising Program Increase. While
Iridium believes the Global Advertising Program Increase would provide
substantial benefits, there can be no assurance that the lenders under the
Secured Bank Facility will agree to the SBF Amendments. Iridium's estimates of
its total cash funding needs through September 23, 1998 (the anticipated date of
commencement of commercial operations) and year-end 1999 (the last year in which
Iridium projects negative cash flow and a net increase in year-end borrowings)
assume the Requested SBF Amendments will be received, the entire Global
Advertising Program Increase is effected and Iridium will be required to make no
payments under the Contingent
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Subscriber Equipment Purchase Commitments. There can be no assurance that any of
such assumptions will prove to be correct.
Iridium intends to make an aggregate of up to approximately $400 million in
contingent commitments to purchase such equipment from Kyocera (the "Kyocera
Standby Purchase Commitment") and Motorola (the "Motorola Standby Purchase
Commitment" and together with the Kyocera Standby Purchase Commitment, the
"Standby Equipment Purchase Commitments"), but only to the extent such equipment
is not purchased by and shipped to gateway operators or service providers prior
to January 1, 1999. Because there is no current market for Iridium World
Services or Iridium subscriber equipment, the financial incentive for
manufacturers to produce significant quantities of subscriber equipment in
advance is limited. Iridium intends to enter into the Standby Equipment Purchase
Commitments in an effort to ensure that sufficient quantities of hand-held
phones and pagers are available for distribution in advance of the commencement
of commercial operations. While Iridium expects that the gateway owners will
purchase Iridium subscriber equipment for delivery prior to January 1, 1999 in
an amount equal to or greater than the Standby Equipment Purchase Commitments,
there can be no assurance that such purchases will be made. Various factors,
including a delay in the commencement of commercial operations, could cause
Iridium to be required to purchase Iridium subscriber equipment in an amount
equal to all or a significant portion of the approximately $400 million in
Standby Equipment Purchase Commitments, and there can be no assurance that
Iridium would be able to resell such equipment without incurring a significant
loss. See "-- Potential for Delay and Cost Overruns" and "Certain Relationships
and Related Transactions of Iridium."
In the event Iridium is required to make significant purchases pursuant to
the Standby Equipment Purchase Commitments, it expects to use borrowings
guaranteed by the Motorola Equipment Guarantee (in respect of purchases from
Motorola) and a similar guarantee by Kyocera (the "Kyocera Equipment Guarantee")
(in respect of purchases from Kyocera). Pursuant to the Motorola Equipment
Guarantee, Motorola would guarantee up to approximately $175 million of
additional Indebtedness in respect of equipment purchases from Motorola and,
pursuant to the Kyocera Equipment Guarantee, Kyocera would guarantee up to
approximately $122.5 million of additional Indebtedness in respect of equipment
purchases from Kyocera. Accordingly, the Standby Equipment Purchase Commitments
exceed the maximum aggregate amount of such Equipment Guarantees by
approximately $102.5 million. If Iridium's obligations under the Standby
Equipment Purchase Commitments exceed the amounts of the Equipment Guarantees,
there can be no assurance that Iridium will have sufficient funds, or be able to
secure sufficient financing, to satisfy its equipment purchase obligations. See
"Certain Relationships and Related Transactions of Iridium."
RISK OF HIGHLY LEVERAGED CAPITAL STRUCTURE
Iridium is a development stage company with a highly leveraged capital
structure and expects to incur substantial additional Indebtedness (as defined),
including secured Indebtedness. As of March 31, 1998, after giving pro forma
effect to the issuance of $350 million in aggregate principal amount of Notes
and the application of $175 million of the net proceeds from the Notes to a
permanent reduction of the Guaranteed Bank Facility, the Iridium Parties would
have had outstanding (i) approximately $350 million of senior secured
Indebtedness pursuant to the Secured Bank Facility and (ii) approximately $1,210
million of unsecured senior Indebtedness (other than the Notes) that ranks pari
passu with the Notes (including the Initial Senior Notes and borrowings of $110
million under the Guaranteed Bank Facility). In addition, as of March 31, 1998,
Iridium had approximately $285 million of Indebtedness that is subordinated to
the Initial Senior Notes. Such outstanding amounts of Indebtedness do not
reflect the anticipated temporary reduction in the Guaranteed Bank Facility. See
"Use of Proceeds." Iridium expects to incur additional secured Indebtedness
permitted by the Indenture, including an aggregate principal amount of $1
billion (inclusive of the outstanding $350 million) pursuant to the Secured Bank
Facility and other senior
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secured bank financing, in order to meet its expected funding requirements
through at least year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. See "Description of Other
Indebtedness" and "Description of Notes -- Certain Covenants." The amount of
debt needed to finance the IRIDIUM System could be increased by one or more
factors outside the control of Iridium, including cost increases related to the
acquisition of the IRIDIUM System, a delay in the delivery date of the system,
greater than expected obligations under the Standby Equipment Purchase
Commitments and increases in prevailing market interest rates. Subject to
restrictions in the Indenture, the indentures relating to the Initial Senior
Notes, the Guaranteed Bank Facility, the Motorola MOU and the Secured Bank
Facility, Iridium may incur additional Indebtedness from time to time, including
secured and other senior Indebtedness. Iridium currently has no significant
income-producing assets from which to service the Notes or any other
indebtedness. For the year ended December 31, 1997, Iridium's deficiency of
earnings to cover fixed charges was $457 million. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Certain Relationships and
Related Transactions of Iridium -- Motorola Related Matters -- Motorola MOU and
Agreement Regarding Guarantee," "Description of Other Indebtedness" and
"Description of Notes -- Certain Covenants -- Limitation on Indebtedness" and
"-- Limitation on Liens."
Iridium's interest expense will increase significantly as a result of its
financing plan. Prior the receipt of revenue from commercial operations, Iridium
expects to service its interest expense, including interest on the Notes and the
Initial Senior Notes out of available cash and borrowings. From approximately
the time of commencement of commercial operations through approximately year-end
1999 (the last year in which Iridium projects negative cash flow and a net
increase in year-end borrowings) Iridium expects to service its interest expense
partly from available cash and borrowings and partly from revenues from
operations.
Iridium's current and future debt service requirements could have important
consequences to the holders of the Notes, including the following: (i) Iridium's
limited ability to obtain additional financing for future working capital needs
or for other purposes; (ii) a substantial portion of Iridium's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing funds available for operations; and (iii)
Iridium's greater exposure to adverse economic conditions than competing
companies that are not as highly leveraged. In addition, the discretion of
Iridium's management with respect to certain business matters will be limited by
covenants contained in the Indenture, the indentures relating to the Initial
Senior Notes, the Guaranteed Bank Facility, the Secured Bank Facility and other
debt instruments. Among other things, such covenants limit or prohibit Iridium
and its subsidiaries from incurring additional indebtedness, creating liens on
their assets, making certain loans, investments or guarantees, issuing preferred
stock, making certain asset or stock dispositions and entering into transactions
with affiliates and related persons. The Secured Bank Facility is secured by
substantially all of the assets of Iridium, the membership interests in Iridium
and the Reserve Capital Call. There can be no assurance that such restrictions
or prior liens will not materially and adversely affect Iridium's ability to
finance its future operations or capital needs or to operate its business and
engage in other corporate activities. Moreover, a failure to comply with the
terms of any agreements with respect to outstanding or additional financing
could result in an event of default under such agreements, which could result in
the acceleration of the related debt and acceleration of debt under other debt
agreements that may contain cross-acceleration or cross-default provisions. See
"Description of Notes -- Certain Covenants" and "Description of Other
Indebtedness."
In connection with the Offering, Iridium has requested that the lenders
under the Secured Bank Facility agree to the Requested SBF Amendments that would
increase the approved budget under the Secured Bank Facility for the
development, construction and commercialization of the IRIDIUM System by $175
million and would make corresponding adjustments in various covenants
restricting the amount Iridium is permitted to spend on project costs and the
amount of Indebtedness Iridium is permitted to incur during the term of the
Secured Bank Facility. The Offering is not contingent on
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Iridium receiving the Requested SBF Amendments. If Iridium receives the
Requested SBF Amendments, it intends to effect the approximately $80 million
Global Advertising Program Increase, a substantial portion of which is expected
to be utilized prior to commencement of commercial operations. Iridium does not
expect to effect a significant portion of the Global Advertising Program
Increase if it does not receive the Requested SBF Amendments. While Iridium
believes the Global Advertising Program Increase would provide substantial
benefits, there can be no assurance that the lenders under the Secured Bank
Facility will agree to the Requested SBF Amendments.
RISK OF ERROR IN FORWARD LOOKING STATEMENTS
Iridium is a development stage company with no operating history.
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,
technical capabilities, funding needs, financing sources, pricing, launch
schedule, commercial operations schedule, estimates of the size of addressable
markets for mobile satellite services, estimates of customer counts, retail
usage fees for Iridium World Satellite Services 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. Investors should carefully review the other risk factors set forth
in this section of this Prospectus for a discussion of various of the factors
which could result in any of such forward looking statements proving to be
inaccurate.
In addition, the information in this Prospectus under "Summary -- Sources
and Uses of Funds by Iridium" (other than historical information) and the
statements therein and elsewhere that 1999 is the last year in which Iridium
expects negative cash flow and a net increase in year-end borrowings and as to
projected additional capital needs after the commencement of commercial
operations, are forward looking statements which may turn out to be inaccurate
for the reasons described in the preceding paragraph and are also based upon a
number of assumptions. One or more of these assumptions is likely to be
incorrect. The projected financial information assumes, among other things,
that: (i) the IRIDIUM System will become commercially operational on September
23, 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 sufficiently prior to September 23,
1998 and will be fully tested and operational at such time; (vi) the satellite
navigation and communications software and the business support systems software
will be developed and integrated into Iridium's operations on a timely basis;
(vii) Iridium will contract with a sufficient number of service providers and
roaming partners to ensure effective marketing of Iridium World 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
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business with Iridium will obtain timely requisite regulatory approvals to
provide services in sufficient countries to enable Iridium to carry out its
business strategy; (xii) the capacity of the IRIDIUM System, as affected by,
among other things, spectrum allocation and Iridium World Services usage
patterns, will be sufficient to meet Iridium's business plan; and (xiii) there
will be a sufficient number of subscribers and usage of the IRIDIUM System to
produce the revenue anticipated by Iridium after the commencement of commercial
operations, including the period from the expected commencement of commercial
operations through year-end 1999, the last year Iridium projects negative cash
flow and a net increase in year-end borrowings.
With regard to the statements concerning the expected size of the
addressable market for Iridium's target markets and expected customer counts set
forth under "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. 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. Iridium's market analysis is based upon a number of assumptions and
it is likely that one or more of these assumptions will not prove correct and
unanticipated events may occur which could affect actual markets realized. The
assumptions underlying Iridium's market analysis relate to the expected
performance characteristics of the IRIDIUM System, the expected competition in
the markets for personal satellite communications services and terrestrial cross
protocol wireless services and the accuracy of the respondents' responses to
Iridium's market research questions. Such assumptions include, without
limitation, (i) that the IRIDIUM System will provide continuous service to
virtually anywhere in the world with service characteristics at least as
favorable as those described in this Prospectus from September 23, 1998 forward,
(ii) that Iridium will face competition from satellite systems, terrestrial
wireless systems and other communications systems that is no greater than
Iridium's expectations regarding competition as described in this Prospectus and
(iii) that Iridium's market research was properly designed and implemented to
determine actual market interest and that the respondents provided truthful
responses. Consequently, actual markets should be expected to vary from
Iridium's estimates included herein and such variations may be material.
Iridium does not intend to publish updates or revisions of the projected
financial information or estimates of the size of addressable markets for mobile
satellite services, customer counts and retail usage fees for Iridium World
Satellite Services 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 prior to the end of September 1998. Motorola's construction schedule
for the satellites in the IRIDIUM System requires an unprecedented rate of
satellite assembly for commercial telecommunications systems. A significant
delay in the delivery of the satellites needed for the space segment would
materially and adversely affect Iridium's operations. Although the Space System
Contract is a fixed-price contract (subject to certain adjustments) with a firm
schedule for construction and delivery, there can be no assurance that delays
will not occur. In addition, certain events causing failures or delays in
performance may constitute excusable delays under the Space System Contract. In
the event of an excusable delay, the schedule may be equitably extended and the
price will be adjusted for any additional costs incurred by Motorola. Motorola
has the burden to prove an event of excusable delay has occurred. Moreover, the
liability of Motorola under the contract is limited. See "Principal Contracts
for the Development of the IRIDIUM System."
A significant delay in the date the IRIDIUM System becomes fully
operational would harm the competitive position of Iridium by eroding the timing
advantages Iridium currently anticipates, would
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delay the generation of revenue by Iridium and might significantly affect
Iridium's ability to pay interest on, and the principal of, the Notes. See
"Business -- Competition."
Deployment of Satellites
As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial impact of the loss
of the four satellites and that such loss will not affect the scheduled
completion date for commercial service in September 1998. Motorola currently
plans to launch seven satellites before the end of May 1998 in two launches in
order to complete the initial deployment of the 66 satellite constellation.
Motorola also has contracted with launch service providers to perform launches
to replace non-functioning satellites. There can be no assurance, however, that
the remaining launches will proceed on schedule or that the space segment will
be operational on schedule. The current launch schedule requires that there be
no additional significant launch delays and that all launch service providers
are able to provide launch services as currently planned. Further, no assurance
can be given that anomalies such as occurred with respect to the four
satellites, or other anomalies with comparable effects, will not occur in the
future, or that such anomalies will not have a significant adverse effect on
Iridium. In addition, no assurance can be given that from time to time certain
events will not occur that may require Motorola to conclude that one or more
satellites are not performing within the necessary parameters for such
satellites or satellites to be included in the constellation, or that such a
conclusion would not have an adverse effect on the schedule for commencement of
commercial operations or the operation of the system.
Boeing uses its Delta II launch vehicle to launch Iridium satellites.
Following an unrelated January 1997 failure of a Delta II launch vehicle on a
U.S. government program, the U.S. government temporarily postponed all Delta II
launches pending completion of a failure review analysis. As a result of the
postponement, the first Delta II launch of Iridium satellites, which had been
scheduled for January 1997, was delayed until May 1997. Motorola advised Iridium
of Motorola's position that this postponement constituted an "excusable delay"
under the Space System Contract, the Operations and Maintenance Contract and the
Terrestrial Network Development Contract. However, Motorola then reworked its
launch schedule and notified Iridium that Motorola would not claim either a cost
adjustment under those three contracts or a schedule extension of the final
Space System Contract milestone as a result of the January 1997 Delta II launch
failure. The reworked launch schedule is more compressed than the original
schedule. This compression of the launch schedule has added risk to the launch
schedule and put additional pressure on the in-orbit testing phase, including
reduced flexibility in responding to any problems identified during in-orbit
testing, since some portions of the in-orbit testing could not be commenced
until a minimum number of satellites were in their assigned orbital positions.
The launch delay and the compression of the launch schedule also could place
pressure on the achievement of milestones under the Terrestrial Network
Development Contract. There can be no assurance that events constituting
"excusable delay" will not arise in the future, or, if any such event does
arise, that it will be resolved on terms that are not materially adverse to
Iridium.
Construction and Operation of Gateways
The operation of the IRIDIUM System is dependent on the successful
construction and operation of gateways and the timely availability of necessary
regulatory licenses and approvals. Pursuant to the Gateway Authorization
Agreements, the gateway operators are obligated to use their reasonable best
efforts to meet certain operational capability dates. Iridium closely monitors
the progress of each gateway and currently expects that up to 12 gateways will
be in operation with voice functionality at the commencement of commercial
operations. Iridium expects paging functionality to be available at a portion of
the gateways by September 1998 with the remainder activated by October 1998.
However, there can be no assurance that one or more gateways will not fail to be
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completed by the commencement of commercial operations, which could have a
material adverse effect upon Iridium. In particular, the China gateway has only
recently commenced equipment procurement and the Middle East-Africa gateway is
significantly behind schedule with its preparations for commercial operations.
While Iridium believes that it is possible that these two gateways will be
operational by the planned September 1998 commencement of commercial operations,
in order for them to do so they will need to move forward promptly. In addition,
as Iridium approaches the commencement of commercial operations, each of the
gateways (including their service providers and roaming partners) must be
integrated into the IRIDIUM System, which will require the gateways to be
constructed and capable of operation in advance of the commencement of
commercial operations. Several gateways are behind Iridium's internal schedule
for system integration. There can be no assurance that one or more gateways will
not be capable of operation sufficiently in advance of the commencement of
commercial operations so that it or they can be integrated into the IRIDIUM
System on a timely basis. See "-- Reliance on Motorola, Gateway Owners and Other
Third Parties" and "-- Technology and Technology Implementation Risks; Inability
to Fully Test Prior to Space Deployment; Year 2000 Considerations."
Development and Implementation of Software
As discussed under "-- Technology and Technology Implementation Risks;
Inability to Fully Test Prior to Space Deployment; Year 2000
Considerations -- Integration of Technologies" and "-- Development and
Integration of Software," prior to commencement of commercial operations,
Iridium must develop and, in conjunction with each of the gateway owners,
integrate and test software related to the operation of the IRIDIUM System,
including the business support systems. A significant delay in the development,
deployment or implementation of such software systems would have a material
adverse effect on Iridium.
Development, Manufacture and Distribution of Subscriber Equipment
Significant delay in the development, manufacture and sale of phones and
pagers would have a material adverse effect on Iridium. Planned commercial
operation of the IRIDIUM System assumes that commercial quantities of the
portable, hand-held phones, TRCs and belt-worn pagers will be ordered in the
next few months and 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. Iridium
generally does not expect to act as a distributor of subscriber equipment or
derive any significant income from the sale of subscriber equipment. However,
because there is no current market for Iridium World Services or Iridium
subscriber equipment, the financial incentive for manufacturers to produce
significant quantities of subscriber equipment in advance is limited. Therefore,
in an effort to ensure that sufficient quantities of hand-held phones and pagers
are available for distribution in advance of the commencement of commercial
operations, Iridium intends to enter into the Standby Equipment Purchase
Commitments. The Standby Equipment Purchase Commitments would require Iridium to
purchase an aggregate of up to approximately $400 million of subscriber
equipment from Kyocera and Motorola, but only to the extent such equipment is
not purchased by and shipped to gateway operators or service providers prior to
January 1, 1999. See "Certain Relationships and Related Transactions of
Iridium."
In addition, there is a risk that demand for Iridium World Services will
not materialize in a timely manner unless Iridium, its gateway operators or
service providers subsidize the cost of hand-held phones. Neither Iridium nor,
to Iridium's knowledge, its gateway owners and service providers currently plan
to provide any such subsidies. The costs associated with any such subsidization
could be significant. Iridium's current projected funding needs do not reflect
any costs associated with its Standby Equipment Purchase Commitments or such
subsidization.
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TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS;
INABILITY TO FULLY TEST PRIOR TO SPACE DEPLOYMENT; YEAR 2000 CONSIDERATIONS
Integration of Technologies
Motorola's timely completion of its obligations under the Space System
Contract is necessary for Iridium to commence commercial operations on its
expected schedule in September 1998. However, the timely completion of such
obligations is not, in itself, sufficient for Iridium to achieve its expected
commercial operation schedule. To build the IRIDIUM System, Motorola and its
subcontractors must integrate a number of sophisticated technologies. The
integration of this array of diverse technologies is a complex task which has
not previously been attempted and is further complicated by the fact that a
significant portion of the hardware components associated with the IRIDIUM
System will be in space. Despite the extensive testing of the components of the
IRIDIUM System on the ground, the nature and complexity of the system is such
that final confirmation of the ability of the system to function in the intended
manner, including the ability of the IRIDIUM System to handle the anticipated
number of calls each day, cannot be confirmed until a substantial portion of the
system is deployed in space and sufficient testing occurs. Errors involving
hardware or software components in space may result in service limitations and
corresponding reductions in revenue.
Development and Integration of Software
Implementation and operation of the IRIDIUM System, including the business
support systems necessary for such tasks as customer billing and subscriber
authentication, are also significantly dependent on software which has been, is
being or will have to be developed, integrated and tested and which would have
to be reprogrammed if errors require changes. Iridium believes that the
development of the software for the IRIDIUM System, including the space segment,
is one of the largest and most complex software creation and integration tasks
ever undertaken in a commercial satellite communications program. No assurance
can be given that the software necessary to Iridium's business will be completed
when required, including integration and testing, or that such software will
function as required.
Prior to commencement of commercial operations, the gateway operators must
license additional business support software, develop interface programs between
various software programs and implement software and support systems with
service providers and roaming partners. There can be no assurance that the
gateway operators will acquire or implement the business support systems
necessary for Iridium World Services or that the system supplier will provide
such systems or related services on a timely basis. Failure of a gateway
operator to acquire and implement an adequate business support system could have
a material adverse effect on Iridium.
Development and Production of Subscriber Equipment
The Iridium subscriber equipment is also an essential component critical to
the successful commercial operation of the IRIDIUM System. An inability to
successfully develop and manufacture subscriber equipment in sufficient numbers
could delay commencement of commercial operations or limit the capacity of the
system and the quality of services offered. Such limitations could affect
subscriber acceptance of Iridium World Services and as a result could materially
and adversely affect Iridium. Motorola has produced a functional prototype of
the hand-held phone and a functional prototype of the belt-worn pager. However,
there can be no assurance that Motorola, Kyocera or any other manufacturer will
be able to develop on a timely basis, or at all, portable, hand-held phones or
belt-worn pagers that meet Iridium's expectations and which can be mass produced
at economical prices. See "-- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Reliance on Motorola, Gateway Owners and Other Third Parties."
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Year 2000 Considerations
In the next eighteen months, most companies using computer systems will be
confronted with the fact that many software application and operation programs
written in the past may not properly recognize calendar dates beginning in the
Year 2000. This issue could cause computers to shut down or provide incorrect
information. While Year 2000 considerations are not expected to materially
affect Iridium's internal operations, they may adversely affect Iridium's
suppliers, gateway operators, service providers and roaming partners. Iridium
has begun to ask its suppliers, gateway operators, service providers and roaming
partners about their progress in identifying and addressing problems that their
computer systems may face in correctly processing date information for the Year
2000. While Iridium expects that substantially all of its suppliers, gateway
operators, service providers and roaming partners will effectively address the
Year 2000 issue, there can be no assurance that the failure of such persons to
effectively address the issue will not have an adverse effect on Iridium's
results of operations.
CONSEQUENCES OF SATELLITE SERVICE LIMITATIONS ON CUSTOMER ACCEPTANCE
Iridium's ability to generate operating revenues sufficient to pay the
interest on, and principal of, the Notes will depend upon customer acceptance of
and satisfaction with Iridium World Services, which in turn will depend upon a
variety of factors, including the price and technical capabilities of Iridium
World Services and equipment, and the extent, availability and price of
alternative telecommunications services.
There is no service available today which approximates the hand-held,
satellite-based service Iridium expects to provide. The Iridium satellite system
is not intended to provide communications services that compete with terrestrial
wireless and paging services where they are available because of the advantages
such wireless and paging systems generally have in terms of cost, voice quality,
signal strength and ability to penetrate various environments (such as
buildings). Iridium expects that it will be able to charge its service providers
wholesale usage fees for Iridium World Satellite Services that are significantly
higher than the wholesale usage fees currently charged by most terrestrial
wireless services. Iridium currently expects that its wholesale usage fees for
international Iridium World Satellite Services calls between two countries will
result in suggested retail prices that, in aggregate, are approximately 25% to
30% above the retail roaming prices for terrestrial-based voice calling options
that traveling customers could use for a similar call between the same two
countries (e.g., international calling card and international cellular roaming
rates). There can be no assurance that actual retail prices will be in the range
estimated by Iridium or this premium pricing will not adversely affect demand
for such services and, accordingly, adversely affect Iridium's ability to
generate sufficient operating revenues. For a discussion of how Iridium expects
to set wholesale prices see "Business -- Pricing."
Based upon current testing and simulations, Iridium subscribers using
Iridium World Satellite Services via portable, hand-held phones should expect
some degradation in service quality and availability to occur in environments
where obstructions, such as trees, buildings and other natural and man-made
obstacles, are positioned between a satellite and the user. The severity of this
degradation will increase as the obstacles become larger and more densely
spaced. Only extremely limited satellite voice service, or no satellite voice
service, is expected to be available in densely packed urban environments or
inside buildings with steel construction and metal coated glass common in many
urban high rise buildings (including, in particular, in most hotels and
professional buildings). In addition, because the structure of automobiles will
tend to obstruct the satellite signal, use of a hand-held Iridium phone in a
moving automobile will make the effect of environmental obstructions temporary
but more pronounced. The actual limitations will vary, sometimes significantly,
as actual situations and conditions change and as the satellites move across the
sky. Iridium World Page Services will also be unable to provide service in
certain environments where terrestrial paging generally would. While Iridium
believes that the addition of Iridium World Cellular Services and the
availability of multi-mode phones will lessen the effect of these obstacles by
providing
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access to local cellular service (if available and if the local cellular
provider has an agreement in place with Iridium) in environments in which
Iridium World Satellite Services are unavailable or degraded, there can be no
assurance that (i) Iridium's expectation will be correct as to subscribers'
willingness to accept service limitations, higher prices and heavier hand-held
phones and larger pagers than those to which such subscribers may otherwise be
accustomed in order to have the ability to make and receive calls on a worldwide
basis with a single phone or to receive pages on a satellite pager or (ii) that
the service limitations will not result in significantly lower sales to
professional and other travelers, or lower usage of Iridium World Services by
such persons, than Iridium anticipates. Also, Iridium World Satellite Services
call set-up times and the number of blocked or dropped calls may exceed the call
set-up times and the number of blocked or dropped calls of available terrestrial
wireless systems. Although the Iridium paging service will also be
satellite-based, Motorola believes that because of the IRIDIUM System's expected
signal strength for paging, Iridium pages will be generally received in most
environments other than in the innermost sections of large buildings, in densely
packed urban canyons or in other situations where there are significant
obstructions between the satellite and the pager. However, the in-building
penetration of an Iridium pager is expected to be below that generally
experienced by terrestrial pagers with mature terrestrial paging systems.
The IRIDIUM System has not been designed to provide high-speed data and
facsimile transmission capability. As a result, Iridium expects that the appeal
of Iridium facsimile and data services will be limited.
CONSEQUENCES OF IRIDIUM PHONE AND PAGER CHARACTERISTICS ON CUSTOMER ACCEPTANCE
Iridium believes that its success is dependent on the development of
satellite phones which are portable and hand-held and pagers which may be worn
on a belt. Moreover, Iridium's business plan assumes that there will be
multi-mode versions of the phone capable of operation with most of the major
terrestrial wireless system standards so that a subscriber can use the same
phone for terrestrial wireless service, including Iridium World Cellular
Services, and for Iridium World Satellite Services. The phone and pager for the
IRIDIUM System are still under development. Motorola has informed Iridium that
the portable, hand-held phone that Motorola is developing is expected to be
larger and heavier than today's pocket-sized terrestrial wireless phones and is
expected to have a significantly longer and thicker antenna than hand-held
terrestrial wireless telephones. Iridium expects that the Kyocera phone will be
relatively the same size and weight as the Motorola phone. The pager Motorola is
developing is slightly larger than today's standard alphanumeric belt-worn
pagers.
Subscribers will generally purchase equipment from service providers.
Iridium does not currently intend to manufacture or distribute Iridium
subscriber equipment or derive any significant income from the sale of Iridium
subscriber equipment. However, in an effort to ensure that sufficient quantities
of hand-held phones and pagers are available for distribution in advance of the
commencement of commercial operations, Iridium intends to enter into the Standby
Equipment Purchase Commitments. The Standby Equipment Purchase Commitments would
require Iridium to purchase an aggregate of up to approximately $400 million of
subscriber equipment from Kyocera and Motorola. These Commitments would be
triggered on or after January 1, 1999, but only to the extent such equipment is
not purchased by and shipped to gateway operators or service providers prior to
January 1, 1999. See "-- Potential for Delay and Cost Overruns -- Development,
Manufacture and Distribution of Subscriber Equipment."
Based on information received from Motorola, Iridium expects that
Motorola's version of the multi-mode portable, hand-held phones will have an
initial retail price of approximately $3,000, including one TRC, with each extra
TRC having an initial retail price in the range of $500 to $1,000. Motorola's
version of the alphanumeric pager is expected to have an initial retail price of
approximately $500. Iridium expects the prices for subscriber equipment that is
manufactured by Kyocera to be similar to Motorola's prices. These projected
prices substantially exceed today's
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prices for terrestrial wireless phones and pagers and may also exceed prices for
subscriber equipment of competing satellite-based systems. In addition, Iridium
currently expects that its wholesale usage fees for international Iridium World
Satellite Services calls between two countries will result in suggested retail
roaming prices that, in aggregate, are approximately 25% to 30% above the retail
prices for terrestrial-based voice calling options that traveling customers
could use for a similar call between the same two countries (e.g., international
calling card and international cellular roaming rates). The cost of Iridium
hand-held phones and pagers, as well as expected usage fees, may limit demand
for Iridium World Services, particularly among individual purchasers. If such
prices and fees significantly limit demand, Iridium's ability to generate
sufficient operating revenues could be adversely affected. Neither Motorola nor
Kyocera has made a commitment to sell subscriber equipment at these estimated
prices.
RISKS RELATED TO IRIDIUM WORLD CELLULAR SERVICES
Subscribers to Iridium World Cellular Services 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 Iridium World Cellular Services may lessen somewhat the impact
of the satellite-related service limitations, Iridium World Cellular Services
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 Iridium World Cellular Services coverage in
areas that are principally served by this type of technology. To fully implement
Iridium World Cellular Services, 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 Iridium World
Cellular Services allowing roaming between IS-41 systems will not be implemented
before 1999 and Iridium World Cellular Services in Japan is expected to be
delayed until 1999 as well.
In order for Iridium to offer interprotocol Iridium World Cellular
Services, Motorola entered into a contract with a third-party supplier to
develop, manufacture and deliver the IIU that will permit protocol translation.
However, there can be no assurance that the required IIU will be delivered on a
timely basis.
The integration of Iridium World Cellular Services into Iridium's business
management system requires substantial software development and integration.
There can be no assurance that Iridium will be able to incorporate Iridium World
Cellular Services into its business support system on a timely basis. Iridium's
business plan currently calls for roaming agreements covering networks in 57
countries by the commencement of commercial operations in September 1998, with
roaming agreements covering networks in approximately 150 countries in place by
2002. As of March 31, 1998, Roaming had entered into more than 90 roaming
agreements. Certain terrestrial wireless service providers are offering or have
announced their intention to offer interprotocol roaming services that will
compete with Iridium World Cellular Services, and Roaming may not be able to
enter into roaming agreements with such service providers. An inability to
execute roaming agreements which provide Iridium World Cellular Services
customers terrestrial wireless coverage in significant markets could have a
material adverse effect on Iridium. Neither Motorola nor Iridium may have
sufficient intellectual property rights to prevent other parties from
developing, selling or using equipment and systems for providing interprotocol
roaming services.
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SATELLITE LAUNCH RISKS
Number of Launches; Compressed Launch Schedule
In order for the IRIDIUM System to be fully operational under its current
specifications and timetable, Iridium anticipates the need to launch
successfully at least 66 low earth orbit satellites in the 12 to 15 month period
from the first launch on May 5, 1997. Moreover, to maintain the system,
additional satellites are expected to be launched each year during the term of
the Operations and Maintenance Contract. No other commercial satellite
communications system has required this number of launches to become fully
deployed and operational. Motorola has subcontracted with Boeing and China Great
Wall for the remaining launch services. These launch service providers have from
time to time experienced launch failures. There can be no assurance that
Iridium's satellites will be successfully deployed in a timely manner or that
launch failures, whether or not deploying Iridium satellites, will not occur and
materially and adversely affect Iridium. The risk of a material and adverse
effect associated with an Iridium launch failure is exacerbated by the fact that
each launch vehicle will contain multiple satellites.
The launch of the first five Iridium satellites occurred on May 5, 1997 on
a Delta II launch vehicle. This launch had been scheduled for January 1997 but
was postponed until May 1997 as a result of the United States government's
decision to temporarily postpone launches of the Delta II launch vehicle (which
is the type of launch vehicle that Boeing is using for Iridium satellites)
following an unrelated launch failure involving the Delta II launch vehicle.
Motorola has informed Iridium that, notwithstanding the first launch
postponement, Motorola believes its launch schedule should permit Iridium to
meet its planned September 1998 commencement of commercial operations. The
current launch schedule is more compressed than the original schedule and
several intermediate milestones of the Space System Contract, in addition to the
first launch, occurred after their contract milestone dates. This compression of
the launch schedule has added 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-orbit testing, since some portions of
the in-orbit testing could not be commenced until a minimum number of satellites
were in their assigned orbital position. The launch delay and the compression of
the launch schedule also could place pressure on the achievement of milestones
under the Terrestrial Network Development Contract. Delays in the launch
schedule could delay the commencement of commercial operations, the availability
of subscriber equipment and the ability of gateways to function on a timely
basis as well as impair Iridium's ability to obtain additional funding.
As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial impact of the loss
of the four satellites and that such loss will not affect the scheduled date for
commencement of commercial operations in September 1998. No assurance can be
given that anomalies such as occurred with respect to the four satellites, or
other anomalies with comparable effects, will not occur in the future, or that
such anomalies will not have a significant adverse effect on Iridium.
China Great Wall provides launch services for Iridium using the Long March
2C. China Great Wall experienced failures in December 1992 and January 1993 with
its Long March 2E launch vehicle, and in February 1996 with its 3B launch
vehicle.
Impact of Excusable Delays
The terms of the Space System Contract provide that Motorola will bear the
responsibility of launching the satellites that comprise the space segment.
Nevertheless, Iridium retains the risk of cost overruns and delays associated
with excusable delays, including delays in launch provider schedules due to
prior delays of launches of non-IRIDIUM satellites, and the risk of economic
damage due to any delay or reduced performance beyond the limited remedies
provided by the
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Space System Contract. Following an unrelated January 1997 launch failure
involving the Delta II launch vehicle, Motorola advised Iridium of its position
that the United States government's temporary postponement of Delta II launches
pending completion of a failure review analysis constituted an "excusable delay"
under the Space System Contract, the Operations and Maintenance Contract and the
Terrestrial Network Development Contract. Motorola then reworked the original
launch schedule and notified Iridium that it would not claim either a cost
adjustment under the Space System Contract, the Operations and Maintenance
Contract or the Terrestrial Network Development Contract or a schedule extension
of the final Space System Contract milestone as a result of the January 1997
Delta II launch failure. The current launch schedule requires that there are no
additional significant launch delays and that Boeing and China Great Wall are
able to provide launch services as currently planned. There can be no assurance
that events constituting "excusable delays" will not arise in the future, or, if
any event of "excusable delay" does arise, that it will be resolved on terms
that are not materially adverse to Iridium. See "-- Potential for Delay and Cost
Overruns -- Deployment of Satellites" and "Principal Contracts for the
Development of the IRIDIUM System."
Risks Related to Non-U.S. Launches
China Great Wall is located in China. Changes in laws, treaties, trade
agreements, governmental policies or political leadership in the United States
or China 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 China Great Wall. In addition, the use of
China Great Wall requires various approvals from the government of the United
States under the United States Arms Export Control Act and the Export
Administration Act. See "Regulation of Iridium." There can be no assurance that
required approvals will be obtained on a timely basis or at all. Failure to
receive any of the required approvals could result in an excusable delay under
the Space System Contract, the Terrestrial Network Development Contract and the
Operations and Maintenance Contract. Motorola has informed Iridium that in view
of the suspension for over three months in Delta II launches following the
January 1997 Delta II launch failure, its ability to meet its revised launch
schedule and to meet the schedule specified in the Space System Contract for
delivery of the space segment is dependent upon each of Boeing and China Great
Wall being able to provide launch services on a timely basis.
LIMITED LIFE OF SATELLITES; COST OF MAINTAINING THE SPACE SEGMENT;
RISK OF SATELLITE FAILURE OR DAMAGE
A significant portion of Iridium's tangible assets will be represented by
the satellites in the space segment. Iridium's business plan currently assumes
that the satellites will have a useful life of five years from their respective
launch dates. There can be no assurance that any satellite will actually achieve
such a useful life. The actual useful life of any satellite will depend upon a
variety of factors including the quality of construction of the satellite, the
quality and durability of its components and whether the satellite sustains
casualty damage in space. Due to their low and rapid orbit of the Earth, Iridium
satellites will place significant stress on the satellite batteries which will
be discharged and recharged 12 to 14 times a day, as contrasted with
approximately 20 times a year for geostationary satellites.
Maintaining the space segment is a complex undertaking which has not
previously been attempted on a commercial basis. The cost of maintaining the
space segment and the risk of loss of satellites are significant. Iridium has
entered into an Operations and Maintenance Contract with Motorola which provides
for the operation and maintenance of the space segment for its first five years
of operation at an aggregate cost to Iridium of approximately $2.88 billion,
assuming the space segment is delivered in September 1998 and assuming no
excusable delay occurs. Iridium has the option to extend the Operations and
Maintenance Contract for an additional two years for additional aggregate
payments aggregating $1.33 billion (based on the same assumption) and
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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 remote and Iridium expects to insure against such risk.
Premature failure or interruption of one or more satellites, including
temporary losses, that for whatever reason are not promptly corrected or
replaced, could, among other things, cause gaps in service availability,
significantly degrade service quality, increase costs in the event Iridium is
liable, and result in loss of revenue for the period that service is compromised
and, as a result, could materially and adversely affect Iridium. No assurance
can given as to the occurrence of anomalies in the future, or as to their effect
on Iridium, including financial risk of loss. See "-- Potential for Delay and
Cost Overruns -- Deployment of Satellites."
Upon the expiration of the Operations and Maintenance Contract, Iridium,
unless it enters into another similar contract with Motorola or a third party,
will bear all risks of satellite damage or failure. In addition, if the contract
is not renewed, Iridium is obligated to pay Motorola $46 million for each spare
satellite then located in a low earth, non-operational storage orbit and, unless
Iridium has given Motorola one year's notice of its intention not to renew the
contract, $31 million for each spare satellite not yet launched and a fraction
of that amount for each partially completed spare satellite. The Space System
Contract provides that title and risk of loss or damage to each individual
satellite will pass to Iridium upon the arrival of each satellite at its
designated orbital location in the satellite constellation.
Given the limited life of the IRIDIUM System satellites, Iridium expects to
incur significant expense in maintaining an operational constellation of
satellites in space either through the Operations and Maintenance Contract (as
discussed above), or successor arrangements. If Iridium is for any reason unable
to finance such expenses through internally generated funds or external
financing, such inability would have a material adverse effect on Iridium. In
addition, while Iridium has engaged in preliminary discussions with Motorola
regarding possible long-term enhancements to the IRIDIUM System, and has filed
an application with the FCC for authorization to operate a satellite system in
the 2GHz band, such actions are preliminary and Iridium has made no significant
financial commitment to long-term enhancements.
RISKS ASSOCIATED WITH LICENSING AND SPECTRUM ALLOCATION
Significant Regulatory Approvals Required for Operation of the IRIDIUM System
The operation of the IRIDIUM System is and will continue to be subject to
United States and international regulation. This regulation is pervasive and
largely outside Iridium's direct control. The successful implementation of the
IRIDIUM System requires (1) the international allocation by a World Radio
communication Conference ("WRC") under the ITU of the spectrum required for
Iridium subscriber, gateway and intersatellite links, (2) the domestic
allocation in each country of spectrum for MSS and Aeronautical Mobile Satellite
(Route) Service ("AMS(R)S") use, (3) a license from the FCC for the
construction, launch and operation of the Iridium satellites, using frequencies
assigned to it for subscriber, gateway and intersatellite links, (4) authority
to construct and operate the North American gateway in the United States and
system control facilities to be
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located in the United States and Canada, including spectrum assignments for the
gateway links, and for the use of the Iridium subscriber equipment, including
spectrum assignments for the user links, (5) in each other country in which a
gateway or system control terminal will be located, an authorization to
construct and operate those facilities, including necessary gateway link
spectrum assignments, (6) in each country in which Iridium subscriber equipment
will be operated, authority to market and operate that equipment with the
IRIDIUM System, user link spectrum assignments, and authorization to offer
Iridium communications services, (7) international coordination of the IRIDIUM
System under the auspices of the ITU or domestic coordination in each country
where Iridium World 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." The availability of funds
under the Secured Bank Facility is conditioned on, among other things, obtaining
and maintaining regulatory approvals as specified in the Secured Bank Facility.
See "Description of Other Indebtedness -- Secured Bank Facility."
Significant Remaining Regulatory Approvals
Iridium, Motorola, and the various gateway owners have made substantial
progress in taking the steps needed to implement the IRIDIUM System, but a
significant number of additional regulatory approvals remain to be obtained, in
particular with respect to the approvals mentioned in (2), (5), (6) and (7)
above. See "Regulation of Iridium."
Aeronautical Certification. With respect to (2) above, Motorola submitted
in December 1996 a request to the FCC to authorize the IRIDIUM System to provide
AMS(R)S in its authorized band as part of its in-flight passenger communications
service. Several parties filed comments with and have petitioned the FCC to deny
Motorola's application. Among other arguments, petitioners claim that the
AMS(R)S proposal is inconsistent with ITU and FCC rules and allocations. In
addition to FCC approval, approval is needed from the Federal Aviation
Administration ("FAA"), which must certify that the Iridium avionics equipment
meets minimum performance standards, and it may be necessary for Iridium to
satisfy other international certification requirements. There can be no
assurance that the FCC application will be granted, or that the avionics
certification requirements will be satisfied in a timely fashion or at all.
Gateway Licensing. With respect to (5) above, Iridium currently expects to
have up to 12 operating gateways at the commencement of commercial operations.
However, because the IRIDIUM System utilizes intersatellite links, Iridium can
provide service worldwide with a smaller number of gateways or even a single
gateway. Unlike "bent pipe" systems, it is not necessary for a subscriber and a
gateway to be within the footprint of a single satellite for a call to be
completed over the IRIDIUM System. Nevertheless, it is important for Iridium to
have a sufficient number of gateways available at the commencement of commercial
operations in order to reduce the landline charges from the gateway to the call
termination point and to ensure sufficient capacity of the IRIDIUM System.
Iridium believes that with a majority of the 12 gateways operational it will be
able to provide a sufficient level and quantity of service and there is no
specific gateway, or specific combination of gateways, that is critical to
providing Iridium World Satellite Services. If a gateway is not operational at
the commencement of commercial operations, the calls it would process would have
to be processed by an operational gateway, preferably one located in an adjacent
territory so that the costs of relaying the calls terrestrially can be
minimized. There can be no assurance that Iridium will have the necessary number
of gateways in service and licensed at the commencement of commercial operations
or that a gateway that is not operational or licensed at the commencement of
commercial operations will be able to make appropriate arrangements with an
operational and licensed gateway to provide service to its territory. See
"-- Potential for Delay and Cost Overruns -- Construction and Operation of
Gateways."
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Each gateway must be licensed by the jurisdiction in which it is located.
Licenses have been granted for the gateways in the United States (Tempe),
Thailand (Bangkok), Taiwan (Taipei), Korea (Seoul), Brazil (Rio de Janeiro),
Japan (Nagano) and Italy (Fucino). The North American gateway operator has
contracted to build a second gateway in the United States. Additionally,
experimental licenses have been granted for the gateways in Russia (Moscow) and
India (Bombay) and permit the gateways to test their links between the Iridium
satellites and terrestrial services. In the case of China, approval has been
issued to China Aerospace Corporation, the parent company of Iridium China, and
the Ministry of Information Industries, formerly the Ministry of Posts and
Telecommunications (the "MII") to proceed with the establishment of a testing
gateway for Iridium in China. The MII will be primarily responsible for
construction, management and operation of the gateway. The licenses that have
been received by the gateways are subject to conditions that relate to the
completion of construction and the provision of technical information to
regulatory authorities. Iridium expects that the licenses its gateways are
seeking will have similar conditions. There can be no assurance that the
additional licenses necessary for Iridium to obtain the service capability
assumed in its business plan will be obtained on a timely basis or at all. In
addition, while Iridium believes the conditions specified in the gateway
licenses that have been received can be satisfied, there can be no assurance
that such conditions will be satisfied or that conditions to licenses received
in the future will be satisfied. See "Regulation of Iridium -- Licensing
Status."
Numerous Remaining Individual Country Authorizations. With respect to (2)
and (6) above, as of March 15, 1998, 58 countries or territories have given all
or a substantial portion of the authorizations necessary to operate the IRIDIUM
System in their territory. The 58 countries and territories are: United States,
Italy, Argentina, Colombia, Honduras, Taiwan, Thailand, Malaysia, Guatemala,
Puerto Rico, Finland, El Salvador, Brazil, Japan, South Korea, Austria, Germany,
Canada, Australia, Venezuela, Sweden, Iceland, Russia, Uruguay, New Zealand,
Chile, Senegal, Morocco, Afghanistan, Panama, San Marino, Maldives, Federal
States of Micronesia, Cook Islands, American Samoa, Baker Island, Guam, Jarvis
Atoll, Johnston Atoll, Midway Islands, Northern Marianas, Palmyra Atoll, United
States Virgin Islands, Wake Island, Christmas Island, Cocos (Keeling) Islands,
Norfolk Island, Svalbard & Jan Mayen, Western Sahara, Fiji, China, Solomon
Islands, Niue, French Polynesia, Guinea, Benin, Ghana and Suriname. Iridium will
require similar approvals in each country in which it intends to offer service.
In order for Iridium's business plan to be successful, approvals in a
substantial number of countries will need to be obtained prior to September
1998, the month commercial operations are expected to commence. Iridium is
seeking licenses throughout the world. However, Iridium and its gateway
operators are placing emphasis on obtaining approvals by September 1998 from the
70 to 90 countries where Iridium expects substantially all of the demand for,
and usage of, Iridium World Services is likely to be generated. While Iridium
believes that all required licenses will be obtained in a substantial majority
of these countries by September 1998, there can be no assurance that the
required authorizations will be granted at all or in a timely manner, or without
burdensome conditions. Failure to obtain licenses in a timely fashion could have
a material adverse effect on Iridium.
Approval of the offering of Iridium World Services by many countries will
be contingent upon Iridium providing such countries with the ability to legally
monitor calls made to or from such countries. Iridium believes that it will be
able to address the concerns of many of these countries by the date commercial
service is expected to begin and of other countries after the commencement of
commercial operations, but there can be no assurance that it will be able to do
so. In addition, other governmental or political concerns may arise, including
spectrum license fees or auctions, that may impair the ability of Iridium to
obtain licenses or offer Iridium World Services on a timely basis. See "-- Risks
Associated with International Operations and Developing Markets."
Interference from Other Satellite Systems. In addition, the IRIDIUM System
MSS downlinks to the Iridium subscriber equipment operate on a secondary basis.
Under the rules of the ITU and the FCC, these downlinks may not cause harmful
interference to any primary spectrum user operating in
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the same frequency band and must accept any interference caused to them by a
primary spectrum user operating in the same frequency band. In light of the
secondary nature of IRIDIUM's MSS downlinks, there can be no assurance that
issues concerning intersystem interference from CDMA MSS Systems will be
resolved everywhere in the world in a way that will protect Iridium subscriber
units from harmful interference. Any failure to implement an acceptable limit on
out-of-band CDMA emissions could significantly reduce the total capacity of the
IRIDIUM System. Furthermore, the MSS downlinks of the IRIDIUM System may need to
accept interference from Inmarsat terminals, including Inmarsat aeronautical and
land mobile terminals, when they are in the vicinity of an Iridium terminal. See
"-- Competitive Risks; Factors Affecting Iridium's Competitive
Position -- Recent Developments in Licensing of MSS Competitors."
GLONASS and Radio Astronomy Coordination. With respect to (7) above, the
IRIDIUM System, including Iridium subscriber equipment, must be coordinated with
all other domestic and foreign users of the 1.6 GHz band. Currently, the Russian
aeronautical navigation system, GLONASS, operates in a frequency band that
overlaps the 1610-1626.5 MHz band. MSS systems are required to coordinate their
operations with the previously registered operations of GLONASS. Iridium
believes that a bilateral coordination agreement between Russia and the United
States is in negotiation, under which Russia would agree to move the GLONASS
system's operations to frequencies below 1610 MHz by January 1, 1999, and to
frequencies below approximately 1605 MHz by the year 2005. The FCC has
conditioned the Iridium blanket subscriber license upon compliance with a level
of protection from interference to the GLONASS system. Iridium believes that it
can meet the protection requested for GLONASS when GLONASS shifts down in
frequency to below approximately 1605 MHz by the year 2005. During the interim
period between 1999 and when GLONASS shifts to below approximately 1605 MHz,
while there can be no assurance as to what level of protection will be required
to protect GLONASS, Iridium believes it will be able to satisfy any reasonable
level of protection required.
In addition, it will be necessary for other administrations to coordinate
with the Russian Federation concerning the level of protection that will be
afforded to GLONASS in countries outside the United States and Russia. In
Russia, additional restrictions may be imposed which may limit the amount of
spectrum available to Iridium in Russia. There can be no assurance that
sufficient spectrum will be available to meet subscriber demand in Russia or any
other country that requires a higher level of protection for GLONASS than the
United States. Moreover, there can be no assurance that the CDMA based global
MSS systems will be able to meet the levels of protection required for GLONASS,
either in the United States, Russia, or elsewhere. Such an eventuality might
lead the FCC and other countries' regulatory authorities to consider requests to
reassign the CDMA systems to higher frequencies within the 1610-1626.5 MHz
allocation to protect GLONASS. This development might, in turn, reduce the
amount of spectrum available to Iridium. By orders released July 1, 1997 the
FCC's International Bureau granted two MSS licenses, increasing the number of
U.S.-licensed MSS systems (including the IRIDIUM System) to four. The two new
licenses are for CDMA based systems which may make it more difficult for the
CDMA global systems to meet the protection levels required for GLONASS. See "--
Competitive Risks; Factors Affecting Iridium's Competitive Position -- Recent
Developments in Licensing of MSS Competitors."
Under the FCC's rules, the IRIDIUM System also must protect U.S. radio
astronomy sites during periods when they are observing in the 1610.6-1613.8 MHz
band. Coordination has been achieved with respect to all. There can be no
assurance that the technical assumptions underlying the coordination agreements
with the U.S. Radio astronomy sites will not differ from the manner in which the
IRIDIUM System performs once it is operational.
Some other countries will also require that the IRIDIUM System be
coordinated with Radio astronomy sites that observe in the 1.6 GHz band, and
Iridium will not be permitted to cause harmful interference to any such site.
Iridium and Motorola have commenced coordination discussions with most non-U.S.
Radio astronomy sites. While Iridium believes that it will be able to
demonstrate that Iridium's operations will not materially and adversely affect
the ability of radio astronomers to
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observe in the 1.6 GHz band, there can be no assurance that these coordinations
will be concluded successfully or in a timely manner.
Risks Associated with United States Electronic Surveillance Laws
The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was
enacted on October 25, 1994. CALEA requires that telecommunications carriers
deploy equipment, facilities and services that meet certain electronic
surveillance requirements identified in the statute. Penalties of $10,000 a day
for each wire tap order not fulfilled 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 U.S.
government has indicated that CALEA imposes requirements on the IRIDIUM System
similar to the requirements that the U.S. government has requested of the
cellular industry. Because the U.S. government has not identified its capacity
or capability requirements for satellite systems and because of legal challenges
filed by the government concerning the cellular industry's standard for CALEA
wiretap capabilities, there is uncertainty as to the scope of the wiretap
capabilities that may ultimately be required for the IRIDIUM System. Because of
this uncertainty, it may be necessary to seek extensions of the CALEA capability
deadline of October 25, 1998 for the IRIDIUM System. If such extensions are
denied by the FCC, there is a possibility of a dispute with the U.S. government
which could result in material restrictions on the operation of the IRIDIUM
System.
COMPETITIVE RISKS; FACTORS AFFECTING IRIDIUM'S COMPETITIVE POSITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and in other countries. The uncertainties and risks created
by this competition are intensified by the continuous technological advances
that characterize the industry, regulatory developments which affect competition
and alliances between industry participants. While no single wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will serve this market in some
fashion in the future. Iridium believes that its most likely direct competition
will come from the planned ICO Global Communications (Holdings) Limited ("ICO")
telecommunications service and one or more of the other FCC-licensed MSS
applicants -- Loral/Qualcomm Partnership, L.P. (on behalf of Globalstar), Mobile
Communications Holdings, Inc. ("MCHI") (on behalf of Ellipso) and Constellation
Communications, Inc. ("Constellation Inc.") (on behalf of Constellation).
Iridium also expects to face competition from regional geostationary
satellite-based systems, including Asia Pacific Mobile Telecommunications
Satellite ("APMT"), Afro-Asian Satellite ("ASC") and PT Asia Cellular Satellite
("ACeS") and from the existing Inmarsat geostationary global satellite system.
See "Business -- Competition."
Recent Developments in Licensing of MSS Competitors
By Orders released July 1, 1997, the FCC's International Bureau granted
licenses for the Ellipso system proposed by MCHI and the Aries system proposed
by Constellation. These Orders, which are subject to review by the full FCC,
increase to four the number of U.S.-licensed global MSS systems (including the
IRIDIUM System) and may result in increased competition for the IRIDIUM System.
The licensing of the MCHI and Constellation CDMA systems reduces the possibility
that only one CDMA system will become operational in the 1610-1621.35 MHz
frequency band adjacent to the IRIDIUM System's frequency assignment. This in
turn reduces the likelihood that the FCC will increase the frequency assignment
for the IRIDIUM System. In addition, MCHI's and Constellation's licenses may
make it more difficult for CDMA based global systems to meet the protection
levels required for GLONASS, either in the United States, Russia or elsewhere.
An inability to meet these levels might lead to requests to reassign the CDMA
systems to higher frequencies within the 1610-1626.5 MHz allocation to protect
GLONASS. This development might in turn reduce the amount of spectrum available
to Iridium. Furthermore, the possibility that two more CDMA systems
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may become operational may increase the risk of harmful interference into the
IRIDIUM System's MSS downlinks.
Competition from Interprotocol Roaming Service Providers, GSM Roaming
Services, Regional MSS
Systems and Wireless Phone Rentals
Certain services are already available to provide roaming services among a
number of countries, including those that use incompatible cellular standards.
For example, GlobalRoam and Cellcard provide roaming between some North American
AMPS networks and some European and other GSM networks. The availability of such
international near-global roaming services is likely to increase. These services
will compete directly with Iridium World Cellular Services and with Iridium's
satellite-based phone services for traveling professionals who travel between or
among territories with incompatible cellular standards. Two other proposed MSS
systems, ICO and Globalstar, and at least 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
such as those expected to be offered by Iridium. Moreover, it is expected that
GSM-based terrestrial wireless service will continue to expand its reach
(including further into North America), permitting broader roaming capability by
subscribers to such systems without the need for any interprotocol equipment and
with a single phone. There is a risk that one or more regional mobile satellite
services could enter into agreements to provide intersystem roaming which could
be global or nearly global in scope. Iridium will also compete for travel
customers with businesses that provide short-term rentals of terrestrial
wireless phones capable of operating in specific countries or regions. These
businesses often have rental locations at airports, hotels and other locations
and will also deliver phones.
Risk of Delayed Market Entry
The success of the IRIDIUM System will depend in part on the ability of
Iridium to develop and operate the system in a timely fashion. Because some of
the regional satellite-based systems contemplate relatively simple ground
systems and are expected to deploy no more than two satellites, they may succeed
in deploying their systems before Iridium. A significant delay in the
commencement of service by Iridium could result in one or more competing global
MSS systems reaching the market before Iridium. If competing regional or global
systems are deployed and marketed before Iridium's system, Iridium's ability to
compete may be materially and adversely affected. See "-- Potential for Delay
and Cost Overruns."
Technical Capabilities and Financial Resources of Competitors
The technological qualities of Iridium's system will be critical to its
ability to compete. Iridium's system and each of its competitors'
satellite-based systems have different planned technical capabilities. The
actual technical capabilities of satellite-based communications systems will not
be known until such systems are in service. There can be no assurance that the
technological qualities of competing satellite-based systems will not exceed
those of the IRIDIUM System, making those systems more attractive to potential
subscribers. For example, Iridium believes that it will have a link margin
(signal strength) advantage over proposed competing MSS systems, but such
systems may be able to develop and implement technologies, such as "path
diversity" (serving a phone with multiple satellites simultaneously), that may
reduce or eliminate Iridium's expected advantage. Also, it is possible that the
IRIDIUM System may not be able to achieve the technological expectations of
Iridium.
Some of Iridium's potential competitors may have financial and other
resources greater than those of Iridium. There can be no assurance that one or
more of these competitors will not be better capitalized than Iridium.
Terrestrial wireless service providers have found it advantageous to subsidize
wireless phone purchases in order to stimulate demand for their services or to
respond to competitive pressures. Such subsidization requires financial
resources. There can be no assurance
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that Iridium will have the financial resources required to pursue subsidization
in the event subscriber equipment subsidization becomes an advantageous strategy
in the MSS market.
Competition for Subscribers and Service Providers; Pricing
The IRIDIUM System is not intended to provide communications services that
compete with landline and terrestrial wireless services, but instead is designed
to complement such services. Iridium World Satellite Services will be priced
significantly higher than most terrestrial phone and paging services, and
Iridium customers are not expected to discontinue their use of terrestrial
wireless services. Iridium's business plan assumes that Iridium will be able to
charge a global mobility premium, over the cost of a hypothetical
terrestrial-based call, for its Satellite Services. If the market will not
support such a premium, Iridium's ability to compete may be materially adversely
affected. Also, the IRIDIUM System will lack the operational capacity to provide
local service to large numbers of subscribers in concentrated areas and the
IRIDIUM System will not afford the same voice quality, signal strength and
degree of building penetration in areas that are served by mature terrestrial
wireless voice or paging systems. The extension of land-based telecommunications
systems to areas that are currently not serviced by landline or terrestrial
wireless phone or paging systems could reduce demand that might otherwise exist
in such areas for Iridium World Services.
In addition to competing for subscribers to its service, Iridium also
expects to compete with various other communications services for local service
providers. A failure to effectively compete with these services could materially
and adversely affect the availability to Iridium of the more desirable service
providers or the revenue sharing arrangements among Iridium, gateway operators,
service providers and roaming partners. Furthermore, ICO could have an advantage
in obtaining spectrum allocations and local operating approvals in a number of
countries because it is affiliated with Inmarsat, and investors in ICO and
Inmarsat include many state-owned telecommunications companies and the
regulatory authorities in their countries. See "Regulation of Iridium."
Competition in Paging Services
In addition to competing with paging services offered by proposed global
and regional MSS systems, if any, the Iridium World Paging Services will face
competition from regional and nationwide terrestrial paging services, and from
M-Tel's SkyTel service which currently provides paging services to more than 20
countries around the world. SkyTel operates by forwarding paging messages via
international circuits to a foreign paging network that subsequently transmits
the message over its local network. Also, in 1995 Inmarsat introduced an
international satellite-based one-way messaging service.
Competition Related to New Technologies and New Satellite Systems
Iridium may also face competition in the future from companies using new
technologies and new satellite systems which could render the IRIDIUM System
obsolete or less competitive. Such new technologies, even if not ultimately
successful, could have a material and adverse effect on Iridium as a result of
associated initial marketing efforts. Iridium's business could be materially and
adversely affected if competitors begin operations or existing
telecommunications service providers penetrate Iridium's target markets before
completion of the IRIDIUM System.
RELIANCE ON MOTOROLA, GATEWAY OWNERS AND OTHER THIRD PARTIES
Construction and Operation of the IRIDIUM System
Iridium does not independently have and does not intend to acquire, except
by contracting with other parties, the ability to design, develop or produce the
components of the IRIDIUM System or to launch the constellation of satellites or
to operate and maintain the system once it is fully deployed. Motorola has
agreed to provide these services to Iridium under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Thus,
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Iridium currently relies on Motorola to perform these critical tasks. Motorola,
in turn, is relying to a significant extent on subcontractors and suppliers to
perform many of the critical tasks in constructing the IRIDIUM System. In
addition, Iridium is currently relying on Motorola to maintain the necessary
operating licenses for the system control facilities in the United States, and
the license from the FCC to construct, launch and operate the system, and to
operate and maintain the space segment for the benefit of Iridium. Any
assignment or transfer of control of these licenses could be subject to the
prior consent of the FCC. See "Regulation of Iridium -- Licensing Status."
Motorola has developed the specifications for the gateways and subscriber
equipment. Motorola is also supplying gateway equipment and associated services
and Iridium believes that currently Motorola and Kyocera are the only companies
that are planning to develop and sell subscriber equipment. If for any reason
Motorola or any of its important subcontractors fail to perform as required
under the agreements, the ability of Iridium to implement the IRIDIUM System on
time and within estimated costs and, once implemented, to maintain and operate
the system, could be materially and adversely affected. Motorola's liability
under the agreements for damages for any breach thereof is limited. See
"Principal Contracts for the Development of the IRIDIUM System" and
"-- Conflicts of Interest with Motorola."
Parent has obtained commitments from its investors who are gateway
operators that they will use their reasonable best efforts to perform certain
critical functions including: obtaining the necessary licenses, if any, from the
jurisdictions in their gateway territories; constructing and operating the
gateways; connecting the IRIDIUM System to PSTNs; marketing Iridium World
Services; selecting, or acting as, service providers; and managing relations
with IRIDIUM System subscribers either directly or through service providers.
Iridium is dependent on the activities of its gateway operators for its success.
Some gateway operators are behind schedule in the steps necessary to establish
and implement their gateways. Other gateway operators have indicated that they
may not receive regulatory approvals for some of the countries in their
territories at the anticipated commencement of commercial operations in
September 1998. Iridium has entered into Gateway Authorization Agreements with
its gateway operators with respect to these obligations and gateway operators
have entered into gateway equipment purchase agreements with Motorola for the
purchase of gateway equipment for 12 gateways. Motorola has committed to deliver
the gateway equipment for these gateways including voice functionality by
September 1998 although, in certain circumstances such as a gateway's failure to
perform its payment obligations or comply with import license requirements and
beneficial occupancy dates, the relevant contracts permit Motorola to delay
delivery or cancel the agreement. Motorola has indicated that several gateways
are currently late in complying with some of these conditions. In particular,
the China gateway and the Middle East-Africa gateway are substantially behind
schedule. 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 enhanced call intercept
functionality negotiated with Iridium will require gateway owners who need such
functionality to sign agreements with Motorola in order for such gateways to
have this functionality. No such agreements have been signed, although several
of the gateway owners have indicated to Motorola that they wish to order the
enhanced call intercept functionality. See "Principal Contracts for the
Development of the IRIDIUM System -- Gateway Authorization Agreements."
Distribution and Marketing of Iridium World Services
The sales of Iridium World 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 and its gateway operators
currently have agreements with more than 80 such service providers. Iridium's
business plan assumes substantial sales of Iridium subscriber equipment by
service providers prior to the commencement of commercial services. Iridium's
success will depend upon the motivation and ability of such service providers to
generate on a timely basis
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demand for Iridium World 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 World 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 have sufficient
economic or contractual incentive 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
World Services and subscriber equipment are likely to represent only a portion
of each service provider's business. In addition, while Iridium anticipates
devoting significant resources to advertising, Iridium is dependent on gateway
operators and service providers effectively cooperating in the marketing of
Iridium World Services in their territories. Failure of the gateway operators
and service providers to adequately fund and implement the marketing of Iridium
World Services could have a material adverse effect on Iridium.
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 are parties to the Space System Contract which
provides for the payment by Iridium to Motorola of $3.45 billion (subject to
certain adjustments) for the design, development, production and delivery in
orbit of the space segment. As of March 31, 1998, Iridium had incurred $3.1
billion of this amount, and all but $150 million of this price is required to be
paid by Iridium before the space segment is determined to be fully operational.
Furthermore, Motorola's aggregate liability under the Space System Contract and
related contracts with Iridium in the event the system is not operational is
subject to the Motorola Liability Limitations (defined below) and in no event is
Motorola required under the contract to refund amounts previously paid by
Iridium to Motorola. In addition, subject to certain exceptions, Iridium bears
the risk, including additional costs, if any, resulting from excusable delays
under the Space System Contract, as well as certain of the risks of loss for
satellites once placed in orbit. Following an unrelated January 1997 launch
failure involving the Delta II launch vehicle, Motorola advised Iridium of its
position that the United States government's temporary postponement of Delta II
launches pending completion of a failure review analysis constituted an
"excusable delay" under the Space System Contract, the Operations and
Maintenance Contract and the Terrestrial Network Development Contract. Motorola
then reworked the original launch schedule and notified Iridium that it would
not claim either a cost adjustment under the Space System Contract, the
Operations and Maintenance Contract or the Terrestrial Network Development
Contract or a schedule extension of the final Space System Contract milestone as
a result of the January 1997 Delta II launch failure. The current launch
schedule requires that there are no additional significant launch delays and
that Boeing and China Great Wall are able to provide launch services as
currently planned. There can be no assurance that events constituting "excusable
delays" will not arise in the future, or, if any event constituting an
"excusable delay" does arise, that it will be resolved on terms that are not
materially adverse to Iridium. See "-- Potential for Delay and Cost
Overruns -- Deployment of Satellites" and "Principal Contracts for the
Development of the IRIDIUM System."
As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial
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impact of the loss of the four satellites and that such loss will not affect the
scheduled completion date for commercial service in September 1998.
The Space System Contract may be terminated upon the occurrence of certain
events of default. If Iridium defaults, it is obligated to (i) make certain
payments to Motorola, including the reasonably anticipated profits Motorola
could have earned had it been permitted to complete its contracts, a portion of
the prices of all partially completed milestones and all costs of stopping work,
including Motorola's costs of terminating subcontracts and purchase commitments
and (ii) assign certain permits and licenses to Motorola which were previously
transferred to Iridium. If Motorola defaults, Motorola's liability is limited to
reasonable costs of completion in excess of the contract price, subject to the
Motorola Liability Limitations discussed below. Motorola would also be entitled
to withhold certain intellectual property associated with various aspects of the
IRIDIUM System, as a result of which Iridium might not be able to complete the
construction of the system. See "Principal Contracts for the Development of the
IRIDIUM System."
The Space System Contract provides that, to the extent Motorola has any
liability to Iridium under the contract for any costs, damages, claims or losses
whatsoever arising out of or related to such contract, or any such liability
under the Operations and Maintenance Contract, the Terrestrial Network
Development Contract or any other contract executed between Iridium and Motorola
in connection with the IRIDIUM System, or any provisions of any of the
foregoing, whether pursued as a breach of contract or as a tort or other cause
of action and whether accruing before or after completion of all the work
required under the contracts, such liability shall be limited to $100 million in
the aggregate. Each contract also provides that Motorola shall not be liable to
Iridium, whether in contract, tort or otherwise, for special, incidental,
indirect or consequential damages, including, without limitation, lost profit or
revenues. As described under "Principal Contracts for the Development of the
IRIDIUM System," the Space System Contract, Operations and Maintenance Contract
and Terrestrial Network Development Contract each contain other significant
limitations on Motorola's potential liability. The foregoing are the "Motorola
Liability Limitations."
Operations and Maintenance Contract
Iridium and Motorola are also parties to the Operations and Maintenance
Contract, which obligates Motorola for a period of five years after completion
of the final milestone under the Space System Contract to operate the Iridium
space segment and to exert its best efforts to monitor, upgrade and replace the
hardware and software of the Iridium space segment as necessary to maintain
specified performance levels. Iridium has the right to extend the term of this
contract for an additional two years. This contract provides for specified
increasing quarterly payments by Iridium to Motorola that are expected to
aggregate approximately $2.88 billion, subject to certain adjustments. If
Iridium exercises its option to extend the Operations and Maintenance Contract
for an additional two years, the payments due will be based upon specified
quarterly payments ranging up from $157 million in 2003. Such payments are
expected to aggregate approximately $1.33 billion, subject to certain
adjustments. In the event that completion of the Space System Contract and,
therefore, the commencement of the five year period of the Operations and
Maintenance Contract, is delayed more than six months for any reason (other than
causes within the reasonable control of Motorola), the specified quarterly
payments will be adjusted to account for any additional costs incurred by
Motorola. See "Principal Contracts for the Development of the IRIDIUM System."
Motorola does not make any warranty with respect to the services, materials or
equipment supplied under this contract. In the event that the Operations and
Maintenance Contract terminates or expires (including termination arising from
certain defaults by Motorola or Iridium), Iridium would be obligated to make
certain additional payments to Motorola. However, if the termination arises from
certain defaults of Motorola, Motorola could also be required to make certain
payments to Iridium (subject to the Motorola Liability Limitations). See
"-- Limited Life of Satellites; Cost of Maintaining the Space Segment; Risk of
Satellite Failure or Damage." The remedies of Iridium and Motorola specified in
the contract for a default under the contract are exclusive of all other
remedies.
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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 and Motorola also are parties to the Terrestrial Network
Development Contract, pursuant to which Motorola is obligated to design and
develop the gateway hardware and software, and license Iridium to use and permit
others to use intellectual property developed under the contract to procure the
development and manufacture of gateways from sources other than Motorola.
Motorola will be paid a total of approximately $284 million under the contract
in increments tied to the completion of milestones, including those relating to
acceptance tests of the completed gateway design. Motorola's liability under the
Terrestrial Network Development Contract is subject to the Motorola Liability
Limitations and the contract contains provisions relating to excusable delays,
waivers of rights, events of default and other matters similar to those
contained in the Space System Contract and the Operations and Maintenance
Contract.
Amendments to Principal Contracts
As a result of technological developments, changes in the desired product
mix and features of the Iridium World Services, the addition of enhanced system
capabilities (including Iridium World Page Services, "follow-me paging" and
enhanced call intercept), and scheduling adjustments, there have been, and
Iridium anticipates there will be, a variety of pending and anticipated
amendments and interpretations to the principal supply contracts and other
agreements and letters with Motorola. Iridium's estimate of the cost of
anticipated amendments is reflected in Iridium's estimates of its funding
requirements. There can be no assurance that future technological, market or
regulatory developments will not necessitate unanticipated amendments to such
contracts and agreements or that Motorola or other vendors will be willing or
able to provide for these new capabilities on terms acceptable to Iridium.
Furthermore, Iridium has no assurance of having alternative suppliers to
Motorola for provision of these capabilities.
RISK ASSOCIATED WITH INTERNATIONAL OPERATIONS AND DEVELOPING MARKETS
Iridium expects that its telecommunications services will be available in
almost every country. As a result, Iridium and its gateway operators and service
providers will be subject to certain multinational operational risks, such as
changes in domestic and foreign government regulations and telecommunications
standards, licensing requirements, tariffs or taxes and other trade barriers,
price, wage and exchange controls, political, social and economic instability,
inflation, and interest rate and currency fluctuations. The risks enumerated
above are often greater in developing countries or regions. There can be no
assurance that Iridium, its gateway operators or service providers will not be
adversely affected by such multinational risks. In addition, although Iridium
anticipates that gateway operators and service providers will make all payments
in United States dollars, the potential lack of available United States currency
in developing markets may prevent gateway operators and service providers in
such markets from being able to do so. Because Iridium expects to receive most
payments in United States dollars it does not intend to hedge against exchange
rate fluctuations. Under current United States law, Iridium, as a U.S. company,
may be prohibited from doing business in Cuba, Iran, Iraq, Libya and North
Korea. These restrictions may limit, or eliminate entirely, the provision of
gateway services or Iridium World Services in these countries. Motorola and
other United States companies may also be prohibited from selling or licensing
equipment in these countries.
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Asia Pacific Region
Countries in the Asia Pacific region, including Japan, Korea and Indonesia,
have recently experienced weaknesses in their currency, banking and equity
markets. This market weakness could affect the ability of gateway operators and
service providers in the region to obtain financing for the operation of their
gateways and the provision of Iridium World Services. In addition, if these
weaknesses continue through Iridium's commencement of commercial operations,
demand for Iridium World Services, and Iridium's results of operations, could be
adversely affected. Similar regional weaknesses in other parts of the world,
should they arise, also could adversely affect Iridium's results of operations.
PRICING RISK
Under Iridium's pricing strategy it will set wholesale prices for Iridium
World Services and service providers will control the retail price. Service
providers may price Iridium World Services in a manner that is sub-optimal to
Iridium, including setting too high a retail price, and thereby reducing total
demand without an offsetting increase in per minute revenue to Iridium.
Moreover, Iridium and its service providers may be forced to lower retail prices
in response to competition. In addition, pricing for telecommunication services,
including long distance rates, has trended downward in recent years. This
downward trend may make it difficult for Iridium to hold or raise its wholesale
prices.
LIMITED SATELLITE CAPACITY
To provide commercially adequate service, ensure user acceptance and
operate successfully, the IRIDIUM System will have to provide minimum levels of
availability of Iridium World Satellite Services, which will depend upon system
capacity. Various factors, including usage patterns, will have a significant
impact on the capacity of the IRIDIUM System for a particular geographic area
and on a system-wide basis. Most important among these are usage patterns and
spectrum allocation. Iridium could experience unexpected usage patterns which
could exceed the capacity of the IRIDIUM System through one or several gateways.
If Iridium faces significant capacity issues, its ability to increase its
spectrum assignment in any market is subject to significant regulatory hurdles.
There can be no assurance that the necessary spectrum assignments will occur or
that adverse and unanticipated usage patterns will not materialize. Failure to
achieve a commercially viable capacity level for any reason, including but not
limited to those mentioned in this section, would materially and adversely
affect Iridium.
CONFLICTS OF INTEREST WITH MOTOROLA
Motorola has and will have various conflicts of interest with Iridium and
Parent. Motorola is the creator and developer of the concept of the IRIDIUM
System, the principal supplier to Iridium, a founding investor of Iridium
(through its Parent and its predecessor), a gateway owner, Parent'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. See "Certain Relationships and
Related Transactions of Iridium -- Motorola Related Matters" and "Description of
Other Indebtedness."
Although Motorola does not by itself control the Parent Board or the
Iridium Board and is not permitted to participate in decisions or other actions
by Iridium with respect to the Space System Contract, Operations and Maintenance
Contract and the Terrestrial Network Development Contract, Motorola, through its
position as (i) the indirect holder of the largest ownership interest in
Iridium, (ii) potentially the largest holder of Class A Common Stock (through
exchanges of Class 1 Interests for shares of Class A Common Stock), (iii) the
guarantor under the Motorola Guarantee and, if issued, the Motorola Additional
Guarantee and (iv) the principal supplier to Iridium, could in certain
situations exercise significant influence over Iridium. For example, in addition
to its represen-
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tation on the Parent Board and the Iridium Board, Motorola could have control
over Iridium as or similar to that of a creditor through its position as a
guarantor under the Guaranteed Bank Facility.
Motorola and Parent (as predecessor to Iridium) entered into the Space
System Contract, the Operations and Maintenance Contract and the Terrestrial
Network Development Contract after extensive negotiations. However, Parent was a
wholly owned subsidiary of Motorola at the time the Space System Contract and
Operations and Maintenance Contract were negotiated and therefore these
negotiations were not conducted on an arm's-length basis. Moreover, although
these agreements provide for specific prices, Motorola's obligations and
liabilities thereunder are subject to certain limitations which allocate various
risks to Iridium and may have the effect of increasing the price paid by
Iridium. Iridium's payment obligations under these agreements are expected to
comprise most of its expenses. See "Principal Contracts for the Development of
the IRIDIUM System" and "Certain Relationships and Related Transactions of
Iridium."
Under the Space System Contract, Motorola has agreed to license the rights
to manufacture, sell and use certain intellectual property to the extent
essential to manufacture IRIDIUM subscriber equipment to competent suppliers
that are acceptable to Motorola. Motorola maintains that it has substantial
discretion in its exercise of these rights and could limit the ability of
potential suppliers to manufacture and sell Iridium subscriber equipment. See
"Principal Contracts for the Development of the IRIDIUM System -- Space System
Contract." If Motorola asserts its position and refuses to license intellectual
property to one or more potential manufacturers, the availability of subscriber
equipment and the characteristics and price thereof could be adversely affected,
which could in turn reduce the demand for Iridium World Services. Motorola has,
however, entered into a license agreement with Kyocera which allows Kyocera to
manufacture Iridium phones and Iridium believes that if both Motorola and
Kyocera manufacture equipment, they will be able to produce a sufficient number
of Iridium phones. In addition, Motorola has informed Iridium that it has not
declined to license the essential intellectual property to any third party.
Therefore, while Iridium believes that this risk has been reduced, such risk has
not been eliminated since there can be no assurance that Motorola will not
exercise its rights in the future in a manner that limits the access of other
potential manufacturers to the intellectual property essential for the
manufacture of subscriber equipment.
CONFLICTS OF INTEREST WITH GATEWAY OWNERS
The Iridium Board and the Parent Board are identical in composition and
consist of representatives of certain of the world's leading telecommunications
companies. Almost all of the members of the Iridium Board and the Parent Board
have been appointed by investors in Iridium who also are gateway owners and
service providers. Because Iridium will be a supplier to the gateways and the
service providers, the interests of Iridium are expected to conflict in certain
respects with the interests of the gateway owners and the service providers. For
example, this conflict of interest will be relevant in setting the wholesale
prices that Iridium will charge for airtime and other IRIDIUM Services. There
can be no assurance that the allocation of revenues between Iridium and the
gateway owners or operators by the Iridium Board will not have an adverse effect
on Iridium. See "Principal Contracts for the Development of the IRIDIUM System."
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
Iridium's success will be dependent upon the efforts of its management team
and its ability to attract and retain qualified management and personnel in the
future. Iridium has no employment contract with any employee and is subject to
the possibility of loss of one or more key employees at any time. Iridium must
also rely upon several employees of Motorola who play a key role in the
performance of Motorola's obligations under the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. Iridium has no control over the relationship between Motorola and such
employees. Iridium could be materially and adversely affected by the loss of one
or more key employees. In addition, Iridium's success will be dependent in part
upon gateway operators having qualified personnel at the various gateways to
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(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 World 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. A significant portion of the management of Iridium will be
supplied by employees of Parent under a Management Services Agreement among
Iridium, Parent and IWCL. See "Certain Matters Regarding the Relationship Among
IWCL, Parent and Iridium -- Management Services Agreement."
PATENTS AND PROPRIETARY RIGHTS
The Space System Contract and the Terrestrial Network Development Contract
provide generally that Motorola will retain all rights to the intellectual
property associated with the IRIDIUM System. Motorola's obligations under the
Space System Contract and the Terrestrial Network Development Contract to
license these intellectual property rights to third-party suppliers are subject
to significant conditions which could limit Iridium's ability to obtain
alternate suppliers of necessary components of the IRIDIUM System in the future.
Various aspects of the design of the IRIDIUM System are already covered by
Motorola patent, copyright and trade secret rights or are the subject of pending
patent applications. Motorola has filed numerous patent applications on the
IRIDIUM System to date and expects to file additional patent applications, both
in the United States and abroad, as the development of the IRIDIUM System
progresses. There can be no assurance that such applications will be granted in
a timely manner or at all, or that, if such patents are obtained that such
patents, and any copyrights or trade secret rights will be adequate to prevent
others from using the intellectual property used in Iridium's business.
Furthermore, many of Iridium's competitors have obtained, and may be expected to
obtain in the future, patents that may cover or affect products or services that
directly or indirectly relate to those offered by Motorola for the IRIDIUM
System. Iridium or Motorola may not be aware of all patents that may potentially
be infringed by products developed by Motorola for the IRIDIUM System. In
addition, patent applications in the United States are confidential until a
patent is issued and, accordingly, Iridium cannot evaluate the extent to which
the products developed by Motorola for the IRIDIUM System may infringe claims
contained in pending patent applications. In general, if it were determined that
one or more of such products infringe on patents held by others, Motorola and
Iridium could be required to (i) cease developing or marketing such products,
(ii) obtain licenses to develop and market such products from the holders of the
patents or (iii) redesign such products in such a way as to avoid infringing the
patent claims. The extent to which Iridium may be required in the future to
obtain licenses with respect to patents held by others and the availability and
cost of any such licenses is currently unknown. There can be no assurance that
Iridium would be able to obtain such licenses on commercially reasonable terms
or, if it were unable to obtain such licenses, that Motorola would be able to
redesign the products which it developed for the IRIDIUM System to avoid
infringement.
Motorola has agreed pursuant to the Space System Contract to indemnify
Iridium for claims of infringement of any valid and enforceable patent in any
country where Iridium World 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 World Services in that country, Iridium is required to cooperate to
mitigate Motorola's liability, including either terminating the provision of
Iridium World Services in that country or releasing Motorola from liability for
patent infringement in that country in excess of such 10% amount. See "Principal
Contracts for the Development of the IRIDIUM System -- Space System Contract."
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ALLEGED HEALTH RISKS
Certain media reports have suggested possible links between the use of
portable cellular telephones which integrate transmitting antennas into their
handsets and certain health risks, including cancer, as well as possible
interference between digital cellular telephones and pacemakers, hearing aids
and other electronic medical devices. The FCC has issued amended and updated
guidelines for evaluating environmental radio frequency radiation from
FCC-regulated transmitters. These guidelines are intended to protect the public
from health risks due to exposure to radio frequency energy. Similar guidelines
were issued in 1996 by the International Commission on Non-Ionizing Radiation
Protection, an international body assigned to develop guidelines regarding non-
ionizing radiation. Guidelines are also being considered by certain other
international agencies. No assurance can be given that in the future other
standards bodies will not issue standards that could require or otherwise result
in phone modifications which may materially and adversely affect Iridium. At
this time, there are no FCC proposals relating to the alleged health risks
associated with digital-based cellular phones and pacemakers, hearing aids and
other electronic medical devices. There can be no assurance that the FCC will
not regulate the use of digital technology in wireless 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.
Compliance with these and other laws and regulations may, in some cases, require
formal notification or informal consultation with govern-
mental 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 World Services will result in substantial and
increasing demand for Iridium World Services, significant and rapid growth in
demand for Iridium World Services would require Iridium to make additions to
personnel and management information systems to manage such growth while
continuing to meet customer service expectations. In addition, spectrum and
satellite infrastructure characteristics of the IRIDIUM System set inherent
capacity limitations that would prevent growth above certain levels.
RANKING OF THE NOTES
The Notes will be senior obligations of the Issuers. The Notes will rank
pari passu in right of payment to the Initial Senior Notes and all other
existing and future unsecured Indebtedness of the Issuers, other than the
Subordinated Obligations (as defined). The Subsidiary Guaranties will be
unsecured, senior obligations of the Guarantor Subsidiaries. The Guarantor
Subsidiaries have also guaranteed Iridium's obligations under the Secured Bank
Facility on a senior secured basis. The obligations of Iridium under the
Guaranteed Bank Facility are guaranteed by Motorola to the extent described
under "Description of Other Indebtedness -- Guaranteed Bank Facility." The
Motorola Guarantee reimbursement obligations of Iridium to Motorola under the
Agreement Regarding Guarantee (as defined) rank pari passu with the Notes and
the Initial Senior Notes.
The Notes are not secured by any asset of any Iridium Party. Accordingly,
the Notes will be effectively subordinated to any secured obligation of the
Iridium Parties, including the Secured Bank Facility, to the extent of the value
of the assets securing such obligations. If Iridium becomes
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insolvent or is liquidated, or if payment under any secured obligation is
accelerated, the creditor with respect to any secured obligation would be
entitled to exercise the remedies available to a secured creditor under
applicable law and pursuant to instruments governing such obligation.
Accordingly, such creditors will have a prior claim on the secured assets of
Iridium. In any event, because the Notes will not be secured by any of Iridium's
assets, it is possible that there would be no assets remaining from which claims
of the holders of the Notes could be satisfied or, if any such assets remain,
such assets might be insufficient to satisfy such claims fully. See "Description
of Notes." Moreover, because Parent has pledged all of its ownership interests
in Iridium, a default under the Secured Bank Facility could result in a change
of control of Iridium. Although the Notes contain certain provisions regarding a
change of control of Iridium, there can be no assurance of the effect such a
change of control would have on the Notes. See "Description of Notes -- Change
of Control."
As of March 31, 1998, after giving pro forma effect to the issuance of $350
million in aggregate principal amount of Notes and the application of $175
million of the net proceeds from the Notes to the permanent reduction of the
Guaranteed Bank Facility, the Iridium Parties would have had outstanding (i)
approximately $350 million of senior secured Indebtedness pursuant to the Senior
Bank Facility and (ii) approximately $1,210 million of unsecured senior
Indebtedness (other than the Notes) that ranks pari passu with the Notes
(including the Initial Senior Notes and borrowings of $110 million under the
Guaranteed Bank Facility). In addition, as of March 31, 1998, Iridium had
approximately $285 million of Indebtedness that is subordinated to the Initial
Senior Notes. Such outstanding amounts of Indebtedness do not reflect the
anticipated temporary reduction in the Guaranteed Bank Facility. See "Use of
Proceeds." Iridium expects to incur additional secured Indebtedness permitted by
the Indenture, including an aggregate principal amount of $1 billion (inclusive
of the existing $350 million) pursuant to the Secured Bank Facility and other
senior secured bank financing in order to meet its expected funding requirements
through at least year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. See "Description of Other
Indebtedness." Under the Indenture, Iridium and its subsidiaries will be
permitted to incur additional Indebtedness, including Indebtedness secured by
assets of Iridium and its subsidiaries. See "Description of Notes -- Certain
Covenants -- Limitation on Indebtedness" and "-- Limitation on Liens."
RESTRICTIVE LOAN COVENANTS UNDER OTHER INDEBTEDNESS
The Guaranteed Bank Facility, the Secured Bank Facility and the indentures
relating to the Initial Senior Notes include certain covenants that, among other
things, restrict the ability of Iridium and its subsidiaries to: (i) dispose of
assets; (ii) incur additional indebtedness; (iii) incur guarantee obligations;
(iv) prepay other indebtedness or amend other debt instruments; (v) pay
dividends; (vi) create liens on assets; (vii) make investments, loans or
advances; (viii) make acquisitions; (ix) engage in mergers or consolidations;
(x) change the business conducted by Iridium; or (xi) engage in certain
transactions with affiliates and otherwise will restrict certain corporate
activities. In addition, the Secured Bank Facility contains a total debt
capitalization covenant and a covenant to maintain committed or available
funding sources through the term of the Secured Bank Facility to meet Iridium's
budgeted project costs. There can be no assurance that these requirements will
be met in the future. If they are not, the holders of the Indebtedness under the
Guaranteed Bank Facility and Secured Bank Facility, or the holders of the
Initial Senior Notes, will be entitled to declare such Indebtedness immediately
due and payable.
In connection with the Offering, Iridium has requested that the lenders
under the Secured Bank Facility agree to the Requested SBF Amendments that would
increase the approved budget under the Secured Bank Facility for the
development, construction and commercialization of the IRIDIUM System by $175
million (and would make corresponding adjustments in various covenants
restricting the amount Iridium is permitted to spend on project costs), and
would increase the amount of Indebtedness Iridium is permitted to incur during
the term of the Secured Bank Facility. The Offering
46
<PAGE> 52
is not contingent on Iridium receiving the Requested SBF Amendments. If Iridium
receives the Requested SBF Amendments, it intends to effect the approximately
$80 million Global Advertising Program Increase. Iridium does not expect to
effect a substantial portion of the Global Advertising Program Increase if it
does not receive the Requested SBF Amendments. While Iridium believes the Global
Advertising Program Increase will provide substantial benefits, there can be no
assurance that the lenders under the Secured Bank Facility will agree to the
Requested SBF Amendments.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if an
Issuer or a Guarantor Subsidiary, at the time it issued or guaranteed the Notes,
(i) incurred or guaranteed such indebtedness with the intent to hinder, delay or
defraud creditors, or (ii)(a) received less than reasonably equivalent value or
fair consideration and (b)(1) was insolvent at the time of such incurrence, (2)
were rendered insolvent by reason of such incurrence or guarantee (and the
application of the proceeds thereof), (3) was engaged or were about to engage in
a business or transaction for which the assets remaining with such Issuer or
Guarantor Subsidiary constituted unreasonably small capital to carry on its
business, or (4) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, then, in each such case, a
court of competent jurisdiction could void, in whole or in part, the Notes or
the applicable Subsidiary Guarantee or, in the alternative, subordinate the
Notes or the applicable Subsidiary Guarantee to existing and future indebtedness
of that Issuer or Guarantor Subsidiary. The measure of insolvency for purposes
of the foregoing would likely vary depending upon the law applied in such case.
Generally, however, an Issuer would be considered insolvent if the sum of its
debts, including contingent liabilities, were greater than all of its assets at
a fair valuation, or if the present fair saleable value of its assets was less
than the amount that would be required to pay the probable liabilities on its
existing debts, including contingent liabilities, as such debts become absolute
and matured. Iridium believes that, for purposes of the United States Bankruptcy
Code and state fraudulent transfer or conveyance laws, the Notes are being
issued without the intent to hinder, delay or defraud creditors and for proper
purposes and in good faith, and that Iridium will receive reasonably equivalent
value or fair consideration therefor, and that after the issuance of the Notes,
Iridium will be solvent, will have sufficient capital for carrying on its
businesses and will be able to pay its debts as they mature. However, there can
be no assurance that a court passing on such issues would agree with the
determination of Iridium.
POSSIBLE UNENFORCEABILITY OF SUBSIDIARY GUARANTIES
The holders of the Notes will have no direct claim against Guarantor
Subsidiaries other than the claim created by the Subsidiary Guaranties, which
may themselves be subject to legal challenge in the event of the bankruptcy of a
Guarantor Subsidiary. If such a challenge were upheld, the Subsidiary Guarantees
would be unenforceable. To the extent that the Subsidiary Guarantees are not
enforceable, the rights of holders of the Notes to participate in any
distribution of assets of any Guarantor Subsidiary upon liquidation, bankruptcy,
reorganization or otherwise may, as is the case with other unsecured creditors
of Iridium, be subject to prior claims of creditors of that Guarantor
Subsidiary. The Indenture contains covenants that restrict the ability of
Iridium's Restricted Subsidiaries to enter into agreements limiting
distributions and transfers, including dividends. However, the ability of
Iridium's subsidiaries to pay dividends and make other payments may be
restricted by, among other things, applicable state corporate laws and
regulations or by terms of agreements to which they may become party. See
"Description of Notes."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require the Issuers to repurchase all or any portion of such
holder's Notes at a price equal to 101% of the principal amount of such Notes,
plus accrued and unpaid interest and Liquidated Damages, if
47
<PAGE> 53
any, to the date of purchase. The Issuers' failure to purchase the Notes
pursuant to an offer to purchase would result in a default under the Indenture.
The Guaranteed Bank Facility and the Secured Bank Facility contain, and other
future indebtedness of the Issuers may contain, prohibitions of certain events
which would constitute a Change of Control or require such indebtedness to be
repurchased, repaid or redeemed upon certain events which would constitute a
Change of Control. In the event of a Change of Control, there can be no
assurance that the Issuers would have sufficient assets to satisfy all of its
obligations. Moreover, the exercise by Holders of the right to require the
Issuers to repurchase the Notes is likely to cause a default under the Secured
Bank Facility, and could cause a default under other Indebtedness of Iridium,
even if the Change of Control itself does not. Finally, the Issuers' ability to
redeem the Notes may be limited by applicable securities laws. See "Description
of Notes -- Change of Control." Moreover, because Parent has pledged all of its
ownership interests in Iridium, a default under the Secured Bank Facility could
result in a change of control of Iridium. Although the Notes contain certain
provisions regarding a change of control of Iridium, there can be no assurance
of the effect such a change of control would have on the Notes. See "Description
of Notes -- Change of Control."
ABSENCE OF A PUBLIC MARKET
The Notes are new securities for which there currently exists no market.
The Issuers do not intend to apply for listing of the Notes on any securities
exchange or for quotation through the Nasdaq National Market System. Although
the Underwriters have informed the Issuers that they currently intend to make a
market in the Notes, they are not obligated to do so and any such market-
making, if commenced, may be discontinued at any time without notice in the sole
discretion of the Underwriters. See "Underwriting." Accordingly, there can be no
assurance as to the development or liquidity of any market for the Notes. If an
active public market does not develop, the market price and liquidity of the
Notes may be adversely affected. If a trading market develops for the Notes, the
future trading price thereof will depend on many factors including, among other
things, Iridium's results of operations, prevailing interest rates, the market
for securities with similar terms and the market for securities of other
companies in similar businesses.
48
<PAGE> 54
OWNERSHIP STRUCTURE AND STRATEGIC INVESTORS
Iridium, the issuer and a wholly owned subsidiary of Parent, was formed as
a limited liability company pursuant to the provisions of the Delaware Limited
Liability Company Act (the "Delaware Act") on October 23, 1997. Iridium's
purpose is to acquire, own and manage the IRIDIUM System. Capital was formed as
a Delaware corporation on June 16, 1997, and other than serving as an Issuer of
the Initial Senior Notes and the Notes, does not conduct any business.
Parent was formed as a limited liability company pursuant to the provisions
of the Delaware Act on July 16, 1996. Iridium, Inc., a Delaware corporation and
the predecessor of Parent, was formed on June 14, 1991. On July 29, 1996,
Iridium, Inc. was merged with and into Parent, with Parent as the surviving
entity.
On December 18, 1997, Iridium entered into an Asset Transfer Agreement with
Parent, pursuant to which Parent transferred substantially all of its assets and
liabilities to Iridium (the "Asset Drop-Down Transaction"). Unless otherwise
specified, references herein to Iridium relating to any action or event prior to
the date of the Asset Drop-Down Transaction should be construed as references to
Parent, as predecessor of Iridium.
IWCL was incorporated by Parent as a Bermuda company on December 12, 1996
and has its principal offices at Clarendon House, 2 Church Street, Hamilton,
Bermuda. IWCL was formed for the purpose of acting as a member of Parent. IWCL's
only asset is its interest in Parent and its only activity is participating in
the management of Iridium.
The following is a chart of Iridium's ownership structure and strategic
investors:
[CHART DEPICTING OWNERSHIP STRUCTURE AND STRATETIC INVESTORS OF PARENT, IRIDIUM
AND SUBSIDIARIES, AND IWCL]
The percentage ownership of Parent reflected in the chart above relates to
ownership of outstanding Class 1 Interests only. The Parent Board is composed of
representatives of its strategic investors. Each director of Parent also is a
director of Iridium. Each officer of Parent also is an officer of Iridium, with
the same title and authority. Iridium has no directors or officers who are not
directors or officers of Parent.
For additional information on the relationship among IWCL, Parent and
Iridium, see "Certain Matters Regarding Relationship Among IWCL, Parent and
Iridium." For information regarding the Asset Drop-Down Transaction and the
relationship of Parent and Iridium, see "Certain Matters
49
<PAGE> 55
Regarding Relationship Among IWCL, Parent and Iridium," "-- Asset Drop-Down
Transaction," "Description of Parent Limited Liability Company Agreement" and
"Description of Iridium Operating LLC Limited Liability Company Agreement."
Capital is a wholly owned subsidiary of Iridium. The Notes will be the
joint and several obligations of Iridium and Capital, although Iridium will
receive all of the net proceeds from the issuance of the Notes. Capital has no
significant assets and does not conduct any operations. IP, a Delaware limited
liability company and a wholly owned subsidiary of Iridium, holds the worldwide
trademark registrations for Iridium. Roaming, also a Delaware limited liability
company and a wholly owned subsidiary of Iridium, is the entity that enters into
roaming agreements for ICRS on behalf of Iridium. Facilities, a Delaware
corporation, is the entity which will hold certain real property of Iridium.
Iridium currently has no subsidiaries other than Capital, Roaming, Facilities
and IP.
ASSET DROP-DOWN TRANSACTION
On December 18, 1997, Parent and Iridium effected the Asset Drop-Down
Transaction for the purpose of providing the agent for the Secured Lenders under
the Secured Bank Facility with an efficient means for obtaining a security
interest in the membership interests in Iridium. See "Description of Other
Indebtedness -- Secured Bank Facility." Pursuant to the Asset Transfer Agreement
between Parent and Iridium, dated as of December 18, 1997 (the "Asset Transfer
Agreement"), substantially all of the assets and liabilities of Parent were
transferred to Iridium.
Assets transferred to Iridium included, without limitation, (i) Parent's
right, title and interest in the Space System Contract, the Operations and
Maintenance Contract, the Terrestrial Network Development Contract and the
Gateway Authorization Agreements, as well as other contracts necessary for the
construction and operation of the IRIDIUM System, and (ii) Parent's interest in
Capital, Roaming and IP. Liabilities transferred to and assumed by Iridium
included, without limitation, Iridium's obligations in respect of all
outstanding Initial Senior Notes and the Notes. Pursuant to the indentures
relating to the Initial Senior Notes and the Notes, Iridium has been substituted
for Parent, and Parent has been released from all obligations under such
indentures and the Initial Senior Notes and the Notes. Parent retained its
employees and other assets and liabilities necessary to provide management
services to Iridium and IWCL, including, without limitation, its employee
benefit plans. See "Certain Matters Regarding the Relationship Among IWCL,
Parent and Iridium -- Management Services Agreement."
IRIDIUM'S STRATEGIC INVESTORS
Strategic investors in Parent include market leaders in providing wireless
telecommunications services, manufacturing telecommunications equipment and
satellite systems and supplying satellite launch services. IWCL and Iridium's
strategic investors have collectively invested, or committed to invest,
approximately $3.1 billion in Parent, including equity, debt and guarantees (not
including guarantees in respect of subscriber equipment purchases), representing
approximately 69% of Iridium's projected total funding needs through September
23, 1998, the date on which Iridium expects to commence commercial operations,
and approximately 56% 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 "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.
Parent's strategic investors which are telecommunications services
providers, include such leading companies as Sprint and BCE Mobile
Communications Inc. in North America, Telecom Italia and Vebacom in Europe and
DDI (Japan), UCOM (Thailand) and SK Telecom in Asia. Motorola, one of the
world's leading providers of wireless communications systems and equipment,
Iridium
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<PAGE> 56
Canada Inc. and Sprint Corporation have been allocated the North American
gateway service territory, which principally consists of the United States and
Canada. Telecom Italia, a leading European telecommunications company, has been
allocated a gateway service territory consisting of countries in Western Europe,
including Belgium, Denmark, France, Greece, Italy, Luxembourg, the Netherlands
and Switzerland. o.tel.o communications GmbH & Co., a provider of mobile and
satellite communications in Germany and an indirect subsidiary of VEBA AG and
RWE AG, two of the largest corporations in Germany, has been allocated a gateway
service territory consisting of countries in or near Europe, including Austria,
Bulgaria, the Czech Republic, Finland, Germany, Hungary, Ireland, Israel,
Norway, Poland, Portugal, Romania, Spain, Sweden, Slovakia, Ukraine and the
United Kingdom. SK Telecom, a provider of cellular and paging services, has been
allocated the gateway service territory consisting of North Korea and South
Korea. Pacific Iridium Telecommunications Corporation, a corporation formed by
Pacific Electric Wire & Cable Co., Ltd., 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 such strategic investors have provided
significant assistance in the process of seeking regulatory approvals and their
assistance will continue to be of great importance. In addition, Iridium expects
that these investors will use their existing wireless communications sales and
services organizations to market and distribute Iridium World Services and
subscriber equipment for use with the IRIDIUM System in their territories, which
include their existing base of approximately 33 million wireless subscribers.
The Parent's 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, has provided launches for the initial deployment of the satellites of
the space segment (and is expected to provide additional launches for the
maintenance of the space segment); and Khrunichev has provided several launches
for the initial deployment of the space segment. In addition, Iridium expects
that Motorola and Kyocera, two of the world's leading manufacturers of wireless
telephones, will manufacture and sell phones and pagers for use with the IRIDIUM
System. See "Parent's Investors, Number of Class 1 Interests Owned, Percentage
Ownership and Principal Gateway Service Territories."
51
<PAGE> 57
USE OF PROCEEDS
The net proceeds from the Offering to be received by Iridium are estimated
to be approximately $342 million. Iridium will use $175 million of the net
proceeds from the Offering to permanently reduce the commitment of the bank
lenders under the Guaranteed Bank Facility from $450 million to $275 million
(and, therefore, correspondingly reduce the Motorola Guarantee) and will use the
remainder of the net proceeds primarily to make milestone payments in connection
with the construction and deployment of the IRIDIUM System and to a lesser
extent for other general corporation purposes. Pending such use, Iridium intends
to temporarily reduce the amount outstanding under the revolving Guaranteed Bank
Facility and to invest the remainder in short-term investment grade debt
securities. See "Summary -- Sources and Uses of Funds by Iridium." For a
discussion of the term of, and the interest rates applicable to, the Guaranteed
Bank Facility, see "Description of Other Indebtedness -- Guaranteed Bank
Facility." The expenses of the Offering will be paid by Iridium.
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the capitalization
of Iridium and (ii) the capitalization of Iridium as adjusted to reflect the
issuance of the Notes and the application of $175 million of the net proceeds
therefrom for a permanent reduction of the Guaranteed Bank Facility. See "Use of
Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Secured Bank Facility....................................... $ 350,000 $ 350,000
Guaranteed Bank Facility.................................... 285,000 110,000(1)
13% Senior Notes due 2005, Series A(2)...................... 276,875 276,875
14% Senior Notes due 2005, Series B(2)...................... 478,255 478,255
11 1/4% Senior Notes due 2005, Series C..................... 300,000 300,000
% Senior Notes due 2005, Series D(3).................... -- 350,000
14 1/2% Senior Subordinated Notes due to Parent's Members in
2006...................................................... 285,078 285,078
---------- ----------
Total debt.............................................. 1,975,208 2,150,208
Member's Interest........................................... 2,068,826 2,068,826
Deficit accumulated during the development stage............ (630,757) (630,757)
Adjustment for minimum pension liability.................... (643) (643)
---------- ----------
Total member's equity................................... 1,437,426 1,437,426
---------- ----------
Total capitalization............................... $3,412,634 $3,587,634
========== ==========
</TABLE>
- ---------------
(1) Reflects the use of the net proceeds from the issuance of the Notes to
effect a permanent reduction of the Guaranteed Bank Facility from $450
million to $275 million. Does not reflect any temporary reduction in amounts
outstanding under the Guaranteed Bank Facility. See "Use of Proceeds."
(2) The Series A Notes will accrete to a value of $300 million at maturity and
the Series B Notes will accrete to a value of $500 million at maturity.
(3) Represents the aggregate principal amount of the Notes.
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<PAGE> 58
SELECTED FINANCIAL DATA
The following selected financial data of Iridium has been derived from the
consolidated financial statements of Iridium, and of the predecessor of Iridium
prior to July 29, 1993 (the "Initial Contribution Date"), as of December 31,
1993, 1994, 1995, 1996 and 1997 and for the period January 1, 1993 to July 28,
1993 and the period July 29, 1993 to December 31, 1993, and the years ended
December 31, 1994, 1995, 1996 and 1997, 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 "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of Iridium and notes
thereto included herein. On December 18, 1997, Parent transferred substantially
all of its assets and liabilities to Iridium pursuant to the Asset Transfer
Agreement between Parent and Iridium. See "Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction."
<TABLE>
<CAPTION>
PERIOD PRIOR
TO INITIAL
CAPITAL
CONTRIBUTION PERIODS FOLLOWING INITIAL
DATE(1) CAPITAL CONTRIBUTION DATE
--------------- ------------------------------------------------------
JAN. 1, 1993 JULY 29, 1993 YEAR ENDED DEC. 31,
TO TO --------------------------------------
JULY 28, 1993 DEC. 31, 1993 1994 1995 1996 1997
--------------- ------------- ------- ------- ------- --------
(DOLLARS 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............ 5,309 7,141 17,561 27,187 71,404 296,446
Interest income.............................. -- 390 4,252 5,226 2,395 3,045
Provision for income taxes................... -- 173 1,525 1,684 4,589 --
------ ------ ------- ------- ------- --------
Net loss..................................... $5,309 $6,924 $14,834 $23,645 $73,598 $293,401
====== ====== ======= ======= ======= ========
OTHER DATA(3):
Ratio of earnings to fixed charges(4)........ -- -- -- -- -- --
Deficiency of earnings to cover fixed
charges.................................... $5,309 $6,751 $13,309 $21,961 $97,136 $457,148
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, AS ADJUSTED
---------------------------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
-------- -------- ---------- ---------- ---------- ------------
(DOLLARS 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 $ 5,940 $ 347,653
Restricted cash............... -- -- -- -- 350,220(5) 350,220(5)
System under construction .... 275,000 646,000 1,448,000 2,376,884 1,625,054 1,625,054
Property and equipment, net... 320 1,522 1,264 2,065 1,526,326 1,526,326
Total assets.................. 299,886 851,809 1,505,383 2,434,081 3,642,587 3,992,587
Long-term debt................ -- -- -- 735,904 1,537,590(6) 1,887,590(6)
Total member's equity......... $294,308 $795,813 $1,404,610 $1,572,029 $1,631,537 1,631,537
</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) For purposes of determining the ratio of earnings to fixed charges, and the
deficiency of earnings to cover fixed charges, "earnings" includes pre-tax
income (loss) adjusted for fixed charges. "Fixed charges" consists of
interest capitalized and that portion of operating lease rental expense
(deemed to be one-third of rental expense) representative of interest.
(4) The ratios of earnings to fixed charges are not presented for each of 1993,
1994, 1995, 1996 and 1997 because earnings were inadequate to cover fixed
charges by approximately $12,060,000, $13,309,000, $21,961,000, $97,136,000
and $457,148,000, respectively.
(5) Restricted cash consists of the first stage of borrowings under the Secured
Bank Facility. The funds were restricted subject to Iridium meeting certain
milestones. Iridium successfully met the conditions for use of the first
stage of borrowings ($350 million) in January 1998, and such funds were
released.
(6) Does not include the $350 million of outstanding short-term borrowings under
the Secured Bank Facility. See note (5) above.
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<PAGE> 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Iridium is currently devoting its entire efforts to commercializing and
establishing the IRIDIUM System. As such, Iridium's current principal activities
relate to managing the design, construction and development of the system and
preparing for its day-to-day operations. See "Business" and Iridium's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
On December 18, 1997, pursuant to the Asset Drop-Down Transaction, Parent
transferred substantially all of its assets and liabilities to Iridium.
Currently, Parent has no significant operations other than its management of
Iridium. Accordingly, the discussion below relates to Parent on an historical
basis (prior to December 18, 1997) and Iridium, as successor to Parent, from
December 18, 1997 forward. Unless otherwise specified, references to Iridium
relating to any action or event prior to the date of the Asset Drop-Down
Transaction should be construed as references to Parent, as predecessor of
Iridium. See "Parent's Ownership Structure and Strategic Investors -- Asset
Drop-Down Transaction." Each of Roaming, IP, Facilities and Capital is a wholly
owned subsidiary of Iridium. Each of Roaming, IP, Facilities and Capital has no
significant assets and does not conduct any significant operations.
LIQUIDITY AND CAPITAL RESOURCES
Funding Requirements
Iridium expects to commence commercial operations on September 23, 1998.
Iridium currently estimates aggregate cash funding requirements from the
commencement of development (June 1991) through the anticipated commencement of
commercial operations will be approximately $4.5 billion. At year end 1996 and
1997, Iridium had expended approximately $2.40 billion (or 53%) and
approximately $3.42 billion (or 76%) of such $4.5 billion estimate. Iridium
estimates aggregate cash funding requirements of approximately $5.5 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. At year end 1996 and 1997, Iridium had
expended, since inception, approximately $2.40 billion (or 44%) and
approximately $3.42 billion (or 62%) of such $5.5 billion estimate. While
Iridium has raised sufficient funds to meet its expected pre-commercial
operations project costs, Iridium expects to require substantial additional
funding after commencement of operations. See "Sources and Uses of Funds by
Iridium." These projections of aggregate funding needs assume the Requested SBF
Amendments will be received, the entire Global Advertising Program Increase will
be effected and Iridium will be required to make no payments under the Standby
Equipment Purchase Commitments. In addition, such projections are forward
looking and actual results could vary, perhaps substantially, due to events
outside the control of Iridium, including without limitation unforseen
construction, systems integration or regulatory delays, launch failures and
lower than anticipated customer demand. See "Risk Factors -- Risk of Error in
Forward Looking Statements." "-- Potential for Delay and Cost Overruns," and
"-- Satellite Launch Risks -- Impact of Excusable Delays."
With respect to the IRIDIUM System, Iridium and Motorola are parties to (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
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<PAGE> 60
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 approximately $129.4
million in 1998 to approximately $157.4 million in 2003 to approximately $171.4
million in 2005. If Iridium exercises its option to extend the Operations and
Maintenance Contract for an additional two years, the payments due for that
two-year extension are expected to aggregate approximately $1.33 billion
(assuming commencement of commercial operations on September 23, 1998 and no
excusable delays). The Terrestrial Network Development Contract provides for
payments aggregating approximately $284 million. As a result of technological
developments, changes in the product mix of Iridium's service offerings, and
scheduling adjustments, including the implementation of Iridium World Cellular
Services into Iridium's service offerings, there have been, and Iridium
anticipates there will be, amendments and interpretations of the Space System
Contract, the Terrestrial Network Development Contract and the Operations and
Maintenance Contract and other agreements and letters with Motorola, which may
increase the total costs of these contracts. While Iridium's estimate of the
cost of anticipated amendments is reflected in Iridium's estimates of its
funding requirements, there can be no assurance that any such amendments and
interpretations will not affect the price and terms of those agreements in a
manner not reflected in Iridium's funding estimates. See "Risk Factors -- Risks
Associated with Principal Supply Contracts -- Amendments to Principal
Contracts."
Through March 31, 1998, Parent has incurred expenditures totaling $3.1
billion to Motorola under the Space System Contract in respect of completed
milestones and expenditures totaling $148 million under the Terrestrial Network
Development Contract. Based on estimates and the planned schedule as of March
31, 1998, Iridium's expected future cash requirements by year under the
contracts through December 31, 1999 are approximately as follows:
<TABLE>
<CAPTION>
1998 1999
---- ----
(IN MILLIONS)
<S> <C> <C>
Space System Contract...................................... $489 $ --
Terrestrial Network Development Contract................... 86 63
Operations and Maintenance Contract........................ 129 537
</TABLE>
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."
In an effort to ensure that sufficient quantities of hand-held phones and
pagers are available for distribution in advance of the commencement of
commercial operations, Iridium intends to enter into the Standby Equipment
Purchase Commitments aggregating up to approximately $400 million. These
Commitments would be triggered on or after January 1, 1999, but only to the
extent such equipment is not purchased by and shipped to gateway operators or
service providers prior to January 1, 1999. While Iridium expects that the
gateway owners will purchase Iridium subscriber equipment for delivery prior to
January 1, 1999 in an amount equal to or greater than the Standby Equipment
Purchase Commitments, there can be no assurance that such purchases will be
made. Various factors, including a delay in the commencement of commercial
operations, could cause Iridium to be required to purchase Iridium subscriber
equipment in an amount equal to all or a significant portion of the
approximately $400 million in Standby Equipment Purchase Commitments, and there
can be no assurance that Iridium would be able to resell such equipment without
incurring a significant loss. See "Risk Factors -- Potential for Delay and Cost
Overruns" and "Certain Relationships and Related Transactions of Iridium."
Iridium's interest expense will increase significantly as a result of its
financing plan. Prior to the receipt of revenue from commercial operations,
Iridium expects to service its interest expense,
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including interest on the Notes and the Initial Senior Notes out of available
cash and borrowings. From approximately the time of commencement of commercial
operations through approximately year-end 1999 (the last year in which Iridium
projects negative cash flow and a net increase in year-end borrowings) Iridium
expects to service its interest expense partly from available cash and
borrowings and partly from revenues from operations. During commercialization,
Iridium will be required to make payments to Motorola under the Operations and
Maintenance Contract. After December 31, 1999, 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.
Sources of Funding
As of March 31, 1998, Iridium had indirectly received $1.942 billion from
equity investments in the Parent and has the right to receive $41 million
(exclusive of interest) due from SPI pursuant to the terms of a definitive
purchase agreement. At March 31, 1998, Iridium's Indebtedness equaled
approximately $2.0 billion, including $1.1 billion in aggregate principal amount
of Initial Senior Notes, approximately $285 million of borrowings under the $450
million Guaranteed Bank Facility (reduced from $750 million with a portion of
the net proceeds of the Initial Senior Notes) and approximately $350 million of
borrowings under the $1 billion Secured Bank Facility. The net proceeds from the
Offering to be received by Iridium are estimated to be approximately $342
million. Iridium will use $175 million of the net proceeds from the Offering to
permanently reduce the Guaranteed Bank Facility from $450 million to $275
million. Iridium will use the remainder of the net proceeds primarily to make
milestone payments in connection with the construction and deployment of the
IRIDIUM System and to a lesser extent for other general corporate purposes.
Pursuant to the Requested SBF Amendments, Iridium is seeking amendments under
the Secured Bank Facility that would increase the approved budget under the
Secured Bank Facility for the development, construction and commercialization of
the IRIDIUM System by $175 million (and would make corresponding adjustments in
various covenants restricting the amount Iridium is permitted to spend on
project costs), and would increase the amount of Indebtedness Iridium is
permitted to incur during the term of the Secured Bank Facility. If Iridium
receives the Requested SBF Amendments, it intends to effect the $80 million
Global Advertising Program Increase, a substantial portion of which is expected
to be utilized prior to commencement of commercial operations. Iridium does not
expect to effect a significant portion of the Global Advertising Program
Increase if it does not receive the Requested SBF Amendments. See
"Business--Distribution and Marketing."
Borrowings under the Guaranteed Bank Facility are guaranteed by Motorola.
Depending on market conditions, Iridium may make additional senior note
offerings in order to further reduce the Guaranteed Bank Facility or for other
purposes. Pursuant to the Motorola MOU, however, Motorola has conditionally
agreed that it will (i) guarantee up to $350 million of additional Indebtedness
(including principal and interest) under the Guaranteed Bank Facility or another
credit facility on identical terms (the "Motorola Additional Guarantee"),
provided that borrowings under such additional Indebtedness are made on or prior
to February 28, 1999 and (ii) guarantee up to approximately $175 million of
additional Indebtedness (including principal and interest) under the Guaranteed
Bank Facility or a credit agreement having the identical terms as the Guaranteed
Bank Facility (other than maturity) to be used by Iridium only for payments to
Motorola in respect of Motorola Standby Commitments and amounts overdue to
Motorola (the "Motorola Equipment Guarantee"). Borrowings under the Guaranteed
Bank Facility mature on June 30, 1999. Pursuant to the Motorola MOU, Motorola
agreed to extend the Motorola Guarantee (including the Motorola Additional
Guarantee, if committed) until after the Stated Maturity of the Initial Senior
Notes (which is the same date as the Stated Maturity of the Notes), if the
Guaranteed Bank Facility is so extended. Iridium believes it would be able to
increase the Guaranteed Bank Facility if it so requests. There can be no
assurance, however, that the bank lenders will agree to increase the amount of
the Guaranteed Bank Facility or to extend the term of the Guaranteed Bank
Facility if so requested by Iridium, or that any such other identical credit
facility would be available. See "Description of Other
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Indebtedness" and "Certain Relationships and Related Transactions of
Iridium -- Motorola Related Matters."
Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1 billion (the
"Secured Bank Facility"). As of March 31, 1998, Iridium had drawn $350 million
under the Secured Bank Facility. The Secured Bank Facility is secured by
substantially all of Iridium's assets. The Secured Bank Facility is further
secured by the Reserve Capital Call (as defined) and all of the membership
interests in Iridium. In addition, each of Iridium's subsidiaries has guaranteed
Iridium's obligations thereunder. The availability of additional amounts under
the Secured Bank Facility is subject to significant conditions, including
technical conditions relating to the IRIDIUM System, conditions relating to
regulatory approvals and conditions relating to other financing sources. The
final $250 million of the Secured Bank Facility is not available prior to the
defined commercial activation date. Borrowings under the Secured Bank Facility
mature on September 30, 1998, subject to Iridium's right to extend such maturity
until up to June 30, 1999 if it can demonstrate by July 1, 1998 that it has
sufficient available or committed financing for its budgeted project costs
through such extended maturity. See "Description of Other Indebtedness." After
giving effect to the Offering and the application of the net proceeds therefrom,
and assuming approximately $270 million of borrowings under the Guaranteed Bank
Facility and $629 million under the Secured Bank Facility, Iridium expects to
have sufficient cash to meet its anticipated funding requirements through
September 23, 1998, the date on which Iridium expects to commence commercial
operations. Iridium expects to seek other senior secured bank financing in order
to meet its expected funding requirements through at least year-end 1999, the
last year in which Iridium projects negative cash flow and a net increase in
year-end borrowings.
In the event Iridium is required to make significant purchases pursuant to
the Standby Purchase Commitments, it expects to use borrowings guaranteed by the
Motorola Equipment Guarantee (in respect of purchases from Motorola) and the
Kyocera Equipment Guarantee (in respect of purchases from Kyocera). Pursuant to
the Motorola Equipment Guarantee, Motorola would guarantee up to approximately
$175 million of additional Indebtedness in respect of equipment purchases from
Motorola and, pursuant to the Kyocera Equipment Guarantee, Kyocera would
guarantee up to approximately $122.5 million of additional Indebtedness in
respect of equipment purchases from Kyocera. Accordingly, the Standby Equipment
Purchase Commitments exceed the aggregate amounts of such Equipment Guarantees
by approximately $102.5 million. If Iridium's obligations under the Standby
Equipment Purchase Commitments exceed the amounts of the Equipment Guarantees,
there can be no assurance that Iridium will have sufficient funds, or be able to
secure sufficient financing, to satisfy its equipment purchase obligations. See
"Certain Relationships and Related Transactions of Iridium" and "Risk
Factors -- Significant Additional Funding Needs."
Additional financing may also need to be obtained through the issuance of
equity or debt securities in the public or private markets. The availability and
terms of any such financing are uncertain and are dependent, in part, on market
conditions existing at the time of any proposed financing. Iridium's estimated
funding requirements will increase, perhaps substantially, in the event of
unexpected cost increases or schedule delays. Additional equity financing, if
pursued, may be raised either privately from strategic or financial investors,
or through additional public offerings. Depending on market conditions, Iridium
may make additional senior note offerings.
In connection with the establishment of the Secured Bank Facility, the bank
lenders required that the membership interests in Parent, or any company to
which all or substantially all of Parent's assets were transferred, be pledged
as security under the Secured Bank Facility. In connection with granting such
security interest, Parent entered into the Asset Drop-Down Transaction with
Iridium, whereby substantially all of the assets and liabilities of Parent were
transferred to Iridium. Parent has pledged all of the membership interests in
Iridium to the bank lenders in connection with the
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Secured Bank Facility. See "Parent's Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction."
As a result of Iridium's outstanding debt and the expected incurrence of
significant additional indebtedness required to meet its capital requirements,
Iridium will have substantial indebtedness. Iridium's ability to meet all of its
debt service obligations when due will require it to generate significant cash
flow from operations or, if necessary, make additional borrowings to refinance
its outstanding indebtedness. No assurance can be made that Iridium will be able
to generate sufficient cash flow to meet its debt service obligations or will be
able to refinance indebtedness. In addition, the debt instruments governing
future indebtedness are likely to contain restrictions on, among other things,
the incurrence of indebtedness, the granting of liens and the payment of cash
dividends. See "Risk Factors -- Significant Additional Funding Needs," "Risk
Factors -- Risk of Highly Leveraged Capital Structure."
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. From the commencement of development (June 1991) through
year-end 1997, Iridium had expended approximately $3.42 billion on the
development, construction and commercialization of the IRIDIUM System,
representing 76% of Iridium's estimate of its cash funding requirements through
the anticipated commencement of commercial operations (September 23, 1998) and
62% of Iridium's estimate of its cash funding requirements (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.
To date, Iridium's only source of income has been interest income on the
cash and investment balances from the proceeds of equity commitments in Parent,
which amounted to approximately $15.3 million from the Initial Capital
Contribution Date to December 31, 1997. During the same period, Iridium recorded
a net loss of approximately $413 million. In addition, during the periods 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 Parent to Motorola pursuant to a reimbursement
agreement.
As a development stage company, Iridium has incurred losses since inception
of its predecessor companies 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 insertion of each satellite in
its mission orbit. 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 approximately $3 billion from inception through December 31, 1997. In
addition, costs incurred in connection with the issuance by Parent 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 costs also will be capitalized through the date of
commencement of commercial operations. See "--Interest Expense."
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A portion of the payments made under the Operations and Maintenance
Contract will be capitalized and depreciated. The amount so capitalized will be
determined depending upon the number of replacement satellites put into service.
Any payments under the Operations and Maintenance Contract not capitalized will
be expensed.
Operating Expenses
For the period from the Initial Capital Contribution Date through December
31, 1997, marketing, general and administrative expenses were approximately $420
million. During the period prior to the Initial Capital Contribution Date, total
accumulated expenditures of approximately $14.8 million were incurred, primarily
to reimburse Motorola for expenses associated with operating Iridium during the
period from its incorporation in 1991 through the Initial Capital Contribution
Date. Iridium expects a substantial increase in future operating expenditures
relating to sales, marketing and other costs associated with commercialization.
Interest Expense
Iridium expects to finance a significant portion of its capital
requirements through borrowings. As a result of these borrowings, Iridium will
have significant interest costs. Interest costs are being capitalized while the
system is under construction and will be depreciated thereafter. This has
resulted in all interest costs being capitalized during 1995, 1996 and 1997. It
is likely that a meaningful portion of interest cost will be expensed in 1998
and all interest cost will be expensed beginning in 1999. Some portion of
interest expense will not be paid in cash, including the interest expense
related to Iridium's 14 1/2% Senior Subordinated Notes through March 1, 2001.
Such non-cash interest will be accrued and such accrual will increase
outstanding indebtedness on Iridium's consolidated balance sheets. Prior to the
receipt of revenue from commercial operations, Iridium expects to service its
interest expense, including interest on the Notes and the Initial Senior Notes,
out of available cash and borrowings. From approximately the time of
commencement of commercial operations through approximately year-end 1999 (the
last year in which Iridium projects negative cash flow and a net increase in
year-end borrowings) Iridium expects to service its interest expense partly from
available cash and borrowings and partly from revenues from operations.
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.
Year 2000 Considerations
In the next eighteen months, most companies using computer systems will be
confronted with the fact that many software application and operation programs
written in the past may not properly recognize calendar dates beginning in the
Year 2000. This issue could cause computers to shut down or provide incorrect
information. While Year 2000 considerations are not expected to materially
affect Iridium's internal operations, they may adversely affect Iridium's
suppliers, gateway operators, service providers and roaming partners. Iridium
has begun to ask its suppliers, gateway operators, service providers and roaming
partners about their progress in identifying and addressing problems that their
computer systems may face in correctly processing date information for the Year
2000. While Iridium expects that substantially all of its suppliers, gateway
operators, service providers and roaming partners will effectively address the
Year 2000 issue, there can be no assurance that the failure of such persons to
address effectively the issue will not have an adverse effect on Iridium's
results of operations.
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NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
standards for the reporting and display of comprehensive income and its
components in the consolidated financial statements. Iridium is required to
adopt the provisions of Statement 130 for the year ending December 31, 1998.
Earlier application is permitted; however, upon adoption of Statement 130,
Iridium will be required to reclassify previously reported annual and interim
consolidated financial statements. The disclosure of comprehensive income in
accordance with the provisions of Statement 130 will impact the manner of
presentation of Iridium's consolidated financial statements as currently and
previously reported.
RECENT DEVELOPMENTS
Iridium recently announced certain financial results for the quarter ending
March 31, 1998 (the "1998 First Quarter"). For the 1998 First Quarter, costs
incurred and capitalized for the communications system assets of the IRIDIUM
System totaled approximately $210 million. From inception through the 1998 First
Quarter, amounts capitalized for the IRIDIUM System totaled approximately $3.2
billion. The net loss for the 1998 First Quarter was $203 million.
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BUSINESS
OVERVIEW
Iridium is developing and commercializing a global mobile wireless
communications system that will enable subscribers to send and receive telephone
calls virtually anywhere in the world -- all with one phone, one phone number
and one customer bill. The IRIDIUM System will combine the convenience of
terrestrial wireless systems with the global reach of Iridium's satellite
system. As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial impact of the loss
of the four satellites and that such loss will not affect the scheduled
completion date for commercial service in September 1998. See "Risk
Factors -- Satellite Launch Risks." Iridium expects to commence commercial
service in September 1998. See "Risk Factors -- Potential for Delay and Cost
Overruns."
Iridium believes there is a significant market comprised of individuals and
businesses who need global communications capability and are willing to pay for
the convenience of a hand-held wireless phone or belt-worn pager. The
availability of terrestrial wireless communications service is often constrained
by the limited geographic coverage of terrestrial systems, the incompatibility
of differing wireless protocols or the absence of roaming agreements among
wireless operators. The combination of Iridium World Cellular Services, Iridium
World Satellite Services and Iridium World Page Services 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. Iridium World Cellular Services is expected to
enable customers to roam internationally among terrestrial wireless networks,
even those using different protocols, that have roaming agreements with Iridium.
Iridium World Satellite Services will extend voice services to the regions of
the globe not served by terrestrial systems. Iridium intends to offer Iridium
World Page Services 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 World Services to governmental, industrial and rural users of wireless
communications systems. Iridium believes it will be the only wireless
communications system in operation prior to 2000 that will be able to offer this
array of global communications services. See "Risk Factors -- Consequences of
Satellite Service Limitations on Customer Acceptance" and "-- Consequences of
Iridium Phone and Pager Characteristics on Customer Acceptance."
The IRIDIUM System encompasses four components: the "space segment," which
will include the low earth orbit satellite constellation and the related control
facilities; the ground stations or "gateways," which will link the satellites to
terrestrial communications systems; the Iridium subscriber equipment, which will
provide mobile access to the satellite system and terrestrial wireless systems;
and the terrestrial wireless interprotocol roaming infrastructure, which will
facilitate roaming among the Iridium satellite system and multiple terrestrial
wireless systems that use different wireless protocols. The satellite
constellation of the IRIDIUM System, which will consist of 66 operational
satellites arranged in six polar orbital planes, is being assembled and
delivered in orbit by Motorola pursuant to a fixed price contract, subject to
certain adjustments. Motorola also will operate and maintain the satellite
constellation for five years (extendible to seven years at Iridium's option).
Each of the gateways will be owned, operated and financed by one or more
investors in Iridium or their affiliates. Iridium expects that portable,
hand-held Iridium phones will be manufactured by at least two experienced
suppliers, Motorola and Kyocera, both of which have hand-held Iridium phones
under development. The phones are expected to be available in satellite
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only and multi-mode models, with the multi-mode model allowing subscribers to
access the IRIDIUM System and most major terrestrial wireless systems using
different protocols with a single phone. Iridium World Cellular Services will
support roaming among the two principal types of terrestrial wireless
protocols -- IS-41 (AMPS, NAMPS and CDMA) and GSM900. Roaming between these
protocols requires cross-protocol translation which will be accomplished for
Iridium World Cellular Services through the Iridium Interoperability Unit
("IIU"), being developed under the direction of Motorola. The IIU will permit
system management information, including customer authentication and location,
to be relayed between systems 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 World
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 Iridium World Cellular Services and Iridium World Page
Services as complements to Iridium World Satellite Services and as stand-alone
services. Iridium believes that it will be the only wireless communications
system in operation prior to 2000 that will be able to offer virtually global
mobile voice and paging services, including:
- Global coverage. An Iridium World Services subscriber will generally
have worldwide wireless coverage wherever Iridium World Services are
authorized, including mid-ocean and remote areas. The availability of the
Iridium World Satellite Services 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 World Satellite Services and
Iridium World Cellular Services. With the addition of Iridium World
Cellular Services, 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 200
characters and numeric messages of up to 20 digits virtually anywhere in
the world. With Iridium's global paging, users of Iridium World Satellite
Services or Iridium World Cellular Services 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 World Services to market at the
earliest practicable date, which is currently expected to be September 1998.
Iridium believes that it will be the only
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wireless communications system in operation prior to 2000 that will be able to
offer global mobile voice and paging services in each country in which Iridium
World Services are authorized.
Adapt proven technologies through an industrial team led by Motorola. The
IRIDIUM System adapts proven technology, including GSM cellular call processing
technology, intersatellite links, FDMA/TDMA radio transmission technology, a
2,400 bps vocoder and business support software. Iridium believes that the
primary technological challenge is the integration of these proven technologies
into a single system. Motorola, the principal investor in Iridium, is a leading
international provider of wireless communications systems, cellular phones,
pagers, semiconductors and other electronic equipment. The industrial team
assembled by Motorola to build and deliver in orbit the IRIDIUM System consists
of major companies experienced in aerospace and telecommunications, including
Telespazio, Lockheed Martin, Raytheon, Boeing, Khrunichev and China Aerospace.
Capitalize on the strengths of its strategic investors. A number of the
Iridium 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 World 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 WORLD 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
World Satellite Services to customers who need to send or receive telephone
calls in areas not currently served by terrestrial wireless services. Iridium
will offer Iridium World Cellular Services 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 World Satellite Services and Iridium World
Cellular Services will be offered in combination as Iridium World Services,
which will allow the customer to switch conveniently between the Iridium
satellite system and any terrestrial wireless system that has a roaming
agreement with Iridium. Iridium expects to be able to deliver all of its voice
services with one phone, one phone number and one customer bill. Iridium also
intends to offer global paging (Iridium World Page Services) both in combination
with Iridium's voice services and as a stand-alone service.
Iridium World 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 World 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
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Service Limitations on Customer Acceptance" for a discussion of certain of the
service limitations of Iridium World 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.
Iridium World Cellular 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 Iridium World
Cellular Services as a complement to Iridium World 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. As of March 31, 1998, Roaming has entered into more than 90
roaming agreements with roaming partners. Iridium World Cellular Services 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 GSM900). With Iridium World Cellular Services, 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 Iridium World Cellular Services 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
Iridium World Cellular Services." The availability of Iridium World Cellular
Services depends upon the successful development of the IIU. See "-- Space
Segment -- Iridium World Cellular Services."
Iridium World Services
Iridium intends to offer Iridium World Services to customers who require
both satellite and terrestrial wireless service while traveling outside of their
"home" territories. Iridium World Services 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 Iridium World Services, 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 World Satellite Services
and Iridium World Cellular Services customers, Iridium World Services 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.
Iridium World Page Services
Iridium intends to offer global paging both as a stand-alone service
("Iridium World Page Services") and bundled with its voice service offerings.
Iridium believes that its bundled paging and
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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 200 characters and numeric
messages of 20 digits. Iridium believes it will be the first company, and the
only company prior to 2000, that will be able to offer global paging to a
belt-worn pager. See "Risk Factors -- Consequences of Iridium Phone and Pager
Characteristics on Customer Acceptance."
To use the L-band capacity of the IRIDIUM System efficiently, a page will
be sent to specified message delivery areas ("MDAs"). Iridium intends to vary
the size of each MDA in light of demand, capacity and competition. Since the
pager is a one-way device and cannot tell the network its location, it is
anticipated that the subscriber will be required to choose up to three MDAs for
normal delivery of the message. It is anticipated that, when traveling,
subscribers will be able to update their MDAs via a touch-tone phone, operator
assistance or Internet access. An Iridium World Satellite Services or Iridium
World Cellular Services customer will have the benefit of "follow-me paging."
Unlike the pager, the Iridium satellite phone and cellular phones are two-way
devices and, when turned on, identify the location of the subscriber. With
"follow-me paging," customers will generally be able to register their location
by briefly turning on their Iridium phone (at no charge) or, in the case of
Iridium World Cellular Services customers, their terrestrial wireless phone. The
network then can identify the appropriate MDAs to send a page, without further
customer cooperation.
Iridium expects that a caller who is unable to reach an Iridium customer,
because the phone is turned off or the customer is in a building or urban canyon
where satellite voice service is unavailable, will be given the option to send a
page, leave a voice-mail message for the customer or both. By this means,
Iridium expects to provide communications capability virtually anywhere in the
world.
Aeronautical Services
Iridium expects to offer cabin and flightdeck communications to and from
business and commercial aircraft commencing in 1999. This service is expected to
be an extension of Iridium's voice services, since airline passengers,
especially business travelers, have a heightened demand for telephone services
due to the isolated, restrictive, and often time-consuming nature of air travel.
Subscribers to Iridium World 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.
In December 1996, Motorola submitted a request to the FCC to authorize the
IRIDIUM System to provide Aeronautical MobileSatellite 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
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granted, or that the avionics certification requirements will be satisfied at
all, or in a timely fashion. See "Regulation of Iridium -- Licensing Status."
Assuming all necessary authorizations are obtained, Iridium expects to provide
both the FCC required "safety" communications capabilities to the flightdeck and
passenger communications, including voice and facsimile. An individual aircraft
may be served by multiple satellite communications carriers.
THE IRIDIUM MARKET
General
The market for Iridium World Services is the worldwide market for global
personal voice, paging and data communications. Iridium World 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 200 million
subscribers at year-end 1997 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 World
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 43 countries and 3,000 corporations with remote operations.
Based on this market analysis, Iridium has identified five target markets:
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 World
Services. Iridium expects that individuals in these markets are more likely to
need and have the ability to afford handheld, 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 market analysis was properly
designed, appropriate in scope and implemented on a systematic basis and,
accordingly, provides a reasonable basis for Iridium's marketing and strategic
planning. 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. Based upon its market analysis, Iridium
estimates that it will have customer counts in the year 2002 in the range of 2.2
million to 2.5 million for its satellite-based voice services, Iridium World
Satellite Services (satellite voice and paging) and Iridium World Services (the
combination of Iridium World Satellite Services and Iridium World Cellular
Services), 1.0 million to 1.3 million for stand-alone Iridium World Cellular
Services and 350,000 to 500,000 for stand-alone Iridium World Page Services.
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. Moreover, the risks associated with
market analysis are heightened in cases such as this, where the
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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. Iridium currently has no customers and its estimates of
target markets and customer counts are based upon a number of assumptions, one
or more of which is likely to be incorrect. The assumptions underlying Iridium's
market analysis relate to the expected performance characteristics of the
IRIDIUM System, the expected competition in the markets for personal satellite
communications services and terrestrial cross protocol wireless services and the
accuracy of the respondents' responses to Iridium's market research questions.
Such assumptions include, without limitation, (i) that the IRIDIUM System will
provide continuous service to virtually anywhere in the world with service
characteristics at least as favorable as those described in this Prospectus from
September 23, 1998 toward, (ii) that Iridium will face competition from
satellite systems, terrestrial wireless systems and other communications systems
that is no greater than Iridium's expectations regarding competition as
described in this Prospectus and (iii) that Iridium's market research was
properly designed and implemented to determine actual market interest and that
the respondents provided truthful responses. There can be no assurance that
actual target markets and actual customer counts will not be materially
different from Iridium's estimates or that Iridium will not revise such
estimates substantially from time to time. For further discussion of the forward
looking nature of Iridium's estimates and various of the factors which could
cause actual addressable markets and customer counts 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 World
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
Iridium World Satellite Services, Iridium World Cellular Services and Iridium
World Page Services will appeal to traveling professionals as a logical
extension of their existing communications capabilities. Iridium believes
traveling professionals will use this increased capability to remain in contact
with their home or office and a substantial portion of these calls will be
international calls. The defining element for this segment is that the handset
purchase decision is made by the individual, with the Iridium account registered
in his or her name.
Corporate/Industrial. Iridium believes that the corporate/industrial
market segments constitute a significant opportunity for Iridium World 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 World Satellite Services are expected to be used in this market segment
for business communication and emergency backup communication. The defining
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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 World Satellite Services and Iridium World Page
Services will make them attractive for a variety of governmental applications.
The government communications addressable market is expected to encompass use of
MSS services by governmental departments and agencies and international
organizations for civilian and military applications, including law enforcement,
official travel and disaster relief. In addition, governments are expected to
demand MSS services for operations in areas where inadequate terrestrial
communication capability is common, such as for border patrols, customs
officials, communication with ships at sea and embassy communications.
Rural. The rural communications market segment for MSS systems is
comprised of two main subcategories: services to users based in (i) areas with
inadequate or inconvenient access to any telephone services, typically in
developing countries, and (ii) areas in which potential demand for terrestrial
wireless service exists but such services have yet to be deployed, or, if
deployed, are of poor quality, typically in rural areas of developed countries.
The variety of available subscriber equipment is expected to permit a range of
applications that would enable Iridium World Satellite Services to be a
precursor to a permanent wired or terrestrial wireless service in the geographic
area. Iridium World 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 World 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 World Services to their
customers. Iridium will implement the distribution of Iridium World Services
through its gateway operators, all of which have agreed to become or engage
Iridium service providers within their exclusive gateway territories. Iridium
service providers will generally have primary responsibility for marketing
Iridium World Services within their territories in accordance with marketing
policies and programs established by Iridium. They will also be responsible for
customer service, billing and collection. Iridium anticipates that gateway
operators will distribute Iridium World Services through their own distribution
channels or through, or in conjunction with, one or more existing wireless
service providers (including Iridium World Cellular Services roaming partners).
As of March 31, 1998, Iridium and its gateway operators had agreements with more
than 80 such service providers, including some of the more than 90 roaming
partners that Roaming has entered into agreements with.
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
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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.
If Iridium receives the Requested SBF Amendments, it intends to effect the
approximately $80 million Global Advertising Program Increase, a substantial
portion of which is expected to be utilized prior to commencement of commercial
operations. Iridium believes the Global Advertising Program Increase would
provide substantial benefits by increasing IRIDIUM's brand identity at the time
commercial operations commence, when Iridium is expected to be the only provider
of global, mobile satellite communications services. Iridium does not expect to
effect a significant portion of the Global Advertising Program Increase if it
does not receive the Requested SBF Amendments. There can be no assurance that
the lenders under the Secured Bank Facility will agree to the Requested SBF
Amendments.
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 World
Satellite Services and Iridium World Cellular Services is expected to be based
on this structure.
For international Iridium World 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 public switched telephone network ("PSTN") tail charges. The home
gateway will mark up the wholesale price and the service provider will establish
the final retail price. Iridium currently expects that its wholesale usage fees
for international Iridium World Satellite Services calls between two countries
will result in suggested retail prices that, in aggregate, are approximately 25%
to 30% above the retail prices for terrestrial-based voice calling options that
traveling customers could use for a similar call between the same two countries
(e.g., international calling card and international cellular roaming rates).
Iridium expects such 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
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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 Iridium World Cellular Services 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 Iridium World Cellular Services
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 World Satellite Services as additional features to
their existing wireless services, permitting their customers to remain customers
of the wireless network and to roam onto the IRIDIUM System. These customers
will pay a feature charge to Iridium for the roaming privilege that will be
significantly below the Iridium monthly subscription fee, but they will pay an
additional roaming premium for calls made over the IRIDIUM System.
Initially, Iridium paging subscribers will pay a fixed monthly subscription
fee for unlimited paging. Iridium expects to implement per page pricing after
commencement of commercial operations, with the cost per page based, in part, on
the size of the geographic area covered by the page. The monthly paging
subscription fees will be reduced for persons who are also subscribers to
Iridium voice services.
While Iridium expects to compete with other MSS systems and other
cross-protocol roaming services, Iridium does not intend to compete with
terrestrial cellular telephone systems for the vast majority of personal
communications services, because, among other reasons, Iridium satellite voice
services are expected to be priced significantly higher than most terrestrial
wireless services.
THE IRIDIUM SYSTEM
The IRIDIUM System is comprised of four functional components: the space
segment, the gateways, the Iridium subscriber equipment and the terrestrial
wireless interprotocol roaming infrastructure. The space segment, which includes
the satellite constellation and the related ground control facilities, will
allow Iridium to route voice, data and paging communications virtually anywhere
in the world. The gateways will link the satellite constellation with
terrestrial communications systems and will provide other call-processing
services, such as subscriber validation and billing information collection. The
Iridium subscriber equipment, which is expected to include single-mode and
multi-mode, portable, hand-held phones, aeronautical equipment, including
installed phones, and belt-worn pagers, will allow subscribers to access the
IRIDIUM System or be contacted via the IRIDIUM System virtually anywhere in the
world. The terrestrial wireless interprotocol roaming infrastructure will
facilitate roaming among the IRIDIUM System and multiple terrestrial wireless
systems that use different wireless protocols. Iridium will own the space
segment and the interprotocol roaming infrastructure, gateway owners will own
and operate the gateways, and subscribers will own the subscriber equipment.
Iridium believes that the capabilities of the IRIDIUM System will allow
Iridium to provide service features that Iridium's principal target markets,
traveling professional and corporate/industrial, will find desirable and that
will differentiate Iridium from its competitors. The number and distribution of
satellites in the Iridium constellation should allow Iridium to provide
virtually global coverage, including mid-ocean and remote area access to the
IRIDIUM System. Multi-mode phones are expected to allow Iridium World Services
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 Individual World Page
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Services, a subscriber will be able to receive a targeted page virtually
anywhere in the world with minimal customer cooperation. Iridium believes that
its expected signal strength will allow it to better serve hand-held phones and
provide a higher degree of in- building penetration for pagers than competing
MSS systems. Iridium believes that the 2,400 bps vocoder selected by Motorola
will provide voice quality that is acceptable to terrestrial wireless customers.
See "Risk Factors -- Consequences of Satellite Service Limitations on Customer
Acceptance" and "-- Consequences of Iridium Phone and Pager Characteristics on
Customer Acceptance."
Space Segment
The satellite constellation of the space segment will consist of a
constellation of 66 operational satellites arranged in six orbital planes in low
earth orbit. To minimize the cost of the constellation and reduce production
time, the design of the satellites emphasizes attributes which facilitate
production in large quantities. The satellites will be placed in six distinct
planes in near-polar orbit at an altitude of approximately 780 kilometers and
will circle the Earth approximately once every 100 minutes. Each satellite will
communicate with subscriber equipment on the ground using main mission antennas,
with gateways using gateway link antennas and with other Iridium satellites in
space using cross-link antennas.
The main mission antennas will communicate with subscriber units through
tightly focused antenna beams forming a continuous pattern on the Earth's
surface. The main mission antenna subsystem of each satellite will include three
phased array antennas, each containing an array of transmit/receive modules.
Collectively, the 48 beams produced by a single satellite will combine to cover
a circular area with a diameter of approximately 4,340 kilometers. The IRIDIUM
System architecture will incorporate certain characteristics, such as call
hand-off, which will allow the space segment communications link with subscriber
equipment to be transferred from satellite to satellite as the satellites move
over the area where the subscriber is located.
The cross-link antennas will permit satellites in the constellation to
communicate with one another. Each Iridium satellite will have four cross-link
antennas to allow it to communicate and route traffic to the two satellites that
are fore and aft of it in the same orbital plane as well as neighboring
satellites in the adjacent co-rotating orbital planes. This intersatellite
networking capability is a significant distinguishing feature of the IRIDIUM
System and provides a number of benefits. These intersatellite links, which
enable the satellites to function as switches in the sky, will allow the IRIDIUM
System to (i) select the optimal space-to-ground path of each call, thereby
enhancing system reliability and capacity while reducing the costs associated
with the use of terrestrial phone systems, (ii) service subscribers in all areas
(including, mid-ocean and remote areas) regardless of the proximity to a
gateway, (iii) provide full global service with a relatively small number of
gateways, thereby lowering total ground segment build-out and operating costs
and (iv) provide enhanced ability to track the location of a voice customer,
allowing Iridium to target calls and pages as customers travel globally.
Operation of the satellites will be monitored, managed and controlled by
the system control segment. The Satellite and Network Operations Center (the
"SNOC") is located in Virginia, the back-up operations center 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 SNOC 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 SNOC 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.
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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."
As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial impact of the loss
of the four satellites and that such loss will not affect the scheduled
completion date for commercial service in September 1998. See "Risk
Factors -- Satellite Launch Risks." Under the Space System Contract, Motorola
has completed 42 of the 47 contract milestones. Contract milestone 30, initial
launch of Iridium satellites, was scheduled for completion in January 1997, but
the launch did not occur until May 5, 1997. See "Risk Factors -- Potential for
Delay and Cost Overruns." The remaining five milestones relate to the
deployment, testing and completion of the space segment of the IRIDIUM System,
including the related ground control facilities. The space segment is scheduled
under the Space System Contract for completion on September 23, 1998. Ground
testing of satellite hardware has been substantially completed. Motorola has
completed construction of most of the terrestrial facilities necessary to
command the in-space movements of the satellites, including the SNOC 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 Parent.
- Raytheon Company. Raytheon is providing the main mission satellite
antennas. Raytheon is an investor in Parent.
- 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 Iridium Italia, an investor in
Parent.
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
Boeing.
- 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/SD 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
Parent.
- Khrunichev State Research and Production Space Center. Khrunichev
provided some of the launches for the initial deployment of the space
segment utilizing the Proton launch vehicle, which launched seven Iridium
satellites into orbit with each launch. Khrunichev is an investor in
Parent and has been allocated the Iridium gateway service territory for
Russia and eight other republics of the former Soviet Union.
- Boeing Corporation. Boeing, the successor to McDonnell Douglas
Corporation, has contracted to provide the majority of the launches for
the initial deployment of the space segment
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utilizing the Delta II launch vehicle, which is expected to launch five
Iridium satellites into orbit with each launch.
Under the Space System Contract and the Operations and Maintenance
Contract, Motorola has agreed to procure the necessary space segment launch
services, and to place into orbit, and maintain in orbit, the space segment. In
light of the magnitude of the launch services procurement, the risks inherent in
satellite launch activity and the potential impact on Iridium's business if the
provision of launch services fails (including the potential that launch service
problems could give rise to excusable delays under the space System Contract and
Operations and Maintenance Contract), Motorola has developed numerous space
segment launch scenarios using various combinations of available launch systems
to fit the requirements of the IRIDIUM System in terms of cost, reliability,
availability, technical performance, credibility of suppliers and other factors.
The launch of the first five Iridium satellites occurred on May 5, 1997 on
a Delta II launch vehicle. This launch had been scheduled for January 1997 but
was delayed on four successive days and then postponed following an unrelated
launch failure involving the Delta II launch vehicle. Following the January 1997
failure of a Delta II launch vehicle, the United States government ordered a
halt to all further Delta II launches pending completion of an internal review
of the failure. That failure review was completed on May 2, 1997 and concluded
that the launch failure resulted from an explosion of one of the nine solid
rocket boosters attached to the first stage of the launch vehicle. Thereafter,
the launch suspension was lifted. The first launch of Iridium satellites
occurred on May 5, 1997. Motorola has informed Iridium that, notwithstanding the
first launch postponement, Motorola believes its launch schedule should permit
Iridium to meet its planned September 1998 commencement of commercial
operations. This current launch schedule assumes that there are no additional
significant launch delays and that Boeing and China Great Wall are able to
provide launch services as currently planned. The current launch schedule also
creates risks because it has compressed the time otherwise available for
testing. As of April 15, 1998, Motorola had launched 65 Iridium satellites in 13
separate launches. Motorola has informed Iridium that, as of April 23, 1998,
four of those 65 satellites are not functioning and will not become part of the
constellation, but that Iridium will not bear the financial impact of the loss
of the four satellites and that such loss will not affect the scheduled
completion date for commercial service in September 1998. Motorola currently
plans to launch seven satellites before the end of May 1998 in two launches in
order to complete the initial deployment of the 66 satellite constellation.
There can be no assurance that succeeding launches will proceed as currently
contemplated or that the space segment will be operational on schedule. See
"Risk Factors -- Potential for Delay and Cost Overruns" and there can be no
assurance that problems will not occur with respect to other satellites, or that
such problems will not have an adverse affect on Iridium. In addition, no
assurance can be given that from time to time certain events will not occur that
may require Motorola to conclude that one or more satellites are not performing
within the necessary parameters for such satellite or satellites to be included
in the constellation, or that such a conclusion would not have an adverse effect
on the commercial activation schedule. See "Risk Factors -- Potential for Delay
and Cost Overruns."
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/SD launch vehicle for what it expects will be a minority portion of the
maintenance launch services. Motorola expects that a number of other launch
systems currently under development would satisfy the remaining requirements of
the maintenance mission. Motorola intends to select a supplier or suppliers for
the remaining maintenance launches based on technical, commercial and other
considerations.
See "Risk Factors -- Potential for Delay and Cost Overruns" for a
discussion of various risks associated with the deployment of the satellites.
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In addition, Motorola has constructed the master control facility located
in Virginia, the back-up control facility in Italy, two TT&C stations in
northern Canada and one TT&C station in Hawaii, with an additional transportable
telemetry system currently located in Iceland.
Gateways
Gateway earth stations will provide call-processing services, such as
subscriber validation and the interconnection between the world's PSTNs and the
IRIDIUM System by connecting calls made through the IRIDIUM System to and from
the local PSTN generally through an international switching center. Gateways
will communicate with the space segment via gateway link antennas on the
satellites and ground-based antennas, or earth terminals, at each terrestrial
gateway facility. Each gateway facility will typically include three or four
antennas, a controller to manage communications with the constellation, an
operations center to perform local network management, a paging message
origination controller, and a switch that connects the gateway to the local
PSTN. Each gateway will also include a subscriber database used in
call-processing activities, such as subscriber validation. Gateways will
generate call detail records used in billing. Parent has authorized the issuance
of warrants to acquire up to 9,165,000 Class 1 Interests at a price of $.00013
per Class 1 Interest to gateway owners and other members of Parent who complete
construction and installation of their gateways on schedule, or who provide
substantial assistance to the completion of construction and installation of a
gateway, 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 Parent. Iridium is focusing considerable efforts on the
coordination of the development of the gateway infrastructure and business
systems. See "-- Distribution and Marketing."
Iridium has assigned all of its gateway service territories to investors in
Parent or their affiliates. Iridium expects these gateway service territories to
be served through up to 12 gateways. Each gateway owner has entered into a
Gateway Authorization Agreement. The Gateway Authorization Agreements obligate
the gateway operators to use reasonable best efforts to perform, among other
obligations, the following with respect to their designated territories: (i)
contract with Motorola to supply the gateway equipment; (ii) provide gateway
services; (iii) obtain all required governmental licenses and permits necessary
to construct and operate gateways; (iv) designate Iridium World Services
providers, which may include the gateway operator; (v) require compliance by
each service provider with established guidelines; and (vi) support
Iridium-approved positions at the WRC of the ITU. See "Principal Contracts for
the Development of the IRIDIUM System -- Gateway Authorization Agreements."
Under the Space System Contract, Motorola has agreed to (i) design and make
available to Iridium as proprietary information the gateway interface
specification, (ii) develop and sell Iridium gateway equipment and (iii) license
to responsible and competent suppliers of that equipment the rights to use the
information in that specification for certain purposes to the extent essential
to manufacture and sell Iridium gateways. Iridium does not anticipate that
companies other than Motorola will manufacture gateway equipment. In order to
assure timely development of the gateway equipment and to coordinate the
development effort, Iridium entered into the Terrestrial Network Development
Contract in 1995 which has allowed it to implement a more disciplined and
systematic development plan for the gateways and which Iridium believes will
increase the likelihood of a timely in-service date for the gateways. Under the
Terrestrial Network Development Contract, Motorola is designing and developing
the gateway hardware and software. See "Principal Contracts for the Development
of the IRIDIUM System -- Terrestrial Network Development Contract."
Iridium and the gateway operators have established a schedule for the
construction of the necessary gateway facilities by the gateway operators. While
some gateway operators are behind in meeting some of the milestones in this
schedule, Iridium believes that up to 12 gateway facilities will
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be completed and operational at the time commercial operations commence. The
construction of the 12 gateway facilities is substantially complete and the
telecommunications equipment has been installed at 11 locations. 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 on Iridium. In particular, the China gateway has only recently commenced
equipment procurement and the Middle East-Africa gateway is significantly behind
schedule with its preparations for commercial operations. While Iridium believes
that it is possible that these two gateways will be operational by the planned
September 1998 commencement of commercial operations, in order for them to do so
they will need to move forward promptly, including making certain overdue
payments under their gateway equipment purchase agreements with Motorola. See
"Risk Factors -- Potential for Delay and Cost Overruns -- Construction and
Operation of Gateways" and "--Reliance on Motorola, Gateway Owners and Other
Third Parties."
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. Iridium expects the price for subscriber
equipment that is manufactured by Kyocera to be similar to Motorola's.
Iridium generally does not expect to act as a distributor of subscriber
equipment or derive any income from the sale of Iridium subscriber equipment.
However, because there is no current market for Iridium World Services or
Iridium subscriber equipment, the financial incentive for manufacturers to
produce significant quantities of subscriber equipment in advance is limited.
Therefore, in an effort to ensure that sufficient quantities of hand-held phones
and pagers are available for distribution in advance of the commencement of
commercial operations, Iridium intends to enter into the Standby Equipment
Purchase Commitments. The Standby Equipment Purchase Commitments would require
Iridium to purchase an aggregate of up to approximately $400 million of
subscriber equipment from Kyocera and Motorola. The commitments would be
triggered on or after January 1, 1999, but only to the extent such equipment is
not purchased by and shipped to gateway operators or service providers prior to
January 1, 1999. See "Certain Relationships and Related Transactions of
Iridium." See "Risk Factors -- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Consequences of Iridium Phone and Pager Characteristics on Customer
Acceptance."
Motorola has committed substantial resources to develop, and plans to sell,
Iridium subscriber equipment including portable, hand-held phones and belt-worn
pagers. Motorola has informed Iridium that it has entered into a license
agreement with Kyocera relating to the basic intellectual property rights
essential to develop and manufacture personal subscriber equipment for use on
the IRIDIUM System. This license agreement does not obligate Kyocera to develop,
manufacture or sell any Iridium subscriber equipment. If other subscriber
equipment manufacturers wish to develop and sell Iridium subscriber equipment,
they will be required to enter into similar licensing agreements with Motorola.
See "Principal Contracts for the Development of the IRIDIUM System" for a
description of Motorola's agreement with Iridium to grant certain licenses for
intellectual property rights. See "Risk Factors -- Conflicts of Interest with
Motorola."
The IRIDIUM System phones are still under development, although a
functional 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
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cellular telephones and is expected to have a longer and thicker antenna than
hand-held cellular telephones. Motorola has informed Iridium that the pager
Motorola will develop is expected to be slightly larger than today's standard
alphanumeric belt-worn pagers. The prototypes have been built using the same or
similar components expected to be used in the production model of the Iridium
phone. The prototypes have been built in a larger housing to facilitate testing
and problem solving.
Business Support Systems
The IRIDIUM System will be capable of supporting basic "back office"
business functions required by Iridium, gateway operators, and service
providers, including a clearinghouse operated by Iridium to calculate the
amounts owed to and from Iridium and each gateway operator in order to determine
net settlements of such amounts among such entities. These business support
functions include service provision, customer service, and billing and
collection, as well as clearing and settlements. These functions will be
provided by means of computer and manual processes at each gateway and service
provider location and, most likely, at a central processing point. The gateway
owners and operators will be required to license or purchase software and
equipment in order to exchange information with the clearinghouse and to handle
settlements with service providers, inter-exchange service providers, government
entities and others. Iridium has proposed to develop, and to provide to the
gateways, some of the required software and hardware. In addition, the gateways
will have to enter into settlement agreements with service providers, on behalf
of Iridium, in order to account for and settle the Iridium World Cellular
Services and the non-satellite service portions of the Iridium World Services.
The coordination of business support functions among Iridium, the gateways and
the service providers necessary to the provision of the Iridium World Services
is a large and complex undertaking which will require the establishment of
comprehensive data exchange capabilities and the negotiation and execution of
hundreds of settlement agreements with gateway operators and service providers.
See "Risk Factors -- Reliance on Motorola, Gateway Owners and Other Third
Parties."
Iridium World Cellular Services
Iridium World Cellular Services 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 Iridium World Cellular Services customer who roams onto a cellular
network that has a roaming agreement with Iridium will be recognized by the
visited network as an Iridium customer when the customer turns on his phone. The
visited network, using an Iridium gateway, will send a request for
authentication either terrestrially or over the IRIDIUM System to the IIU, the
protocol translation device that is being developed under the direction of
Motorola for Iridium. The IIU will search for the home location of the customer
and convert the signal to the appropriate protocol of the customer's home
network. The home network will authenticate the customer by signaling back to
the IIU which will then convert the signal back to the protocol of the visited
network and send the response in the appropriate protocol to the visited
network. When an Iridium World Cellular Services customer is called, the Iridium
network will route the call to the visited network (which is expected to be
completed in seconds). The visited network will perform the necessary
authentication to allow the roaming customer to access the visited network as a
roaming customer and complete a call.
An Iridium World Cellular Services customer can be "homed" on a cellular
network, in which case the customer's phone number will be his home cellular
phone number. Alternatively, the customer can be "homed" on the IRIDIUM System,
in which case the customer's phone number will begin with "8816" or "8817," the
international "country" codes assigned to Iridium. Customers "homed" on the
IRIDIUM System may pay a monthly subscription fee and a fee for calls made over
the IRIDIUM System. Customers "homed" on a cellular network may pay a feature
charge to Iridium
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that will be significantly below the monthly subscription fee, but they may pay
an additional roaming premium for calls made over the IRIDIUM System (retail
prices will be determined by the home network provider). In general, customers
who place a large number of Iridium satellite service calls will have an
incentive to be "homed" on the IRIDIUM System, while customers who place a small
number of Iridium World Satellite Services calls will have an incentive to be
"homed" on a terrestrial network.
For inter-protocol terrestrial cellular roaming, a user must have a
telephone that operates with the visited network (e.g., a GSM phone if roaming
onto a GSM 900 network). An Iridium World Cellular Services 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 Iridium World Cellular Services. Motorola
has indicated that it is developing TRCs for GSM 900 MHz and for CDMA/AMPS/NAMPS
800 MHz.
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.
As of March 31, 1998, Roaming had entered into more than 90 roaming agreements
with roaming partners. 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
Iridium World Cellular Services coverage in areas that are principally served by
this type of technology. See "Risk Factors -- Risks Related to Iridium World
Cellular Services." Iridium World Cellular Services is not expected to be
available between certain IS-41 systems before 1999 or in Japan before 1999.
PROGRESS TO DATE
The following chart sets forth Iridium's past and projected development
milestones. Estimates for the commencement of service do not account for
potential delays. There can be no assurance that the IRIDIUM System will
commence commercial operations in September 1998 as planned. See "Risk
Factors -- Potential for Delay and Cost Overruns."
<TABLE>
<CAPTION>
<S> <C>
1987: - IRIDIUM System conceived by Motorola
- Research and development begins
1990: - Planned IRIDIUM System announced worldwide
- FCC license application filed
1991: - Iridium, Inc. incorporated
1992: - Global MSS spectrum allocated at WARC-92
- Experimental license granted by FCC
- Full scale research and development by Motorola, Lockheed
and Raytheon underway
1993: - Stock purchase agreements executed covering $800 million
in equity
commitments
- Space System Contract and Operations and Maintenance
Contract become effective
- Key subcontracts signed by Iridium and Motorola
- System procurement and build-out commenced
</TABLE>
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<TABLE>
<S> <C>
1994: - IRIDIUM System preliminary design reviews completed
- Additional stock purchase agreements executed covering an
additional $798 million
- 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
- Additional $300 million raised
1996: - Full-scale Iridium satellite manufacture begins
- $750 million Guaranteed Bank Facility established
- Kyocera begins development of Iridium phones
- Construction of gateways begins
1997: - First launch of Iridium satellites on a Delta II launch
vehicle
- IWCL IPO completed
- $100 million SPI purchase of Class 1 Interests
- First launch of Iridium satellites on a Proton launch
vehicle
- Offering of Units and Series B Notes completed
- SNOC substantially complete
- First launch of Iridium satellites on a Long March 2C/SD
launch vehicle
- Offering of Series C Notes completed
- $1 billion Secured Bank Facility established
- Two-thirds of satellite launches completed
- Gateway construction continues and initial testing begun
- Prototype pagers tested with in-orbit satellites
- Limited voice testing with in-orbit satellites
- Significant progress in obtaining service providers,
roaming agreements and L-band licenses
1998: - SNOC and TT&C facilities completed
- Satellite launches expected to be completed
- Gateway construction expected to be completed
- Internal voice trials expected to begin in May 1998
- Customer trials expected to begin in August 1998
- Continued progress expected in obtaining service
providers, roaming agreements and L-band licenses
- Commercial operations expected to begin
</TABLE>
COMPETITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and other countries. The uncertainties and risks created by
this competition are intensified by the continuous technological advances that
characterize the industry, regulatory developments that affect competition and
alliances between industry participants. While no single existing wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will seek to serve this market in
some fashion in the future. Iridium believes that its most likely direct
competition will come from the planned ICO telecommunications service and from
one or more of the other FCC licensed MSS applicants -- Loral/Qualcomm
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Partnership, L.P., on behalf of Globalstar, MCHI, on behalf of Ellipso, and
Constellation, on behalf of Aries.
Iridium believes that its ability to compete successfully in the market for
global personal communications will depend primarily upon the timing of its
entry into the market, the technological qualities of the IRIDIUM System,
including its global coverage, signal strength, dependability and capacity and
the market appeal of Iridium's service offerings, including Iridium World
Cellular Services. 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 Iridium World Satellite Services which Iridium believes will
afford both better voice quality and signal penetration to portable, handheld
phones and a higher degree of in-building penetration for pagers; (ii) its
intersatellite networking capability, which Iridium believes will permit full
global coverage, reduce the number of gateways required to provide global
coverage, enhance system reliability and capacity and reduce tail charges
incurred for the landline portion of telephone calls; and (iii) its Iridium
World Services offering, which will offer one number, one phone, one bill,
voice, fax and data communication and "follow-me paging" through either a
cellular or an Iridium phone number. Iridium believes that these distinguishing
features will make Iridium World Services better suited, compared with other
potential MSS competitors, to meet the global coverage and service quality
demanded from the high-end, traveling professional. In addition, Iridium
believes that it will be the first MSS system to offer global coverage in all
authorized jurisdictions.
Mobile Satellite Systems
ICO, a private company affiliated with 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. Many of the investors in Inmarsat,
including numerous state-owned telecommunications companies, 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 in the first or second quarter of 1999.
The Globalstar system utilizes "bent pipe" technology and Globalstar has
indicated that it will require between 50 and 75 gateways to provide full global
land-based coverage of virtually all inhabited areas of the globe. The target
market for Globalstar, like the regional GEO systems described below, covers
persons who lack telephone service or are under served or not served by existing
or future cellular systems.
Ellipso, a 17-satellite NGSO system, has been proposed by MCHI.
Constellation, a 54-satellite NGSO system, has been proposed by Constellation
Inc. Both systems would offer mobile satellite service globally and would use
CDMA digital modulation technology. The licenses for each of the Ellipso and
Constellation systems require that the system be fully operational by July 2003.
MCHI has announced that it intends to begin operation of its system by the year
2000, while Constellation has stated that it plans to begin operations in 2001.
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Iridium also expects to encounter competition from regional mobile
satellite systems, three 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 the continental United States, Alaska, Hawaii, Puerto Rico,
the U.S. Virgin Islands and U.S. coastal waters to provide fixed and mobile
voice and data services to briefcase-sized mobile terminals and car-mounted
units. TMI, a spinoff of Telsat Canada, launched a virtually identical satellite
to AMSC's in 1996 to cover Canada and other parts of the Caribbean not served by
AMSC and to provide the same type of service to similar terminals. AMSC and TMI
subsequently agreed to transfer AMSC's traffic to TMI's satellite. In addition,
AMSC announced plans to lease its satellite to ACTel, which plans to reposition
the satellite over Africa to offer MSS services there.
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 carmounted units. ACeS
has proposed a one- or two-satellite GEO satellite system covering Asia,
including Thailand, Indonesia and the Philippines, and offering mobile voice and
data telecommunications to briefcase-sized mobile terminals, car-mounted units
and handheld units. APMT has proposed a two-satellite GEO satellite system
covering India, China and certain Southeast Asian nations, offering mobile
telecommunications to dual-mode, handheld terminals. Satphone and Thuraya are
two consortia proposing GEO systems to serve the North Africa/Middle East
region, with dual-mode hand-held phones. EAST is a hybrid system proposed by
Matra-Marconi to provide fixed services, and mobile services to hand-held units,
with a GEO satellite covering Europe, the Middle East and Africa. Afro-Asian
Satellite Communications has proposed a two GEO satellite system covering 55
countries in the Middle East, the 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 World Satellite Services. The regional GEO systems
do not provide full global coverage and, therefore, are expected to generally
target persons not currently served by landline or cellular telephone service.
It is possible that one or more regional mobile satellite services could enter
into agreements to provide intersystem roaming that could be global or nearly
global in scope.
Land-based Telecommunications Systems
Iridium does not intend to compete with terrestrial cellular telephone
systems for the vast majority of personal communications services, because,
among other reasons, Iridium satellite voice services will be priced
significantly higher than most terrestrial wireless services, the IRIDIUM System
will lack the operational capacity to provide local service to large numbers of
subscribers in concentrated areas and Iridium's satellite system is not expected
to afford the same voice quality, signal strength, or ability to penetrate
various environments (such as buildings) as terrestrial wireless systems.
Rather, Iridium expects its subscribers to use Iridium World 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 World 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 Iridium World
Cellular Services, particularly with respect to traveling professionals who
spend most of their time in regions that are well served by terrestrial-based
wireless services.
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Terrestrial Cellular Interprotocol Roaming Services
Iridium's Iridium World Cellular Services offering, which will allow
Iridium subscribers to roam onto a variety of cellular networks, will face
competition from existing and future terrestrial cellular interprotocol roaming
services, which provide roaming services across similar cellular networks.
GTE Mobilnet (GTE) and Deutsche Telekom Mobil ("DeTeMobil") of Germany
currently offer GlobalRoam, a two-way cellular roaming service between certain
North American AMPS cellular networks and GSM cellular networks in certain
countries where DeTeMobil has GSM roaming agreements. AT&T Wireless Services of
the United States and Vodafone of the United Kingdom offer CellCard, a service
which is very similar to CellCard and provides roaming services from certain
North American AMPS networks to certain GSM networks in certain countries which
have roaming agreements with Vodafone.
Two other proposed MSS systems, ICO and Globalstar, and at least one
regional GEO, ACeS, have indicated that they may also offer some form of
dual-mode satellite/cellular service, which may include interprotocol roaming
capabilities such as those expected to be offered by Iridium.
In addition, a number of rental services, primarily United States based,
provide cellular phones to persons traveling in countries with cellular
standards that differ from the traveler's home market. For example, Worldcell
provides United States based travelers GSM phones for travel to Europe, while
Shared Technologies Cellular, in conjunction with United Airlines, provides AMPS
phones for visitors to the United States. These businesses often have rental
locations at airports, hotels and auto rental locations and will also deliver
phones by mail service. These companies' services may compete with Iridium's
Iridium World Cellular Services and Iridium World Satellite Services. See "Risk
Factors -- Competitive Risks; Factors Affecting Iridium's Competitive
Position -- Competition from Interprotocol Roaming Service Providers, GSM
Roaming Services, Regional MSS Systems and Wireless Phone Rentals."
Paging
In addition to competing with paging services offered by proposed regional
MSS systems, Iridium World Page Services will face competition from regional and
nationwide terrestrial paging services, and from M-Tel's SkyTel service which
currently provides paging services to over 20 countries around the world. SkyTel
operates by forwarding paging messages via international circuits 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 World Page Services 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.
Competition Related to New Technologies and New Satellite Systems
Iridium may also face competition in the future from companies using new
technologies and new satellite systems which could render the IRIDIUM System
obsolete or less competitive. Such new technologies, even if not ultimately
successful, could have a material and adverse effect on Iridium as a result of
associated initial marketing efforts. Iridium's business could be materially and
adversely affected if competitors begin operations or existing
telecommunications service providers penetrate Iridium's target markets before
completion of the IRIDIUM System.
RESEARCH AND DEVELOPMENT
Iridium has engaged in preliminary discussions with Motorola regarding
possible long-term enhancements to the IRIDIUM System, including a possible
second generation of Iridium satellites, and in September 1997 Iridium filed an
application with the FCC for authorization to operate a satellite system in the
2GHz band. Such actions are preliminary steps in the research and
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development process and Iridium has made no significant financial commitment to
long-term enhancements.
EMPLOYEES
Pursuant to the Iridium LLC Agreement each officer of Parent holds the same
position with Iridium. There are 13 persons who are executive officers of Parent
and Iridium. Iridium has no employees other than its officers. As of March 31,
1998, Parent had approximately 438 full-time employees. None of Parent's
employees are covered by a collective bargaining agreement. Iridium's management
considers its relations with its officers and the employees of Parent to be
good. See "Certain Matters Regarding Relationship Among IWCL, Parent and
Iridium."
PROPERTIES
Motorola has constructed the SNOC 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 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 128,750 square feet of space at three
locations in metropolitan Washington, D.C. under leases that expire in January
1999, with renewal options. Iridium's principal executive office is located at
1575 Eye Street, N.W., Washington, D.C. 20005.
LEGAL PROCEEDINGS
Iridium is not a party to any pending legal proceedings material to its
financial condition or results of operations. None of Capital, Roaming, IP or
Facilities is a party to any pending legal proceedings.
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 Radio Conferences ("WRC"s) (previously
known as World Administrative Radio Conferences or "WARC"s) to decide the radio
services that should be permitted to operate in various radio bands and the
rules for operating in those bands.
The national administration of each country decides how the radio
frequencies that the ITU has allocated to particular communications services
should be allocated and assigned domestically to specific radio systems. 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.
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IRIDIUM SYSTEM LICENSING REQUIREMENTS
The IRIDIUM System is being built with the capability to link phones to
Iridium satellites using up to 10.5 MHz of spectrum in L-band frequencies from
1616-1626.5 MHz on a bi-directional time division basis, Earth-to-space and
space-to-Earth. The system will also be capable of operating "feeder" links in
the frequencies 19.4-19.6 GHz and 29.1-29.3 GHz (connecting satellites to ground
earth station gateway facilities) and intersatellite links in the frequencies
23.18-23.38 GHz (linking the satellites in the constellation to each other).
The licensing requirements for the IRIDIUM System include: (i) the FCC
license for the space segment; (ii) the licenses in each country where there is
a gateway or TT&C earth station; and (iii) the licenses in each country for the
Iridium subscriber equipment and service and for the use of required
frequencies. In addition, the IRIDIUM System must be coordinated with other
users of spectrum that have rights to use the same or adjacent frequencies to
the frequencies assigned to the IRIDIUM System. It is only necessary for one
country to license the space segment, which includes authorizing the
construction, launch, and operation of the satellites, including the use of the
intersatellite links and the operation of the primary satellite control center
in the country.
The gateway earth stations provide the feeder link between the satellite
network and the PSTNs around the world. Iridium expects that Iridium gateways
will be located in at least eleven different countries during the first years of
operation. A radio license to operate a gateway earth station in a significant
portion of the 29.1-29.3 GHz (Uplink) and 19.4-19.6 GHz (Downlink) frequency
bands must be issued by the appropriate governmental authority of each of the
countries in which an Iridium gateway is to be located. Similar authorizations
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 or the manufacturers of
Iridium handsets must obtain from the country a certificate of type approval 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, recognize equipment that has been type approved
or certified by other countries, and allow for the free circulation and
transborder roaming of terminal equipment.
LICENSING STATUS
General
Iridium, Motorola, and the gateway owners have made substantial progress in
taking the regulatory steps needed for the IRIDIUM System to obtain the coverage
assumed in its business plan, but a significant number of additional regulatory
approvals outside the United States remain to be obtained. Each gateway must be
licensed by the jurisdiction in which it is located. Licenses have been granted
for the gateways in the United States (Tempe), Thailand (Bangkok), Taiwan
(Taipei), Korea (Seoul), Brazil (Rio de Janeiro), Japan (Nagano), and Italy
(Fucino). The North American gateway operator has contracted to build a second
gateway in the United States. Additionally, experimental licenses have been
granted for the gateways in Russia (Moscow), and India (Bombay) and permit the
gateways to test their links between the Iridium satellites and
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terrestrial services. In the case of China, where the gateway territory owner is
Iridium China (Hong Kong) Ltd., approval has been issued to China Aerospace
Corporation, the parent company of Iridium China, and the Ministry of
Information Industries, formerly the Ministry of Posts and Telecommunications
(the "MII") to proceed with the establishment of a testing gateway for Iridium
in China. The MII will be primarily responsible for construction, management and
operation of the gateway. The gateway to be located in Saudi Arabia (Jeddah) has
not received a license, although Iridium Middle East Corporation believes that
it will receive a license and has begun constructing that gateway. See "Risk
Factors -- Reliance on Motorola, Gateway Owners and Other Third
Parties -- Construction and Operation of the IRIDIUM System." The licenses that
have been received by the gateways are subject to conditions that relate to the
completion of construction and the provision of technical information to
regulatory authorities. Iridium expects that the licenses its other gateways are
seeking will have similar conditions. There can be no assurance that the
additional licenses necessary for Iridium to obtain the service capability
assumed in its business plan will be obtained on a timely basis or at all. In
addition, while Iridium believes the conditions specified in the final gateway
licenses that have been received can be satisfied, there can be no assurance
that such conditions will be satisfied or that conditions to licenses received
in the future will be satisfied.
As of March 31, 1998, 58 administrations which have given all or a
substantial portion of the authorizations necessary to operate the IRIDIUM
System in their territories. The 58 countries and territories are: United
States, Italy, Argentina, Colombia, Honduras, Taiwan, Thailand, Malaysia,
Guatemala, Puerto Rico, Finland, El Salvador, Brazil, Japan, South Korea,
Austria, Germany, Canada, Australia, Venezuela, Sweden, Iceland, Russia,
Uruguay, New Zealand, Chile, Senegal, Morocco, Afghanistan, Panama, San Marino,
Maldives, Federal States Micronesia, Cook Islands, American Samoa, Baker Island,
Guam, Jarvis Atoll, Johnston Atoll, Midway Islands, Northern Marianas, Palmyra
Atoll, United States Virgin Islands, Wake Island, Christmas Island, Cocos
(Keeling) Islands, Norfolk Island, Svalbard & Jan Mayen, Western Sahara, Fiji,
China, Solomon Islands, Niue, French Polynesia, Guinea, Benin, Ghana and
Suriname. Iridium is seeking licenses throughout the world. However, Iridium and
its gateway operators are placing emphasis on obtaining approvals by September
1998 from the 70 to 90 countries where Iridium expects substantially all of the
demand for, and usage of, Iridium World Services is likely to be generated.
The licenses that have been received generally are subject to conditions
relating to, among other things, (i) confining operations to the scope of the
license, (ii) complying with applicable electronic surveillance laws and (iii)
the continued operation of the IRIDIUM System. While Iridium believes that all
required licenses will be obtained in a substantial majority of the countries it
is placing emphasis on by September 1998 and that the IRIDIUM System would be
able to satisfy the conditions specified in such licenses, there can be no
assurance that additional authorizations will be granted at all, or in a timely
manner, or without burdensome conditions. There can be no assurance that
sufficient licenses for Iridium to obtain the coverage assumed in its business
plan will be obtained on a timely basis or at all. Nor can there be any
assurance that Iridium will be able to secure additional spectrum, if needed. In
addition, while Iridium is not aware of any country that has indicated that it
will not provide a service license by the commencement of commercial operations,
the process of obtaining service licenses in each country of the world is
complex and certain gateway operators, in particular those with responsibility
for obtaining licenses in numerous countries such as Iridium Africa and Iridium
SudAmerica, have indicated that they may not receive regulatory approvals for
some of the countries of their territories at the anticipated commencement of
commercial operations in September 1998. See "Description of Other
Indebtedness -- Secured Bank Facility" for a discussion of regulatory approvals
as a borrowing condition under the Secured Bank Facility.
Spectrum Allocation
At the WARC-92, the ITU allocated to the MSS service: (i) on a primary
basis, 16.5 MHz of spectrum in the 1610-1626.5 MHz band (Earth-to-space); and
(ii) on a secondary basis, 12.7 MHz
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of spectrum in the 1613.8-1626.5 MHz band (space-to-Earth). The ITU had
previously authorized the other frequency bands used in the IRIDIUM System for
the purpose for which Iridium intends to use them. At the 1995 World Radio
Conference ("WRC 95"), the ITU defined the coordination procedure for systems
operating in the bands proposed to be used by Iridium for its feeder links. The
ITU's role in allocating frequencies necessary for the operation of the first
generation IRIDIUM System is now essentially complete.
United States Licensing
The space segment of the IRIDIUM System, including the use of the
intersatellite frequency band (23.18 to 23.38 GHz), has already been licensed by
the FCC in the United States. The license has a term of ten years and contains
other conditions typical of satellite system licenses granted by the FCC. The
license term begins on the date the first satellite is in orbit and the first
transmission occurs. The license states that, absent extensions, the IRIDIUM
System must be fully constructed and operational by October 2002. Two other
global MSS applicants appealed to the United States Court of Appeals for the
District of Columbia Circuit the FCC decision which (i) found that they
initially had failed to establish the necessary financial qualifications, and
gave them additional time to demonstrate such qualifications; and (ii) granted
licenses to the IRIDIUM System and two other global MSS systems. The FCC's
International Bureau subsequently waived the financial qualification condition
and granted these two applicants a license. Such applicants' court appeal is
being held in abeyance while the FCC considers applications for review the FCC
International Bureau's decision to waive the financial qualification condition.
The license for the IRIDIUM System remains in full force and effect while this
appeal is pending and Iridium expects that the FCC decision to issue a license
for the IRIDIUM System will be affirmed, although there can be no assurance that
the courts will do so. See "-- Competition."
Although the FCC has stated that it will renew the IRIDIUM System
authorization unless extraordinary circumstances prevent it from doing so, there
can be no assurance that the IRIDIUM System license will be renewed.
The IRIDIUM System license is held by Space System License, Inc. a wholly
owned subsidiary of Motorola, which is contractually bound to operate the system
for the exclusive benefit of Iridium. As a result, Motorola, rather than
Iridium, has the responsibility to construct, launch, operate and maintain the
IRIDIUM System in accordance with the terms of the license. Any request to renew
or modify the IRIDIUM System license must be filed and prosecuted by Motorola.
If the Space System Contract or the Operations and Maintenance Contract is ever
terminated or not renewed, Motorola would have to assign the Iridium license to
Iridium or a third party. Any such assignment would be subject to FCC approval.
Under both the ITU's rules and the terms of the IRIDIUM System license, the
IRIDIUM System must be coordinated with all other domestic and foreign users of
the frequency bands assigned to the IRIDIUM System. The United States has
essentially completed the process of registering the Iridium space segment
operations with the ITU. It has submitted the advance publication and
coordination materials to the ITU and coordinated the use of the space segment
with all those administrations expressing concerns that the system might cause
or receive interference to their systems. On this basis, the United States has
requested the ITU to notify the IRIDIUM System in the ITU's Master Frequency
Register, which will give it a legal right to protection from interference from
future systems. The request has been published and administrations that have
previously engaged in coordination with the United States regarding the IRIDIUM
System may file comments on the claim that coordination is complete. Any
comments will need to be resolved before the IRIDIUM System will be listed in
the Master Frequency Register. Iridium believes that coordination has been
completed successfully between the IRIDIUM System and all existing or planned
systems that have been identified under the coordination process. If further
coordination is required with any identified system, it is possible that such
coordination would not be completed prior to Iridium's projected commencement of
commercial operations. However, Iridium believes that failure to complete such
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coordination would be unlikely to have a material adverse effect on Iridium.
There is no other action required from any other country to license the space
segment.
Under the FCC's rules and the terms of the license, prior to commencing
operations Motorola must complete coordination with U.S. radio astronomy sites
and complete consultations with the Inmarsat and Intelsat systems. Both of these
have been accomplished. See "-- Consultations and Coordinations."
In the United States, frequencies have been assigned to the IRIDIUM System
feeder links in the 29.1-29.25 and 19.4-19.6 GHz bands. The 29.1-29.25 GHz
frequencies are shared with the local multipoint distribution service ("LMDS"),
and the FCC has adopted restrictions on LMDS operations that are designed to
protect MSS feeder links from interference. The 19.4-19.6 GHz frequencies are
shared with terrestrial microwave stations and each gateway earth station must
be coordinated in advance with licensed microwave stations. The FCC granted a
license for the first IRIDIUM System gateway to be located in Tempe, Arizona.
Licenses have also been granted in the United States for authority to construct
and operate TT&C facilities in Arizona and Hawaii.
The United States license authorizing construction, launch and operation of
the space segment includes the use of 1621.35 to 1626.5 MHz radio frequency band
in the United States exclusively for the Iridium subscriber links. This
frequency assignment may be increased if no more than one CDMA satellite system
becomes operational in the adjacent frequency band. The FCC has issued a license
permitting 200,000 Iridium mobile phones to be used in the United States,
conditioned upon Motorola submitting a study showing its terminals will comply
with radiation hazard requirements. Iridium believes that Motorola will comply
with this requirement.
Licensing Outside the United States
In countries other than the United States, the remaining significant
regulatory steps include: (i) in each country in which a gateway or system
control terminal will be located, authorization to construct and operate those
facilities, including necessary gateway feeder link spectrum assignments, must
be obtained; (ii) in each country in which Iridium subscriber equipment will
operate, authority to market and operate that equipment with the IRIDIUM System,
and the use of the necessary user link spectrum, must be granted; and (iii)
coordination of the use of the frequencies to be used by the IRIDIUM System must
be achieved. As discussed under "-- General," applications for authorizations
for gateway, subscriber and TT&C facilities are in varying stages of processing
in countries other than the United States and there can be no assurance that
these applications will be granted or that sufficient spectrum for initial needs
will be assigned. Of the gateway and subscriber authorizations granted to date,
several have conditions attached to them concerning their operation and there
can be no assurance that these conditions will be satisfied. If the initial
spectrum assignments prove insufficient as demand increases over time, there is
no assurance Iridium will be able to obtain additional spectrum from the FCC or
other administrations.
Countries in Europe are approaching frequency assignments and licensing
issues on a regional basis. CEPT, an organization of forty-three countries in
greater Europe, has adopted recommendations regarding the frequency assignment
plan and the authorization process which it will recommend that member countries
follow. These recommendations are voluntary but 16 European countries have
adopted some or all of these recommendations and many other European
countries -- especially EU members -- are expected to follow these
recommendations. These recommendations currently give Iridium the opportunity to
obtain the spectrum it needs to operate initially in Europe. There is a risk
that Iridium may have to share this spectrum with other planned satellite
systems using an FDMA/TDMA access mode. Because European countries must follow
ITU procedures, which Iridium believes will protect Iridium's minimum spectrum
requirements, Iridium believes this risk is unlikely to occur. However, there
can be no assurance that Iridium will receive all the spectrum it needs to
operate in Europe.
Iridium mobile subscriber equipment must be type accepted in many countries
in accordance with national, regional and/or internationally-recognized
standards relating to unwanted emissions,
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network controls, etc. At the 1996 ITU World Telecommunication Policy Forum, the
participating countries agreed to start a process that has become known as the
GMPCS memorandum of understanding (the "GMPCS MOU"). Participating countries
have concluded the development of a first set of agreements covering the IRIDIUM
System and the Iridium subscriber equipment, which may facilitate (i) the free
circulation of subscriber equipment and (ii) universal handset type approvals.
It is now necessary for countries to implement these agreements. Absent such
implementation, Iridium subscriber equipment circulation from country to country
would require numerous bilateral agreements. While a first set of agreements has
been developed, there can be no assurance that countries will implement these
agreements in time to benefit Iridium.
In connection with Iridium's efforts to obtain worldwide regulatory
approval for Iridium World Services, governmental, political and security
concerns have arisen. One such concern is that authorization of Iridium World
Services by many countries will be contingent upon Iridium providing such
countries with the ability to legally monitor calls made to or from such
countries. Iridium believes that it will be able to address the concerns of many
of these countries by the date commercial service is expected to begin and of
other countries after the expected commencement of commercial operations.
However, there can be no assurance that it will be able to do so or that the
emergence of governmental or political concerns will not impair the ability to
obtain licenses or the offering of Iridium World Services on a timely basis. See
"Risk Factors -- Risks Associated with Licensing and Spectrum Allocations."
Research & Development
In September 1997, Iridium filed an application with the FCC for
authorization to operate a satellite system in the 2GHz band. Such action is a
preliminary step in the research and development process and Iridium has made no
significant financial commitment to long-term enhancements.
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, require the United States to consult with both
Intelsat and Inmarsat prior to authorizing any international satellite system to
ensure that the system will not cause significant economic or technical harm to
the Intelsat system or significant technical harm to the Inmarsat system. The
consultations with Intelsat and Inmarsat have been successfully completed.
Currently, the Russian global navigation satellite system, GLONASS,
operates in a frequency band that partially overlaps the 1610-1626.5 MHz MSS
band. When operating co-channel with GLONASS, MSS systems are required to
coordinate their operations with the previously registered operations of
GLONASS. In addition, even when not operating co-channel, they are required to
protect GLONASS operations from harmful interference. Iridium believes that a
bilateral coordination agreement between Russia and the United States is in
negotiation, under which Russia would agree to move the GLONASS system's
operations to frequencies below 1610 MHz by January 1, 1999, and to frequencies
below approximately 1605 MHz by the year 2005. The FCC has conditioned the
Iridium blanket subscriber license upon compliance with a level of protection
from interference to the GLONASS system. While that level of protection has not
been determined, Motorola has committed to meeting the most stringent protection
level requested by U.S. aviation interests. During the three-month period
between September 1, 1998, the month Iridium expects to commence commercial
operations, and January 1, 1999, the month the GLONASS operational frequencies
will shift from being below 1616 MHz to being below 1610 MHz, and during the
interim period between 1999 and when GLONASS shifts to below 1605 MHz, Iridium
believes it will be able to satisfy any reasonable level of protection that is
required although there can be no assurance as to what level of protection will
be required. Iridium believes that it can meet the protection requested for
GLONASS when GLONASS shifts down in frequency to below 1605 MHz by January 1,
2005.
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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 may be imposed which may
limit the amount of spectrum available to Iridium in Russia. There can be no
assurance that sufficient spectrum will be available to meet subscriber demand
in Russia or any other country that requires a higher level of protection for
GLONASS than the United States. Moreover, there can be no assurance that CDMA
systems will be able to meet the levels of protection required for GLONASS,
either in the United States, Russia or elsewhere. If such systems do not meet
the protection requirements, the FCC and/or other countries' regulatory
authorities might consider requests to reassign the CDMA systems to higher
frequencies within the 1610-1626.5 MHz allocation in order to protect GLONASS.
This development might in turn reduce the amount of spectrum available to
Iridium. See "-- Competition."
Under the FCC's rules, the IRIDIUM System also must protect U.S. radio
astronomy sites during periods when they are observing in the 1610.6-1613.8 MHz
band. Coordination has been achieved with respect to all 15 U.S. radio astronomy
sites. There can be no assurance that the technical assumptions underlying the
coordination agreements with the U.S. radio astronomy sites 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 radio astronomy sites that observe in the 1.6 GHz band. Iridium
believes there are approximately six other countries that have such radio
astronomy sites observing in that band where coordination has not yet been
completed. Iridium and Motorola have commenced coordination discussions with
most of these non-U.S. radio astronomy sites. While Iridium believes that it
will be able to demonstrate that Iridium's operations will not materially and
adversely affect the ability of radio astronomers 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.
Emissions standards have been developed in various international forums
which would limit out-of-band emissions into the IRIDIUM System to a level which
Iridium believes would not cause harmful interference to the operation of the
IRIDIUM System. These standards would apply to all CDMA MSS systems, including
any subsequent CDMA MSS systems which are authorized to use the 1610-1621.35 MHz
band. There can be no assurance, however, that the standards adopted would not
cause harmful interference to the operation of the IRIDIUM System.
The IRIDIUM System MSS downlinks operate on a secondary basis. Under the
rules of the ITU and the FCC, these secondary downlinks may not cause harmful
interference to any primary spectrum user that is operating co-frequency and
must accept any interference caused to them by such primary spectrum users. In
light of the secondary nature of Iridium's MSS downlinks, the failure by an MSS
operator 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.
UNITED STATES ELECTRONIC SURVEILLANCE LAWS
The Communications Assistance for Law Enforcement Act of 1994 ("CALEA") was
enacted on October 25, 1994. CALEA requires that telecommunications carriers
deploy equipment, facilities and services that meet certain electronic
surveillance requirements identified in the statute. Penalties of $10,000 a day
for each wire tap order not fulfilled 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 U.S.
government has indicated that CALEA imposes requirements on the IRIDIUM System
similar to the requirements that the U.S. government has requested of the
cellular industry. Because the U.S. government has not identified its capacity
or
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capability requirements for satellite systems and because of legal challenges
filed by the government concerning the cellular industry's standard for CALEA
wiretap capabilities, there is uncertainty as to the scope of the wiretap
capabilities that may ultimately be required for the IRIDIUM System. Because of
this uncertainty, it may be necessary to seek extensions of the CALEA capability
deadline of October 25, 1998 for the IRIDIUM System. If such extensions are
denied by the FCC, there is a possibility of a dispute with the U.S. government
which could result in material restrictions on the operation of the IRIDIUM
System. See "-- Licensing Status" for a description of the surveillance
requirements of countries outside the United States.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS; EXPORT ADMINISTRATIONS
ACT
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Iridium's operations will fall within the scope of these
regulations.
The Export Administrations Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which are not affected by
the International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Iridium's
ability to put the space segment in place, the export or re-export of Iridium
subscriber equipment as well as earth stations and related equipment and
technical data, may be subject to these regulations, if such equipment is
manufactured in the United States and then exported or re-exported. These
regulations may also affect the export, from one country outside the United
States to another, of United States-origin technical data or the direct products
of such technical data.
Motorola has obtained authorization to export the Iridium satellites,
including associated launch support equipment, currently scheduled to be
launched in Kazakhstan on Khrunichev's Proton launch vehicle. Motorola has
obtained authorization needed to export the Iridium satellites, including
associated launch support equipment, currently scheduled for launch in China on
China Great Wall's Long March 2C launch vehicle. See "Risk Factors -- Satellite
Launch Risks -- Risks Related to Non-U.S. Launches."
COMPETITION
At the time that the FCC authorized the construction of the IRIDIUM System,
it also authorized other competitive MSS systems to operate in the 1610-1626.5
MHz band. This was the Globalstar system, proposed by Loral/Qualcomm
Partnership, L.P. ("Loral/Qualcomm"), and the Odyssey system, proposed by TRW.
Subsequently, TRW turned in its license. Globalstar, Odyssey and the IRIDIUM
System were the only Big LEO systems initially licensed by the FCC. While the
IRIDIUM System was granted exclusive use of the 1621.35-1626.5 MHz band in the
United States, Globalstar was granted shared use of the bands 1610-1621.35 MHz
and 2483.5-2500 MHz. The systems were not mutually exclusive.
At the same time the FCC authorized the IRIDIUM and Globalstar 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. These were MCHI, Constellation and American Mobile
Satellite Corporation ("AMSC"). In September 1996, AMSC chose not to proceed and
the FCC dismissed its application.
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Following the submission of updated financial information by MCHI and
Constellation to the FCC, by Orders released July 1, 1997, the FCC's
International Bureau granted licenses for the Ellipso system proposed by MCHI
and the Aries system proposed by Constellation. These Orders, which are subject
to review by the full FCC, increase to four the number of U.S.-licensed global
MSS systems (including the IRIDIUM System) and may result in increased
competition for the IRIDIUM System.
MCHI and Constellation previously had filed challenges to the FCC's
determination that they were each not financially qualified with the United
States Court of Appeals for the District of Columbia Circuit, which included an
appeal from the FCC's decision to license the IRIDIUM and Globalstar Systems.
This court action has been placed in abeyance pending a final FCC decision on
applications for review of the decision by the FCC's International Bureau to
waive the financial qualification rules and grant licenses to MCHI and
Constellation. See "Description of Iridium -- Licensing Status -- United States
Licensing."
The licensing of the MCHI and Constellation Code Division Multiple Access
("CDMA") systems reduces the possibility that only one CDMA system will become
operational in the 1610-1621.35 MHz frequency band adjacent to the IRIDIUM
System's frequency assignment. This in turn reduces the likelihood that the FCC
will increase the frequency assignment for the IRIDIUM System. In addition,
MCHI's and Constellation's licenses may cause the CDMA based global systems to
have less capacity available for their use and thereby make it more difficult
for them to accept the protection levels required for GLONASS, either in the
United States, Russia or elsewhere. This could lead to requests to reassign the
CDMA systems to higher frequencies within the 1610-1626.5 MHz allocation to
protect GLONASS. This development might in turn reduce the amount of spectrum
available to Iridium. Furthermore, the possibility that two more CDMA systems
may become operational may increase the risk of harmful interference into the
IRIDIUM System's MSS downlinks.
Competition with the IRIDIUM System is also expected from ICO, the private
company affiliated with Inmarsat to provide a mobile satellite service using
satellites to be positioned in medium earth orbit. ICO's system is expected to
become a significant competitor of the IRIDIUM System. ICO's proposed service
will not operate in the same set of user link frequencies in which the IRIDIUM
and Globalstar systems are proposed to operate.
INTERCONNECTION
Each gateway needs to interconnect with international carriers who have the
ability to link the gateway to the domestic PSTNs in the countries it serves, as
well as to the local PSTNs in each of these countries. Thus, interconnection
agreements need to be established between the Iridium gateway operators and the
local PSTN operators in all countries served by the gateway. Some gateways may
be required to achieve carrier status in their countries of origin in order to
enter into such agreements.
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 program their international switches
(and domestic ones, if necessary) to include the Iridium country code and
signaling point codes.
COUNTRY CODE
The ITU Telecommunication Standardization Bureau ("TSB") is empowered to
allocate international dialing codes for countries, geographic areas and global
services. The TSB is advised on international code issues by its Study Group 2,
which is composed primarily of representatives of telecommunications service
organizations and representatives of government administrations. Iridium applied
to the TSB for a country code for the IRIDIUM System. ICO, Globalstar and
Odyssey submitted requests for country code resources, as well.
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In May 1996, Study Group 2 decided that these systems should share a
country code and allocated code "881" for this purpose. Each eligible system
will receive two values of the digit following the code 881. For example, the
IRIDIUM System will use codes 8816 and 8817, which will enable Iridium to
identify 200 million subscribers. The Director of the TSB has advised Iridium
that these codes have been assigned to 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 four
digit codes assigned to 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 are parties to the Space System Contract, the
Operations and Maintenance Contract and the Terrestrial Network Development
Contract. In addition, each Iridium investor who has been allocated a gateway
service territory has entered into a Gateway Authorization Agreement. Iridium
also has contracted 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 those contracts. Each of those 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 those contracts. There have been,
and Iridium anticipates there will be, amendments and interpretations to the
principal supply contracts. See "Risk Factors -- Potential for Delay and Cost
Overruns" and "-- Risks Associated with Principal Supply Contracts -- Amendments
to Principal Contracts." For a discussion of the material provisions of the
Management Services Agreement, see "Certain Matters Regarding the Relationship
Among IWCL, Parent and Iridium -- Management Services Agreement." 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
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immediately upon completion of the contract, but not thereafter, is in lieu of
all other warranties. The liability of Motorola to Iridium under the Space
System Contract is subject to certain limitations (discussed below).
The Space System Contract also requires Motorola to deliver the Satellite
Subscriber Unit (Voice) Interface Specification and the Space System Operations
Plan. The Satellite Subscriber Unit (Voice) Interface Specification was
delivered by Motorola and accepted by Iridium in October 1996. Motorola has also
agreed to license the rights to use the information in the Voice Encoding
Algorithm to the extent essential to implementation of the Satellite Subscriber
Unit (Voice) Interface Specification to telecommunications equipment
manufacturers on mutually acceptable terms and conditions (which may include
royalty payments), provided that the government of such manufacturer's country
has authorized the operation of the IRIDIUM System in that country. Motorola has
indicated to Iridium that it interprets the word "essential" as used in the
prior sentence to mean "technically essential." Iridium does not agree that this
qualification of the term "essential" can or should be implied from the
applicable language in the Space System Contract. In the Space System Contract
Motorola has agreed to design and make available to Iridium as proprietary
information: (i) the Gateway Interface Specification; (ii) the Paging Unit
Interface Specification; and (iii) the Satellite Communication Link Interface
Specification. Separate agreements have been and are expected to be entered into
between Motorola and other appropriate parties providing for the production and
sale of Iridium gateways, subscriber units and other components of the IRIDIUM
System. Motorola has also agreed to develop and sell Iridium gateway equipment,
phones, paging units and MXUs to third parties and to license to responsible and
competent suppliers acceptable to Motorola, all on reasonable terms and
conditions (which may include royalty payments) mutually acceptable to Motorola
and such third parties and suppliers, the right to use the information in these
interface specifications to the extent essential for the supplier to manufacture
and sell the applicable Iridium products. The Space System Contract provides
that in connection with the grant of licenses referred to in this paragraph
Motorola may require reciprocal rights to intellectual property of the
prospective licensee.
The Space System Contract provides for 47 milestones with scheduled
completion dates ranging from January 29, 1994 to September 23, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Upon completion of each such milestone in accordance with the
contract, Iridium is obligated to pay Motorola the price corresponding to such
milestone. The contract generally provides that Iridium's exclusive remedy for
Motorola's failure to complete any or all of the interim milestones by the
scheduled dates shown on an exhibit to the Space System Contract (as they may be
adjusted) is relief of Iridium's obligation to pay the applicable amount for
such milestones until Motorola completes or is deemed to have completed such
milestones. Iridium has the right, in the event it disagrees with Motorola's
assertion that it has completed a milestone and is therefore permitted to
receive payment, to challenge such assertion by Motorola. Failure to complete
any given milestone will not relieve Iridium of its obligation to make payments
with respect to subsequent completed milestones. Failure to complete one or more
of the milestones on a timely basis so as to prevent completion of the final
milestone within twelve months of the scheduled date (as that date may have been
adjusted under the contract) in accordance with the terms of the contract as
established by clear and convincing evidence would permit Iridium to terminate
the contract if Motorola does not act to commence correction of that failure
within 30 days after receipt of notice from Iridium specifying that failure.
Failure to complete the final milestone by the scheduled completion date (as it
may be adjusted) may cause Motorola to forego all or a portion of the $150
million final milestone payment. The final milestone payment is payable in full
only if Motorola completes the final milestone on the scheduled completion date
(as that date may have been extended under the contract). The payment will be
reduced ratably each day from $150 million to $115 million if completion of the
final milestone is delayed to December 23, 1998 or to the extent that the
commitment to deliver a specified number of gateways is not met. Thereafter,
failure to complete the final milestone will result in a monthly reduction of
the remaining $115 million ratably on a monthly basis from $115 million to zero
if the
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final milestone is delayed to on or after September 23, 1999. The final
milestone payment penalty is stated in the Space System Contract to be Iridium's
exclusive remedy for Motorola's failure to complete the final milestone on a
timely basis, except that, under certain circumstances, Iridium may declare
Motorola in default if the final milestone is not completed within 12 months of
the scheduled date (as that date may have been adjusted under the Space System
Contract).
Motorola will have no liability under the Space System Contract for
failures or delays in performance, including with respect to the failure to
complete the final milestone on a timely basis, to the extent that such failure
or delay results from an event that is an excusable delay or certain other
specified delays or occurrences. Further, milestone payments under the Space
System Contract will be adjusted to account for any additional costs incurred by
Motorola as a result of an excusable delay. An excusable delay is defined under
the Space System Contract to include any event beyond the reasonable control and
without the fault or negligence of Motorola and its subcontractors, which may
therefore limit the effect of the specified payment penalties. Delays in
launches of satellites caused by the actions or inactions of Motorola's launch
service subcontractors directly pursuant to their subcontracts with Motorola do
not constitute excusable delays under the contract. All other delays in the
launch of satellites arising for whatever reason not caused by Motorola would
constitute excusable delays under the contract, including delays in launches of
IRIDIUM satellites due to delays in prior launches scheduled for third parties.
Motorola has the burden of proving that an event constitutes an excusable delay.
In the event of an excusable delay, 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 World Services by an
authorized gateway operator and licensed, to the extent required, by the
government of such country to provide Iridium World 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
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hold them. Motorola is not entitled to any reimbursement by Iridium of its
expenses in obtaining or transferring the FCC permits, licenses and approvals.
In addition, the Space System Contract provides that Motorola will have no
liability to Iridium or its direct or indirect customers for any damages
resulting from any loss, destruction, degradation or failure of the Space
Segment or its subsystems to operate satisfactorily. Iridium has agreed in the
Space System Contract to indemnify Motorola and its affiliates without limit
against any and all claims by third parties caused by or arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium, except liabilities, losses and damages caused by the
willful misconduct or gross negligence of Motorola. Iridium has also granted
Motorola certain waivers of liability and has agreed to maintain at least $500
million of general liability insurance during the term of the Space System
Contract to cover certain third-party liability risks arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium. The remedies of Iridium and Motorola specified in the
contract for a default under the contract are exclusive of all other remedies.
The Space System Contract provides that title and risk of loss or damage to
each individual satellite will pass to Iridium upon the arrival of each
satellite at its designated orbital location in the satellite constellation.
Title and risk of loss or damage of the System Control Segment shall pass to
Iridium upon the earlier of (i) Motorola's demonstration to Iridium of each
Constellation and System Control Segment facility's acceptance plan pursuant to
the Space System Contract or (ii) completion of Milestones 40 (backup control
facility integration and test complete) and 41 (SNOC 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
The Operations and Maintenance Contract provides 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. 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 approximately $171 million per quarter in 2005. 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
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launch of additional satellites, as necessary to maintain the Space Segment at
specified minimum coverage and capacity factors. In the event of any excusable
delay, Motorola would be relieved of the obligation to exert its best efforts to
meet the specified factors, but would be required to maintain the coverage and
capacity factors at the best reasonable level it can, and it would also be
entitled to continued payment of the full quarterly amounts under the contract
and any additional costs it incurs as a result of such excusable delay.
The Operations and Maintenance Contract provides that the title and risk of
loss or damage to each spare satellite passes to Iridium upon the earlier of its
arrival in low earth storage orbit or the date on which Motorola demonstrates to
Iridium the arrival of the satellite in its designated orbital location. The
Operations and Maintenance Contract provides for additional payments by Iridium
to Motorola (as much as $46 million per satellite) where satellites in low earth
orbit (including satellites in low earth orbit storage) are damaged by the acts
of third parties (as described therein, including contact with space debris) and
replaced by Motorola at the request of Iridium. If the cause of a partial or
complete degradation or inoperability of a satellite is not known to have been
caused by contact with an object in space, its loss will nonetheless be assumed
to have been caused by a third party (and its replacement cost therefore the
responsibility of Iridium rather than Motorola) if the evidence available to the
parties suggests to reasonable and prudent experts knowledgeable in the field of
spacecraft orbital operations and/or space debris that a space object (i.e.,
space debris) may have impacted a satellite and caused it to become partially or
completely inoperative. Iridium's cost for a replacement satellite will be $23
million in this circumstance rather than $46 million. Moreover, the effect of
damage to satellites by acts of third parties is to be disregarded in
determining the coverage and capacity factors, so that the required performance
of the Space Segment under the contract would be reduced while the affected
satellites were repaired or replaced.
TERRESTRIAL NETWORK DEVELOPMENT CONTRACT
Under the Terrestrial Network Development Contract, Motorola agreed to
design and develop the gateway hardware and software and license Iridium to use
and permit others to use intellectual property developed under the contract to
procure the development and manufacture of gateway equipment from sources other
than Motorola. The Terrestrial Network Development Contract specifies certain
performance standards and service requirements for the gateways, and provides
common specifications for the gateways and improved oversight by Iridium of the
development process for the gateways. Iridium believes this streamlined the
development process and resulted in better integration of the gateways into the
IRIDIUM System. Iridium has currently agreed to pay Motorola approximately $284
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 and Andersen Consulting, LLP ("Andersen") are parties to a contract
under which Andersen is developing the business support system for the IRIDIUM
System. This computer system is called the Iridium Business Support System
("IBSS"). The IBSS will provide for typical telecommunications business support
functions, including billing, settlement, customer records, service activation,
and equipment management. In conjunction with the development of the IBSS,
Andersen is developing the gateway and service provider business systems that
will be deployed at each gateway and service provider location and which are
necessary for the gateways and service providers to operate with the IBSS and to
perform essential gateway and service provider back office business functions.
The Iridium component of the IBSS will be located and operated at Iridium
facilities in the United States. The gateway and service provider components
will be located throughout the world. The components will be connected by a
terrestrial data network and will operate together to support the functions of
the IBSS. The IBSS is to be deployed using both custom designed software and
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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 Iridium World Cellular Services 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.
Amendments to Principal Contracts
As a result of technological developments, changes in the product mix of
the Iridium World Services, and scheduling adjustments, there have been, and
Iridium anticipates there will be, amendments to the Space System Contract, the
Terrestrial Development Contract, the Operations and Maintenance Contract and
the IBSS Contract. Iridium's estimate of the costs of anticipated amendments is
reflected in Iridium's estimates of its funding requirements. There can be no
assurance that future technological, market or regulatory developments will not
necessitate unanticipated amendments to such contracts or that Motorola or other
venders will be willing or able to provide these new capabilities on terms
acceptable to Iridium.
Gateway and Service Provider Rights
The Parent LLC Agreement provides certain exclusive rights to most of its
investors to be gateway operators in specified gateway service territories.
Pursuant to the Iridium LLC Agreement, Iridium acknowledges, and agrees, not to
take any action in contravention of, such rights. Each Iridium investor who has
been allocated a gateway service territory has entered into a Gateway
Authorization Agreement. See "-- Gateway Authorization Agreements." The
allocation of gateway service territories is subject to any applicable antitrust
laws. The allocation of gateway rights to any Iridium investor 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 the Parent
LLC Agreement, including obligations to fund committed amounts to Parent. See
"-- Gateway Authorization Agreements" for a description of the terms of the
Gateway Authorization Agreements.
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The Parent LLC Agreement provides that each Iridium investor that has been
allocated a gateway service territory shall have 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 Parent. Pursuant to the Iridium LLC
Agreement, Iridium acknowledges, and agrees not to take any action in
contravention of, such rights.
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
The Gateway Authorization Agreements provide that Iridium and each gateway
operator will use their reasonable best efforts to agree upon: (i) the specific
location of the gateway within the gateway operator's allocated territory; (ii)
the communications capacity of each gateway; and (iii) the specific construction
and operational schedule for each gateway (collectively, the "Gateway Master
Plan"). At present, most of the gateway operators have committed to country
locations for their gateways in their respective Gateway Authorization
Agreements. The Gateway Authorization Agreements also provide that the each
gateway operator will use its reasonable best efforts to have its gateway
operational in advance of the scheduled Full Operational Capability Date.
The Gateway Authorization Agreements also provide that each gateway
operator will use its reasonable best efforts to undertake and complete on a
schedule consistent with the Gateway Master Plan the following: (i) apply for,
obtain and maintain all governmental authorizations and frequency allocations
necessary to construct and operate its gateway and provide gateway services in
its gateway service territory, (ii) contract with Motorola and/or other
suppliers to design, construct and maintain its gateway in accordance with the
Gateway Master Plan and Iridium's set of guidelines, recommendations, rules,
plans and other instructions relating to technical and operational matters
associated with operation of the IRIDIUM System (the "IRIDIUM System
Practices"), (iii) provide for the staffing, testing and operation of its
gateway in accordance with the Iridium System Practices, (iv) consistent with
the applicable requirements of the IRIDIUM System Practices, establish and
maintain appropriate interconnection, access and settlement arrangements through
and with each PSTN operating within its gateway service territory that are
required to effectively distribute and utilize Iridium World 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 con-
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structed, 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 certain instructions of Iridium, when in Iridium's reasonable
judgment any action is required, including cessation of gateway transmissions.
In addition, Iridium has the right to suspend access to the Space Segment if
Iridium reasonably determines that such continued access would harm overall
system operation and either (i) the gateway operator has failed to take
previously requested corrective action or (ii) the need for immediate action by
Iridium is required to avoid harm to overall system operation.
The Gateway Authorization Agreements provide that the Iridium Board (as
defined) 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.
CERTAIN MATTERS REGARDING RELATIONSHIP AMONG IWCL, PARENT AND IRIDIUM
IWCL was formed to act as a member of Parent. The power and authority to
conduct and manage the business of IWCL is vested in the IWCL Board. The IWCL
Board is comprised of seven members, a majority of whom also are executive
officers of Iridium and Parent or one of Parent's other members. At least two
members of the IWCL Board will at all times be persons not currently employed by
or affiliated with Parent or Motorola or any other member of Parent owning more
than five percent of the outstanding Class 1 Interests (the "Independent Company
Directors"). See "Management." Iridium is a wholly owned subsidiary of Parent.
Pursuant to the Iridium LLC Agreement, each of the directors and officers of
Parent also is a director or officer of Iridium. See "Description of Iridium LLC
Limited Liability Company Agreement." Each of the contracts discussed in this
section has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part and prospective investors are urged to read these
exhibits for a complete understanding of the terms of these contracts.
GOVERNANCE OF PARENT AND IRIDIUM
Parent is governed by its Board of Directors (the "Parent Board"). The
members of Parent may manage Parent only through their election of directors,
and have no authority, in their capacity as members, to act on behalf of Parent.
IWCL has waived the limitation on liability provided by the Delaware Act. The
other members of Parent have not waived this limitation and do not have
liability with respect to the debts or obligations of Parent in excess of their
investment in their interests in Parent. Notwithstanding IWCL's unlimited
liability with respect to Parent, 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 Parent Limited Liability Company Agreement -- Limitations on
Liability." Iridium is governed by its Board of Directors (the "Iridium Board").
Parent is the sole member of Iridium. Each director of Parent also is a director
of Iridium. Iridium has no directors who are not directors of Parent.
The Parent LLC Agreement and the Iridium LLC Agreement each provide that
IWCL will have certain special rights during the period (the "Special Rights
Period") commencing on the first date that IWCL's Class 1 Interests represent
five percent or more of the total outstanding Class 1 Interests (which occurred
upon the consummation of the IWCL IPO) and ending on the date of delivery by
Parent of notice of the termination of IWCL's special rights following (i) the
sale or other disposition by IWCL of Class 1 Interests, if, as a result of such
sale or other disposition, IWCL's Class 1 Interests represent less than five
percent of the total outstanding Class 1 Interests or (ii) following the
occurrence of a Company Change in Control. "Company Change of Control"
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means an event or series of events not approved either by members of Parent
owning a majority of the Class 1 Interests or by a majority of the Parent Board,
at a time when IWCL owns Class 1 Interests representing less than 50% of the
outstanding Class 1 Interests, as a result of which (a) any "person" or "group"
(as such terms are defined in Section 12(d) and 14(d) of the Exchange Act) other
than Parent becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of more than 30% of IWCL's
outstanding common stock (or equivalent securities), (b) IWCL consolidates with
or merges into another corporation or conveys, transfers or leases all or
substantially all of its assets to any person, or any corporation consolidates
with or merges into IWCL, in either event pursuant to a transaction in which
IWCL's outstanding common stock is changed into or exchanged for cash,
securities or other property, other than any transaction (i) between IWCL and
either Parent, an affiliate of Parent or a wholly owned subsidiary of Parent, or
(ii) after which the shareholders who beneficially owned IWCL's common stock
immediately before such transaction beneficially own at least 50% of the
outstanding voting stock of the surviving entity and no person beneficially owns
more than 30% of the outstanding voting stock of the surviving entity, or (c)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the IWCL Board (together with any new directors whose
election by IWCL Board or whose nomination for election was approved by a vote
of 66 2/3% of the members of the IWCL Board then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the IWCL Board then in office.
During the Special Rights Period (i) IWCL shall be entitled to designate
two Independent Company Directors as directors of both Parent and Iridium, (ii)
one such director shall be elected Vice Chairman of each of the Parent Board and
the Iridium Board and (iii) one director of Parent designated by IWCL shall be a
member of each committee of the Parent Board and each committee of the Iridium
Board. Pursuant to the Parent LLC Agreement and Iridium LLC Agreement, IWCL will
not be entitled to appoint more than two directors to the Parent Board, and the
Iridium Board, even if its ownership interest increases and it would otherwise
have been entitled to additional appointment rights. In addition to any other
voting rights which IWCL may have under the Parent LLC Agreement and Iridium LLC
Agreement, under the Delaware Act or otherwise, during the IWCL Special Rights
Period, Parent and 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 Parent and Iridium designated by IWCL ("IWCL's Special Rights
Consent"): (i) make any material amendments or modifications to either of their
Limited Liability Company Agreements; (ii) approve any business plan of Parent
or Iridium that would result in any material change in the purpose of Parent or
Iridium, as the case may be, as set forth in their respective Agreements or
otherwise change Parent's or Iridium's business so that it varies materially
from the business purpose contemplated by their respective Limited Liability
Company Agreements; (iii) acquire, other than in the ordinary course of business
of Parent or Iridium, as the case may be, (a) a controlling interest or a
majority of the voting stock or equity of, any corporation or other entity that
would be a Significant Subsidiary (as such term is defined in the rules under
the Securities Act) or (b) any other assets if the aggregate fair market value
thereof is greater than $50 million; (iv) sell, lease (as lessor), exchange or
otherwise dispose of all or substantially all of the assets of Parent or
Iridium, as the case may be, (other than to a person controlled by Parent or
Iridium); (v) cause the dissolution and/or liquidation of Parent or Iridium; or
(vi) take certain bankruptcy or insolvency related actions with respect to
Parent or Iridium.
MANAGEMENT SERVICES AGREEMENT
In connection with the IWCL IPO, Parent and IWCL entered into a Management
Services Agreement. The Management Services Agreement was amended and restated
in connection with the Asset Drop-Down Transaction to, among other things, add
Iridium as a party. Pursuant to the Management Services Agreement, Parent has
agreed to supervise and manage the day-to-day operations of IWCL and IWCL has
agreed to allow Parent to do so. Parent will implement or cause to be
implemented all policy decisions relating to the operations of IWCL approved by
the IWCL Board
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and to conduct or cause to be conducted the ordinary and usual business and
affairs of IWCL. The IWCL Board has the right to give Parent written
instructions, not inconsistent with the terms of the Management Services
Agreement, with respect to matters arising under the Agreement and Parent is
required to follow such instructions. Among other things, Parent will be
responsible for administering the following functions of IWCL: treasury,
accounting, legal, tax, insurance, licenses and permits, investor relations,
public relations and securities law compliance and stock listing compliance.
Parent has no authority under the Management Services Agreement to give any
notice or to approve any matter under the Parent LLC Agreement on behalf of
IWCL, including, but not limited to, IWCL's Special Rights Consent. Parent also
will advance funds to IWCL, under certain conditions, to enable IWCL to pay any
income tax liability that cannot be satisfied by distributions to IWCL on its
Class 1 Interests. See "Description of Parent Limited Liability Company
Agreement." Parent will receive no fees or expense reimbursement from IWCL for
its services to IWCL under the Management Services Agreement. The Management
Services Agreement is terminable as to the duties of Parent to IWCL only with
the consent of both Parent and IWCL, except that Parent has the right to
terminate the Agreement as to the duties of Parent to IWCL only after the
occurrence of an IWCL Change of Control.
Pursuant to the Management Services Agreement, Parent also has agreed to
supervise and manage the day-to-day operations of Iridium and Iridium has agreed
to allow Parent to do so. Parent will implement or cause to be implemented all
policy decisions relating to the operations of Iridium approved by the Iridium
Board, and Parent will conduct or cause to be conducted the ordinary and usual
business and affairs of Iridium. The Iridium Board has the right to give Parent
written instructions, not inconsistent with the terms of the Management Services
Agreement, with respect to matters arising under the Agreement and Parent is
required to follow such instructions. Pursuant to the Iridium LLC Agreement, the
officers and directors of Iridium are identical in all respects to the officers
and directors of Parent. Pursuant to the Management Services Agreement, all
actions taken by an officer of Parent with respect to the business of Iridium
are deemed to be actions of an officer of Iridium. Pursuant to the Management
Services Agreement, among other things, Parent will be responsible for
administering the following functions of Iridium: contract administration,
treasury, accounting, legal, tax, insurance, licenses and permits, investor
relations, public relations and securities law compliance and stock listing
compliance. Parent has no authority under the Management Services Agreement to
take action on any matter reserved for action by Iridium alone under the Iridium
LLC Agreement.
Pursuant to the Management Services Agreement, Iridium will provide
sufficient funds to Parent to enable Parent to manage the business and
operations of Iridium and IWCL, including payment of Parent's obligations to its
employees, consultants and directors, and payments for Parent's office space and
equipment, sales, general operating and administrative expenses, insurance and
its obligations under certain contracts transferred to Iridium by Parent in
connection with the Asset Drop-Down Transaction, subject to the limitation that
Iridium will not be obligated to reimburse Parent for the physical construction,
operation, maintenance or insurance of any satellite system other than the
satellite system to be delivered under the Space System Contract and any other
satellite system to be owned by Iridium. In addition, Iridium will reimburse
Parent for payment obligations under the Share Issuance Agreement, the Global
Ownership Program and the Interest Exchange Agreement. Any funds received by
Parent in respect of a Reserve Capital Call shall be treated as a capital
contribution from Parent to Iridium. See "Description of Parent Limited
Liability Company Agreement." The Management Services Agreement is terminable as
to the duties of Parent to Iridium only with the consent of both Parent and
Iridium.
EXCHANGE RIGHTS OF PARENT MEMBERS
Pursuant to an Interest Exchange Agreement between Parent and IWCL (the
"Interest Exchange Agreement"), IWCL has agreed that after the Exchange Date
(defined below) and subject to the restrictions on transfer in the Parent LLC
Agreement it will permit holders of Class 1 Interests of Parent to exchange
those interests for shares of Class A Common Stock at a ratio of
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one share of Class A Common Stock for each Class 1 Interest (subject to
anti-dilution adjustments). See "Description of Parent 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 Parent LLC Agreement. If a holder of Class 1
Interests (a "Class 1 Holder") desires to effect an exchange of all or a portion
of its Class 1 Interests it must provide written notice to IWCL and Parent. No
exchange shall take place unless approved by Parent, pursuant to authorization
of Directors representing at least 66 2/3% of the Parent Board. The Exchange
Date is the 90th day following the first fiscal quarter in which Parent has
achieved positive earnings before interest, taxes, depreciation and
amortization. In order to exercise its rights under the Interest Exchange
Agreement, a holder of Class 1 Interests and its affiliates must be in full
compliance with the Parent LLC Agreement and any Gateway Authorization Agreement
to which it is a party. Parent and IWCL have the right to defer exchanges under
the Interest Exchange Agreement if doing so is in the best interests of Parent
or IWCL in light of possible or pending financing transactions.
Under the Interest Exchange Agreement, IWCL has agreed that at any time
after the Exchange Date, IWCL will, at the request of Class 1 Holders and
holders of Class A Common Stock acquired under the Interest Exchange Agreement,
representing not less than 2% of the Fully Diluted Class A Shares (defined
below), file with the Commission a registration statement and use its reasonable
best efforts to have that registration statement remain effective for a period
of up to six months, permitting such holders to sell shares of Class A Common
Stock in the manner specified by those holders. IWCL has certain rights to defer
the filing of a registration statement or to cause holders to stop distributing
securities under an effective registration statement. Registering holders are
required to pay their pro rata portion of the costs of registration. "Fully
Diluted Class A Shares" means all shares of Class A Common Stock actually
outstanding and the aggregate number of shares of Class A Common Stock issuable
under the Interest Exchange Agreement in exchange for Class 1 Interests at the
then applicable exchange rate, whether or not the Class 1 Interests are then
exchangeable. At the request of Parent, acting pursuant to authorization of
Directors representing at least 66 2/3% of the Parent Board, IWCL will take all
reasonable steps to register pursuant to these provisions any other shares of
Class A Common Stock acquired under the Interest Exchange Agreement specified by
Parent.
SHARE ISSUANCE AGREEMENT
IWCL and Parent have entered into a Share Issuance Agreement governing
offerings of securities by IWCL. The Share Issuance Agreement provides that all
net proceeds from the sale of securities by IWCL will be invested by IWCL in
membership interests in Parent. IWCL will not issue any securities except
pursuant to the Share Issuance Agreement (or pursuant to warrants issued in
accordance therewith), the Interest Exchange Agreement and the Global Ownership
Program described below. IWCL has agreed that if requested by Parent it will use
its best efforts to sell securities of IWCL in compliance with all applicable
laws and will cease to do so, if requested by Parent.
If IWCL sells Class A Common Stock pursuant to the Share Issuance
Agreement, Parent will issue to IWCL, in exchange for the net proceeds of such
offering, one Class 1 Interest for each share of Class A Common Stock sold by
IWCL (subject to anti-dilution adjustments). If Parent directs IWCL to issue
securities other than Class A Common Stock, Parent will issue to IWCL interests
in or securities of Iridium, in exchange for the net proceeds of such offering,
which replicate as nearly as possible the economic attributes of the securities
sold by IWCL.
Parent has agreed to pay all expenses incurred by IWCL in connection with
any issuance of securities under the Share Issuance Agreement and to indemnify
IWCL and its officers, directors and employees against certain losses, claims,
damages or liabilities. Iridium has agreed to reimburse Parent for payment of
such expenses and indemnities. See "-- Management Services Agreement." IWCL also
has agreed to issue Class A Common Stock pursuant to the Share Issuance
Agreement in connection with the Iridium Option Plan. Parent will issue to IWCL
one Class 1 Interest
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for each share of Class A Common Stock issued by IWCL in connection with the
Option Plan (subject to anti-dilution adjustments).
Except with respect to the Reserve Capital Call and to the extent described
under "Description of Other Indebtedness -- Ranking and Collateral," Parent is
not obligated to contribute the net proceeds of any offering of its interests to
Iridium, or otherwise to use such net proceeds in connection with the business
of Iridium.
GLOBAL OWNERSHIP PROGRAM
IWCL and Parent have commenced a Global Ownership Program (the "Global
Ownership Program"), which is designed to offer an equity investment opportunity
in IWCL to certain governmental telecommunication administrations and related
entities (the "Telecom Administrations") as part of a comprehensive program to
enhance market access, improve the competitive standing of the IRIDIUM System
and achieve appropriate regulatory approvals. Under the Global Ownership
Program, IWCL will sell shares of its Class B Common Stock to Telecom
Administrations designated from time to time by Iridium. IWCL has authorized the
issuance of up to 2,500,000 shares of Class B Common Stock under the Global
Ownership Program. As of March 31, 1998, 20,625 shares of Class B Common Stock
were outstanding. The Class B Common Stock is sold to Telecom Administrations at
a price per share equal to $13.33. At the time of issuance, the purchasers in
the Global Ownership Program will only be required to pay an amount equal to the
par value per share of the Class B Common Stock -- $.01 per share. The balance
of the purchase price will be payable through the withholding of dividends, if
any, which would otherwise be payable on the shares of Class B Common Stock. A
purchaser has 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 is 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 Parent and (iii)
the date that is one year after the date of issuance of the Class B Common Stock
(the "Transferability Date"). The Class B Common Stock is also subject to
restrictions on transfer under applicable securities laws and the purchasers
will agree not to transfer the Class B Common Stock to a U.S. Person (as
defined). IWCL has the right to repurchase the Class B Common Stock from any
holder at a price equal to the portion of the purchase price paid through the
date of repurchase, if the specified regulatory approvals applicable to that
holder have not been obtained by a specified date. IWCL and the holder have the
right to cause the Class B Common Stock to be exchanged for Class A Common Stock
at any time after the Transferability Date. The initial exchange rate will be
one share of Class A Common Stock for each share of Class B Common Stock
exchanged and such rate is subject to antidilution adjustments. At the time of
issuance of any shares of Class B Common Stock, IWCL must acquire from Parent
Class 1 Membership Interests at a rate of one Class 1 Interest for each share of
Class B Common Stock issued (subject to anti-dilution adjustments). The purchase
price for the Class 1 Interests is identical to the proceeds to IWCL from the
issuance of the Class B Common Stock, with all but a nominal amount deferred and
paid through an offset against distributions that would otherwise be payable on
the Class 1 Interests acquired. The Parent LLC Agreement provides that if any
portion of the purchase price for an interest in Parent is payable after the
issuance of the interest, the Parent Board may restrict the rights otherwise
incident to the holding of such interest. IWCL may require Parent to repurchase
Class 1 Interests in an amount corresponding to any Class B Common Stock
repurchased by IWCL. Parent has agreed to pay or reimburse IWCL for the payment
of all expenses incurred by IWCL in connection with the Global Ownership Program
and to indemnify IWCL and its officers, directors and employees against certain
losses, claims, damages or liabilities.
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MANAGEMENT
IRIDIUM
The following table sets forth information concerning the executive
officers and directors of Iridium as of March 1, 1998. Pursuant to the Iridium
LLC Agreement, each officer and director of Parent holds the same position with
Iridium.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert W. Kinzie(1)................ 64 Chairman
Edward F. Staiano.................. 61 Vice Chairman and Chief Executive Officer
Mauro Sentinelli................... 51 Executive Vice President -- Marketing and Distribution
Leo Mondale........................ 38 Senior Vice President -- Strategic Planning and Business
Development
O. Bruce Dale...................... 55 Vice President -- Network Operations
Lauri J. Fitz-Pegado............... 42 Vice President -- Global Gateway Relations
Mark Gercenstein................... 46 Vice President -- Business Operations
Roy Grant.......................... 40 Vice President -- Chief Financial Officer
Dale F. Hogg....................... 55 Vice President -- Human Resources
Francis Latapie.................... 56 Vice President -- Government Affairs
Larry G. Rands..................... 57 Vice President -- Engineering
F. Thomas Tuttle................... 55 Vice President, General Counsel and Secretary
Richard L. Lesher(2)(3)(4)......... 63 Vice Chairman and Independent Company Director
Aburizal Bakrie(4)................. 50 Director (designated by South Pacific Iridium Holdings,
Inc.)
Hasan M. Binladin(4)............... 49 Director (designated by Iridium Middle East)
Ulf Bohla(1)(4).................... 53 Director (designated by Vebacom Holdings, Inc.)
Gordon J. Comerford(2)............. 60 Director (designated by Motorola)
Atilano de Oms Sobrinho(2)(4)...... 54 Director (designated by Iridium SudAmerica)
Robert A. Ferchat(4)............... 63 Director (designated by Iridium Canada)
Alberto Finol(1)(3)(4)............. 62 Director (designated by Iridium SudAmerica)
Edward Gams(1)..................... 49 Director (designated by Motorola)
Kazuo Inamori(4)................... 66 Director (designated by Nippon Iridium)
Georg Kellinghusen(4).............. 50 Director (designated by Vebacom Holdings, Inc.)
S. H. Khan(4)...................... 59 Director (designated by Iridium India)
Anatoly I. Kiselev(4).............. 58 Director (designated by Khrunichev)
John F. Mitchell(3)................ 70 Director (designated by Motorola)
Jung L. Mok(3)(4).................. 48 Director (designated by SK Telecom)
Giuseppe Morganti(1)(2)(4)......... 65 Director (designated by Iridium Italia)
J. Michael Norris.................. 51 Director (designated by Motorola)
Yusai Okuyama(2)(4)................ 66 Director (designated by Nippon Iridium)
John A. Richardson................. 55 Director (designated by Iridium Africa)
John M. Scanlon.................... 56 Director (designated by Motorola)
Theodore H. Schell(1)(4)........... 53 Director (designated by Sprint)
William A. Schreyer(1)(4).......... 69 Independent Company Director
Sribhumi Sukhanetr(1)(3)(4)........ 65 Director (designated by Thai Satellite)
Tao-Tsun Sun(2)(4)................. 47 Director (designated by Pacific Iridium Telecommunications
Corporation)
Yoshiharu Yasuda(1)(3)(4).......... 57 Director (designated by Nippon Iridium)
Wang Mei Yue(3)(4)................. 56 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
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CAPITAL
The following table sets forth information concerning the executive
officers and directors of Capital as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert W. Kinzie............. 64 Director
Edward F. Staiano............ 61 Chairman of the Board and
Chief Executive Officer
Roy Grant.................... 40 Chief Financial Officer
F. Thomas Tuttle............. 55 Secretary
</TABLE>
Executive Officers of Iridium and Capital
Set forth below is information concerning each director and executive
officer of Iridium and, where indicated, Capital, including each individual's
principal occupation and employment. Unless otherwise indicated, each executive
officer holds office until a successor is duly elected and qualified. The
directors of Parent are designated by the members of Parent and serve until a
successor is designated. Pursuant to the Iridium LLC Agreement, the directors
and officers of Iridium are identical in all respects to the directors and
officers of Parent. There are no family relationships between any officers and
directors of Iridium.
Unless otherwise noted, dates of service refer to positions with Parent.
Each executive officer of Parent became an executive officer of Iridium, in the
same capacity, on December 18, 1997.
EDWARD F. STAIANO -- Vice Chairman and Chief Executive Officer since
January 2, 1997 and Director since October 1994. Chairman of the Board and Chief
Executive Officer of Capital since June 18, 1997. Dr. Staiano served Motorola as
Executive Vice President, President and General Manager of the General Systems
Sector (comprised of the cellular subscriber group, cellular infrastructure
group, network ventures division, personal communications and the computer
group) from 1989 to December 1996.
MAURO SENTINELLI -- Executive Vice President -- Marketing and Distribution
since August 1, 1997. Prior thereto, Mr. Sentinelli was Deputy Director General
in charge of Strategic Planning, Strategic Marketing and International Affairs
for Telecom Italia Mobile from 1995 to 1997 and Deputy Managing Director for
1994 to 1995. He joined SIP, Telecom Italia's predecessor, in 1974, and held
various positions in engineering, marketing and strategic planning. He became
head of Business Development the Mobile Service Department in 1988 and launched
the company's cellular service.
LEO MONDALE -- Senior Vice President -- Strategic Planning and Business
Development 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
Parent. From July 1, 1990 to January 31, 1992, he was Director of International
Relations for the Satellite Communications unit of Motorola. Before joining
Motorola, Mr. Mondale served as Vice President of the Fairchild Space & Defense
Corporation, where he was responsible for the international and commercial
activities of Fairchild Space from 1989 to 1990. Prior to joining Fairchild, Mr.
Mondale was Legal Counsel to the then Space Division of Matra, S.A. (now
Matra-Marconi Space, N.V.), based in Paris, France, following several years of
private legal practice in Washington, D.C.
O. BRUCE DALE -- Vice President -- Network Operations 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
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1992. From March 1982 to December 1989, Mr. Dale served as Director of Data
Network Systems Development Laboratory for AT&T Bell Laboratories.
LAURI J. FITZ-PEGADO -- Vice President -- Global Gateway Relations since
May 1997. Prior thereto, Ms. Fitz-Pegado served at the U.S. Department of
Commerce as the Director General and Assistant Secretary of the U.S. & Foreign
Commercial Service (US&FCS) International Trade Administration from June 1994 to
June 1997 and as a Special Advisor to the Secretary of Commerce from June 1993
to June 1994. From June 1982 to June 1993, Ms. Fitz-Pegado worked at Hill &
Knowlton Public Affairs Worldwide, most recently as Managing Director and Senior
Vice President.
MARK GERCENSTEIN -- Vice President -- Business Operations since August
1992. Prior thereto, Mr. Gercenstein was Director of Marketing of Motorola
Satellite Communications from 1990 to 1992. Prior to assuming that position, Mr.
Gercenstein held various marketing and engineering assignments at Motorola
Government Electronics Group from 1984 to 1990, Spar Aerospace from 1985 to 1987
and Bendix Aerospace from 1975 to 1982.
ROY GRANT -- Vice President -- Chief Financial Officer since April 30, 1997
and Vice President -- Treasurer from November 1996 to July 1997. Chief Financial
Officer of Capital since June 18, 1997. Prior thereto, Mr. Grant served from
1992 to 1996 as Finance Director for Edison Mission Energy, the largest
independent power developer in the United States. Mr. Grant also worked for
Marriott Corporation from 1988 to 1992 in its corporate and project finance
areas and at American Airlines from 1980 to 1988, most recently as its Managing
Director -- Banking where he was responsible for all of the airline's banking
relationships.
DALE F. HOGG -- Vice President -- Human Resources since August 1996 and
Director of Human Resources since August 1994. Prior thereto, 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 since October 1996.
From January 1996 until October 1996, Mr. Latapie served as Executive Director,
Government Affairs of Parent. Prior thereto, 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.
LARRY G. RANDS -- Vice President -- Engineering 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 since
April 1996. Mr. Tuttle had been employed by Parent as Assistant Secretary since
January 1994 and as Deputy General Counsel since November 1993. Secretary of
Capital since June 18, 1997. Prior thereto, 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.
Directors of Iridium
Unless otherwise noted, dates of service refer to directorships of Parent.
Each director of Parent became a director of Iridium on December 18, 1997.
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ROBERT W. KINZIE -- Chairman of the Board since October 1991; member of the
Banking and Financing Committee. Chief Executive Officer from October 1991 to
January 1, 1997. Director of Capital since June 18, 1997. Prior thereto, Mr.
Kinzie was the Director of Strategic Planning for Intelsat from 1987 to 1991.
Prior to joining Intelsat, Mr. Kinzie worked from 1966 to 1987 in a number of
positions with COMSAT Corporation including President, Communications Services
Division and President of COMSAT General Corporation. Prior to joining COMSAT
Corporation in 1966, Mr. Kinzie was an economist with the FCC from 1962 to 1965.
RICHARD L. LESHER -- Vice Chairman of the Board and Independent Company
Director since June 1997; member of the Audit Committee, the Compensation
Committee and the Related Party Contract Committee. Dr. Lesher was appointed
Vice Chairman of the Board and Independent Company Director upon consummation of
the IWCL IPO. Dr. Lesher served as the President of the Chamber of Commerce of
the United States, the world's largest association of business organizations,
from 1975 to 1977, when he retired.
ABURIZAL BAKRIE -- Director since July 1997; member of the Related Party
Contracts Committee. Since 1992 Mr. Bakrie has been Chairman of the Bakrie Group
of Companies, a diversified corporation engaged in manufacturing, fabrication,
telecommunications, mining, real estate, financial services, agri-business and
trading activities. Mr. Bakrie is the President of ASEAN Chamber of Commerce and
Industry and President of the Indonesian Chamber of Commerce and Industry. Mr.
Bakrie has served as a member of the People's Consultative Assembly of the
Republic of Indonesia since 1987.
HASAN M. BINLADIN -- Director since January 1996; member of the Related
Party Contract Committee. During the past five years, Mr. Binladin has served as
Senior Vice President of the Saudi Binladin Group.
ULF BOHLA -- Director since October 1994; member of the Banking and
Financing Committee and the Related Party Contracts Committee. Mr. Bohla has
been the Chief Executive Officer of o.tel.o communications GmbH & Co. since July
1, 1994 and is currently Chairman of the Board of Directors of Vebacom Holdings,
Inc. Prior thereto, he served in various positions with IBM since 1970 including
General Manager of Telecommunications at IBM Europe from 1993 to June 1994, Vice
President of International Marketing Operations at IBM USA from 1991 to 1993 and
Director of the North German region at IBM Germany from 1989 to 1991.
GORDON J. COMERFORD -- Director 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 recently retired
from Motorola, where he had served as a Senior Vice President since 1989. He
joined Motorola's communications sector in 1974 as a Director of Business
Management and became a Corporate Vice President in 1980.
ATILANO DE OMS SOBRINHO -- Director 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 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 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.
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<PAGE> 112
ALBERTO FINOL -- Director since July 1993; Chairman of the Banking and
Financing Committees; member of the Compensation 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 since July 1993; member of the Banking and
Financing Committee. Mr. Gams has served as Corporate Vice President and
Director of Investor Relations of Motorola since 1996 and Vice President and
Director of Investor Relations of Motorola since 1991. He was first employed by
Motorola in 1979, and has held a variety of positions in operational and
corporate finance, including service as Director of Corporate Financial Planning
from February 1991 to August 1991 and as manager of Corporate Financial Planning
from December 1989 to February 1991.
KAZUO INAMORI -- Director since July 1993; member of the Related Party
Contracts Committee. Dr. Inamori has been Chairman of the Board of DDI
Corporation since 1984, of Kansai Cellular Telephone Co., Ltd. since 1988, of
Taitoh Corporation since 1990, of Nippon Iridium Corporation since 1993, of DDI
Tokyo Pocket Telephone Inc. since 1994, of DDI Kansai Pocket Telephone Co., Ltd.
since 1994, Kyocera Multimedia Corporation since 1995 and at Kyocera DDI
Institute of Future Telecommunications Inc. since 1996. Dr. Inamori established
Kyocera Corporation in 1959 and has been Chairman of the Board since 1986.
GEORG KELLINGHUSEN -- Director since July 1997; member of the Related Party
Contracts Committee. Dr. Kellinghusen has been a member of the Board of Vebacom
GmbH since August 1996. From 1989 to 1996, Dr. Kellinghusen was affiliated with
Varta AG, most recently as the Chairman of the Board of Varta-Bosch
Autobatterien GmbH. Prior to joining Varta AG, Dr. Kellinghusen served as
Controller, Commercial Director and Director, German-Language Books Production
Division, for Bertelsmann AG.
S. H. KHAN -- Director since October 1994; member of the Related Party
Contracts Committee. Mr. Khan has served as Chairman and Managing Director of
the Industrial Development Bank of India since December 1993. Prior thereto,
from 1966, he served in various positions with the Industrial Development Bank
of India, including Managing Director from February 1992 to December 1993 and
Executive Director from 1986 to 1992. He also serves as Chairman of the Small
Industries Development Bank of India, Credit Analysis & Research Ltd., National
Securities Depository Ltd. and National Stock Exchange of India Ltd. He is also
Director on the Boards of Export-Import Bank of India, IDBI Bank Ltd., Life
Insurance Corporation of India, General Insurance Corporation of India, Discount
and Finance House of India Ltd., Deposit Insurance and Credit Guarantee
Corporation and Securities Trading Corporation of India Ltd., India Growth Fund
Inc., as a Trustee of Unit Trust of India ("UTI"), and as a Member of the
Advisory Board of UTI Mutual Fund and India Fund.
ANATOLY I. KISELEV -- Director since July 1993; member of the Related Party
Contracts Committee. Mr. Kiselev has served as Director General 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.
JOHN F. MITCHELL -- Director 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 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
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<PAGE> 113
Vice President of SK Telecom since 1994. Prior thereto, Mr. Mok served as Senior
Managing Director and Chief Operating Officer of Taehan Telecom Limited from
1991 to 1994 and as Managing Director at USA, Inc. since 1989.
GIUSEPPE MORGANTI -- Director since April 1996; member of the Banking and
Financing Committee, the Audit Committee and the Related Party Contracts
Committee. Since August 1996, Ing. Morganti has served as Chief Executive
Officer and Managing Director of Iridium Italia S.p.A. Ing. Morganti has been
with STET (now Telecom Italia) 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 since July 1996; Mr. Norris is a Senior Vice
President of Motorola and has been with Motorola for 24 years. He is currently
the Senior Vice President and General Manager of the Network Management Group,
responsible for all Motorola cellular joint ventures and Iridium gateway
operations worldwide. He also sits on the boards of Hutchinson Telephone Company
Ltd. (Hong Kong), World Telecom Holding Company, Ltd. (Thailand) and Pelephone
(Israel).
YUSAI OKUYAMA -- Director since July 1996; member of the Audit Committee
and Related Party Contracts Committee. Mr. Okuyama has been President of DDI
Corporation since 1993 and President of Nippon Iridium (Bermuda) Ltd. since
1995. Mr. Okuyama has been Chairman of the Board at seven of the DDI Pocket
Telephone Companies since 1994 and at five of the DDI Cellular Telephone
companies since 1995. Mr. Okuyama retired from MPT in 1989 as a deputy secretary
of MPT and served at MPT related enterprises as President before joining DDI
Corporation in 1993.
JOHN A. RICHARDSON -- Director since March 1998; Mr. Richardson has been
the Chief Executive Officer of Iridium Africa since January 1998. He previously
was Chairman and CEO of Barclays -- BZW Asia and prior thereto was CEO of
Hutchison Whampoa Ltd. from 1980 to 1985.
JOHN M. SCANLON -- Director 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 since July 1993; member of the Banking and
Financing Committee and member of the Related Party Contract Committee. Mr.
Schell has served as Senior Vice President -- Strategic Planning and Corporate
Development at Sprint since 1990. Prior thereto, he served as President and
Chief Executive Officer of RealCom Communications Corporation, an IBM
subsidiary.
WILLIAM A. SCHREYER -- Independent Company Director; member of the Banking
and Financing Committee and the Related Party Contracts Committee. Mr. Schreyer
was appointed Independent Company Director, upon consummation of the IWCL IPO in
June 1997. Mr. Schreyer is Chairman Emeritus of Merrill Lynch & Co., Inc. and
has served as Chairman of the Board from April 1985 through June 1993 and as
Chief Executive Officer from July 1984 through April 1992. Mr. Schreyer is
currently a Director of Callaway Golf Company, Deere & Company, True North
Communications Inc., Schering-Plough Corporation and Willis Corroon Group.
SRIBHUMI SUKHANETR -- Director since July 1993; member of the Banking and
Financing Committee, the Compensation 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 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
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<PAGE> 114
Wire & Cable Co., Ltd., the Parent of Pacific Iridium Telecommunications
Corporation 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 since January 1996; member of the Banking and
Financing Committee, the Compensation Committee and the Related Party Contracts
Committee. Mr. Yasuda is currently Vice President of Nippon Iridium Corporation
and has been a Director since June 1995. Mr. Yasuda was Vice President of Nippon
Iridium Corporation from June 1996 through 1997. 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 since October 1995; member of the Compensation
Committee and the Related Party Contracts Committee. Dr. Wang has served as
Chairman and President of Iridium China (Hong Kong) Ltd. since September 1995,
as Chairman and President of China Aerospace International Holdings Ltd., Hong
Kong since 1993 and as Chairman of China Southern Telecommunication Co., Ltd.
since 1991. From 1988 to 1993 Dr. Wang served as Vice Chairman of the Board at
Conic Investment Co. Ltd.
EXECUTIVE COMPENSATION
The following table sets forth, as applicable, the compensation paid for
the fiscal years ended December 31, 1995, 1996 and 1997 to those persons who
were, at December 31, 1997, the Chief Executive Officer of Parent and Iridium
and the four next most highly compensated executive officers of Parent and
Iridium. Pursuant to the Iridium LLC Agreement, all officers of Parent are also
officers of Iridium. Pursuant to the Management Services Agreement, Iridium is
required to provide sufficient funds to Parent to, among other things, satisfy
Parent's obligations to its employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION OPTIONS/SARS PAYOUT COMPENSATION
- --------------------------- ---- -------- -------- ------------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward F. Staiano.................. 1997 $500,000 -- $187,827(b) 750,000 -- $ 4,750(c)
Vice Chairman and Chief Executive
Officer
Robert W. Kinzie................... 1997 $368,424 $154,560 -- 90,000 -- $ 8,462(d)
Chairman & Former Chief 1996 $344,000 $117,669 -- 90,000 -- $ 7,819
Executive Officer 1995 $310,000 $102,000 -- -- -- $ 7,469
Mauro Sentinelli................... 1997 $208,333 -- -- 75,000 -- $24,803(e)
Executive Vice President --
Marketing & Distribution
Leo Mondale........................ 1997 $262,504 $110,000 -- 67,500 -- $ 4,750(c)
Senior Vice President -- 1996 $220,561 $100,000 -- 45,000 -- $ 4,500
Strategic Planning & Business 1995 $190,000 $ 56,050 -- -- -- $ 4,500
Development
Mark Gercenstein................... 1997 $210,613 $ 88,729 -- -- -- $ 4,750(c)
Vice President -- 1996 $201,692 $ 62,909 -- 45,000 -- $ 4,500
Business Operations 1995 $176,250 $ 54,226 -- -- -- $ 4,500
</TABLE>
- ---------------
(a) Through the fiscal year ending December 31, 1995 Parent maintained the
Iridium Long Range Incentive Plan of 1993 (the "Plan"). The Plan was
terminated as of December 31, 1995. Final
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<PAGE> 115
awards for performance in Fiscal Year 1995 were determined by the
Compensation Committee of the Parent Board in April 1996. The Iridium Option
Plan (described under "-- Option Plan" below) 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.
(b) This amount includes amounts paid to Dr. Staiano for airplane expenses
($53,663), a salary gross-up to cover taxes incurred ($87,880), apartment
($38,447) and car lease ($7,837).
(c) Parent matching contributions to 401(k) plan.
(d) This amount includes the value of term life insurance provided to Mr. Kinzie
($3,712) and Parent's matching contribution to 401(k) plan ($4,750).
(e) This amount includes relocation expenses paid for Mr. Sentinelli ($20,053)
and Parent's matching contribution to 401(k) plan ($4,750).
On January 2, 1997, Edward F. Staiano became Chief Executive Officer of
Parent and Vice Chairman of the Parent Board. Pursuant to the terms of his
employment agreement, Dr. Staiano will receive a base salary of $500,000 per
year. In addition to base salary, Parent has agreed to provide Dr. Staiano, at
its expense, with a car, a furnished apartment in Washington, D.C. and access to
a corporate jet aircraft. Parent has agreed to provide reimbursement for any tax
liability created as a result of the use of those items. Dr. Staiano was also
awarded options to purchase 750,000 shares of Class A Common Stock of IWCL at a
price of $13.33 per share. The options vest, pro rata, over a period of five
years. Vested options may be exercised at any time after a public offering. Dr.
Staiano's options will continue to vest even if his employment is terminated by
Iridium, other than for cause, so long as he is not retained or employed by a
competitor. Dr. Staiano does not receive an annual bonus or participate in
Parent's retirement plans.
Option Grants
The following table sets forth the options granted for the fiscal year
ended December 31, 1997 for each named executive officer.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS/ POTENTIAL REALIZABLE VALUE AT
SECURITIES SARS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS/ EMPLOYEES OF BASE OPTION TERM(A)
SARS IN FISCAL PRICE EXPIRATION ------------------------------
NAME GRANTED YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Staiano............ 750,000 53.20% $13.33 1/12/07 $6,285,000 $15,930,000
Robert W. Kinzie............. 90,000 6.38 13.33 4/14/07 754,200 1,911,600
Mauro Sentinelli............. 75,000 5.32 13.33 7/31/07 628,500 1,593,000
Leo Mondale.................. 67,500 4.79 13.33 4/14/07 565,650 1,433,700
Mark Gercenstein............. -- -- -- -- -- --
</TABLE>
- ---------------
(a) This figure is achieved by multiplying the number of Options by the Final
Assumed Appreciated Stock Price at the end of the Option Term, and then
subtracting the original cost of the Options, which is the number of Options
multiplied by the Exercise or Base Price.
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<PAGE> 116
Year End Option/SAR Table
The following table shows certain information with respect to stock options
held as of December 31, 1997 by the named executive officers.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS/SAR
SHARES YEAR-END(A) AT FISCAL YEAR-END(B)
ACQUIRED ----------------- ------------------------
ON OPTIONS VALUE DATE OF MONTHS EXER- UNEXER- EXER- UNEXER-
NAME YEAR EXERCISE GRANTED REALIZED OPTION HELD CISABLE CISABLE CISABLE CISABLE
- ---- ---- -------- ------- -------- ------- ------ ------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Edward F. Staiano.... 1997 -- 750,000 -- 1/13/97 11 137,500 612,500 $5,018,750 $22,356,250
Robert W. Kinzie..... 1997 -- 90,000 -- 4/15/97 8 46,500 133,500 1,697,250 4,872,750
Mauro Sentinelli..... 1997 -- 75,000 -- 8/1/97 5 5,000 70,000 182,500 2,555,000
Leo Mondale.......... 1997 -- 67,500 -- 4/15/97 8 26,250 86,250 958,125 3,148,125
Mark Gercenstein..... 1997 -- 0 -- 1/1/96 23 17,250 27,750 629,625 1,012,875
</TABLE>
- ---------------
(a) These figures include Options granted before fiscal year 1997.
(b) The closing price of Company Stock on the last day of the fiscal year was
$36.50 per share.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Parent Board and the Iridium Board
determines the compensation of the executive officers of Parent and Iridium
consistent with guidelines established by the Parent Board and the Iridium
Board. The members of the Compensation Committee for the fiscal year ending
December 31, 1997 were Alberto Finol, Richard L. Lesher, George S. Medawar, John
F. Mitchell, Jung L. Mok, Sribhumi Sukhanetr, Wang Mei Yue and Yoshiharu Yasuda.
The 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. Mr. Finol serves as the Deputy Chairman of IWCL.
Pension Plan
<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>
Parent maintains the Parent 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
"Compensa-
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<PAGE> 117
tion Cap"), the table above also reflects benefits payable under a supplemental
retirement income plan (the "Supplemental Plan") established by Parent for the
benefit of employees whose compensation exceeds the Compensation Cap or whose
benefit would be limited by Section 415 of the U.S. Internal Revenue Code.
Benefits under the Supplemental Plan are calculated in the same manner as the
Pension Plan. Under the Supplemental Plan, Parent will pay the employee an
amount which together with the amounts due under the Pension Plan will equal
what the employee would have received under the Pension Plan if the Compensation
Cap was not in effect. Mr. Kinzie has six years of credited service; Mr.
Sentinelli has zero years of credited service; Mr. Mondale has seven years of
credited service; and Mr. Gercenstein has 12 years of credited service. Messrs.
Kinzie, Mondale and Gercenstein participate in the Pension Plan but do not
participate in the Supplemental Plan.
Parent 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. Parent 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 Parent pays the income taxes arising
from the payment of the lump sum.
Employment Arrangements
On January 2, 1997, Edward F. Staiano became Chief Executive Officer and
Vice Chairman of the Parent Board. Pursuant to the terms of his employment
agreement, Dr. Staiano will receive a base salary of $500,000 per year. In
addition to base salary, Parent has agreed to provide Dr. Staiano, at its
expense, with a car, a furnished apartment in Washington, D.C. and access to a
corporate jet aircraft. Parent has agreed to provide reimbursement for any tax
liability created as a result of the use of those items. Dr. Staiano was also
awarded options to purchase 750,000 Class 1 Interests of Iridium at a price of
$13.33 per Interest. The options vest, pro rata, over a period of five years.
Vested options may be exercised at any time after a public offering. Generally,
Dr. Staiano's options are subject to all of the provisions of the Option Plan
(described under "-- Option Plan" below) except that Dr. Staiano's options will
continue to vest even if his employment is terminated by Parent, 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 Parent's pension plans.
Option Plan
Parent has established a plan under which executive officers and managers
of Parent are awarded options to purchase Class A Common Stock (the "Option
Plan"). The Option Plan covers 2,625,000 shares of Class A Common Stock. The
Option Plan also permits the award of stock appreciation rights in connection
with any grant of options. As of March 31, 1998, options covering 2,581,775
shares of Class A Common Stock had been granted. Options to purchase 530,978
shares of Class A Common Stock were vested at March 31, 1998. As of that date no
stock appreciation awards had been granted. This amount of outstanding options
includes the options issued to Dr. Staiano when he joined Iridium. If an award
under the Option Plan expires, or is terminated, surrendered or canceled, the
shares of Class A Common Stock subject to such award are added to the number of
shares of Class A Common Stock available for awards under the Option Plan.
Under the Option Plan, option awards are made from time to time by the
Compensation Committee of the Parent Board.
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<PAGE> 118
The right to exercise the options generally vests, pro rata, over a period
of five years; however, all options and stock appreciation rights become
immediately vested on a Change in Control (as defined in the Option Plan) and in
the event of a Change in Control, Parent is required to purchase each
outstanding option and stock appreciation right for an immediate lump sum
payment equal to the difference between (i) the higher of (x) the fair market
value of a share of Class A Common Stock immediately prior to payment or (y) the
highest price actually paid in connection with the Change in Control, and (iii)
the exercise price. Under the Option Plan, "Change in Control" occurs when there
is (i) a sale by one or more holders of 50% or more of the outstanding Class 1
Membership Interests to third parties who are not holders of Class 1 Membership
Interests or affiliated with holders of Class 1 Membership Interests, and (ii)
following such sale, the members of the Parent Board of Directors prior to the
sale cease to constitute a majority of the Parent Board of Directors.
The plan was established in April 1996. Except for Dr. Staiano, under the
Option Plan, a participant whose employment is terminated by Parent forfeits any
unvested options. There are exceptions for death, retirement and certain other
situations. Dr. Staiano's options will continue to vest even if his employment
is terminated by Parent, other than for cause, so long as he is not retained or
employed by a competitor.
IWCL has agreed that upon the exercise of any options, it will issue to
Parent, for delivery to an exercising option holder, the number of shares of
Class A Common Stock covered by the exercised options and Parent has agreed to
simultaneously deliver to IWCL a like number of Class 1 Interests, subject to
anti-dilution adjustments. The exercise price of the option will be paid to
Parent and will represent payment for the Class A Common Stock by the exercising
option holder and for the Class 1 Interests by IWCL. See "Certain Matters
Regarding Relationship Among IWCL, Parent and Iridium -- Share Issuance
Agreement."
THE INITIAL GUARANTORS
Iridium has four subsidiaries: Iridium Capital Corporation, Iridium Roaming
LLC, Iridium IP LLC and Iridium Facilities Corporation. Each of Roaming and IP
is a Delaware limited liability company, of which Iridium is the only member.
Each of Capital and Facilities is a Delaware corporation and is a wholly owned
subsidiary of Iridium. Pursuant to the limited liability company agreement
relating to each of Roaming and IP, the power and authority to manage and
conduct the business and affairs of such company is vested in Iridium, acting
through certain of the officers and directors of Iridium listed above. Each of
the directors and officers of Capital and Facilities is an officer of Iridium.
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<PAGE> 119
INTEREST OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT IN PARENT
Iridium is a wholly owned subsidiary of Parent. The following table sets
forth certain information regarding beneficial ownership of Parent's Class 1
Interests as of March 1, 1998 (i) by each person known by Parent to own
beneficially more than five percent of its Class 1 Interests and (ii) by all of
Iridium's executive officers and directors of Parent and Iridium (named in the
table under "Management" above) as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(1)
------------------------------------ -------------------------- -------------------
<S> <C> <C>
Motorola, Inc.(2)................................ 39,898,493 27.40%
1303 East Algonquin Rd.
Schaumburg, IL 60196
Nippon Iridium (Bermuda) Limited(3).............. 15,750,000 11.15
c/o NIPPON IRIDIUM CORPORATION
Ichibancho FS Building 8
Ichibancho Chiyoda-ku
Tokyo 102 Japan
Vebacom Holdings, Inc.(4)........................ 12,427,875 8.80
c/o o.tel.o communications GmbH & Co.
Am Bonneshof 35
D-40474 Dusseldorf Germany
All Directors and Executive Officers as a
Group(5)....................................... 0 0
</TABLE>
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Class 1 Interests. Class 1 Interests subject to options or warrants
currently exercisable or exercisable within 60 days of the date of this Form
S-4 are deemed outstanding for computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
computing the percentage of any other person.
(2) The Class 1 Interests beneficially owned by Motorola include 25,033,425
Class 1 Interests held directly by Motorola and 4,365,068 Class 1 Interests
issuable under a warrant to purchase Series M Class 2 Interests in Iridium
which would be convertible into Class 1 Interests equal to 2.5% of the fully
diluted number of Class 1 Interests outstanding at the time of exercise. The
remaining Class 1 Interests shown in the table as being beneficially owned
by Motorola consists of 5,250,000 Class 1 Interests held by Iridium Canada
(33.3% of which is owned by a subsidiary of Motorola) and 5,250,000 Class 1
Interests held by Iridium India Telecom (20% of which is owned by a
subsidiary of Motorola). Although Motorola does not have the right to vote
or dispose of the Class 1 Interests held by these companies, it may be
deemed to beneficially own these interests because these companies cannot
dispose of their Class 1 Interests without the consent of the applicable
Motorola subsidiary. The beneficial ownership of Motorola does not include
Class 1 Interests issuable under warrants to which Motorola will become
entitled as a result of its guarantee of borrowings by Iridium or Class 1
Interests that may be issued pursuant to the Reserve Capital Call.
(3) Nippon Iridium (Bermuda) Limited is a wholly owned subsidiary of Nippon
Iridium Corporation, which is a consortium formed by DDI Corporation.
(4) Vebacom Holdings, Inc. is a wholly owned subsidiary of o.tel.o
communications GmbH & Co., which is owned by VEBA, RWE and Lehman Brothers
Bankhaus Aktiengesellschaft (as a fiduciary).
(5) No directors or executive officers of Parent own Class 1 Interests. As of
March 1, 1998, the IWCL directors and the executive officers of IWCL and
Parent owned an aggregate of 681,030 shares of Class A Common Stock and IWCL
owned 681,030 Class 1 Interests in respect of such Class A Common Stock. Up
to 2,625,000 shares of Class A Common Stock may be issued
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<PAGE> 120
pursuant to the Option Plan. As of March 31, 1998, options covering an
aggregate of 2,581,775 shares of Class A Common Stock had been granted under
the Option Plan. Options to purchase 530,978 shares of Class A Common Stock
were vested at March 31, 1998. See "Management -- Option Plan."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF IRIDIUM
MOTOROLA RELATED MATTERS
Motorola is one of the world's leading providers of electronic equipment,
systems, components and services. Its products include two-way radios, pagers,
cellular telephones and systems, semiconductors, defense and aerospace
electronics, automotive and industrial electronics 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 Parent's largest member,
owning directly and indirectly approximately 18% of the Class 1 Interests in
Iridium. The directors and officers of Parent and Iridium include numerous
current and former Motorola employees. Motorola is also Iridium's principal
supplier through the Space System Contract, the Operations and Maintenance
Contract and the Terrestrial Network Development Contract. See "Principal
Contracts for the Development of the IRIDIUM System."
Under a Support Agreement, Motorola provides certain general and
administrative support to Iridium. On a cost reimbursable basis, Motorola has
provided payroll processing and related benefits to Iridium employees, processed
payment to certain contractors providing support to Iridium and has provided
other administrative support. The amount of the services provided by Motorola
has declined as Iridium's internal staff has increased. In 1997, total payments
to Motorola under the Support Agreement were approximately $648,000.
Motorola MOU and Agreement Regarding Guarantee
Motorola initially guaranteed up to $750 million of Parent's borrowings
(including principal and interest) under the Guaranteed Bank Facility pursuant
to the Motorola Guarantee. In connection with the execution and delivery of the
Motorola Guarantee, Motorola and Parent entered into an Agreement Regarding
Guarantee (the "Original Agreement Regarding Guarantee"), under which (among
other things) Parent agreed (i) to reimburse Motorola for any payment required
pursuant to the Motorola Guarantee, (ii) not to take certain actions without
Motorola's approval and (iii) to pay to Motorola, as compensation for the
Motorola Guarantee, warrants to purchase Class 1 Interests. In addition,
pursuant to the Original Agreement Regarding Guarantee, Motorola was granted the
right to appoint an additional Director on the Parent Board and as security for
Iridium's reimbursement obligation under the Original Agreement Regarding
Guarantee, Parent granted to Motorola a security interest in substantially all
of its assets.
In connection with the offering of the Units and Series B Notes, Parent and
Motorola entered into a Memorandum of Understanding (the "Original Motorola
MOU") and amended and restated the Original Agreement Regarding Guarantee.
Pursuant to the Original Motorola MOU, (i) Motorola agreed to consent to an
amendment of the Guaranteed Bank Facility (and to enter into related amendments
to the Motorola Guarantee) in order to extend the maturity of such Facility
until after the Stated Maturity of the Initial Senior Notes (which is the same
date as the Stated Maturity of the Notes); (ii) Motorola agreed to consent to an
amendment to the Guaranteed Bank Facility (or to entry into a new bank credit
facility on the same terms) in order to increase such Facility by (or to
establish such new facility in the amount of) $350 million -- the amount of the
Motorola Additional Guarantee -- and to document the Motorola Additional
Guarantee; (iii) Parent agreed that, to the
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<PAGE> 121
extent the net proceeds to Iridium of senior note offerings prior to December
31, 1997 exceed $650 million, it would apply such excess to a prepayment of the
Guaranteed Bank Facility and to a permanent reduction of the commitments of the
lenders thereunder (provided that such commitments need not be reduced to an
amount less than $275 million) (as a result, the commitment under the Guaranteed
Bank Facility was reduced from $750 million to $655 million with the net
proceeds of the offering of the Units and the Series B Notes; for the purposes
of the offering of the Series C Notes only, Motorola waived this requirement
upon Iridium's permanent reduction of the Guaranteed Bank Facility and the
corresponding Motorola Guarantee by $205 million (to $450 million)); (iv)
Motorola agreed to release its security interest in Parent's assets granted
pursuant to the Original Agreement Regarding Guarantee; (v) Parent agreed to
repay all amounts outstanding under the Guaranteed Bank Facility and to
terminate the commitments of the lenders thereunder prior to or simultaneous
with any optional redemption of the Initial Senior Notes or the Notes; (vi)
Motorola agreed to subordinate certain of its claims to the claims of the
lenders under the Secured Bank Facility; (vii) Motorola agreed to allow Parent
to defer, at Parent's option, payment of approximately $96 million expected to
be due to Motorola on September 30, 1998 and thereafter pursuant to the
Terrestrial Network Development Contract until after the Stated Maturity of the
Initial Senior Notes (which is the same date as the Stated Maturity of the
Notes), with the amount deferred being compensated as part of the Motorola
Exposure (the amount of the deferral pursuant to the Motorola MOU (to the extent
exceeding amounts deferrable pursuant to the Terrestrial Network Development
Contract), including accrued interest thereon, the "FOC Payment Deferral"); and
(viii) during certain periods in which the Motorola Exposure (as defined below)
is less than $275 million and Motorola has not been required to make payments on
its guarantee of the Guaranteed Bank Facility, Motorola agreed to waive certain
rights it holds in connection with the Series B and Series C Class 2 Interests
of Parent (see "Description of Iridium LLC Limited Liability Company
Agreement").
In connection with the Offering and in order to reflect the agreements
among Motorola, Parent and Iridium in respect of (i) the Asset Drop-Down
Transaction, (ii) the issuance of the Notes and (iii) the Motorola Subscriber
Equipment Purchase Commitment, Motorola, Parent and Iridium intend to amend and
restate the Original Motorola MOU (as amended and restated the "Motorola MOU").
The Motorola MOU incorporates the following items from the previous paragraph:
(i), (ii), (v) (with Iridium substituted for Parent), (vi), (vii) (with Iridium
substituted for Parent), and (viii). In addition, under the Motorola MOU, Parent
and Iridium (on a consolidated basis) shall not have outstanding (i) in excess
of $1.7 billion of indebtedness for borrowed money that is secured by the assets
of Iridium, (ii) in excess of $1.62 billion in aggregate principal amount (or
initial gross proceeds in the case of Initial Senior Notes issued at a discount)
of senior notes (including, without limitation, the Initial Senior Notes and the
Notes) or (iii) any other indebtedness of the types described in (i) and (ii)
above if the aggregate amount of indebtedness of the types described in (i) and
(ii) would be in excess of $3.32 billion, unless, in each case, Motorola's
exposure under the Motorola Guarantee and certain other arrangements is within
certain limits.
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<PAGE> 122
In addition, pursuant to the Motorola MOU, (i) Motorola is expected to
agree to consent to an amendment to the Guaranteed Bank Facility (or to enter
into a new bank credit facility on the same terms (except as to maturity)) in
order to increase such Facility (or to establish such new facility) in the
amount of approximately $175 million -- the amount of the Motorola Equipment
Guarantee -- and to document the Motorola Equipment Guarantee and (ii) Iridium
is expected to agree to apply funds borrowed under the Motorola Equipment
Guarantee only to amounts due under the Motorola Standby Purchase Commitment or
other overdue amounts owed by Iridium to Motorola. See "-- Motorola Standby
Purchase Agreement."
In connection with the Offering and in order to reflect the agreements
among Motorola, Parent and Iridium in respect of the Asset Drop-Down Transaction
and the Motorola MOU, Motorola, Parent and Iridium intend to enter into the
Second Amended and Restated Agreement Regarding Guarantee (the "Agreement
Regarding Guarantee"). Under the Agreement Regarding Guarantee, (i) Iridium
would be obligated to reimburse Motorola for any payment required pursuant to
the Motorola Guarantee, the Motorola Additional Guarantee or the Motorola
Equipment Guarantee; provided, that if the Guaranteed Bank Facility is
accelerated as result of a Motorola-Based Default (as defined in the Agreement
Regarding Guarantee) such reimbursement will be made on the same terms as
provided in the Guaranteed Bank Facility or any other relevant credit agreement;
(ii) Iridium would agree not to, except in situations in which the Motorola
Exposure is $275 million or less and certain other conditions are satisfied,
take certain actions without Motorola's approval; and (iii) Parent must pay to
Motorola, as compensation for the Motorola Exposure, warrants to purchase Class
1 Interests based on the amount and duration of the Motorola Exposure. In the
event the Motorola Exposure is $275 million or less and certain other conditions
are satisfied, then in lieu of such warrants to purchase Class 1 Interests,
Iridium may pay to Motorola, as compensation for the Motorola Exposure ("High
Yield Compensation"), (i) interest thereon at an interest rate equal to the
excess of the rate borne by the Initial Senior Notes over the rate applicable
under the Guaranteed Bank Facility or any other relevant credit agreement, and
(ii) for each day, the average daily warrant compensation payable to holders of
senior notes of Iridium multiplied by the Motorola Exposure (pro rata based on
the amount and duration of the Motorola Exposure compared with the amount and
duration of such senior notes).
"Motorola Exposure" means the commitments of the lenders under the
Guaranteed Bank Facility, the payments made by Motorola pursuant to the Motorola
Guarantee or the Motorola Additional Guarantee (to the extent not repaid by
Iridium) and the Vendor Financing Amount. "Vendor Financing Amount" means the
amount of the FOC Payment Deferral (if such deferral is exercised) and any other
vendor financing provided by Motorola to or for the benefit of Iridium, other
than any vendor financing or payment deferral under the Terrestrial Network
Development Contract as in effect on the date of the Agreement Regarding
Guarantee.
Motorola Standby Purchase Commitment
Iridium intends to enter into a standby purchase agreement with Motorola
(the "Motorola Standby Purchase Commitment") pursuant to which Iridium will
agree to purchase up to an aggregate of approximately $220 million of Iridium
subscriber equipment from Motorola, if and to the extent such equipment is not
delivered to gateway operators or service providers prior to January 1, 1999.
While Iridium expects that the gateway owners and service providers will
purchase Iridium subscriber equipment for delivery prior to January 1, 1999 in
an amount equal to or greater than its standby purchase commitment to Motorola,
there can be no assurance that such purchases will be made. See "Risk
Factors -- Potential for Delay and Cost Overruns."
Motorola Conflicts of Interest
Motorola has and may have various conflicts of interest with Iridium and
with other members of Parent. See "Risk Factors -- Conflicts of Interest with
Motorola." Motorola is the principal supplier to Iridium as well as the actual
or prospective supplier and licensor to gateway owners and
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<PAGE> 123
operators, service providers, subscriber equipment manufacturers and individual
subscribers. See "Risk Factors -- Reliance on Motorola, Gateway Owners and Other
Third Parties." Motorola has asserted and may assert positions on the Space
System Contract, Operations and Maintenance Contract, the Terrestrial Network
Development Contract and the Guarantee Agreement that are contrary to those
asserted by Iridium. See "Principal Contracts for the Development of the IRIDIUM
System" and "Risk Factors -- Satellite Launch Risks." To help ameliorate these
conflicts under the Space System Contract, the Operations and Maintenance
Contract and the Terrestrial Network Development Contract, Iridium maintains a
Related Party Contracts Committee of the Iridium Board which consists of all
Board members other than any Board members who are directors, officers,
employees or persons nominated to serve on the Board of Directors by Motorola
(so long as Motorola is a party to the Space System Contract, the Operations and
Maintenance Contract or the Terrestrial Network Development Contract), Lockheed
Martin or Raytheon (so long as Lockheed Martin or Raytheon, as the case may be,
are subcontractors to Motorola under the Space System Contract or the Operations
and Maintenance Contract). The Related Party Contracts Committee has authority
to review and monitor the Space System Contract, the Operations and Maintenance
Contract and the Terrestrial Network Development Contract and, as it deems
appropriate, cause Iridium to enforce its rights thereunder and propose
amendments and waivers to these contracts. Iridium's payment obligations under
these contracts comprised most of Iridium's expenses and a portion of the
proceeds of the Original Offering have been or will be used primarily to make
milestone payments under the Space System Contract and the Terrestrial Network
Development Contract. See "Risk Factors -- Conflicts of Interest with Motorola"
and "Use of Proceeds."
Motorola has been involved in the manufacture of components for satellites
for over thirty years. Motorola has informed Iridium that it has under
consideration possible future space-based data and communications systems and
ventures. Motorola has also informed Iridium that Motorola may decide to
undertake further development of one or more such systems or ventures but no
decision has been made as to whether Iridium would be a participant in any such
system or venture. It is possible that any such system could be competitive to
some degree with the IRIDIUM System. Motorola has agreed in the Space System
Contract that, without Iridium's consent, it will not produce for itself or
others a similar satellite-based space system of a global communication system
for commercial use prior to the earlier of July 31, 2003 or the termination date
of the Space System Contract. Subsidiaries of Motorola have applied to the FCC
for licenses to construct, launch and operate satellite-based systems designed
to provide fixed-broadband, fixed-data transmissions.
KYOCERA RELATED MATTERS
Kyocera, an affiliate of Nippon Iridium Corporation, a holder of
approximately 11.2% of the Class 1 Interests, has entered into a license
agreement with Motorola with respect to the development and manufacture of
multi-mode phones for use with the IRIDIUM System. This license agreement does
not obligate Kyocera to develop, manufacture or sell any Iridium subscriber
equipment. Iridium expects that Kyocera will develop, manufacture and sell
multi-mode phones for use with the IRIDIUM System. Iridium intends to enter into
a contract with Motorola to cover the expenses associated with testing the
Kyocera subscriber equipment with the IRIDIUM System, estimated to be $12.2
million.
Kyocera Standby Purchase Commitment and Kyocera Equipment Guarantee
Iridium intends to enter into a standby purchase agreement with Kyocera
(the "Kyocera Standby Purchase Commitment") pursuant to which Iridium will agree
to purchase up to an aggregate of approximately $180 million of Iridium
subscriber equipment from Kyocera, if and to the extent such equipment is not
purchased by or delivered to gateway operators and service providers prior to
January 1, 1999. While Iridium expects that the gateway owners and service
providers will purchase Iridium subscriber equipment for delivery prior to
January 1, 1999 in an amount equal to or greater than its standby purchase
commitment to Kyocera, there can be no assurance that such
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<PAGE> 124
purchases will be made. See "Risk Factors -- Potential for Delay and Cost
Overruns". In addition, pursuant to an agreement regarding guarantee, (i)
Kyocera intends to guarantee borrowings under a credit facility in an aggregate
amount up to approximately $122.5 million (such borrowings, the "Kyocera
Exposure") for Iridium's purchases under the Kyocera Standby Purchase Commitment
and (ii) Iridium has agreed to pay Kyocera, as compensation for the Kyocera
Exposure, High Yield Compensation calculated based on the amount and duration of
the Kyocera Exposure in an amount equal to the High Yield Compensation. See
"-- Motorola Related Matters -- Motorola Standby Purchase Commitment."
ARRANGEMENTS REGARDING THE CHINA GATEWAY
In order to facilitate the installation of gateway equipment and the timely
operation of the gateway in China, Motorola, Iridium, Parent, Iridium China
(Hong Kong), Ltd. ("Iridium China"), the China Ministry of Information
Industries (formerly the Ministry of Posts and Telecommunications) (the "MII")
and China Sat (an affiliate of MII) have entered into several agreements and
other arrangements. As described under "Business -- The Iridium
System -- Gateways," Parent has authorized the issuance of warrants to acquire
Class 1 Interests to gateway owners and other members of Parent who complete
installation of their gateways on schedule and upon meeting certain revenue
criteria thereafter (the "Gateway Incentive Warrants"). Iridium China has agreed
to waive its right to receive any Gateway Incentive Warrants in respect of the
China gateway (the "China Warrants") and Parent has agreed that the China
Warrants may be earned by Motorola for using its best efforts to cause the China
gateway to be completed and operational on a timely basis. Pursuant to an
arrangement among Iridium, Motorola and China Sat, Motorola has agreed to
provide China Sat with certain gateway equipment and related services for the
China gateway, with a value of approximately $26 million, at no charge and
Iridium has agreed to provide China Sat with certain gateway business support
software, with a value of approximately $6 million, at no charge.
In connection with Motorola obtaining the right to earn the China Warrants
and Motorola and Iridium agreeing to provide the China gateway equipment and
services at no charge, Iridium China, Motorola and Iridium have entered into two
agreements with respect to the China Warrants. Motorola has agreed with Iridium
China that, on or before 90 days after the last date declared by Parent for the
issuance of Gateway Incentive Warrants (the "Expiration Date"), Iridium China
can purchase from Motorola the China Warrants issued to Motorola at an aggregate
price equal to approximately $26 million plus certain related costs and accrued
interest from the date of shipment of the gateway equipment (the "Warrant
Purchase Price"). Pursuant to an agreement between Motorola and Iridium,
Motorola and Iridium have agreed that (i) if Iridium China purchases the China
Warrants from Motorola on or prior to the Expiration Date, Motorola will pay
Iridium $6 million plus accrued interest from the date of shipment of the
gateway equipment (ii) if Iridium China does not purchase the China Warrants
from Motorola on or prior to the Expiration Date, Motorola may require Iridium
to purchase from Motorola, and Iridium may require Motorola to sell to Iridium,
all (but not less than all) of the China Warrants at the Warrant Purchase Price
(less interest) and (iii) if Iridium China does not purchase the China Warrants
from Motorola on or prior to the Expiration Date and Iridium does not purchase
the China Warrants pursuant to clause (ii), then Motorola shall have the
obligation to sell and Iridium shall have the obligation to purchase 18.75% of
the China Warrants for an aggregate purchase price of $1.
OTHER MATTERS
Iridium Services Deutschland, a wholly owned subsidiary of o.tel.o
communications GmbH & Co., the parent of Vebacom Holdings, Inc., a holder of
approximately 8.8% of the Class 1 Interests, was allocated a gateway service
territory consisting of several countries in or near Europe. Nippon Iridium
Corporation, an affiliate of Nippon Iridium (Bermuda) Corporation, a holder of
approximately 11.2% of the Class 1 Interests, was allocated the Japan gateway
service territory. Each of o.tel.o
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communications GmbH & Co. and Nippon Iridium Corporation have entered into a
Gateway Authorization Agreement, pursuant to which they, or their affiliates,
will operate their respective Gateway service territory and provide gateway
services. In addition, o.tel.o communications GmbH & Co. and Nippon Iridium
Corporation will serve as service providers to their respective gateway
territory and, as such, will be entitled to payments associated with sales of
IRIDIUM Services.
Certain of the directors of IWCL are, or have been within the past year,
executive officers of suppliers of Parent or Iridium. In addition, certain of
the directors of Parent or Iridium are executive officers of gateway owners and
service providers. See "Management" and "Risk Factors -- Conflict of Interest
with Gateway Owners."
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PARENT'S INVESTORS, NUMBER OF CLASS 1 INTERESTS OWNED,
PERCENTAGE OWNERSHIP AND PRINCIPAL GATEWAY SERVICE TERRITORIES
Iridium is a wholly owned subsidiary of Parent. Set forth below is a
summary of the investors in Parent, the number of Class 1 Interests owned by
each investor, their percentage ownership of Class 1 Interests and, if
applicable, their principal gateway service territories at March 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
CLASS 1
INTERESTS PERCENTAGE
INVESTOR OWNED(1) OWNERSHIP(2) PRINCIPAL GATEWAY SERVICE TERRITORY
-------- ---------- ------------ -----------------------------------
<S> <C> <C> <C>
IWCL............................. 12,026,402 8.51 Not Applicable
Iridium Africa Corporation....... 4,500,000 3.19 Africa (excluding Morocco and
Egypt) and Turkey
Iridium Andes -- Caribe.......... 4,350,000 3.08 South America and Caribbean(4)
Iridium Brasil Ltda. ............ 2,824,755 2.00 South America and Caribbean(3)
Iridium Canada, Inc. ............ 5,250,000(4) 3.72 North America(5)
Iridium China (Hong Kong)
Ltd. .......................... 5,250,000 3.72 China, Mongolia, Hong Kong and
Macau
Iridium India Telecom Limited.... 5,250,000 3.72 Indian Subcontinent
Iridium Italia S.p.A. ........... 5,550,000 3.93 Certain countries in Europe includ-
ing Belgium, Denmark, France,
Greece, Italy, Luxembourg, the
Netherlands and Switzerland(4)
Iridium Middle East
Corporation.................... 6,000,000 4.25 Middle East, Morocco, Egypt and
Central Asia
Khrunichev State Research and
Production Center.............. 6,133,125 4.34 Russia and eight other republics of
the Commonwealth of Independent
States
Motorola, Inc. .................. 25,033,425(5) 17.72 North America(3), Mexico(6) and
Central America, South America and
Caribbean(4)
Nippon Iridium (Bermuda)
Limited........................ 15,750,000 11.15 Japan
Pacific Iridium Telecommunica-
tions Corporation.............. 5,250,000 3.72 Indonesia, Brunei, Papua New
Guinea, the Philippines and Taiwan
SK Telecom....................... 5,250,000(5) 3.72 North Korea and South Korea
South Pacific Iridium
Holdings(7).................... 7,500,000 5.31 Certain countries in the South
Pacific
Sprint Iridium, Inc. ............ 5,250,000 3.72 region including Australia and New
Zealand North America(3)
Thai Satellite Telecommunications
Co., Ltd. ..................... 5,250,000 3.72 Southeast Asia
</TABLE>
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<TABLE>
<CAPTION>
NUMBER OF
CLASS 1
INTERESTS PERCENTAGE
INVESTOR OWNED(1) OWNERSHIP(2) PRINCIPAL GATEWAY SERVICE TERRITORY
-------- ---------- ------------ -----------------------------------
<S> <C> <C> <C>
Vebacom Holdings, Inc. .......... 12,427,875 8.80 Certain countries in or near Europe
including Austria, Bulgaria, the
Czech Republic, Finland, Germany,
Hungary, Ireland, Israel, Norway,
Poland, Portugal, Romania, Spain,
Sweden, Slovakia, Ukraine and the
United Kingdom
Lockheed Martin Corporation...... 1,500,000 1.05 Not Applicable
Raytheon Company................. 900,000 0.63 Not Applicable
</TABLE>
- ---------------
(1) Represents each investor's direct holdings of outstanding Class 1 Interests,
excluding Class 1 Interests issuable upon exercise of outstanding options,
warrants (including the LLC Interest Warrants) and conversion of outstanding
convertible securities.
(2) The percentages do not give effect to any Class 1 Interests that IWCL may
have acquired or will acquire as a result of the application of the proceeds
from the sale of shares of IWCL's non-voting Class B Common Stock, par value
$.01 per share (the "Class B Common Stock") pursuant to the Global Ownership
Program. See "Certain Matters Regarding Relationship Among IWCL, Parent and
Iridium -- Global Ownership Program."
(3) 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.
(4) As of March 31, 1998, SK Telecom and Sprint Iridium, Inc. each owned 15,434
Series A Class 2 Interests in addition to the Class 1 Interest set forth
above. Similarly, Motorola, Inc. also owns 1 Series B Class 2 Interest and
75 Series C Class 2 Interests. BCE Mobile Communications, Inc., an affiliate
of Iridium Canada, Inc., owns 10,486 Series Class 2 Interests.
(5) The North American gateway service territory, principally consisting of the
United States and Canada, is shared by Iridium Canada, Motorola and Sprint.
(6) It is anticipated that the Mexican gateway service territory initially will
be served by the North American gateway equipment.
(7) The investment by South Pacific Iridium Holdings is comprised of an
investment by South Pacific Iridium Holdings Limited and an investment by
South Pacific Iridium Holdings II Limited, each in 3,750,000 Class 1
Interests. The South Pacific gateway service territory was allocated to
South Pacific Iridium Holdings Limited.
IWCL was incorporated by Iridium on December 12, 1996. Its only asset is
its interest in Iridium and its only activity is participating in the management
of Iridium. See "Certain Matters Regarding Relationship Among IWCL, Parent and
Iridium."
IRIDIUM AFRICA CORPORATION was formed by Mawarid Overseas Company Limited
to invest in Iridium. Mawarid Overseas Company Limited is related to the Mawarid
Group, one of the largest industrial groups in Saudi Arabia, with operations in
satellite broadcasting, financial services, trading, manufacturing,
construction, telecommunications, and municipal and health care services.
Iridium Africa Corporation has been allocated a gateway service territory
consisting of over 50 countries located primarily in or near Africa (excluding
Morocco and Egypt) and Turkey.
IRIDIUM CANADA, INC. is a corporation owned one-third by a Motorola
subsidiary and one-third each by two subsidiaries of BCE, Inc. -- BCE Mobile
Communications, Inc. and Bell Canada International, Inc. BCE, Inc. is Canada's
largest telecommunications company. BCE Mobile provides
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<PAGE> 128
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 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 Telecom Italia. 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.
Telecom Italia (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
Telecom Italia, Telespazio, for work related to the backup system control
facility, gateways and other portions of the IRIDIUM System. Iridium Italia has
been allocated a gateway service territory consisting of certain countries in
Europe including Belgium, Denmark, France, Greece, Italy, Luxembourg, the
Netherlands and Switzerland.
IRIDIUM MIDDLE EAST CORPORATION is owned one-half by Mawarid Overseas
Company Limited and one-half by Trinford Investments S.A. Trinford Investments
is a company affiliated with the Saudi Binladin Group. Binladin is also one of
the largest diversified industrial groups in Saudi Arabia, with operations
covering major construction projects, airport maintenance and operation,
telecommunications and hotels. Both Mawarid and Binladin operate
internationally. Iridium Middle East Corporation has been allocated a gateway
service territory consisting of over 20 countries located in the Middle East and
Central Asia, as well as Morocco and Egypt.
IRIDIUM SUDAMERICA CORPORATION is owned by Iridium Andes-Caribe, Iridium
Brasil Ltda., Iridium Italia and a wholly owned subsidiary of Motorola. Iridium
Andes-Caribe is a consortium of private Venezuelan investors with experience in
consumer foodstuffs, communications, construction, finance and retailing.
Inepar, the majority owner of Iridium Brasil, is a diversified Brazilian
corporation with operations in telecommunications, electrical current control
equipment and services, mass transport, vehicle distribution and financial
markets. Iridium SudAmerica has been allocated a gateway service territory
consisting of approximately 40 countries located primarily in South America and
the Caribbean.
KHRUNICHEV STATE RESEARCH AND PRODUCTION SPACE CENTER is a state-owned
aerospace engineering and manufacturing company in the Russian Federation.
Khrunichev has been engaged in the manufacture of launch vehicles, orbital
stations and other space equipment for more than 30 years. Khrunichev has
contracted to provide launch services to Motorola with the Proton rocket as part
of the deployment of the space segment. Khrunichev has also been allocated a
gateway service territory consisting of Belarus, Estonia, Georgia, Kazakhstan,
Latvia, Lithuania, Moldova, the Russian Federation and Uzbekistan.
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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, data communications, and information processing and
handling equipment. Motorola is the primary contractor to Iridium and the
Iridium gateway operators for the procurement of components of the IRIDIUM
System. See "Business -- Progress to Date." Motorola has also been allocated, or
otherwise received: (i) a share of the North American gateway service territory
along with Iridium Canada, Inc. and Sprint Corporation; (ii) the entire
Mexican/Central American gateway service territory; (iii) an interest in Iridium
SudAmerica, which has been allocated the gateway service territory including
South America and the Caribbean; and (iv) an interest in Iridium India Telecom
Limited, which has been allocated the gateway service territory for the Indian
subcontinent.
NIPPON IRIDIUM (BERMUDA) LIMITED is a wholly owned subsidiary of Nippon
Iridium Corporation which is a consortium company formed in Bermuda by DDI
Corporation, Japan's leading independent telecommunications company and a
provider of cellular, PHS and long distance telephone service, and Kyocera
Corporation, a supplier of ceramic integrated circuit packages, electronic
components and electronic equipment. Investors in Nippon Iridium Corporation
include Kansai Cellular Telephone Co., Ltd., Ushio Inc., SECOM Co., Ltd., Sony
Corporation, Mitsui & Co., Ltd., Kyushu Cellular Telephone Co., Ltd., Chugoku
Cellular Telephone Co., Ltd., Shikoku Cellular Telephone Co., Ltd., Tohoku
Cellular Telephone Co., Ltd., Hokuriku Cellular Telephone Co., Ltd., Hokkaido
Cellular Telephone Co., Ltd., The Sanwa Bank Limited, Daiwa Securities Co.,
Ltd., The Industrial Bank of Japan, Limited, The Long-Term Credit Bank of Japan,
Ltd., and Mitsubishi Corporation. Nippon Iridium Corporation has been allocated
the Japan gateway service territory.
PACIFIC IRIDIUM TELECOMMUNICATIONS CORPORATION("PITC") is a subsidiary of
Pacific Electric Wire & Cable Co., Ltd. ("PEWC"), 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. PITC has been
allocated a gateway service territory consisting of Taiwan, Indonesia, Brunei,
Papua New Guinea and the Philippines.
SK TELECOM was formed by Korea Telecommunications Corporation to provide
cellular and paging services in the Republic of Korea. Management control of
Korea Mobile Telecommunications Corporation is held by Sunkyong Business Group,
a large Korean conglomerate. Korea Mobile Telecommunications Corporation has
been allocated the gateway service territory consisting of North Korea and South
Korea.
SOUTH PACIFIC IRIDIUM HOLDINGS LIMITED AND SOUTH PACIFIC IRIDIUM HOLDINGS
II LIMITED are each a subsidiary of P.T. Bakrie & Brothers ("Bakrie"), a major
Indonesian conglomerate, with operations in plantations, rubber trading,
infrastructure support and telecommunications. Through subsidiaries, including
P.T. Bakrie Communications Corporation, Bakrie provides cellular services in
Indonesia (Ratelindo), Australia (Link Communications) and fixed wire services
in Vietnam and Uzbekistan. In connection with its investment in Iridium, South
Pacific Iridium Holdings Limited was allocated the South Pacific gateway service
territory.
SPRINT IRIDIUM, INC. is an indirect wholly owned subsidiary of Sprint
Corporation. Sprint Corporation is a diversified telecommunications company with
the only nationwide all-digital fiber-optic network in the United States. Its
divisions provide global voice, data and video conferencing services and related
products. Sprint Corporation has been allocated a share of the North American
gateway service territory along with Iridium Canada, Inc. and Motorola.
THAI SATELLITE TELECOMMUNICATIONS CO., LTD. is a company formed by United
Communications Industry Co., Ltd. of Thailand ("UCOM") to invest in Iridium.
UCOM is one of the largest cellular and paging operators in Thailand and is also
a reseller of communications equipment. Thai Satellite
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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 o.tel.o communications
GmbH & Co., which is owned by VEBA AG, RWE AG and Lehman Brothers Bankhaus
Aktiengesellschaft (as a fiduciary). VEBA AG, the indirect owner of o.tel.o
communications GmbH & Co., together with its subsidiaries, is one of the largest
corporations in Germany. Its telecommunications branch offers a wide variety of
telecommunications services including mobile communications, satellite
communications services, network management, cable television and paging
services. Vebacom has been allocated a gateway service territory consisting of
countries in or near Europe including Austria, Bulgaria, the Czech Republic,
Finland, Germany, Hungary, Ireland, Israel, Norway, Poland, Portugal, Romania,
Spain, Sweden, Slovakia, Ukraine and the United Kingdom.
The following investors have not been allocated a gateway service
territory:
LOCKHEED MARTIN CORPORATION is a world leader in defense and space systems
technology, designing and producing military aircraft, missiles, electronic
systems and satellites, as well as providing a wide range of government and
commercial aeronautical, space, environmental and engineering services. Lockheed
Martin is a principal subcontractor to Motorola in the construction of Iridium
satellites.
RAYTHEON COMPANY is engaged in the conception, development, manufacture and
sale of electronic systems, equipment and components for government and
commercial use. Raytheon also has operations in aircraft products and energy and
environmental services. Raytheon is a principal subcontractor to Motorola in the
construction of the IRIDIUM System and is primarily responsible for providing
the main mission antennas for the satellites.
DESCRIPTION OF PARENT LIMITED LIABILITY COMPANY AGREEMENT
Iridium is a wholly owned subsidiary of Parent, and all of the directors
and officers of Parent are also directors and officers of Iridium. Certain
provisions of the Parent LLC Agreement are incorporated into the Iridium LLC
Agreement. The following is a summary of certain provisions of the Limited
Liability Company Agreement of Parent, dated as of July 29, 1996, as amended
(the "Parent LLC Agreement"). This summary does not purport to be a complete
description of the Parent LLC Agreement, and is qualified in its entirety by
reference to the Parent LLC Agreement which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and is available
upon request to Parent at 1575 Eye Street N.W., Washington, D.C. 20005,
Attention: Secretary.
Parent is not an issuer of, and has no obligation with respect to, the
Notes. See "Description of Notes -- No Liability of Directors, Officers,
Employees and Stockholders."
ESTABLISHMENT; PURPOSE
Parent was formed as a limited liability company pursuant to the provisions
of the Delaware Limited Liability Company Act (the "Delaware Act") on July 16,
1996. Iridium, Inc., a Delaware corporation and the predecessor of Parent, was
formed on June 14, 1991. On July 29, 1996, Iridium, Inc. was merged with and
into Parent, with Parent as the surviving entity. On December 18, 1997, Parent
transferred substantially all of its assets and liabilities to Iridium. See
"Ownership Structure and Strategic Investors -- Asset Drop-Down Transaction."
Parent's purpose is to acquire, own and manage the IRIDIUM System, which it does
through its wholly owned subsidiary, Iridium.
THE PARENT BOARD; COMMITTEE STRUCTURE AND MANAGEMENT
Parent is governed by the Parent Board. The Members may manage Parent only
through their designated directors and have no authority, in their capacity as
members, to act on behalf of Parent.
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The day-to-day activities of Parent are managed by its officers, subject to the
supervision of the Parent Board. The officers are nominated and elected by the
Parent Board. The Parent LLC Agreement requires that the Chairman of the Parent
Board be a director and that the Vice Chairman and Chief Executive Officer be a
director.
Each Member, other than IWCL, is entitled to appoint one director to the
Parent Board for each 5,250,000 Class 1 Interests owned. Class 1 Members, other
than IWCL, may aggregate their Class 1 Interests and appoint one director for
each 5,250,000 Class 1 Interests owned in the aggregate.
The Parent Board may act through one or more committees established by the
Parent LLC Agreement or by resolution, with each committee having the powers of
the Parent Board to the extent provided in the Parent LLC Agreement or the
relevant resolution. The Parent LLC Agreement establishes the following four
committees, which are the only existing committees of the Parent Board:
Banking and Financing Committee. This committee is authorized generally to
supervise matters relating to the financing of Parent. The committee must
consist of not fewer than eight directors.
Related Party Contract Committee. This committee consists of all directors
of Parent 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 Parent Board, who are not officers or
employees of Iridium. The committee has the authority to review, and provide
recommendations relating to the compensation and benefits of managerial
employees and has authority to administer the Option Plan (unless the Parent
Board appoints a substitute committee).
Audit Committee. This committee is required to review, and make
recommendations regarding, Parent'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 Parent Board, who are not officers or employees of
Parent. See "-- Classes of Membership Interests -- Series B and Series C Class 2
Interests" for certain special rights with respect to the Parent Board and its
committees that have been granted to Motorola in connection with its guarantee
of the borrowings under the Guaranteed Bank Facility.
SPECIAL RIGHTS OF IWCL IN THE GOVERNANCE OF PARENT
The Parent LLC Agreement provides that IWCL will have certain special
membership rights during the Special Rights Period (as defined). See "Certain
Matters Regarding Relationship Among IWCL, Parent and Iridium." During the IWCL
Special Rights Period (i) IWCL shall be entitled to designate two Independent
Company Directors as directors of Parent, (ii) one director of Parent designated
by IWCL shall be elected Vice Chairman of the Parent Board and (iii) one
director of Parent designated by IWCL shall be a member of each committee of the
Parent Board. Pursuant to the Parent LLC Agreement, IWCL will not be entitled to
appoint more than two directors to the Parent Board even if its ownership
interest increases and it would otherwise have been entitled to additional
appointment rights. In addition to any other voting rights which IWCL may have
under the Parent LLC Agreement, under the Delaware Act or otherwise, during the
IWCL Special Rights Period, Parent may not take any of the following actions, or
permit any of the following actions or
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events to occur, without the consent of one of the directors of Parent
designated by IWCL: (i) make any material amendments or modifications to the
Parent LLC Agreement; (ii) approve any business plan of Parent that would result
in any material change in the purpose of Parent as set forth in the Parent LLC
Agreement or otherwise change Parent's business so that it varies materially
from the business purpose contemplated by the Parent LLC Agreement; (iii)
acquire, other than in the ordinary course of business of Parent, (a) a
controlling interest or a majority of the voting stock or equity of, any
corporation or other entity that would be a Significant Subsidiary (as such term
is defined in the rules under the Securities Act) or (b) any other assets if the
aggregate fair market value thereof is greater than $50 million; (iv) sell,
lease (as lessor), exchange or otherwise dispose of all or substantially all of
the assets of Parent (other than to a person controlled by Parent); (v) cause
the dissolution and/or liquidation of Parent; or (vi) take certain bankruptcy or
insolvency related actions with respect to Parent.
CLASSES OF MEMBERSHIP INTERESTS
The Members' interests in Parent are divided into two classes: "Class 1
Interests" which represent the common equity of Parent and "Class 2 Interests"
which represent the preferred equity of Parent. The Parent LLC Agreement
authorizes Parent to issue 225,000,000 Class 1 Interests, 50,000 Series M Class
2 Interests and 300,000 additional Class 2 Interests. At March 31, 1998 there
were 141,245,582 Class 1 Interests issued and outstanding. There are three
Series of Class 2 Interests outstanding.
Class 1 Interests. Subject to the rights of holders of any Series of Class
2 Interests, all voting rights of the Members are vested in the Class 1
Interests.
Series A Class 2 Interests. The Series A Class 2 Interests are convertible
preferred interests that are entitled to dividends at a rate of 14 1/2% per
annum from the Original Issue Date to, but not including, the relevant Series A
Redemption Date. The dividends on the Series A Class 2 Interests are payable,
either in kind or in cash, at the option of Parent, 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 Parent 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 $54.03. The
Series A Conversion Price is adjusted from time to time to reflect, among other
things, distributions or reclassification of the Class 1 Interests. At December
31, 1997, each Series A Class 2 Interest was convertible into 18.51 Class 1
Interests. The Series A Class 2 Interests are redeemable, at the option of
Iridium, at any time after March 1, 2001 at redemption prices that adjust
downward each March 1 for four years at a proportionate rate from 107.5% of the
Series A Liquidation Preference ($1,000 plus accrued and unpaid dividends) on
March 1, 2001 to 100% of the Series A Liquidation Preference on March 1, 2005.
After March 1, 2005 the Series A Class 2 Interests are redeemable at 100% of the
Series A Liquidation Preference. At March 1, 1998 there were 40,876 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, Parent 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 Parent Board in addition
to Directors it may otherwise appoint as the owner of Class 1 Interests and
Series M Class 2 Interests. The Series C Class 2 Interests entitle Motorola to
appoint a majority of the Board of Directors (and of all committees other than
the Related Party Contract Committee) in the event of certain events of default
relating to the Guaranteed Bank Facility. The Series B and Series C Class 2
Interests are redeemable by Parent at $.01 per Interest upon the later of (i)
the termination or expiration of the
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Guarantee Agreement of Motorola and (ii) the reimbursement of any payments made
by Motorola pursuant to the Guarantee Agreement.
Series M Class 2 Interests. Motorola owns a warrant (the "Series M
Warrant") to purchase Series M Class 2 Interests in an amount that would be
convertible into 2.5% of the outstanding Class 1 Interests at the time of
exercise of the Series M Warrant, calculated on a fully diluted basis, at a
price of $1,000 per Series M Class 2 Interest, subject to antidilution
adjustments. No Series M Class 2 Interests are currently outstanding. Dividends
on each Series M Class 2 Interest will accrue at the rate of 8.00% per annum of
the sum of the Liquidation Value thereof plus all accumulated and unpaid
dividends thereon, from and including the date of issuance of such Interest to
and including the date on which the Liquidation Value of such Interests is paid
or the date on which such Interest is converted into Class 1 Interests.
Dividends accrue whether or not they have been declared and whether or not there
are profits or other funds of Parent legally available for the payment of
dividends. Additionally, when dividends are declared or paid on the Class 1
Interests, the holders of Series M Class 2 Interests will be entitled to
participate in such dividends ratably. The Series M Class 2 Interests are
convertible into Class 1 Interests at any time at the option of the holder. The
number of Class 1 Interests into which the Series M Class 2 Interests are
convertible is computed by multiplying the number of Series M Class 2 Interests
to be converted by $1,000 and dividing the result by the Series M Conversion
Price then in effect. The initial Series M Conversion Price is $13.33, but is
subject to antidilution adjustments from time to time, and at the current Series
M Conversion Price each Series M Class 2 Interest would be convertible into 75
Class 1 Interests. Upon the occurrence of an Event of Noncompliance, defined as
a failure by Parent 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
Parent 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 Parent 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 Parent LLC Agreement provides that Parent may merge or consolidate with
one or more limited liability companies, corporations, or similar entities
provided that the transaction is approved by the Parent 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 Parent 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 Parent 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 Parent.
The Parent LLC Agreement requires the Parent Board, to the extent of
legally available funds, to declare and pay a pro rata dividend in an amount
which, when added to any prior dividends paid with respect to the profits of the
same year, is sufficient to assure that each non-U.S. Class 1 Member receives an
amount at least equal to the amount of such Member's U.S. federal, state and
local income tax liability resulting from allocations of Parent's income to such
Member.
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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 Parent Board may, at any time, cause Parent to admit additional
Members upon conditions determined by the Parent Board. Subject to certain
exceptions, if Parent authorizes the issuance or sale of any Class 1 Interests,
Parent 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 Parent LLC Agreement contains significant restrictions on the ability
of a Member to transfer any Class 1 Interests or Class 2 Interests in Parent.
Prior to making any transfer of Class 1 Interests or Class 2 Interests in Parent
(other than certain transfers to affiliates), the person seeking to make such
transfer must notify Parent 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 Parent Board
approve the transfer and (ii) the transfer not result in any person (other then
IWCL) beneficially owning, or having the right to beneficially own, more than
45% of the outstanding Class 1 Interests. In addition, Parent may elect to
purchase all (but not less than all) of the Class 1 and Class 2 Interests to be
transferred upon the terms and conditions of the proposed transfer and, if
Parent elects not to make such purchase, any of the holders of Class 1 and Class
2 Interests may purchase all (but not less than all) of the Class 1 and Class 2
Interests to be transferred on a pro rata basis.
The Parent LLC Agreement provides that as long as Motorola is the principal
supplier to Parent and/or Motorola or one of its subsidiaries is the holder for
the benefit of Parent of any FCC license to construct, operate or launch the
IRIDIUM System, Motorola will not transfer (other than certain exempt transfers)
any of its Class 1 Interests issued in respect of common stock of Iridium, Inc.
purchased under the 1993 Stock Purchase Agreement. This restriction does not
apply to any Class 1 Interests purchased pursuant to the Reserve Capital Call.
In addition, in the event that Motorola no longer is the principal supplier to
Parent and neither Motorola nor one of its subsidiaries is the holder for the
benefit of Parent 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 Parent, with respect to each Member who
purchases an Interest, are made in an amount equal to the net purchase price to
Parent for such Interest (such amount being such Member's capital contribution
to Parent). The Parent 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
Parent at all times. Members generally are not required to make additional
capital contributions to Parent other than in connection with the Reserve
Capital Call.
Seventeen Members of Parent have made varying Reserve Capital Call
commitments to purchase an aggregate of 18,206,550 additional Class 1 Interests
at a purchase price of $13.33 per Class 1 Interest, upon a date thirty days
after the date of the receipt of a funding notice from the treasurer of Parent.
Subject to restrictions imposed pursuant to the Secured Bank Facility, the
treasurer of Parent is required to provide such a notice on the date on which
the treasurer has first determined that Parent 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 Parent LLC Agreement provides Parent with several
non-exclusive remedies in the event a Member fails to pay any of the amounts
required by a Reserve Capital Call, including
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redeeming the defaulting Member's Class 1 Interests for an amount equal to $1.33
per Class 1 Interest. Pursuant to the Secured Bank Facility, Parent pledged its
rights with respect to the Reserve Capital Call. Parent will be restricted from
exercising the Reserve Capital Call. See "Description of Other
Indebtedness -- Secured Bank Facility."
Except with respect to the Reserve Capital Call and to the extent described
under "Description of Other Indebtedness -- Secured Bank Facility -- Ranking and
Collateral," Parent is not obligated to contribute the net proceeds of any
offering of its interests to Iridium, or otherwise to use such net proceeds in
connection with the business of Iridium.
LIMITATIONS ON LIABILITY
In accordance with the Delaware Act, Members are generally not liable for
the debts, obligations or liabilities of Parent. Pursuant to the Parent LLC
Agreement, and in accordance with the Delaware Act, IWCL has waived the
limitation on liability contained in the Delaware Act, provided that IWCL has no
liability to any person, including Iridium, for any debt, obligation or
liability of Parent until all of the assets and capital of Parent 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 Parent have only the duties set forth in
the Parent LLC Agreement. The Parent LLC Agreement provides that the duties and
obligations owed to Parent and to the Members by the directors and officers of
Parent, 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
Parent LLC Agreement also provides that, to the fullest extent permitted by the
Delaware General Corporation Law, a director shall not be liable to Parent 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 Parent, (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 Parent LLC Agreement provides that Parent will indemnify the directors,
officers and other persons serving in similar capacities at the request of
Parent 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 Parent) 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
Parent, and, with respect to any criminal action or proceedings, had no
reasonable cause to believe such person's conduct was unlawful. The Parent LLC
Agreement further provides that Parent will indemnify the directors, officers
and other persons serving in similar capacities at the request of Parent 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 Parent 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 Parent, 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 Parent unless awarded pursuant to a
court order.
Parent is not an issuer of, and has no obligation with respect to, the
Notes. See "Description of Notes -- No Liability of Directors, Officers,
Employees and Stockholders."
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ALLOCATIONS OF PROFITS AND LOSSES; TAX MATTERS PARTNER
The profits and losses of Parent 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 Parent 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 Parent and the Members, on the one hand, and the
United States Internal Revenue Service, on the other, in connection with all
administrative and judicial proceedings involving tax controversies regarding
Parent.
AMENDMENTS TO THE PARENT LLC AGREEMENT; MEETINGS
The Parent LLC Agreement may not be changed or amended, nor may the
observance of any provision of the Parent 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
Parent LLC Agreement is subject to certain exceptions including, among others:
Parent Board. The provision of the Parent LLC Agreement granting to the
Members the right to elect members of the Parent 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 Parent LLC
Agreement relating to the Related Party Contract Committee (which reviews and
monitors the principal contracts between Iridium and certain of its Members) may
not be amended without the consent of (i) 66 2/3% of the directors serving on
the Related Party Contracts Committee and (ii) 66 2/3% of the non-interested
Members.
Capital Contributions. Certain provisions of the Parent 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 Parent Board, and other provisions of the Parent LLC Agreement
covering Members' capital contributions may be amended only with the consent of
Iridium and each Member whose rights and obligations thereunder are directly
affected by such amendment.
Appraisal Rights. The provisions relating to the Member's appraisal rights
may not be amended without the unanimous consent of the Members.
An annual meeting for the Class 1 Members shall be held each year within
120 days after the close of the immediately preceding fiscal year of Iridium. At
such annual meeting each Member shall provide notice to Iridium and the other
Members of the names of any director or directors such Member is entitled to
appoint. Special meetings of Members may be called for any purpose stated in the
notice of such special meeting at any time by the Parent 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 Class 1 and
Class 2 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
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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 Parent.
GATEWAY RIGHTS AND SPECTRUM ACCESS OBLIGATIONS
The exclusive right to own and operate the various gateway service
territories is assigned to Members pursuant to the Parent LLC Agreement. See
"Parent's Investors, Number of Class 1 Interests Owned, Percentage Ownership and
Principal Gateway Service Territories" for the present allocation of Gateway
Service Territories. As a condition of the exclusive right to operate in their
assigned territories (including the exclusive right to act as, or select, the
service provider for such territory), each Member that has been assigned a
service territory has agreed (i) to use its best efforts to obtain the necessary
authorizations to provide gateway services in each of the jurisdictions included
in its service territory (the "Gateway Authorizations") and to construct and
operate such gateway on a timely basis consistent with the terms of such
Member's Gateway Authorization Agreement, (ii) to require any service provider
within its service territory to use its best efforts to obtain the necessary
authorizations to act as a service provider and (iii) use its best efforts to
cause the relevant authorities in their respective territories to ratify and
adopt the spectrum allocation and service definitions for LEOs adopted by the
WARC. See "Business -- Space Segment -- Implementation of Gateways," "Principal
Contracts for Development of the IRIDIUM System -- Gateway Authorization
Agreements" and "Regulation of Iridium." The gateway and service provider rights
of Class 1 Members may be terminated without compensation if such a member fails
to (i) comply with its obligations regarding Gateway construction and spectrum
allocation or (ii) obtain the necessary Gateway Authorizations within the time
periods set forth in the Parent LLC Agreement. In the event that such rights are
terminated in the member's principal country of operation as a result of the
Member's failure to obtain the relevant Gateway Authorizations, and the Member
used its best efforts to obtain the Gateway Authorizations, such member is
entitled to compensation for the loss of the gateway service territory on the
terms specified in the Parent LLC Agreement.
DISSOLUTION; WINDING-UP
The Parent LLC Agreement provides that Parent 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 Parent Board that Parent 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 Parent LLC Agreement to
continue the business of Parent (such right to be exercised by the affirmative
consent of both (a) a majority of the Parent Board and (b) a "majority in
interest" (as defined in IRS Revenue Procedure 94-46) of the remaining Members);
and (iii) December 31, 2095, subject to amendment by an affirmative vote of
Class 1 Members holding not less than 66 2/3% of the Class 1 Interests.
DESCRIPTION OF IRIDIUM OPERATING LLC LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary of certain provisions of the Limited Liability
Company Agreement of Iridium dated as of December 18, 1997 (the "Iridium LLC
Agreement"). This summary does not purport to be a complete description of the
Iridium LLC Agreement, and is qualified in its entirety by
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reference to the Iridium LLC Agreement which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and is available
upon request to Iridium at 1575 Eye Street N.W., Washington, D.C. 20005,
Attention: Secretary.
ESTABLISHMENT; PURPOSE
Iridium was formed as a limited liability company pursuant to the
provisions of the Delaware Act on or about October 23, 1997. Iridium is a wholly
owned subsidiary of Parent. Pursuant to the Asset Drop-Down Transaction, on
December 18, 1997, Parent transferred substantially all of its assets and
liabilities to Iridium. See "Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction." Iridium's purpose is to acquire, own
and manage the IRIDIUM System and any successor or replacement system.
MEMBERS, MANAGER-DIRECTORS, OFFICERS AND MEETINGS
The Board of Directors
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. For so long as Parent is the majority
member of Iridium, the number of directors of Iridium will be equal to the
number of directors on Parent's Board. While Parent is the majority member of
Iridium, Parent shall appoint each member of the Iridium Board and the members
of the Iridium Board shall be identical to the members of the Parent Board.
Members
The sole initial Member of Iridium is Parent. Members have the rights,
powers, duties and obligations provided in the Iridium LLC Agreement and the
Delaware Act. Each Member agrees that it will not make a public offering of its
own securities if as a result of such offering, Iridium will become an entity
controlled by an investment company.
The Iridium LLC Agreement requires that annual meetings of Members be held
each year within 120 days after the close of the immediately preceding fiscal
year of Iridium. Special meetings may be called at any time and place, as shall
be stated in a notice. Members holding a majority of the Interests entitled to
vote, present in person or by proxy, constitute a quorum for all meetings of the
Members. When a quorum is present, the affirmative vote of the majority of
Interests entitled to vote on the subject matter will be the act of the Members.
Duties and Liabilities of Directors
Pursuant to the Iridium LLC Agreement, and in accordance with the Delaware
Act, 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.
The Iridium 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
Iridium 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
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or stock redemptions or repurchases and (iv) for any transaction from which a
director derived an improper personal benefit.
The Iridium 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 attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any such Proceeding, provided that
the person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interest of Iridium, and, with respect to
the subject matter of any Proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The Iridium LLC Agreement further provides that
Iridium will indemnify the directors, officers and other persons serving in
similar capacities 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
pursuant to a court order.
MANAGEMENT AND OPERATIONS
Members manage Iridium only through the Iridium Board. The business and
affairs of Iridium are to be managed by or under the direction of the Iridium
Board who shall have the power on behalf and in the name of Iridium to carry out
any and all of the purposes of Iridium and to perform all acts which they may
deem necessary or advisable in connection therewith.
Annual meetings of directors are held without notice immediately after, and
at the same place, as the annual meeting of Members. At this meeting, directors
elect a Chairman. Regular meetings are held, without notice, at such time and
such place as shall from time to time be determined by resolution of the Board.
Special meetings may be called by or at the request of any director on at least
48 hours notice to each director. A vote of the majority of directors present at
which a quorum is present, is an act of the Board, unless a previous resolution
of the Board requires the approval of a super-majority. At any meeting held
during any period in which directors of Parent have been elected by holders of
Series C Class 2 Interests of Parent, the affirmative vote of 66 2/3% of all
directors is required to approve any merger, liquidation, sale, lease conveyance
or transfer of Iridium 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 Iridium or to approve any debt exceeding
$10 million or any amendments to the Iridium LLC Agreement which would have a
material effect on any of the members.
Iridium must give each of Raytheon Company and Lockheed Martin Corporation
written notice of each meeting of the Board of Directors at the same time an in
the same manner as notice is given to the directors, and a representative of
each may attend as non-participating observers. Raytheon and Lockheed Martin
shall designate, in writing to Iridium, their respective representatives. Each
representative will receive all written materials and other information given to
directors in connection with such meetings.
Iridium's Board of Directors has the same committees as that of the board
of Parent. Each such committee has the same authority, rights and
responsibilities as such committees of the board of Parent and the members are
to be the same as the members of such committees of the board of Parent. No
committee shall have the power or authority to amend the Iridium LLC Agreement.
Meetings of the committees shall be held in accordance with the committee's own
rules of procedure.
The offices and officers of Iridium are identical to the offices and
officers of Parent. Any change in an office or officer at Parent shall
automatically result in a corresponding change at Iridium. An
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officer removed as an officer of Parent shall be removed as an officer of
Iridium, but such removal shall be without prejudice to the contract rights of
the person so removed. Officers are not compensated.
During the IWCL Special Rights Period, as defined by the Iridium LLC
Agreement, Iridium shall not, without the consent of one of the IWCL designated
directors: (i) make any material amendments or modifications to the Iridium LLC
Agreement, (ii) approve any business plan of Iridium that would result in any
material change in Iridium's purpose or otherwise change Iridium's business so
that it varies materially from its business purpose, (iii) acquire, other than
in the ordinary course of Iridium's business, a controlling interest or majority
of the voting stock or equity of a corporation or a Significant Subsidiary (as
defined in Rule 405 under the United States Securities Act of 1933) or any other
assets with an aggregate fair market value greater than $50 million, (iv) sell,
lease, exchange or otherwise dispose of all or substantially all of the assets
of Iridium (other than to a person controlled by Iridium or Parent), (v)
dissolve or liquidate Iridium, or (vi) take any action to commence a voluntary
case with respect to Iridium under applicable bankruptcy, insolvency or similar
laws, consent to the entry of an order for relief in an involuntary case under
any such law, consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian trustee of any substantial part of Iridium's
property, or make a general assignment for the benefit of creditors.
INTERESTS AND OTHER SECURITIES
Interests in Iridium are represented by certificates.
The voting rights of Iridium's Interests are vested exclusively in the
Members, who vote in proportion to the number of Interests they each own. In
case of liquidation, dissolution or winding up of Iridium, each Member is
entitled to receive all distributions on a pro rata basis in proportion to their
percentage of ownership of all outstanding Interests.
The Iridium Board, at its discretion and in accordance with Delaware law,
may pay distributions or dividends to the Members. For purposes of determining
who is entitled to receive payment of any Dividend, the Board may set a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted and which shall not be more than 60 days before such
action. If no record date is adopted, the record date is the close of business
on the day on which the Board adopted the resolution relating thereto. In
deciding whether to pay a Dividend to Parent, the Iridium Board will consider
the total tax liability of the member of Parent in respect of their Class 1
Interests (as defined in the Parent LLC Agreement). If the Parent Board is
required to pay a dividend pursuant to sec. 3.07(c) of the Parent LLC Agreement,
the Iridium Board shall promptly pay a dividend in the same amount, provided
such funds are legally available.
A Member is not entitled to receive any Dividend with respect to any
Dividend payment date, until Iridium has funds legally available for the payment
of such Dividends.
DISSOLUTION AND WINDING UP
The Iridium LLC Agreement provides that Iridium shall be dissolved and its
affairs wound-up upon 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 not less than 66 2/3% of the Interests
approving the dissolution at a meeting duly called for such purpose. Upon
dissolution of Iridium, the Chairman of Iridium's Board shall wind up Iridium's
affairs. Any amounts permitted to be distributed to Members shall be distributed
in proportion to the number of Interests held by each such Member.
A Member may resign from Iridium by transferring his or her Interests in
accordance with the Iridium LLC Agreement. No Member may resign due to
bankruptcy or any other reason, without the consent of 66 2/3% of the Iridium
Board.
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TRANSFERS
The Iridium LLC Agreement contains restrictions on the ability of a Member
to transfer Interests in Iridium. Members cannot transfer Interests without the
prior approval of a majority of the directors. Each person who owns an Interest
pursuant to a Transfer must execute an agreement to the satisfaction of Iridium.
In the agreement, the new owner must agree to be bound by the provisions of the
Iridium LLC Agreement. Transferors are not relieved of their contractual
obligations under the Iridium LLC Agreement unless such relief is approved by
the holders of at least 66 2/3% of the then outstanding Interests. These
restrictions, however, do not apply to a transfer by any person of any ownership
interest in a Member.
A transferee can become a substituted Member if he or she receives the
consent of a majority in interest of the nontransferring Members. Such consent
may be granted or withheld at the discretion of the Members. A transferee not
made a Member, is not entitled to any rights granted to Members but such
transferee is bound by all limitations and obligations contained in the Iridium
LLC Agreement.
Members are permitted to pledge their Interests to secure indebtedness for
borrowed money and related obligations in connection with indebtedness incurred
by Iridium provided such pledge is either approved by the Board, or made in
connection with the Secured Bank Facility, as defined by the Iridium LLC
Agreement. See "Description of Other Indebtedness -- Secured Bank Facility."
ADMISSION OF ADDITIONAL MEMBERS
Parent is the sole original Member of Iridium. Additional Members may be
admitted by Iridium's Board at any time with the consent of Members holding a
majority of the Interests. The Additional Member is deemed admitted upon the
later of the written request by such person that the Members' Interest Register
reflect such admission and the agreement of the person to be bound by the
Iridium LLC Agreement, and the time such person is listed as a Member in the
Members' Interest Register of Iridium and a Certificate evidencing such
ownership is issued.
GATEWAY RIGHTS OF PARENT CLASS 1 MEMBERS
Iridium agrees not to take any action that Parent could not take in
contravention of the rights granted to each Parent Class 1 Member pursuant to
Article VIII of the Parent LLC Agreement. Further, Iridium authorizes each
Parent Class 1 Member and its affiliates to provide Gateway Services and to
retain Service Providers in the Gateway Service Territory allocated to such
Class 1 Members on the most recent Gateway Service Territory Schedule (the
"Schedule"). Iridium has pledged that it will not authorize any other person to
provide Gateway Services, construct Gateways, act as a Service Provider, or
retain Service Providers in any Parent Class 1 Member's Gateway Service
Territory, except as set forth in the Schedule. Parent agrees to provide Iridium
with the Schedule no later than 10 days following the date of each amendment,
modification or other change in the Schedule.
GENERAL PROVISIONS
The Iridium LLC Agreement cannot be changed, amended or waived without the
consent of Iridium's Board. The Board's ability to amend the Iridium LLC
Agreement is limited. The Iridium LLC Agreement states that no amendments
regarding indemnification may be made without the consent of any party whose
rights are directly affected by such an amendment. Further, for so long as
Parent is the majority member of Iridium, no amendments to the provisions
regarding Gateway Rights of Parent Class 1 Members may be made unless an
amendment having the same intent has been made to the Parent LLC Agreement.
The Iridium LLC Agreement is governed by the laws of the State of Delaware
and should be governed to the maximum extent possible to comply with all of the
terms and conditions of the
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Delaware Act. If a court of competent jurisdiction should find a provision of
the Iridium LLC Agreement invalid or unenforceable, such a determination shall
not invalidate the entire Iridium LLC Agreement. Instead, the Iridium LLC
Agreement would either be construed so as to limit any term or provision and
make it enforceable or would be construed to omit such unenforceable provisions.
Any suit brought with respect to the Iridium LLC Agreement may be brought
in a court of the United States sitting in the State of Delaware. Parties to the
Iridium LLC Agreement waive, to the fullest extent permitted by law, any
objection that the proceeding or judgment has been brought in an inconvenient
forum. Service of all writs, process and summons may be made upon The
Corporation Trust Company or the Process Agent, as defined in the Iridium LLC
Agreement. If, for any reason not contemplated by the Iridium LLC Agreement, a
party cannot be subject to the above mentioned jurisdiction, then the parties
may submit their dispute for arbitration in Stockholm, Sweden in accordance with
the Rule or Arbitration Institute of the Stockholm Chamber of Commerce. An
arbitration award shall be final and binding and arbitration fees shall be paid
by the party as designated by the arbitration award.
Iridium's power of attorney is granted to any Vice President of Iridium and
the Secretary of Iridium. Each director is deemed an authorized person within
the meaning of the Delaware Act.
All notices and other communications provided in the Iridium LLC Agreement
must be in writing, in the English language, and will be sufficiently given if
made to the attention of Iridium's General Counsel and delivered by hand
delivery, telecopier, express courier service or registered/certified mail to
1575 Eye Street, N.W., Washington, DC 20005.
RATIFICATION AND AUTHORIZATION OF CERTAIN ACTIONS
The Iridium LLC Agreement ratifies and approves the actions of the officers
with respect to Iridium's formation. Each officer is authorized to execute and
deliver the Asset Transfer Agreement, Management Services Agreement, Amendment
No. 1 to the Credit Agreement and Credit Agreement, as defined by the Iridium
LLC Agreement. Officers are further authorized to take any action necessary to
satisfy Iridium's obligations under the above listed agreements and amendments.
DESCRIPTION OF OTHER INDEBTEDNESS
SECURED BANK FACILITY
General. Iridium entered into a Credit Agreement, dated as of December 19,
1997, with Chase Securities Inc. and Barclays Bank PLC ("Barclays"), as Global
Arrangers, The Chase Manhattan Bank ("Chase") as Administrative Agent and
Collateral Agent, Barclays Bank PLC, as Documentation Agent, and a group of
lenders (including Chase and Barclays, the "Secured Facility Lenders"),
providing for a $1 billion senior secured interim credit facility, of which $350
million would be in the form of term loans and the remainder, to the extent
available, in revolving loans (the "Secured Bank Facility"). As of March 31,
1998, Iridium had approximately $350 million in principal amount of term loan
borrowings outstanding under the Secured Bank Facility. Additional borrowings
under the Secured Bank Facility are subject to additional conditions precedent
based, among other things, on the achievement of certain technical and
regulatory milestones.
Maturity and Prepayment. The Secured Bank Facility will mature on
September 30, 1998; provided that Iridium may extend the maturity to the last
business day of any month up to June 30, 1999 if it can demonstrate by July 1,
1998 that it has sufficient available or committed funding for the budgeted
Project Costs (as defined) through the extended maturity. Such an extension is
also conditioned on there being no event of default then continuing and, if such
extension goes beyond December 31, 1998, Iridium submitting a budget for the
period occurring after December 31, 1998. The Secured Bank Facility is subject
to mandatory prepayment as a result of certain debt or equity issuances, asset
dispositions, insurance recoveries and certain other events. Mandatory prepay-
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ments result in pro rata cancellation of the term loan commitments and the
revolving loan commitments of the Secured Facility Lenders (and the related
prepayment of outstanding term loans and revolving loans).
Ranking and Collateral. Iridium's obligations under the Secured Bank
Facility are senior obligations of Iridium and rank, except with respect to
collateral as described below, pari passu in right of payment to the Notes. The
Iridium Parties' obligations under the Secured Bank Facility are secured by a
pledge of substantially all of the Iridium Parties' assets. As secured debt, the
Secured Bank Facility is effectively senior to the Notes and other senior
indebtedness of Iridium to the extent of the assets securing the Secured Bank
Facility. See "Risk Factors -- Ranking of the Notes."
In addition, 17 of Parent's investors have a contractual commitment to
purchase up to 18,206,550 Class 1 Interests at $13.33 per interest (an aggregate
purchase price of approximately $243 million). The Secured Bank Facility is
secured by these obligations of certain of Parent's members pursuant to the
Reserve Capital Call and Parent's rights to exercise the Reserve Capital Call.
See "Description of Parent Limited Liability Company Agreement -- Capital
Contributions; Reserve Capital Call." Parent also has pledged its ownership
interest in Iridium, which is intended to permit the sale of Iridium as a going
concern. The exercise of this pledge by the Secured Facility Lenders would
trigger the Change of Control provisions under the Notes. See "Description of
the Notes -- Change of Control." Certain other provisions of the Secured Bank
Facility, however, would prevent the repurchase of the Notes upon a Change of
Control. The Secured Bank Facility is further secured by Parent's obligations,
pursuant to the Parent Security Agreement, to contribute the net proceeds to
Iridium of any issuance of equity securities or incurrence of indebtedness the
proceeds of which are intended to pay for Project Costs. Except with respect to
the Reserve Capital Call and to the extent described in this paragraph, Parent
is not obligated to contribute net proceeds of any offerings of interests to
Iridium, or otherwise to use such net proceeds in connection with the business
of Iridium.
Interest and Fees. Borrowings under the Secured Bank Facility bear
interest, at the option of Iridium, at either (i) the Alternate Base Rate
(generally, the higher of the Federal Funds Rate as established by the Federal
Reserve Bank of New York, plus .5%, or Chase's prime commercial lending rate)
plus 1.5% or (ii) an applicable LIBOR rate (which is based on a formula relating
to the London interbank offered rate for a given interest period) plus 2.75%. In
each case, the interest rate would increase by .5% on October 1, 1998 and at the
end of each subsequent three-month period. After execution of definitive Secured
Bank Facility documents, Iridium would be required to pay a commitment fee equal
to .5% per annum on undrawn portions of the Secured Bank Facility.
Conditions to Availability. Loans under the Secured Bank Facility become
available in four stages based upon satisfaction of certain significant
conditions, including achievement of certain technical requirements relating to
the IRIDIUM System, receipt of certain key regulatory approvals and evidence of
satisfaction of minimum financing goals. Stage 1 of the Secured Bank Facility
became available in January, 1998 and resulted in the release to Iridium of the
$350 million term loan. Conditions to release of the Stage 1 loans included
requirements that Iridium have (i) issued or have outstanding $1,900 million
aggregate amount of unsecured debt, which shall be deemed to include up to $350
million in conditional commitments of Motorola to either provide such financing
or guarantees with respect thereto; (ii) provided perfected security interests
in the collateral described under "Ranking and Collateral" above; (iii) obtained
certain insurance and named the Secured Facility Lenders or their agent as
additional insureds thereunder; (iv) obtained certain assurances from Motorola
regarding the production of subscriber units and (v) obtained the pledge by
Parent of its ownership interests in Iridium.
Stage 2 of the Secured Bank Facility, which provides for loans in a
principal amount of up to an additional $200 million, was available as of April
1, 1998, subject to meeting certain conditions. Iridium expects to satisfy these
conditions and have access to stage 2, on or about May 1,1998. Stage 3, expected
to become available on or about August 1, 1998, provides for loans in a
principal
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amount of up to an additional $200 million. Stage 4, expected to become
available on or about October 1, 1998, provides for loans in a principal amount
up to an additional $250 million. The four stages are tied to certain regulatory
accomplishments and the timing of specific technical milestones within various
project agreements, including the Space System Contract, the Terrestrial Network
Development Contract, and contracts relating to the Iridium business support
system, the IIU and the control system. While current system development plans
provide for satisfaction of these conditions at or prior to the time the loans
would be required, no assurance can be given as to the timing of such
satisfaction. Delays in the implementation or development of the IRIDIUM System,
or other technical, political or regulatory problems, could have an adverse
effect on the availability of the Secured Bank Facility to pay obligations as
they come due. See "Risk Factors."
Covenants. The Secured Bank Facility contains covenants of Iridium,
including, but not limited to, (i) a requirement to obtain satisfactory
insurance, (ii) limitations on mergers, asset dispositions and acquisitions,
liens, incurrence of additional indebtedness, restricted payments, capital
expenditures, scope of business, certain transactions with affiliates and
amendments or modifications of project related documents which would have a
defined material adverse effect or would increase project costs for the
remaining term of the Secured Bank Facility by more than $75 million over then
budgeted project costs, and (iii) a requirement that Iridium maintain available
or committed financings in an amount sufficient to provide for the payment of
budgeted project costs for the term of the Secured Bank Facility. In addition,
the Secured Bank Facility contains a total debt to capitalization covenant.
Events of Default. The Secured Bank Facility includes events of default,
including, but not limited to: (i) failure to pay interest, principal or other
amounts with respect to the Secured Bank Facility; (ii) impairment of material
provisions of specified agreements relating to the IRIDIUM System or the
cessation of such provisions to be valid, binding and in full force and effect
or Parent, Iridium or one of its subsidiaries contests or repudiates such
agreements; (iii) certain events of bankruptcy, insolvency, reorganization or
liquidation affecting Iridium, Parent, Motorola, certain of their subsidiaries
or certain other project parties; (iv) cross-default to other indebtedness of
Iridium, Parent, Motorola or certain of their subsidiaries in excess of
specified amounts; (v) final judgment with respect to Iridium, Motorola or
certain of their subsidiaries in excess of specified amounts; (vi) failure by
Iridium, Motorola, certain of their subsidiaries or other project parties to
obtain or maintain necessary telecommunications or other regulatory approvals;
(vii) breaches of covenants by Iridium, its subsidiaries, Parent or Motorola;
(viii) failure of any representation or warranty made by Iridium, it
subsidiaries, Parent, Motorola or any other project party in connection with the
Secured Bank Facility; (ix) failure in the perfection of the liens granted by
Iridium, it subsidiaries, Parent or Motorola, as the case may be; (x) the
occurrence of certain ERISA or environmental events which could reasonably be
expect to result in a Material Adverse Effect; (xi) failure of Parent to own all
of the equity interests in Iridium; (xii) breach by Motorola of specified
agreements relating to the IRIDIUM System; (xiii) breach by other parties to
project related documents with Iridium if such breach could reasonably be
expected to have a defined material adverse effect; and (xiv) failure of
Motorola to maintain a specified minimum ownership interest in Iridium. Certain
events specified above are subject to specified cure periods. In addition, the
Secured Bank Facility provides that the condemnation, seizure or loss of a
material portion of the project or the announcement by Iridium of its intention
to abandon or indefinitely defer the construction of the project will also be
events of default.
Subsidiary Guarantees. The obligations of Iridium under the Secured Credit
Facility will be, upon initial availability of funds to Iridium, guaranteed on a
senior secured basis by all of Iridium's current and future domestic
subsidiaries, including Roaming, Facilities and IP. Senior unsecured
indebtedness of each subsidiary, including pursuant to the Subsidiary
Guaranties, will be effectively subordinated to the guaranties under the Secured
Credit Facility to the extent of the value of pledged assets of such subsidiary.
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Requested SBF Amendments. In connection with the Offering, Iridium has
requested that the Secured Facility Lenders agree to amendments to the Secured
Bank Facility (the "Requested SBF Amendments") that would increase the approved
budget under the Secured Bank Facility for the development, construction and
commercialization of the IRIDIUM System by $175 million (and would make
corresponding adjustments in various covenants restricting the amount Iridium is
permitted to spend on project costs) and would increase the amount of
Indebtedness Iridium is permitted to incur during the term of the Secured Bank
Facility. The Offering is not contingent on Iridium receiving the Requested SBF
Amendments and there can be no assurance that the Secured Facility Lenders will
agree to the Requested SBF Amendments.
Chase Securities Inc., an Underwriter, is an affiliate of Chase and
Barclays Capital Inc., an Underwriter, is an affiliate of Barclays.
GUARANTEED BANK FACILITY
General. Iridium entered into a Credit Agreement, dated as of August 21,
1996, with Chase Securities Inc. and Barclays, as Global Arrangers, Chase, as
Administrative Agent, Barclays, as Documentation Agent, and a group of lenders
(including Chase and Barclays, the "Guaranteed Facility Lenders"), providing for
a $750 million revolving credit facility (the "Guaranteed Bank Facility"). As of
March 31, 1998, Iridium had $285 million in principal amount of borrowings
outstanding under the Guaranteed Bank Facility. Iridium used a portion of the
proceeds of the Initial Senior Notes to permanently reduce the bank commitments
under the Guaranteed Bank Facility to $450 million. Iridium intends to use
approximately $175 million of the net proceeds of the offering of the Notes to
prepay borrowings under the Guaranteed Bank Facility and to permanently reduce
the commitments thereunder to $275 million. See "Use of Proceeds."
On December 19, 1997, Iridium, the Guaranteed Facility Lenders and the
agents under the Guaranteed Bank Facility entered into an amendment thereto
which, among other things, conformed certain covenants of Iridium to the Secured
Bank Facility and extended the term of the Guaranteed Bank Facility to June 30,
1999.
Motorola Guarantee. Iridium's borrowings under the Guaranteed Bank
Facility are guaranteed by Motorola pursuant to the Motorola Guarantee up to an
aggregate amount of $450 million (inclusive of interest). The aggregate amount
of the Motorola Guarantee will automatically reduce to $275 million (inclusive
of interest) upon the prepayment and commitment reduction contemplated under
"Use of Proceeds."
The Motorola Guarantee was issued under a guarantee agreement between
Motorola and Chase as Administrative Agent, dated as of August 21, 1996 (the
"Guarantee Agreement"). Pursuant to the Motorola MOU, Iridium has agreed that
the Guaranteed Bank Facility (and therefore the Motorola Guarantee) would be
permanently reduced by the net proceeds to Iridium of certain offerings of
senior notes of Iridium prior to or on December 31, 1997, to the extent the
aggregate amount of such net proceeds exceeds $650 million (provided that the
Guaranteed Bank Facility is not required to be reduced below $275 million).
Accordingly, as a result of the offering of the Initial Senior Notes, Iridium
permanently reduced the commitment of the bank lenders in the Guaranteed Bank
Facility and the corresponding Motorola Guarantee to $450 million. For purposes
of the offering of the Series C Notes only, Motorola waived this requirement
upon Iridium's permanent reduction of the Guaranteed Bank Facility and the
corresponding Motorola Guarantee by $205 million (to $450 million). See "Certain
Relationships and Related Transactions of Iridium -- Motorola Related
Matters -- Motorola MOU and Agreement Regarding Guarantee."
The Guarantee Agreement contains covenants by Motorola, including a
requirement to provide notice of defaults relating to Motorola and its
subsidiaries under the Guaranteed Bank Facility, and limitations on mergers,
liens and sale and leaseback transactions, the breach of which would cause an
event of default under the Guaranteed Bank Facility.
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Pursuant to the Motorola MOU, Motorola has conditionally agreed that, after
giving effect to any permanent reduction in the Guaranteed Bank Facility
resulting from the proceeds of the Offering, Motorola will guarantee up to an
additional $350 million of borrowings made prior to February 28, 1999 under the
Guaranteed Bank Facility pursuant to the Motorola Additional Guarantee at
Iridium's option. See "Certain Relationships and Related Transactions of
Iridium -- Motorola Related Matters -- Motorola MOU and Agreement Regarding
Guarantee."
Pursuant to covenants under the Secured Bank Facility, and assuming that
the Offering is consummated and $275 million is outstanding under the Guaranteed
Bank Facility, Iridium would not have the ability to borrow more than $175
million of any additional $350 million of guaranteed borrowings. Pursuant to the
Requested SBF Amendments, the relevant debt limit would be raised to permit the
incurrence of the entire amount of any such additional $350 million of
guaranteed borrowings. Iridium has not, however, requested that the Guaranteed
Bank Facility be increased by the amount of Motorola Additional Guarantee.
Maturity. Borrowings under the Guaranteed Bank Facility mature in June,
1999; provided, however, that as a result of the above-described limitation on
the amount guaranteed under the Motorola Guarantee, the obligations of Iridium
under the Guaranteed Bank Facility will become due if the principal amount of
borrowings thereunder exceeds an amount equal to 99 1/3% (rounded down to the
nearest 1,000,000) of the total then outstanding bank commitments thereunder.
Pursuant to the Motorola MOU, Motorola has agreed to extend the Motorola
Guarantee until after the Stated Maturity of the Initial Senior Notes (which is
the same date as the Stated Maturity of the Notes).
Ranking. Iridium's obligations to the Guaranteed Facility Lenders under
the Guaranteed Bank Facility are senior unsecured obligations of Iridium and
rank pari passu in right of payment to the Notes.
Interest. Borrowings under the Guaranteed Bank Facility bear interest, at
the option of Iridium, at the rate of either (i) the Base Rate (generally, the
higher of the Federal Funds Rate as established by the Federal Reserve Bank of
New York, plus 0.50%, or Chase's prime commercial lending rate) or (ii) an
applicable LIBOR rate (which is based on a formula relating to the London
interbank offered rate for a given interest period) increased to reflect reserve
requirements applicable to borrowings by U.S. banks in U.S. dollars outside of
the U.S., plus 0.25%. In addition, Iridium pays a commitment fee equal to .10%
per annum on any amounts not borrowed under the Guaranteed Bank Facility.
Conditions to Borrowing. Borrowings under the Guaranteed Bank Facility are
subject to certain conditions, including the absence of any default or event of
default and other conditions customary with respect to similar facilities.
Proceeds of any such borrowing must be used by Iridium to finance approved
project costs, including payments to Motorola under the Space System Contract.
Covenants. The Guaranteed Bank Facility contains covenants of Iridium,
including, but not limited to, insurance requirements, limitations on mergers,
consolidations and sales of certain assets, restrictions on certain transactions
with affiliates, limitations on liens, the incurrence of additional indebtedness
and certain restricted payments, and restrictions on Iridium's ability to engage
in any business or make any investments other than in connection with the
commercialization of the IRIDIUM System and related businesses. Through the
Guarantee Agreement, the Guaranteed Bank Facility also imposes covenants on
Motorola.
Events of Default. The Guaranteed Bank Facility contains events of default
for (i) failure to pay principal, interest or other amounts due; (ii) breach by
Iridium or Motorola of its respective covenants; (iii) cross-default to other
indebtedness of Iridium or its subsidiaries or Motorola or certain of its
subsidiaries in excess of specified outstanding amounts; (iv) certain events of
bankruptcy, insolvency or reorganization affecting Iridium or its subsidiaries
or Motorola or certain of its subsidiaries; (v) final judgments against Iridium
or Motorola or certain of their subsidiaries in
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excess of specified amounts; (vi) termination, repudiation or unenforceability
of the Motorola Guarantee and defaults under the Guarantee Agreement; and (vii)
failure of Motorola to maintain a direct and indirect ownership interest in
Parent of at least 13,266,713 Class 1 Interests and (as such number may be
adjusted by stock splits, stock dividends, etc.) free and clear of any lien or
other contractual restrictions and (viii) failure of Parent to own all of the
equity interests of Iridium. Certain defaults under the Guaranteed Bank Facility
are subject to specified cure periods.
If any event of default under the Guaranteed Bank Facility is continuing,
Guaranteed Facility Lenders may exercise various remedies under the credit
agreement relating thereto. In addition, after expiration of a grace period and
a giving of prior notice to Motorola, the Guaranteed Facility Lenders may, but
are not obligated to, demand payment from Motorola under the Guarantee
Agreement.
Agreement Regarding Guarantee. In connection with the Motorola Guarantee,
Iridium and Motorola entered into the Original Agreement Regarding Guarantee.
The Original Agreement Regarding Guarantee was amended and restated, and the
Original Motorola MOU was executed, in connection with the offering of the
Series A Notes and Series B Notes described below. In connection with the
Offering and in order to reflect the agreements among Motorola, Parent and
Iridium in respect of the Asset Drop-Down Transaction and the Motorola MOU,
Motorola, Parent and Iridium intend to enter into the Second Amended and
Restated Agreement Regarding Guarantee (the "Agreement Regarding Guarantee").
Pursuant to the Agreement Regarding Guarantee, Iridium would reimburse Motorola
for amounts paid by Motorola under the Guarantee Agreement; provided, that if
the Guaranteed Bank Facility is accelerated as result of a Motorola-Based
Default (as defined in the Agreement Regarding Guarantee) such reimbursement
would be made on the same terms as provided in the Guaranteed Bank Facility. For
further information regarding the Original Agreement Regarding Guarantee, the
Agreement Regarding Guarantee and the Motorola MOU, including certain covenants
of Iridium and the compensation to Motorola for the Motorola Guarantee and
certain other exposure of Motorola, see "Certain Relationships and Related
Transactions of Iridium."
Chase Securities Inc., an Underwriter, is an affiliate of Chase, and
Barclays Capital Inc., an Underwriter, is an affiliate of Barclays.
INITIAL SENIOR NOTES
General. The 13% Senior Notes due 2005, Series A were issued in an
aggregate principal amount of $300 million on July 16, 1997. The 14% Senior
Notes due 2005, Series B were issued in an aggregate principal amount of $500
million on July 16, 1997. The 11 1/4% Senior Notes due 2005, Series C were
issued in aggregate principal amount of $300 million on October 17, 1997. In
October 1997, the Series A Notes and the Series B Notes were exchanged for
Series A/EN Notes and Series B/EN Notes, respectively, bearing substantially the
same terms as the Series A Notes and the Series B Notes, respectively. An
exchange offer has been made by Iridium pursuant to which the Series C Notes may
be exchanged for Series C/EN Notes bearing substantially the same terms as the
Series C Notes (the "Series C Exchange Offer"). The Series C Exchange Offer is
expected to be consummated no later than May 15, 1998. References herein to the
Series A Notes, Series B Notes and Series C Notes shall (unless the context
otherwise requires) be interpreted to include the Series A/EN Notes, Series B/EN
Notes and Series C/EN Notes.
Ranking. The Initial Senior Notes are unsecured senior obligations of the
Issuers. The Initial Senior Notes rank pari passu in right of payment with the
Notes and all other existing and future senior Indebtedness of the Issuers,
other than any defined subordinated obligations. The Initial Senior Notes are
unsecured obligations of Iridium and are effectively subordinated to any secured
Indebtedness of the Issuers to the extent of the value of the assets securing
such Indebtedness.
Interest. Interest accrues on the Series A Notes from the original date of
issuance at an annual rate of 13%. Interest accrues on the Series B Notes from
the original date of issuance at an annual
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rate of 14%. Interest accrues on the Series C Notes from the original date of
issuance at an annual rate of 11 1/4%. Interest on each series of Initial Senior
Notes is payable semi-annually in arrears on January 15 and July 15 of each
year.
Maturity and Redemption. The Initial Senior Notes mature on July 15, 2005.
Except as described below, the Issuers may not redeem the Initial Senior Notes
prior to July 15, 2002. On or after such date, either Issuer may redeem the
Initial Senior Notes, in whole or in part, at any time at the redemption prices
set forth herein, together with accrued and unpaid interest and liquidated
damages on such Initial Senior Notes, if any, to the date of redemption. At any
time and from time to time on or prior to July 15, 2000, either Issuer may,
subject to certain requirements, redeem in the aggregate up to 33 1/3% of the
original aggregate principal amount of the Initial Senior Notes with the cash
proceeds to Iridium of one or more Equity Offerings at a redemption price equal
to 113.500% of the principal amount of any Series A Senior Notes being redeemed,
or 115.000% of the principal amount of any Series B Notes being redeemed, or
111.250% of the principal amount of any Series C Notes being redeemed, plus
accrued and unpaid interest and liquidated damages on such Initial Senior Notes,
if any, thereon to the date of redemption; provided that at least 66 2/3% of the
original aggregate principal amount of the Initial Senior Notes must remain
outstanding immediately after each such redemption.
Restrictive Covenants; Events of Default. The indenture governing the
Series A Notes (the "Series A Indenture"), the indenture governing the Series B
Notes (the "Series B Indenture") and the indenture governing the Series C Notes
(the "Series C Indenture" and, together with the Series A Indenture and the
Series B Indenture, the "Initial Senior Indentures") contain covenants and
events of default which are substantially the same as the covenants and events
of default contained in the Indenture governing the Notes. See "Description of
Notes."
Right to Require Repurchase upon Change of Control. The Initial Senior
Indentures provide holders of Initial Senior Notes with a right to require the
repurchase of their Initial Senior Notes upon the occurrence of a Change of
Control that is substantially identical to the right of repurchase upon a Change
of Control provided to Holders of the Notes by the Indenture governing the
Notes. Accordingly, in the event of a Change of Control, Holders of the Notes
and holders of the Initial Senior Notes would each have the right to require
repurchase of their Notes and Initial Senior Notes. See "Description of
Notes -- Change of Control."
Use of Proceeds from Insurance and Sales of Assets and Subsidiary
Stock. The Initial Senior Indentures provide that all Net Available Proceeds
(as defined) from any Asset Disposition (as defined) and certain Insurance
Proceeds (as defined) shall be applied (within 180 days in the case of an Asset
Disposition, and promptly in the case of the receipt of Insurance Proceeds) (1)
first, to the permanent repayment or reduction of Indebtedness then outstanding
under any Bank Credit Agreement (as defined) or Vendor Financing Facility (as
defined), to the extent such agreement or facility would require such
application or prohibit payments pursuant to the following clause (2) and (2)
second, to the extent of remaining Net Available Proceeds or Insurance Proceeds,
as the case may be, to make an offer to purchase outstanding Initial Senior
Notes at 100% of the principal amount of the Initial Senior Notes, plus accrued
and unpaid interest and liquidated damages, if any, to the date of purchase,
and, to the extent required by the terms thereof, any other Indebtedness of
Iridium or a Restricted Subsidiary that ranks pari passu with the Initial Senior
Notes at a price no greater than 100% of the principal amount thereof plus
accrued and unpaid interest and liquidated damages, if any, to the date of
purchase. The Indenture governing the Notes contains a substantially identical
covenant. Accordingly, in the event of an Asset Disposition or the receipt of
Insurance Proceeds, Holders of the Notes and holders of the Initial Senior Notes
would rank pari passu with respect to their respective rights to require
repurchase of the Notes and the Initial Senior Notes. See "Description of
Notes -- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock" and "-- Maintenance of Insurance."
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SENIOR SUBORDINATED NOTES
General. The 14 1/2% Senior Subordinated Discount Notes due 2006 (the
"14 1/2% Notes") had an accreted value of approximately $285 million at March
31, 1998 and will fully accrete to an aggregate face value of approximately $480
million on March 1, 2001.
Ranking. The 14 1/2% Notes are unsecured obligations of Iridium and will
be junior in right of payment to the Notes, the Initial Senior Notes, the
Guaranteed Bank Facility and the expected Secured Bank Facility.
Interest. The 14 1/2% Notes were issued at a discount from their principal
amount and accrete in value until March 1, 2001, at which time cash interest
accrues at a rate of 14 1/2% per annum payable semi-annually.
Maturity and Redemption. The 14 1/2% Notes mature on March 1, 2006. The
14 1/2% Notes may be redeemed at declining premium beginning on March 1, 2001,
at redemption price of 107.500% declining to no premium beginning on March 1,
2004.
Events of Default. Events of default under the 14 1/2% Notes include
payment defaults, and certain events of bankruptcy, under other debt instruments
in excess of $10 million and the termination by Motorola of the Space System
Contract prior to delivery thereunder by Motorola of the Space System (as
defined therein), provided, that such termination has not been contested by
Iridium in accordance with the Space System Contract or by appropriate
proceedings and, if such termination is so contested, within 180 days of such
notice if such termination has not been withdrawn or declared ineffective by any
court or mediator having jurisdiction.
DESCRIPTION OF NOTES
GENERAL
The Notes will be issued under an Indenture, dated as of May , 1998 (the
"Indenture") among the Iridium Parties and State Street Bank and Trust Company,
as trustee (the "Trustee"). A copy of the proposed form of Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part and is available upon request to Iridium at 1575 Eye Street N.W.,
Washington, D.C. 20005, Attention: Secretary. The following summary of the
material provisions of the Indenture and the Notes does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act.
Capitalized terms used herein and not otherwise defined have the meanings set
forth in the section "-- Certain Definitions" below.
Principal of, premium and Liquidated Damages, if any, on and interest on
the Notes will be payable, and the Notes may be exchanged or transferred, at the
office or agency of the Issuers in the Borough of Manhattan, the City of New
York, except that, at the option of either Issuer, payment of interest may be
made by check mailed to the registered holders of the Notes at their registered
addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuers may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
As of the Issue Date, Iridium will have no Subsidiaries other than Capital
and the Initial Guarantors. Capital is a co-issuer of the Notes. The Initial
Guarantors are Guarantor Subsidiaries (as defined). If Iridium creates or
acquires any Subsidiary in the future, such Subsidiary will be required to
Guarantee the Notes unless such Subsidiary is a Foreign Subsidiary or is
designated by Iridium as an Unrestricted Subsidiary in accordance with the
Indenture. Any Unrestricted Subsidiar-
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ies (including Foreign Subsidiaries designated as such) will not be subject to
the restrictive covenants contained in the Indenture.
TERMS OF THE NOTES
The Notes will be unsecured senior obligations of the Issuers, limited to
$350 million aggregate principal amount, and will mature on July 15, 2005. Each
Note will bear interest at a rate of % per annum from , 1998 or
from the most recent date to which interest has been paid or provided for,
payable semi-annually in arrears on January 15 and July 15 of each year,
commencing on July 15, 1998, to Holders of Notes of record at the close of
business on the January 1 or July 1 immediately preceding the applicable
interest payment date.
OPTIONAL REDEMPTION
Except as described in the next succeeding paragraph, the Notes will not be
redeemable at the option of the Issuers prior to July 15, 2002. On and after
such date, the Notes will be redeemable, at either Issuer's option, in whole or
in part, at any time upon not less than 30 nor more than 60 days' prior notice
mailed by first-class mail to each Holder of Notes, at such Holder's registered
address, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of record Holders of Notes on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption), if redeemed during the 12-month period commencing on
July 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002............................................. %
2003............................................. %
2004 and thereafter.............................. 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to July 15,
2000, either Issuer may redeem in the aggregate up to 33 1/3% of the original
aggregate principal amount of Notes with the cash proceeds to Iridium of one or
more Equity Offerings, at a redemption price (expressed as a percentage of
principal amount thereof) of %, plus accrued and unpaid interest, to the
redemption date (subject to the right of record Holders of the Notes on the
relevant record date to receive interest due on the relevant interest payment
date that is on or prior to the date of redemption); provided, however, that at
least 66 2/3% of the original aggregate principal amount of the Notes must
remain outstanding after each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion deems to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The Indebtedness evidenced by the Notes will be unsecured senior
obligations of the Issuers and will rank senior in right of payment to any
existing and future Subordinated Obligations of the Issuers, and pari passu in
right of payment with the Initial Senior Notes and all other existing and future
senior Indebtedness of the Issuers. The Notes will be effectively subordinated
to any Secured
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Indebtedness of the Issuers, including the Secured Bank Facility, to the extent
of the value of the assets securing such Indebtedness.
The indebtedness evidenced by a Subsidiary Guaranty is unsecured senior
Indebtedness of the Guarantor Subsidiary. The payment of a Subsidiary Guaranty
ranks pari passu in right of payment with any existing and future senior
Indebtedness of such Guarantor Subsidiary and is senior in right of payment to
any existing and future Subordinated Obligations of such Guarantor Subsidiary.
Each Subsidiary Guaranty also is effectively subordinated to any Secured
Indebtedness of the Guarantor Subsidiary, including the secured guarantees under
the Secured Bank Facility, to the extent of the value of the assets securing
such Indebtedness. See "Risk Factors -- Possible Unenforceability of Subsidiary
Guaranties."
As of March 31, 1998, after giving pro forma effect to the issuance of $350
million in aggregate principal amount of Notes and the application of $175
million of the net proceeds from the Notes to a permanent reduction of the
Guaranteed Bank Facility, the Iridium Parties would have had outstanding (i)
approximately $350 million of senior secured Indebtedness and (ii) approximately
$1,210 million of unsecured senior Indebtedness (other than the Notes) that
ranks pari passu with the Notes (including the Initial Senior Notes and
borrowings of $110 million under the Guaranteed Bank Facility). See "Use of
Proceeds." In addition, as of March 31, 1998, Iridium had approximately $285
million of Indebtedness that is subordinated to the Notes. Such outstanding
amounts of Indebtedness do not reflect the anticipated temporary reduction in
the Guaranteed Bank Facility. Iridium expects to seek other senior secured bank
financing in order to meet its expected funding requirements through at least
year-end 1999, the last year in which Iridium projects negative cash flow and a
net increase in year-end borrowings. See "Description of Other Indebtedness,"
"Description of Notes -- Certain Covenants -- Limitation on Indebtedness" and
"-- Limitation on Liens."
SUBSIDIARY GUARANTIES
Roaming, a Delaware limited liability company, IP, a Delaware limited
liability company, and Facilities, a Delaware corporation (collectively, the
"Initial Guarantors") will provide Subsidiary Guarantees on the Issue Date. In
the event that Iridium acquires or creates a Subsidiary other than a Foreign
Subsidiary, Iridium will cause such Subsidiary (unless such Subsidiary is an
Unrestricted Subsidiary) (together with the Initial Guarantors, the "Guarantor
Subsidiaries") to, jointly and severally, as primary obligors and not merely as
sureties, irrevocably Guarantee on a senior unsecured basis the performance and
punctual payment when due, whether at Stated Maturity, by acceleration or
otherwise, of all obligations of the Issuers under the Indenture and the Notes
issued pursuant thereto, whether for payment of principal of or premium,
interest, expenses, indemnification or otherwise (all such obligations
guaranteed by the Guarantor Subsidiaries being herein called the "Guaranteed
Obligations"). Iridium may cause any Foreign Subsidiary to execute and deliver a
Subsidiary Guaranty in accordance with the provisions of the Indenture, in which
case such Foreign Subsidiary will be a "Guarantor Subsidiary" for purposes of
the Indenture. The Guarantor Subsidiaries will agree to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guarantees. Each Subsidiary Guaranty will be limited in amount to
an amount not to exceed the maximum amount that can be Guaranteed by the
applicable Guarantor Subsidiary without rendering such Subsidiary Guaranty
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. See
"-- Certain Covenants -- Future Guarantor Subsidiaries" below.
Each Subsidiary Guaranty will be a continuing guarantee and will (a) remain
in full force and effect until payment in full of all the Guaranteed Obligations
covered thereby, (b) be binding upon each Guarantor Subsidiary and (c) inure to
the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assigns.
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A Subsidiary Guaranty will be released upon (i) the sale of all of the
Capital Stock, or all or substantially all of the assets, of the applicable
Guarantor Subsidiary (in each case other than to Iridium or a Subsidiary of
Iridium), (ii) the designation by Iridium of the applicable Guarantor Subsidiary
as an Unrestricted Subsidiary, in each case in compliance with the Indenture or
(iii) the reorganization of the applicable Guarantor Subsidiary as a Foreign
Subsidiary.
Iridium has no subsidiaries other than Capital and the Initial Guarantors.
Neither Capital nor any of the Initial Guarantors has any subsidiaries. Neither
Capital nor any of the Initial Guarantors has any outstanding Indebtedness other
than as co-issuers or guarantors of outstanding Indebtedness of Iridium.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the Issuers to repurchase all or any part of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount of such Notes, plus
accrued and unpaid interest to the date of purchase (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date), pursuant to the offer described below and the
other procedures set forth in the Indenture; provided, however, that
notwithstanding the occurrence of a Change of Control, the Issuers will not be
obligated to purchase any Note pursuant to this covenant to the extent that the
Issuers have exercised their rights to redeem such Note as described under "--
Optional Redemption".
A "Change of Control" means the occurrence of any of the following:
(a) one or more Dispositions which cause the amount of Motorola's
Holdings of the Capital Stock of Iridium to be reduced by more than 50% as
compared to Motorola's direct holding of Capital Stock in Iridium as of
July 16, 1997, without giving effect to any rights, warrants or options to
purchase Capital Stock of Iridium.
(b) the first day on which Iridium fails to own, of record and
beneficially, 100% of the Capital Stock of Capital (other than directors'
qualifying shares);
(c) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by Iridium or its Restricted
Subsidiaries of all or substantially all of the assets of Iridium and its
Restricted Subsidiaries to any Person; or
(d) the adoption of a plan relating to the liquidation or dissolution
of Iridium or Capital.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
result from (x) the acquisition by IWCL, Motorola or any wholly owned subsidiary
of Motorola of substantially all the assets of Parent or Iridium, (y) any
transfer of assets or merger reversing the Asset Drop-Down Transaction or (z)
the merger of Parent or Iridium with and into IWCL, Motorola or any wholly owned
subsidiary of Motorola. See "Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction."
Within 30 days following any Change of Control, the Issuers will mail a
notice to each Holder with a copy to the Trustee stating, among other things:
(1) that a Change of Control has occurred and that such Holder has the right to
require the Issuers to purchase all or any portion of such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount of Notes, plus
accrued and unpaid interest to the date of purchase (subject to the right of
Holders of record on a record date to receive interest due on the relevant
interest payment date); (2) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such Change of
Control); (3) the repurchase date (which will be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Issuers, consistent with this covenant, that a
Holder must follow in order to have its Notes or any portion thereof purchased.
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The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached their
obligations described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Underwriters. Management has no present intention and is not
aware that Motorola has any present intention to engage in a transaction
involving a Change of Control, although it is possible that the Issuers or
Motorola would decide to do so in the future. Subject to the limitations
discussed below, the Issuers or Motorola could, in the future, enter into
certain transactions, including dispositions, acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could change the ownership, increase the amount of
indebtedness outstanding at such time or otherwise affect Iridium's capital
structure or credit ratings.
The Secured Bank Facility and the Guaranteed Bank Facility contain and
other future indebtedness of the Issuers may contain, prohibitions of certain
events which would constitute a Change of Control or require such indebtedness
to be repurchased, repaid or redeemed upon certain events which would constitute
a Change of Control. Moreover, the exercise by Holders of the right to require
the Issuers to repurchase the Notes is likely to cause a default under the
Secured Bank Facility, and could cause a default under other Indebtedness of
Iridium, even if the Change of Control itself does not. In addition, the
Issuers' ability to pay cash to the Holders upon a repurchase may be limited by
the Issuers' then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any repurchases
required in connection with a Change of Control. Finally, the Issuers' ability
to redeem the Notes may be limited by applicable securities laws. The Issuers'
failure to purchase Notes in connection with a Change of Control would result in
a default under the Indenture.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) Iridium will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness (including any Acquired
Indebtedness) unless (i) immediately after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds thereof, the
Debt to Cash Flow Ratio would be less than 4.0 to 1.0 and (ii) if such
Indebtedness is Incurred by a Restricted Subsidiary, such Restricted Subsidiary
is a Guarantor Subsidiary. Notwithstanding the foregoing, prior to June 30,
2000, Iridium, Capital and any other Restricted Subsidiary that is a Guarantor
Subsidiary may Incur Indebtedness if immediately after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Debt to Capital Ratio would be less than 65%.
(b) Notwithstanding the foregoing paragraph (a), Iridium, Capital and
any other Restricted Subsidiary that is a Guarantor Subsidiary may Incur
the following Indebtedness:
(i) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements to finance the Build-out of the IRIDIUM System; provided,
however, that Indebtedness Incurred pursuant to this clause (i), other
than Indebtedness Incurred pursuant to a Bank Credit Agreement or Vendor
Financing Facility, will not have a Stated Maturity earlier than the
Stated Maturity of the Notes, and will not be mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or be redeemable at
the option of the holder thereof, in whole or in part, prior to the
Stated Maturity of the Notes (other than pursuant to provisions which
are substantially similar to those contained in the Indenture which
permit the holders of such Indebtedness to require the issuer thereof to
repurchase or repay such Indebtedness upon a Change of
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Control (or an event substantially similar thereto) or to make an offer
to purchase as a result of the occurrence of an Asset Disposition or
receipt of insurance proceeds (or an event substantially similar
thereto));
(ii) After Commercial Activation, Indebtedness under any one or
more Bank Credit Agreements or other agreements or arrangements to
finance working capital requirements of Iridium and any Refinancing
Indebtedness in respect of such Indebtedness; provided, however, at the
time of the Incurrence of such Indebtedness and after giving effect
thereto, the aggregate principal amount of all Indebtedness Incurred
pursuant to this clause (ii) and then outstanding does not exceed $950
million;
(iii) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements that is guaranteed pursuant to the Motorola Additional
Guarantee; provided, however, at the time of Incurrence of such
Indebtedness and after giving effect thereto, the aggregate amount of
all Indebtedness incurred pursuant to this clause (iii) and then
outstanding does not exceed $350 million;
(iv) Indebtedness owed by Iridium to Capital or any Wholly Owned
Restricted Subsidiary that is a Guarantor Subsidiary or Indebtedness
owed by Capital or any Wholly Owned Restricted Subsidiary that is a
Guarantor Subsidiary to Iridium or to Capital or another Wholly Owned
Restricted Subsidiary that is a Guarantor Subsidiary; provided, however,
that upon either (x) the transfer or other disposition by Capital, such
Wholly Owned Restricted Subsidiary or Iridium of any Indebtedness so
permitted to a Person other than Iridium, Capital or another Wholly
Owned Restricted Subsidiary that is a Guarantor Subsidiary or (y) the
issuance, sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger, but not including
directors' qualifying shares or interests required to be held by foreign
nationals, in each case to the extent mandated by applicable law) of
such Wholly Owned Restricted Subsidiary or Capital to a Person other
than Iridium, Capital or another such Wholly Owned Restricted
Subsidiary, the provisions of this clause (iv) will no longer be
applicable to such Indebtedness and such Indebtedness will be deemed to
have been Incurred by the issuer thereof at the time of such issuance,
sale, lease, transfer or other disposition;
(v) Refinancing Indebtedness Incurred to Refinance Indebtedness
Incurred pursuant to the first paragraph of this covenant or pursuant to
clause (i), (ii), (iii), (vii) or (viii) or this clause (v) of this
paragraph;
(vi) Indebtedness consisting of Permitted Interest Rate or Currency
Protection Agreements;
(vii) Indebtedness represented or evidenced by the Notes and
Indebtedness of the Guarantor Subsidiaries evidenced by the Subsidiary
Guaranties;
(viii) Indebtedness outstanding on the Issue Date (other than the
Guaranteed Bank Facility and other Indebtedness described in clause (i),
(ii), (iii), (iv) or (vii) of this paragraph);
(ix) Indebtedness consisting of performance and other similar bonds
and reimbursement obligations Incurred in the ordinary course of
business securing the performance of contractual, franchise or license
obligations of Iridium, Capital or a Restricted Subsidiary, or in
respect of a letter of credit obtained to secure such performance; and
(x) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of Iridium, Capital and other Restricted
Subsidiaries that are Guarantor Subsidiaries outstanding on the date of
such Incurrence (without duplication and other than Indebtedness
permitted by clauses (i) through (ix) above or the first paragraph of
this covenant) does not exceed $100.0 million.
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For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness Iridium, Capital and the other Restricted Subsidiaries are
permitted to Incur, Iridium, Capital or such Restricted Subsidiary, as the case
may be, will have the right, in Iridium's sole discretion, to classify such item
of Indebtedness at the time of its Incurrence and will only be required to
include the amount and type of such Indebtedness under the clause permitting the
Indebtedness as so classified.
Limitation on Restricted Payments. (a) Iridium will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with
any merger or consolidation involving the Issuers), except dividends or
distributions payable solely in its Capital Stock and cash to the extent
required to pay for fractional shares of such Capital Stock (other than
Disqualified Stock) or payable to Iridium or another Restricted
Subsidiary (and, if such Restricted Subsidiary has shareholders other
than the Issuers or other Restricted Subsidiaries, to its other
shareholders on a pro rata basis or on a basis that results in the
receipt by the Issuers or a Restricted Subsidiary of dividends or
distributions of equal or greater value);
(ii) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of Iridium or any Restricted Subsidiary held by Persons
other than Iridium or another Restricted Subsidiary;
(iii) purchase, repurchase, redeem, defease, acquire or retire for
value, or otherwise make any principal payment on, any Subordinated
Obligations prior to the scheduled maturity, scheduled repayment or
scheduled sinking fund payment thereof (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the
date of acquisition, or any purchase, repurchase, redemption or other
acquisition or prepayment thereof in connection with any Refinancing
thereof permitted pursuant to clause (v) of paragraph (b) of the
covenant described under "-- Limitation on Indebtedness"); or
(iv) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement, Investment or
payment being herein referred to as a "Restricted Payment"), if at the
time Iridium or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default has occurred and is continuing (or would result
therefrom); (2) Iridium could not Incur at least $1.00 of additional
Indebtedness pursuant to the terms of the first sentence of paragraph
(a) of the covenant described under "-- Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of:
(A) 50% of the Consolidated Net Income of Iridium accrued during
the period (treated as one accounting period) from the beginning of
the fiscal quarter immediately following the fiscal quarter during
which July 16, 1997 occurs to the end of the most recent fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment (or, in case such Consolidated Net
Income is a deficit, minus 100% of such deficit); provided, however,
that the aggregate amount calculated pursuant to this clause (A) (if
such aggregate amount is a negative amount) shall be reset to zero on
the first date on which the Notes are assigned an Investment Grade
Rating by both Rating Agencies;
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(B) the aggregate Net Cash Proceeds received by Iridium from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Restricted Subsidiary and other than an issuance or sale to an
employee stock ownership plan or to a trust established by Iridium or
any Restricted Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of Iridium is reduced on
the balance sheet of Iridium upon the conversion or exchange (other
than by a Restricted Subsidiary) subsequent to the Issue Date of any
Indebtedness of Iridium convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of Iridium (less the amount of any
cash, or the fair value of any other property or assets of Iridium or
any Restricted Subsidiary, distributed by Iridium upon such
conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to Iridium or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to Iridium's equity
interest in such Subsidiary) of the fair market value of the net
assets of an Unrestricted Subsidiary (as determined by the Board of
Directors in the manner described in paragraph (c) below) at the time
such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum does not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by Iridium or
any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Iridium may
(i) subject to clause (vii) below, pay any dividend on Capital
Stock of any class within 60 days after the declaration thereof if, on
the date when the dividend was declared, Iridium could have paid such
dividend in accordance with the foregoing provisions;
(ii) repurchase any Capital Stock from Persons who were formerly
officers, managers or employees of Parent or any of its Subsidiaries (or
from IWCL in connection with or relating to a repurchase by IWCL of its
Capital Stock from such Persons), provided, however, that the aggregate
amount of all such repurchases made pursuant to this clause (ii) will
not exceed $2.0 million, plus the aggregate cash proceeds received by
Iridium since July 16, 1997 from the issuance of its Capital Stock to
officers, managers and employees of Iridium or any of its Subsidiaries
(or from IWCL in connection with or relating to such an issuance by IWCL
to such Persons);
(iii) Refinance, and permit its Restricted Subsidiaries to
Refinance, any Indebtedness otherwise permitted to be Refinanced by
clause (v) of paragraph (b) under the covenant described under "--
Limitation on Indebtedness" above;
(iv) during the period any of Iridium or Parent is treated as a
partnership for U.S. federal income tax purposes and after such period
to the extent relating to the liability for such period, make
distributions in respect of members' or partners' income tax liability
with respect to Iridium or Parent in an amount not to exceed the Tax
Amount;
(v) make distributions to Parent to pay Parent's or IWCL's ordinary
and reasonable operating expenses related to Parent, as set forth in an
Officers' Certificate delivered to the Trustee;
(vi) repurchase any Capital Stock pursuant to Section 11.03 of the
Parent LLC Agreement in the event a member of Iridium fails to pay any
of the amounts required by a Reserve Capital Call (see "Description of
Iridium LLC Limited Liability Company Agreement -- Capital
Contributions; Reserve Capital Call");
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(vii) make any Restricted Payment by exchange for, or out of the
proceeds of the substantially concurrent sale of, or capital
contribution in respect of, Capital Stock of Iridium (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of Iridium or an employee stock ownership plan or to a trust
established by Iridium or any of its Subsidiaries for the benefit of
their employees);
(viii) make any Restricted Payment pursuant to the Interest
Exchange Agreement, the Share Issuance Agreement, the Master
Subscription Agreement or the Management Services Agreement; and
(ix) make other Restricted Payments in an aggregate amount not to
exceed $10.0 million.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vii),
(viii) and (ix) of the immediately preceding paragraph will be excluded from the
calculation of the aggregate amount of Restricted Payments made since the Issue
Date; provided, however, that the Net Cash Proceeds from the issuance of Capital
Stock pursuant to clauses (ii) and (vii) of the immediately preceding paragraph
will be excluded from the calculation of amounts under clause (B) of the second
preceding paragraph. A dividend or distribution by a Restricted Subsidiary in
respect of its Capital Stock will only be deemed to be a Restricted Payment to
the extent such dividend or distribution is paid to entities other than Iridium
and the Restricted Subsidiaries.
(c) The net proceeds from the issuance of shares of Capital Stock upon
conversion of Indebtedness will be deemed to be an amount equal to (i) the
accreted value of such Indebtedness on the date of such conversion and (ii) the
additional consideration, if any, received by Iridium upon such conversion
thereof, less any cash payment on account of fractional shares. The amount of
all Restricted Payments (other than cash) will be the fair market value
(evidenced by a resolution of the Board of Directors determined in good faith
and set forth in an Officers' Certificate delivered to the Trustee) on the date
of the Restricted Payment of the asset(s) proposed to be transferred by Iridium
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, Iridium will
deliver to the Trustee an Officers' Certificate identifying each Restricted
Payment made by Iridium during such fiscal quarter and stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon Iridium's latest available financial statements.
If Iridium makes a Restricted Payment which, at the time of the making of such
Restricted Payment, would in the good faith determination of Iridium be
permitted under the Indenture, such Restricted Payment will be deemed to have
been made in compliance with the Indenture notwithstanding any subsequent
adjustments made in good faith to Iridium's financial statements affecting
Consolidated Net Income for any period.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. Iridium will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions to
Iridium or any Restricted Subsidiary on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, (ii) pay any
Indebtedness owed to Iridium or any Restricted Subsidiary, (iii) make any loans
or advances to Iridium or any Restricted Subsidiary or (iv) transfer any of its
property or assets to Iridium or any Restricted Subsidiary, except:
(1) any encumbrance or restriction pursuant to an agreement relating
to the Guaranteed Bank Facility or any other agreement in effect at or
entered into on the Issue Date or any encumbrance or restriction imposed
pursuant to the Indenture or the Notes (or similar limitations pursuant to
other notes issued by Iridium or other indentures relating thereto that are
substantially similar to those set forth in the Indenture) or any agreement
relating to the Secured Bank Facility;
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(2) any encumbrance or restriction pursuant to an agreement relating
to any Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person so acquired and its Subsidiaries;
(3) any encumbrance or restriction pursuant to (x) an agreement or
instrument pursuant to Indebtedness which Refinances Indebtedness Incurred
pursuant to an agreement referred to in clause (1) or (2) of this covenant
or this clause (3), or contained in any amendment to an agreement or
instrument referred to in clause (1) or (2) of this covenant or this clause
(3), or (y) Indebtedness described in clause (i), (ii) or (iii) of
paragraph (b) of the covenant described above under "-- Limitation on
Indebtedness" and permitted Refinancing Indebtedness with respect thereto;
provided, however, that the encumbrances and restrictions contained in any
such refinancing agreement, instrument or amendment referred to in clause
(x) above are, taken as a whole, no more restrictive in any material
respect than the encumbrances and restrictions contained in the predecessor
agreements (as determined by the chief financial officer of Iridium in good
faith and evidenced by a certificate filed with the Trustee);
(4) any encumbrance or restriction contained in security agreements or
mortgages securing Indebtedness, or under any documents providing for
Capital Lease Obligations, of a Restricted Subsidiary which are not
prohibited by the covenant described under "-- Limitation on Liens" to the
extent such encumbrances or restrictions restrict the assignment or
transfer of the property or assets subject to such security agreements or
mortgages, or subject to such Capital Lease Obligations;
(5) any encumbrance or restriction existing under or by reason of
applicable law or regulations;
(6) customary non-assignment provisions of any licensing agreement or
of any lease but only to the extent such provisions restrict the transfer
of the license, lease or the property thereunder;
(7) any encumbrance or restriction contained in contracts for sales of
assets otherwise permitted by the Indenture;
(8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed pursuant to an agreement that has been entered into for
the sale of all or substantially all of the Capital Stock of such
Restricted Subsidiary; provided, however, that after giving effect to such
transaction no Default will have occurred or be continuing, that such
restriction terminates if such transaction is not consummated and that such
consummation or abandonment of such transaction occurs within one year of
the date such agreement was entered into;
(9) any encumbrance or restriction, with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary on the date of the
Indenture, in existence at the time such Person becomes a Restricted
Subsidiary and not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary; and
(10) any restriction on the sale or other disposition of assets or
property securing Indebtedness as a result of a Permitted Lien on such
assets or property.
Limitation on Sales of Assets and Subsidiary Stock. (a) Iridium will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Disposition unless:
(i) Iridium or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Disposition at least equal
to the fair market value (including the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition,
as determined by the Board of Directors in good faith and evidenced by a
resolution filed with the Trustee;
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(ii) at least 80% of the consideration therefor received by Iridium or
such Restricted Subsidiary, as the case may be, consists of cash or
Marketable Securities (provided that an amount equal to the fair value (as
determined in good faith by the Board of Directors as evidenced by a
resolution filed with the Trustee) of assets utilized or to be utilized in
a Related Business and received by Iridium or any Restricted Subsidiary in
connection with any Asset Disposition will be treated as cash solely for
purposes of this clause (ii)) or the assumption of Indebtedness of Iridium
(other than Indebtedness that is a Subordinated Obligation) or the
Restricted Subsidiary, as the case may be, and the release of Iridium or
such Restricted Subsidiary, as the case may be, from all liability on the
Indebtedness assumed; and
(iii) all Net Available Proceeds, less any amounts invested within 180
days of such disposition (or committed by such 180th day for investment
pursuant to a written agreement which commits such investment within 180
days after the date of such agreement) in assets that comply with the
covenant described under "Limitation on Lines of Business", are applied
within 180 days of such Asset Disposition (1) first, to the permanent
repayment or reduction of Indebtedness then outstanding under any Bank
Credit Agreement or Vendor Financing Facility, to the extent such agreement
or facility would require such application or prohibit payments pursuant to
the following clause (2), (2) second, to the extent of remaining Net
Available Proceeds, to make an offer to purchase outstanding Notes at 100%
of the principal amount of the Notes plus accrued and unpaid interest to
the date of purchase, and, to the extent required by the terms thereof, any
other Indebtedness of Iridium or a Restricted Subsidiary that ranks pari
passu with the Notes at a price no greater than 100% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase and
(3) third, to the extent of any remaining Net Available Proceeds after
application of clauses (1) and (2) above, to the repayment of other
Indebtedness of Iridium or Indebtedness of a Restricted Subsidiary, to the
extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, Iridium and the Restricted Subsidiaries
may use such amounts for any purposes not prohibited by the Indenture.
Notwithstanding the foregoing, Iridium will not be required to repurchase
or redeem Notes pursuant to clause (2) above until Net Available Proceeds
from all Asset Dispositions in the aggregate, less any amounts invested
within 180 days of such dispositions (or committed by such 180th day for
investment pursuant to a written agreement which commits such investment
within 180 days after the date of such agreement) in a Related Business and
any amounts applied pursuant to clause (1) above and any amounts previously
applied pursuant to clause (1), (2) or (3) above, are greater than $10.0
million.
(b) The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers will comply
with the applicable securities laws and regulations and will not be deemed to
have breached their obligations described under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) Iridium will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any
transaction (including the purchase, sale, lease or exchange of any property or
the rendering of any service) with any Affiliate or Related Person of Iridium
(other than Iridium or a Wholly Owned Restricted Subsidiary) that involves
consideration in excess of $5.0 million (an "Affiliate Transaction") on terms
(i) that, taken as a whole, are less favorable to Iridium or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $10.0 million, are not in writing and have not
been approved either by a majority of the members of the Board of Directors
having no material direct or indirect financial interest in or with respect to
such Affiliate Transaction or by the Related Party Contracts Committee (if
appropriate under Iridium's Bylaws or the Iridium LLC Agreement). In addition,
if such Affiliate Transaction is an Asset
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Disposition involving any Affiliate or Related Person of Iridium (other than
Iridium or a Wholly Owned Restricted Subsidiary) for an aggregate consideration
in excess of $25.0 million, a fairness opinion to the effect that such
transaction is fair (from a financial point of view) to Iridium or the
Restricted Subsidiary, as applicable, must be obtained from an Independent
Financial Advisor or, with respect to telecommunications-related matters, a
recognized expert in the satellite telecommunications industry.
(b) The provisions of the foregoing paragraph (a) will not apply to:
(i) employee benefit or compensation arrangements entered into in the
ordinary course of business and approved by the Board of Directors;
(ii) transactions solely between or among Iridium and the Restricted
Subsidiaries;
(iii) Restricted Payments permitted by the covenant described under
"-- Limitation on Restricted Payments";
(iv) Investments by IWCL, an Affiliate or Related Person of Iridium or
Capital in the Capital Stock (other than Disqualified Stock) of Iridium or
any Restricted Subsidiary; and
(v) a transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not, taken as a whole,
less favorable to Iridium than the terms of the relevant agreement prior to
such amendment.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Iridium will not, and will not permit any Restricted Subsidiary
to, issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into
Capital Stock of a Restricted Subsidiary to any person other than Iridium,
Capital or a Wholly Owned Restricted Subsidiary except (i) in a transaction
consisting of a sale of all the Capital Stock of such Restricted Subsidiary and
that complies with the provisions described under "-- Limitation on Sales of
Assets and Subsidiary Stock" to the extent such provisions apply; (ii) if
required, the issuance, transfer, conveyance, sale or other disposition of
directors' qualifying shares or of interests required to be held by foreign
nationals, in each case to the extent mandated by applicable law; (iii) in a
transaction in which, or in connection with which, Iridium or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; (iv) any grant, establishment or exercise of any Lien
permitted under the covenant described under "-- Limitation on Liens"; and (v)
Disqualified Stock of a Restricted Subsidiary Incurred to Refinance Disqualified
Stock of such Restricted Subsidiary; provided, however, that the amounts of the
redemption obligations of such Disqualified Stock may not exceed the amounts of
the redemption obligations of, and such Disqualified Stock will have redemption
obligations no earlier than those required by, the Disqualified Stock being
Refinanced.
Limitation on Liens. (a) Iridium will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien on any of its property or assets (including Capital Stock), whether owned
on the Issue Date or thereafter acquired, unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with such
obligation for so long as such obligation is so secured. The preceding sentence
will not require Iridium or any Restricted Subsidiary to equally and ratably
secure the Notes if the Lien consists of Permitted Liens.
(b) Any Lien created for the benefit of the Holders of the Notes pursuant
to the foregoing paragraph (a) will provide by its terms that such Lien will be
automatically and unconditionally released and discharged upon the earlier of
the release and discharge of the Lien which gave rise to the obligation to
secure such Notes and the release and discharge of the Indenture.
SEC Reports. Notwithstanding that the Issuers may not be required to be or
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Issuers will file with the
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Commission, and provide the Trustee and Holders and prospective Holders (upon
request) with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act.
The foregoing will not require Capital or any Guarantor Subsidiary to file,
provide or furnish with or to any Person any report or information separate from
any report or information filed, provided or furnished by Iridium to the extent
Capital or any Guarantor Subsidiary would not be required to do so under Section
13 or 15(d) of the Exchange Act.
Future Guarantor Subsidiaries. Iridium will cause each Subsidiary created
or acquired after the Issue Date (other than an Unrestricted Subsidiary or a
Foreign Subsidiary) to execute and deliver to the Trustee supplemental
indentures pursuant to which such Subsidiary will Guarantee payment of the
Notes. Iridium may cause any Foreign Subsidiary to execute and deliver a
Subsidiary Guaranty in accordance with the provisions of the Indenture. Each
Subsidiary Guaranty will be limited to an amount not to exceed the maximum
amount that can be Guaranteed by that Subsidiary without rendering the
Subsidiary Guaranty, as it relates to such Subsidiary, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. In addition, the Indenture will
provide that Issuers will not, and will not permit any of the Guarantor
Subsidiaries to, make any Investment in any Subsidiary that is not a Guarantor
Subsidiary unless either (i) such Investment is permitted by the covenant
described under "-- Limitation on Restricted Payments" or (ii) such Subsidiary
executes and delivers a Subsidiary Guaranty in accordance with the provisions of
the Indenture.
Limitation on Lines of Business. Iridium will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Related Business.
Limitation on Business Activities of Capital. Capital will not hold any
material assets, become liable for any material obligations, engage in any trade
or business, or conduct any business activity, other than the issuance of
Capital Stock to Iridium or any Wholly Owned Restricted Subsidiary, the
Incurrence of Indebtedness as a co-obligor or guarantor of Indebtedness Incurred
by Iridium, including the Notes and the Exchange Notes, if any, that is
permitted to be Incurred by Iridium pursuant to the covenant described under
"-- Limitation on Indebtedness" (provided that the net proceeds of such
Indebtedness are retained by Iridium or loaned to one or more of Iridium's
Restricted Subsidiaries other than Capital), and activities incidental thereto.
Neither Iridium nor any Restricted Subsidiary (other than Capital) will engage
in any transactions with Capital in violation of the immediately preceding
sentence.
Maintenance of Insurance. Iridium will procure and maintain insurance with
financially sound and reputable insurance companies in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in a business or businesses similar to Iridium and owning properties in
localities where Iridium and the Restricted Subsidiaries operate, including
without limitation in-orbit insurance.
Within 30 days following the Issue Date and within 30 days following any
date on which Iridium renews or obtains insurance, Iridium will deliver to the
Trustee an insurance certificate certifying the amount of insurance then renewed
or obtained and an Officers' Certificate stating that such insurance, together
with any other insurance, complies with the Indenture. In addition, Iridium will
cause to be delivered to the Trustee no less than once each year an insurance
certificate setting forth the amount of insurance then carried, which insurance
certificate will entitle the Trustee to (i) notice of any claim under any such
insurance policy; and (ii) at least 30 days' notice from the provider of such
insurance prior to the cancellation of any such insurance.
In the event that Iridium receives any proceeds of any in-orbit insurance,
such proceeds will constitute "Insurance Proceeds." Promptly following the
receipt of any Insurance Proceeds, Iridium will apply such Insurance Proceeds in
accordance with clause (iii) under the covenant described under "-- Limitation
on Sales of Assets and Subsidiary Stock" (treating such Insurance Proceeds
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as Net Available Proceeds thereunder); provided, however, that Insurance
Proceeds will only be required to be so applied to the extent that the aggregate
amount of all Insurance Proceeds received by Iridium exceeds $10.0 million in
any 12-month period.
MERGER AND CONSOLIDATION
Neither Iridium nor Capital will consolidate with or merge with or into, or
convey, transfer or lease, in one transaction or a series of transactions, all
or substantially all its assets to, any Person; provided, however, that the
Indenture will provide that Iridium may consolidate with or merge with or into,
or convey, transfer or lease, all or substantially all its assets to, any
Person, if (i) the resulting, surviving or transferee Person (the "Successor
Company") is a Person organized and existing under the laws of the United States
of America, any State thereof, the District of Columbia or the laws of Bermuda
and the Successor Company (if not Iridium) expressly assumes, by an indenture
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of Iridium under the Indenture
and the Notes issued thereunder; (ii) immediately after giving effect to such
transaction on a pro forma basis (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Subsidiary as a result of such
transaction as having been Incurred by such Successor Company or such Subsidiary
at the time of such transaction), no Default under the Indenture has occurred
and is continuing, (iii) immediately after giving effect to such transaction,
the Successor Company would be able to Incur an additional $1.00 of Indebtedness
pursuant to the terms of the first sentence of paragraph (a) of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness"; (iv)
immediately after giving effect to such transaction, the Successor Company has
Consolidated Net Worth in an amount that is not less than the Consolidated Net
Worth of Iridium immediately prior to such transaction; and (v) Iridium has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such transaction and such supplemental indenture (if any)
comply with the Indenture. The requirements of clause (iii) above shall not
apply where Iridium merges with or into, or conveys, transfers or leases, in one
transaction or a series of transactions, all or substantially all of its assets
to, any Person with no outstanding Indebtedness (other than Indebtedness which
is also Indebtedness of Iridium).
The Indenture will provide that Iridium will not permit any Guarantor
Subsidiary to consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or substantially all
of its assets to any Person unless: (i) the resulting, surviving or transferee
Person (if not such Subsidiary) is a Person organized and existing under the
laws of the jurisdiction under which such Subsidiary was organized or under the
laws of the United States of America, or any State thereof, the District of
Columbia or the laws of Bermuda, and such Person expressly assumes, by a
guaranty agreement, in a form satisfactory to the Trustee, all the obligations
of such Subsidiary, if any, under its related Subsidiary Guaranty (except to the
extent it would not otherwise have been required to provide a Subsidiary
Guaranty); (ii) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of the
resulting, surviving or transferee Person as a result of such transaction as
having been issued by such Person at the time of such transaction), no Default
has occurred and is continuing under the Indenture; and (iii) Iridium has
delivered to the Trustee an Officer's Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such guaranty
agreement, if any, complies with the Indenture.
The Successor Company will be the successor to Iridium and will succeed to,
and be substituted for, and may exercise every right and power of, Iridium,
Capital or any Guarantor Subsidiary, respectively, under the Indenture, the
Notes and the related Subsidiary Guaranty, as applicable, and the predecessor
Company, Capital or Guarantor Subsidiary, respectively (other than in the case
of a lease), will be released from all obligations and covenants under the
Indenture and the Notes or the related Subsidiary Guaranty, as applicable.
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The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of Iridium or Capital,
and therefore it may be unclear whether the foregoing provisions are applicable.
DEFAULTS
An Event of Default is defined in the Indenture as:
(i) a default in any payment of interest on any Note when due,
continued for 30 days;
(ii) a default in the payment of principal of any Note issued when due
at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise;
(iii) the failure by the Issuers to comply with their obligations
under the covenant described under "Merger and Consolidation" above;
(iv) the failure by the Issuers to comply for 30 days after notice
with any of their obligations under the covenants described under (A)
"-- Change of Control" and (B) "-- Limitation on Indebtedness", "--
Limitation on Restricted Payments", "-- Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "-- Limitation on Sales of
Assets and Subsidiary Stock", "-- Limitation on Transactions with
Affiliates", "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries", "-- Limitation on Liens", "-- Future Guarantor
Subsidiaries", "Limitation on Lines of Business" and "-- Maintenance of
Insurance" described under "-- Certain Covenants" above (in each case,
other than a failure to purchase Notes issued under the Indenture);
(v) the failure by the Issuers or any Guarantor Subsidiary to comply
for 60 days after notice with its other agreements contained in the Notes
or in the Indenture;
(vi) the failure by the Issuers or any Significant Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
the acceleration of any such Indebtedness by the holders thereof because of
a default, if the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision");
(vii) certain events of bankruptcy, insolvency or reorganization of
the Issuers or a Significant Subsidiary (the "bankruptcy provisions");
(viii) the rendering of any final judgment or decree (not subject to
appeal) in excess of $10.0 million or its foreign currency equivalent (net
of amounts paid within 30 days of any such judgment or decree under any
insurance, indemnity, bond, surety or similar instrument) against Iridium,
Capital or a Significant Subsidiary by a court or other adjudicatory
authority of competent jurisdiction to the extent which Iridium, Capital or
the Significant Subsidiary, as applicable, is not insured by a third Person
and such judgment or decree remains outstanding and is not discharged,
waived or stayed within 30 days after notice (the "judgment default
provision");
(ix) any Subsidiary Guaranty relating to the Indenture or Notes ceases
to be in full force and effect (except as contemplated by the terms
thereof) or any Guarantor Subsidiary denies or disaffirms its obligations
under the Indenture or any such Subsidiary Guaranty;
(x) termination by Motorola of the Space System Contract prior to
delivery thereunder by Motorola of the Space System (as defined therein),
provided that such termination has not been contested by Iridium in
accordance with the Space System Contract or by appropriate proceedings
and, if such termination is so contested, within 180 days of such notice
such
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termination has not been withdrawn or declared ineffective by any
recognized court or mediator; or
(xi) termination by Motorola of the Operation and Maintenance
Contract, or Motorola ceases to be the operator of the IRIDIUM System prior
to the Stated Maturity of the Notes in each such case for a period of more
than 30 days.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv), (v) or (viii) will not constitute an
Event of Default under the Indenture until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify the Issuers of the default and
the Issuers do not cure such default within the time specified in clauses (iv),
(v) and (viii) hereof after receipt of such notice.
If an Event of Default under the Indenture occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the outstanding
Notes by notice to the Issuers may declare the principal of, and accrued but
unpaid interest on, all the Notes to be due and payable. Upon such a
declaration, such principal and interest will be due and payable immediately. If
an Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Issuers occurs and is continuing, the principal of and
interest on all the Notes will become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in principal amount of the
Notes then outstanding may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee thereunder, in case an Event of Default occurs and is continuing, the
Trustee will be under no obligation to exercise any of the rights or powers
under the Indenture at the request or direction of any of the relevant Holders
unless such Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the Notes then outstanding have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the Notes then outstanding have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the Notes then outstanding are given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder thereunder or that would involve the Trustee in personal
liability. Prior to taking any action under the Indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Indenture will provide that if a Default occurs and is continuing under
the Indenture and is known to the Trustee, the Trustee must mail to each Holder
thereunder notice of such Default within the earlier of 90 days after it occurs
or 30 days after it is known to a Trust Officer or written notice of it is
received by the Trustee. Except in the case of a Default in the payment of
principal of, premium and Liquidated Damages, if any, or interest on any Note,
the Trustee may withhold notice if and so long as a committee of its Trust
Officers in good faith determines that withholding notice is in the interests of
the Holders. In addition, the Issuers are required to deliver to the Trustee,
within
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120 days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default under the Indenture that occurred during the
previous year. The Issuers also are required to deliver to the Trustee, within
30 days after the occurrence thereof, written notice of any event which would
constitute certain Defaults under the Indenture, their status and what action
the Issuers are taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default and its consequences or compliance with any
provisions may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. However, without the consent of
each Holder of an outstanding Note affected, no amendment may (i) reduce the
amount of Notes whose Holders must consent to an amendment or waiver, (ii)
reduce the rate of or extend the time for payment of interest on any such Note,
(iii) reduce the principal of or extend the Stated Maturity of any such Note,
(iv) reduce the premium payable upon the redemption of any such Note or change
the time at which any such Note may be redeemed as described under "-- Optional
Redemption" above, (v) make any such Note payable in money other than that
stated in such Note, (vi) impair the right of any Holder to receive payment of
principal of and premium and interest on such Holder's Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Holder's Notes, (vii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions or
(viii) make any change in any related Subsidiary Guaranty that would adversely
affect the Holders.
Without the consent of any Holder, the Issuers and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of
either Issuer under the Indenture, to provide for uncertificated Notes in
addition to or in place of certificated Notes (provided that such uncertificated
Notes are issued in registered form for purposes of Section 163(f) of the Code,
or in a manner such that such uncertificated Notes are described in Section
163(f)(2)(B) of the Code), to add further Guarantees with respect to such Notes,
to release Guarantor Subsidiaries when permitted by the Indenture, to secure the
Notes, to add to the covenants of the Issuers for the benefit of the Holders of
the Notes or to surrender any right or power conferred upon the Issuers, to make
any change that does not adversely affect the rights of any Holder of the Notes
or to comply with any requirement of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuers are
required to mail to the Holders a notice briefly describing such amendment.
However, the failure to give such notice to all such Holders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
Upon any transfer or exchange, the registrar and Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes required by law or
permitted by the Indenture. The Issuers are not required to transfer or exchange
any Note selected for redemption or to transfer or exchange any Note for a
period of 15 days prior to a selection of Notes to be redeemed. The Notes will
be issued in registered form and the registered holder of a Note will be treated
as the owner of such Note for all purposes.
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DEFEASANCE
The Issuers at any time may terminate all their obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuers at any time may terminate their obligations under the
covenants described under "-- Subsidiary Guaranties," "-- Change of Control,"
"-- Certain Covenants," the operation of the cross acceleration provision, the
bankruptcy default provisions with respect to Subsidiaries and the judgment
default provision described under "-- Defaults" above and the limitations
contained in clauses (ii), (iii) and (iv) under "-- Merger and Consolidation"
above ("covenant defeasance"). If the Issuers exercise their legal defeasance
option or their covenant defeasance option, each Guarantor Subsidiary will be
released from all of its obligations with respect to its Subsidiary Guaranty.
The Issuers may exercise their legal defeasance option notwithstanding
their prior exercise of their covenant defeasance option. If the Issuers
exercise their legal defeasance option, payment of the Notes may not be
accelerated because of an Event of Default with respect thereto. If the Issuers
exercise their covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect to Significant Subsidiaries only), (viii), (ix), (x) or (xi) under
"-- Defaults" above or because of the failure of Iridium to comply with clause
(ii), (iii) or (iv) under "-- Merger and Consolidation" above.
Defeasance options with respect to the Notes may be exercised to any
redemption date or the maturity date. In order to exercise either defeasance
option, the Issuers must irrevocably deposit in trust (the "defeasance trust")
with the Trustee money or Government Securities for the payment of principal,
premium and interest on the Notes to redemption or maturity, as the case may be,
and must comply with certain other conditions, including delivery to the Trustee
of an Opinion of Counsel to the effect that holders of the Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
the deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
NO LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or member of Iridium or
Capital, as such, will have any liability for any obligations of the Issuers or
any Guarantor Subsidiary under the Notes or the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes. Such
waiver will not constitute a waiver of liabilities under the federal securities
laws if it is the view of the Commission that such a waiver would be against
public policy.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Issuers as Registrar and Paying Agent with regard to
the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes are governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
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CERTAIN DEFINITIONS
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such Person merges with or
into or consolidates with or becomes a Restricted Subsidiary of such specified
Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person, which Indebtedness or Lien was not Incurred in
anticipation of, and was outstanding prior to, such merger, consolidation or
acquisition.
"Affiliate" of any Person means any other Person, directly or indirectly
controlling or controlled by or under direct or indirect common control with
such specific Person. For the purposes of this definition, "control" when used
with respect to any Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of Voting
Stock, by contract or otherwise; provided, however, that beneficial ownership of
10% or more of the Voting Stock of a Person will be deemed to be control. The
terms "controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, (a) no individual will be an Affiliate of Iridium
solely by reason of his or her being a director, officer or employee of IWCL,
Iridium or any Subsidiary of either and (b) none of the Restricted Subsidiaries
will be Affiliates of Iridium.
"Agreement Regarding Guarantee" means the Second Amended and Restated
Agreement Regarding Guarantee among Parent, Iridium and Motorola, dated as of
April , 1998, and as further amended from time to time.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition (collectively, any "disposition") by Iridium or any Restricted
Subsidiary (including any disposition by means of a consolidation, merger or
similar transaction) but excluding a disposition by a Restricted Subsidiary to
Iridium or a Wholly Owned Restricted Subsidiary or by Iridium to a Wholly Owned
Restricted Subsidiary of (i) shares of Capital Stock of a Restricted Subsidiary,
(ii) all or substantially all of the assets of Iridium or any Restricted
Subsidiary representing a division or line of business or (iii) other assets or
rights of Iridium or any of its Restricted Subsidiaries other than a disposition
(a) in the ordinary course of business, (b) that constitutes a Restricted
Payment which is permitted under the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" above, (c) that is subject to
the provisions set forth in the first, second or third paragraph under
"-- Merger and Consolidation" above, or (d) that constitutes the grant,
establishment or exercise of any Lien permitted pursuant to "-- Certain
Covenants -- Limitations on Liens" above; provided, however, that a transaction
described in clauses (i), (ii) and (iii) will constitute an Asset Disposition
only to the extent that the aggregate consideration for all such transfers,
conveyances, sales, leases or other dispositions exceeds $10.0 million in any
12-month period.
"Attributable Indebtedness" in respect of a Sale and Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale and Leaseback Transaction (including any period for which
such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
the numbers of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness (or scheduled
redemption or similar payment with respect to Disqualified Stock) multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit agreements (which may
include or consist of revolving credit agreements or similar arrangements)
between Iridium and/or any Subsidiary and one or more banks or other financial
institutions providing financing for the business of Iridium and its
Subsidiaries. The Guaranteed Bank Facility will be, and the Secured Bank
Facility (when executed and delivered by all the parties thereto) will be, Bank
Credit Agreements.
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"Board of Directors" means the Board of Directors of Iridium or any
committee thereof duly authorized to act on behalf of such Board.
"Build-out" means the construction, acquisition, improvement, operation and
development (including all costs related thereto) of the IRIDIUM System up to
the occurrence of Commercial Activation and the construction, acquisition,
improvement and development (including all costs related thereto) thereafter of
contemplated enhancements to the IRIDIUM System described in this Prospectus.
See "Business -- Iridium World Services."
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by a
Capital Lease Obligation will be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof will be the
date of the last scheduled payment of rent or any other amount due under the
relevant lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Capital Stock" of any Person means (i) in the case of a corporation,
corporate stock issued by such Person, (ii) in the case of an association or
business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock issued by such Person, (iii)
in the case of a partnership, partnership interests (whether general or limited)
issued by such Person, (iv) in the case of a limited liability company,
membership interests issued by such Person, (v) any other interest or
participation that confers on another Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person, and
(vi) any rights (other than debt securities convertible into, or exchangeable
for, Capital Stock), warrants or options to purchase any of the foregoing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Activation" means the date on which Iridium commences generally
available commercial service on the IRIDIUM System.
"Commission" means the Securities and Exchange Commission and any successor
agency.
"Consolidated Cash Flow" of Iridium means for any period the Consolidated
Net Income of Iridium and the consolidated Restricted Subsidiaries for such
period increased by (i) Consolidated Interest Expense of Iridium and the
consolidated Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of Iridium and the consolidated Restricted Subsidiaries for
such period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of Iridium and the consolidated Restricted
Subsidiaries for such period (including any depreciation of any asset that
represents depreciation in respect of previously capitalized interest), plus
(iv) other non-cash charges of Iridium and the consolidated Restricted
Subsidiaries for such period deducted from consolidated revenues in determining
Consolidated Net Income for such period, minus (v) non-cash items of Iridium and
the consolidated Restricted Subsidiaries for such period which increased
consolidated revenues in determining Consolidated Net Income for such period,
minus (vi) the consolidated amortization expense related to payments made by
Iridium and the Restricted Subsidiaries to Motorola pursuant to the Operations
and Maintenance Contract included in the income statement of Iridium and the
consolidated Restricted Subsidiaries for such period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP or, so long as such Person is treated as a partnership or
other pass through entity for United States federal income tax purposes, the Tax
Amount paid by such Person during such period.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of
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such Person and its consolidated Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation or duplication (or, to the extent not so included, with the addition
of), (i) the amortization of Indebtedness discounts; (ii) any payments or fees
with respect to letters of credit, bankers' acceptances or similar facilities;
(iii) fees with respect to Interest Rate or Currency Protection Agreements; (iv)
Preferred Stock dividends of such Person (other than with respect to
Disqualified Stock) declared and paid or payable; (v) accrued Disqualified Stock
dividends of such Person and all Restricted Subsidiaries of such Person, whether
or not declared or paid; (vi) interest on Indebtedness Guaranteed by such
Person; (vii) the portion of any rental obligation allocable to interest
expense; and (viii) capitalized interest.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its consolidated Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there is excluded therefrom (to the extent
not already excluded therefrom) (i) the net income (or loss) of any Person
acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (ii) the net income (but not the net loss) of any Restricted
Subsidiary of such Person which Restricted Subsidiary is subject to restrictions
which prevent the payment of dividends or the making of distributions to such
Person, but only to the extent of such restrictions, (iii) the net income (or
loss) of any Person that is not a Restricted Subsidiary (including any
Unrestricted Subsidiary) except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (iv) gains or losses on Asset Dispositions by Iridium or any
Restricted Subsidiary, (v) all extraordinary gains and losses, (vi) the
cumulative effect of changes in accounting principles in the year of adoption of
such changes, (vii) non-cash gains or losses resulting from fluctuations in
currency exchange rates, and (viii) the tax effect of any of the items described
in clauses (i) through (vii) above; provided further, however, that for purposes
of any determination pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments," there will be deducted from the
consolidated net income of Iridium and the Restricted Subsidiaries for such
period an amount equal to the Tax Amount paid by Iridium during such period.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its consolidated Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP, less amounts attributable to
Disqualified Stock of such Person; provided, however, that, with respect to
Iridium, adjustments following the date of the Indenture to the accounting books
and records of Iridium in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of Iridium by another Person will not be given effect to.
"Debt to Capital Ratio" means on any date of determination for Iridium and
its Restricted Subsidiaries, on a consolidated basis, the ratio (expressed as a
percentage) of Outstanding Indebtedness on such date to Total Invested Capital
on such date.
"Debt to Cash Flow Ratio" means on any date of determination (the
"Determination Date") for Iridium and its Restricted Subsidiaries, on a
consolidated basis, the ratio of Outstanding Indebtedness on the Determination
Date to Consolidated Cash Flow for the four most recently completed fiscal
quarters immediately preceding the Determination Date (the "Measurement Period")
determined on a pro forma basis as if any Indebtedness to be Incurred had been
Incurred and the proceeds thereof had been applied on the first day of the
Measurement Period; provided, however, that in making such computations, (i) the
Consolidated Interest Expense attributable to interest on any proposed
Indebtedness bearing a floating interest rate will be computed on a pro forma
basis as if the rate in effect on such Determination Date had been the
applicable rate for the entire Measurement Period, (ii) the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility will be computed based upon the average daily balance of such
Indebtedness during such Measurement Period, (iii) in the event Iridium or any
of its Restricted Subsidiaries has made asset dispositions or acquisitions of
assets not in the ordinary
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course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) or has repaid Indebtedness or
Incurred additional Indebtedness during or after such Measurement Period, such
computation will be made on a pro forma basis as if the asset dispositions,
acquisitions, repayment or incurrence had taken place on the first day of such
Measurement Period, (iv) the net proceeds of the Indebtedness to be Incurred
will be deemed to have been applied on the first day of such Measurement Period
to acquire direct obligations of the United States government having a maturity
most closely approximating the maturity of the Indebtedness to be incurred (or
Indebtedness incurred during or after such Measurement Period); provided,
however, that the adjustment in this clause (iv) will not be made if, and to the
extent, that application of such net proceeds has otherwise been fully reflected
in the computation, and (v) the actual application of the net proceeds of
Indebtedness Incurred during or after such Measurement Period will be given pro
forma effect as if such application had taken place on the first day of such
Measurement Period.
"Default" means an event that is, or after the passing of time or the
giving of notice or both would be, an Event of Default.
"Disposition" means (i) the sale, transfer or other conveyance by Motorola
or any of its Subsidiaries (other than to a wholly owned subsidiary of Motorola)
of (a) Parent's membership interests or (b) equity interests in any entity (an
"intermediate entity") which owns, directly or indirectly, Iridium's membership
interests or (ii) the issue and sale by any such intermediate entity of its
equity securities to one or more third parties if and to the extent the proceeds
of such issue and sale are distributed by such intermediate entity to Motorola
or any of its Subsidiaries.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock, or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the earlier of the Stated Maturity of the Notes or the date
on which no Notes remain outstanding. Disqualified Stock does not include any
Capital Stock that is not otherwise Disqualified Stock if by its terms the
holders have the right to require the issuer to repurchase such stock upon a
Change of Control (or upon events substantially similar to a Change of Control).
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Equity Offering" means an offering made on a primary basis of Capital
Stock (other than Disqualified Stock) of IWCL or Iridium that results in Net
Cash Proceeds to IWCL or Iridium, as the case may be, provided, however, if any
such offering is an offering of the Capital Stock of IWCL only the Net Cash
Proceeds thereof that are contributed to Iridium will be taken into
consideration for the purposes of this definition.
"Event of Default" has the meaning set forth under "-- Defaults" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Existing Affiliate Agreements" means (i) the Space System Contract, (ii)
the Terrestrial Network Development Contract, (iii) the Operations and
Maintenance Contract, (iv) the Agreement Regarding Guarantee, (v) the Share
Issuance Agreement, (vi) the Interest Exchange Agreement, (vii) the Management
Services Agreement, (viii) the Motorola MOU and any subordination
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agreement contemplated thereunder, (ix) the agreement or agreements among
Iridium, Motorola and other parties thereto providing for the development,
manufacture and sale of individual subscriber equipment to be used in the
IRIDIUM System, which agreement or agreements will be executed and delivered
after the Issue Date as a condition to borrowings under the Secured Bank
Facility and (x) any other agreements with Affiliates or related Person of
Iridium, existing on the Issue Date and listed on a schedule to the Indenture.
"Foreign Subsidiary" means, with respect to any Person, any Subsidiary of
such Person which is incorporated or otherwise organized under the laws of any
jurisdiction other than the United States of America, any state thereof or the
District of Columbia and substantially all of whose consolidated assets are
located primarily outside of the United States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the Commission
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the
Commission. All ratios and computations based on GAAP contained in the Indenture
will be computed in conformity with GAAP.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted Average Life to maturity of not more than one year
from the date of Investment therein.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person (the
"primary obligor") through an agreement enforceable by or for the benefit of the
holder of such Indebtedness and any such obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness, or (iv) to act as a co-obligor with such Person on its
Indebtedness (and "Guaranteed" and "Guaranteeing" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person will not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Guaranteed Bank Facility" means Iridium's $750 million borrowing facility
with a syndicate of banks, as amended from time to time.
"Holders" means the registered holders from time to time of the Notes.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Indebtedness or other
obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence", "Incurred" and
"Incurring" have meanings correlative to the foregoing); provided, however, that
a change in GAAP that results in an obligation of such Person that exists at
such time becoming Indebtedness will not be deemed an Incurrence of such
Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount will be deemed an Incurrence of Indebtedness.
Notwithstanding the foregoing, Iridium may elect to treat all or any portion of
revolving credit debt of Iridium or a Subsidiary as being
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Incurred from and after any date beginning the date the revolving credit
commitment is extended to Iridium or a Subsidiary, by furnishing notice thereof
to the Trustee, and any borrowings or reborrowings by Iridium or a Subsidiary
under such commitment up to the amount of such commitment designated by Iridium
as Incurred will not be deemed to be new Incurrences of Indebtedness by Iridium
or such Subsidiary; provided, however, that in such event the undrawn portion of
any such revolving credit debt will be deemed to be outstanding Indebtedness
until such time as the commitment thereunder is terminated. The accretion of
principal of a non-interest bearing or other discount security will not be
deemed the Incurrence of Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (i) every obligation of such Person for money borrowed, (ii)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including any such obligations Incurred in connection with
the acquisition of property, assets or businesses, (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person, (iv)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (including securities repurchase agreements but
excluding trade accounts payable or accrued liabilities arising in the ordinary
course of business which are not overdue by more than 30 days or which are being
contested in good faith), (v) every Capital Lease Obligation of such Person,
(vi) all Receivables Sales of such Person, together with any obligation of such
Person to pay any discount, interest, fees, indemnities, penalties, recourse,
expenses or other amounts in connection therewith, (vii) all obligations to
redeem or repurchase outstanding Disqualified Stock issued by such Person,
(viii) all Attributable Indebtedness, (ix) every obligation under Interest Rate
or Currency Protection Agreements of such Person, (x) every obligation of the
type referred to in clauses (i) through (ix) of another Person secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the fair market value of such property or assets and the amount of the
obligation so secured and (xi) every obligation of the type referred to in
clauses (i) through (x) of another Person and all dividends of another Person
the payment of which, in either case, such Person has Guaranteed. The "amount"
or "principal amount" of Indebtedness at any time of determination as used
herein represented by (a) any Indebtedness issued at a price that is less than
the principal amount at maturity thereof, will be the amount of the liability in
respect thereof determined in accordance with GAAP, (b) any Receivables Sale,
will be the amount of the unrecovered capital or principal investment of the
purchaser (other than Iridium or a Wholly Owned Restricted Subsidiary) thereof,
excluding amounts representative of yield or interest earned on such investment,
(c) any Disqualified Stock, will be the maximum fixed redemption or repurchase
price in respect thereof, (d) any Capital Lease Obligation, will be determined
in accordance with the definition thereof and (e) any Permitted Interest Rate or
Currency Protection Agreement, will be zero. In no event will Indebtedness
include any liability for taxes. For purposes of determining any particular
amount of Indebtedness, Guarantees or Liens with respect to letters of credit
supporting Indebtedness otherwise included in the determination of a particular
amount will not be included. The term "Indebtedness" does not include any
obligations of Iridium or any Restricted Subsidiary (x) under the Space System
Contract, the Operations and Maintenance Contract or the Terrestrial Network
Development Contract (including any agreed upon deferrals of payment obligations
thereunder) or (y) in respect of amounts owing to gateway operators and other
service providers in connection with the clearinghouse system to be established
and operated by Iridium as described under "Business -- The IRIDIUM
System -- Business Support Systems" in this Prospectus.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Board of Directors, qualified to perform the task for which it
has been engaged and disinterested and independent with respect to the Issuers
and their Subsidiaries and Affiliates.
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"Interest Exchange Agreement" means the Interest Exchange Agreement among
Parent and IWCL, dated June 9, 1997, as amended from time to time.
"Interest Rate or Currency Protection Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Indebtedness issued
by, any other Person, including any payment on a Guarantee of any obligation of
such other Person, but excluding any loan, advance or extension of credit to an
employee of Iridium or any Restricted Subsidiary in the ordinary course of
business, accounts receivable and other commercially reasonable extensions of
trade credit. A delay in the purchase of any of Iridium's Capital Stock under a
purchase or similar agreement will not be deemed to be an Investment by Iridium
in the purchaser.
"Investment Grade Rating" means a rating equal to or higher than "Baa3" (or
the equivalent) by Moody's Investors Service, Inc. (or any successor to the
rating agency business thereof) and "BBB-" (or the equivalent) by Standard &
Poor's Ratings Group (or any successor to the rating agency business thereof).
"IRIDIUM System" means Iridium's global mobile wireless communications
system as described in this Prospectus.
"Issue Date" means the date on which the Notes are first issued and
delivered.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
Sale and Leaseback Transaction).
"Management Services Agreement" means the Amended and Restated Management
Services Agreement among Parent, Iridium and IWCL, dated as of December 18,
1997, as amended from time to time.
"Marketable Securities" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of Iridium) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc. or "A-1"
or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than
seven days for Government Securities entered into with an Eligible Institution;
and (vi) any fund investing exclusively in investments of the types described in
clauses (i) through (v) above.
"Master Subscription Agreement" means the Agreement between Parent and
IWCL, dated as of June 30, 1997 and as may be amended from time to time,
pursuant to which IWCL has agreed to sell shares of its Class B Common Stock in
connection with the Global Ownership Program. See
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"Certain Matters Regarding Relationship Among IWCL, Parent and Iridium -- Global
Ownership Program."
"Motorola Additional Guarantee" means the commitment by Motorola pursuant
to the Motorola MOU to guarantee up to an additional $350 million of
Indebtedness (inclusive of principal and interest), under the Guaranteed Bank
Facility or another credit agreement on identical terms, in excess of the
Motorola Guarantee.
"Motorola MOU" means the Amended and Restated Memorandum of Understanding,
dated as of April , 1998, among Parent, Iridium and Motorola, as amended from
time to time.
"Motorola's Holding of the Capital Stock of Iridium" means the amount of
Capital Stock of Parent held directly by Motorola multiplied by the percentage
of Parent's direct or indirect holdings of the Capital Stock of Iridium.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Marketable Securities received (including by way of sale or discounting
of a note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiror of Indebtedness
or other obligations relating to such properties or assets) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of funds
from a foreign subsidiary to Iridium or another Subsidiary of Iridium) required
to be accrued as a liability as a consequence of such Asset Disposition, (ii)
all payments made by such Person or its Restricted Subsidiaries on any
Indebtedness which is secured by such assets in accordance with the terms of any
Lien upon or with respect to such assets or which must by the terms of such
Lien, or in order to obtain a necessary consent to such Asset Disposition or by
applicable law, be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person or joint ventures as a result of such
Asset Disposition, (iv) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in accordance
with GAAP against any liabilities associated with such assets and retained by
such Person or any Restricted Subsidiary thereof, as the case may be, after such
Asset Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the Board
of Directors, in its reasonable good faith judgment evidenced by a resolution
filed with the Trustee; provided, however, that any reduction in such reserve
within twelve months following the consummation of such Asset Disposition will
be treated for all purposes of the Indenture and the Notes as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction, and (v) any consideration for an Asset Disposition
(which would otherwise constitute Net Available Proceeds) that is required to be
held in escrow pending determination of whether a purchase price adjustment will
be made, but amounts under this clause (v) will become Net Available Proceeds at
such time and to the extent such amounts are released to such Person.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuers
by first class mail, postage prepaid, to each Holder at his address appearing in
the note register on the date of the Offer offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer will specify an expiration date
(the "Expiration Date") of the Offer to Purchase which will be, subject to any
contrary requirements of applicable law, not less than
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30 days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Notes within five Business Days after the
Expiration Date. The Issuers will notify the Trustee in writing at least 15
Business Days (or such shorter period as is acceptable to the Trustee) prior to
the mailing of the Offer of the Issuers' obligation to make an Offer to
Purchase, and the Offer will be mailed by the Issuers or, at the Issuers'
request, by the Trustee in the name and at the expense of the Issuers. The Offer
will contain information concerning the business of Iridium and its Subsidiaries
which Iridium in good faith believes will enable such holders to make an
informed decision with respect to the Offer to Purchase (which at a minimum will
include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to the Indenture (which requirements may be satisfied by delivery of
such documents together with the Offer), (ii) a description of material
developments in Iridium's business subsequent to the date of the latest of such
financial statements referred to in clause (i) (including a description of the
events requiring Iridium to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring Iridium to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer will
contain all instructions and materials necessary to enable such holders to
tender Notes pursuant to the Offer to Purchase.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, the
Secretary or any Assistant Secretary of Iridium.
"Officers' Certificate" means a certificate signed by two Officers.
"Operations and Maintenance Contract" means the IRIDIUM System Operations
and Maintenance Contract between Iridium, as successor to Parent, and Motorola,
dated as of July 29, 1993, as amended from time to time.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Iridium or the Trustee.
"Outstanding Indebtedness" means the aggregate consolidated principal
amount (or accreted value, in the case of any Indebtedness issued at a discount)
of Indebtedness of Iridium and its Restricted Subsidiaries, on a consolidated
basis, outstanding as of the date of determination.
"pari passu", when used with respect to the ranking of any Indebtedness of
any Person in relation to other Indebtedness of such Person, means that each
such Indebtedness (a) either (i) is not subordinated in right of payment to any
other Indebtedness of such Person or (ii) is subordinate in right of payment to
the same Indebtedness of such Person as is the other and is so subordinate to
the same extent and (b) is not subordinate in right of payment to the other or
to any Indebtedness of such Person as to which the other is not so subordinate.
"Permitted Interest Rate or Currency Protection Agreement" of any Person
means any Interest Rate or Currency Protection Agreement entered into with one
or more financial institutions that is designed to protect such Person against
fluctuations in interest rates or currency exchange rates with respect to
Indebtedness Incurred and which will have a notional amount no greater than the
payments due with respect to the Indebtedness being hedged thereby, or with
respect to obligations or receivables denominated in foreign currencies, and not
for purposes of speculation.
"Permitted Investment" means an Investment by Iridium or any Restricted
Subsidiary (i) in any Person as a result of which such Person becomes a
Restricted Subsidiary, the primary business of which is to engage in all or a
portion of a Related Business, (ii) in Marketable Securities, (iii) in Permitted
Interest Rate or Currency Protection Agreements, (iv) made as a result of the
receipt of noncash consideration from an Asset Disposition that was made
pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock", (v) consisting
of loans or advances to employees of Iridium or any Restricted
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Subsidiary made in the ordinary course of business not to exceed $2.0 million in
the aggregate outstanding at any one time and (vi) in any Person for a purpose
which is related, ancillary or complementary to the businesses of Iridium and
the Restricted Subsidiaries on the date such Investment is made; provided that
the aggregate amount of Investments made pursuant to this clause (vi) and then
outstanding does not exceed $100.0 million. The amount of Investments
outstanding pursuant to clause (vi) of the prior sentence will be included in
the calculation of the aggregate amount of Restricted Payments made since July
16, 1997 pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Permitted Liens" means:
(i) Prior to Commercial Activation, Liens to secure up to $750 million
in principal amount of Indebtedness permitted to be incurred pursuant to
paragraph (b)(i) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness";
(ii) After Commercial Activation, Liens to secure up to $1.7 billion
in principal amount of Indebtedness (inclusive of the Indebtedness secured
by the Liens described in clause (i) above and any secured Indebtedness
which refinanced such Indebtedness) permitted to be Incurred pursuant to
the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness";
(iii) Liens in favor of Holders of the Notes, the holders of the
Exchange Notes and the Trustee;
(iv) Liens in favor of the Issuers or a Wholly Owned Restricted
Subsidiary;
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by means of
a merger or consolidation with or into such Person or a Subsidiary of such
Person, other than any property delivered pursuant to the Space System
Contract or the Operations and Maintenance Contract; provided, however,
that such Liens are not created, incurred or assumed in connection with, or
in contemplation of, such acquisition; provided further, however, that the
Liens may not extend to any other property owned by such Person or any of
its Subsidiaries;
(vi) other than in connection with Indebtedness, any Lien arising in
the ordinary course of business (a) to secure payments of workers'
compensation, unemployment insurance, pension or other social security or
retirement benefits, or to secure the performance of bids, tenders, leases,
progress payments, contracts (other than for the payment of money) or to
secure public or statutory obligations of Iridium or any Restricted
Subsidiary, or to secure surety or appeal bonds to which Iridium or any
Restricted Subsidiary is a party, (b) imposed by law dealing with
materialmen's, mechanics', workmen's, repairmen's, warehousemen's,
landlords', vendors' or carriers' Liens created by law, or deposits or
pledges which are not yet due or, if due, the validity of which is being
contested in good faith by Iridium or any Restricted Subsidiary by
appropriate proceedings promptly instituted and diligently conducted and
against which Iridium has established appropriate reserves in accordance
with GAAP, (c) rights of financial institutions to set off and chargeback
arising by operation of law, (d) rights, if any, of gateway operators and
other service providers to setoff and chargeback arising under agreements
between Iridium and any such Person in respect of clearinghouse services
provided by Iridium to such Person, and (e) similar Liens;
(vii) servitudes, licenses, easements, encumbrances, restrictions,
rights-of-way and rights in the nature of easements or similar charges
which will not in the aggregate materially adversely impair the use of the
subject property by Iridium or a Restricted Subsidiary;
(viii) zoning and building by-laws and ordinances, municipal bylaws
and regulations, and restrictive covenants, which do not materially
interfere with the use of the subject property by Iridium or a Restricted
Subsidiary;
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(ix) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(x) Liens existing on the Issue Date;
(xi) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided, however, that any reserve or other appropriate provision as will
be required in conformity with GAAP will have been made therefor;
(xii) any interest in or title of a lessor to any property subject to
a Capital Lease Obligation which is permitted under the Indenture; and
(xiii) Liens incurred in the ordinary course of business of the
Issuers and the Restricted Subsidiaries with respect to obligations that do
not exceed $10.0 million at any one time outstanding and that:
(a) are not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than trade credit in the
ordinary course of business); and
(b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of
business by Iridium and the Restricted Subsidiaries.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof or any other
entity.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Rating Agencies" means Standard & Poor's Rating Group and Moody's
Investors Service, Inc. or any successor to the respective credit rating
businesses thereof.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money in respect
of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than (x) any sale
of Receivables by such Person as to which (i) such Person is neither directly or
indirectly liable (as guarantor or otherwise) nor provides credit support of any
kind and (ii) the purchaser of such Receivables has no recourse to any assets or
property of such Person or (y) in connection with a disposition of the business
operations of such Person relating thereto or a disposition of defaulted
Receivables for purpose of collection and not as a financing arrangement.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" will have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Iridium or any Restricted Subsidiary existing on the Issue Date
or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that except in the case
of a Refinancing of the Guaranteed Bank Facility after any extension thereof (as
contemplated in the Motorola MOU) (i) such Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is
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equal to or greater than the Average Life of the Indebtedness being Refinanced,
(iii) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is equal
to or less than the aggregate principal amount (or if Incurred with original
issue discount, the aggregate accreted value) then outstanding or committed
(plus accrued and unpaid interest and fees and expenses, including any premium
and defeasance costs) under the Indebtedness being Refinanced and (iv) in the
event the Indebtedness being Refinanced constitutes a Subordinated Obligation,
the Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness will not include Indebtedness of Issuers or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means the business of developing, owning, engaging in
and dealing with all or any part of the business of the provision of
telecommunications services and businesses and (i) reasonably related extensions
thereof, including but not limited to the manufacture, purchase, ownership,
operation, leasing, licensing, financing and selling of, and generally dealing
in or with, communications satellites, earth stations, gateways, ground
infrastructure and subscriber equipment, used or intended for use with
telecommunications services and businesses and (ii) any other activities that
are reasonably related to the provision of telecommunications services and
businesses.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Capital Stock of such Person
or (b) 5% or more of the combined voting power of the Voting Stock of such
Person.
"Restricted Subsidiary" means any Subsidiary of Iridium, whether existing
on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired by Iridium or a Restricted Subsidiary whereby
Iridium or such Restricted Subsidiary transfers such property to a Person and
Iridium or such Restricted Subsidiary leases it from such Person, with respect
to any Person.
"Secured Indebtedness" means any Indebtedness of either Issuer secured by a
Lien. "Secured Indebtedness" of any Guarantor Subsidiary has a correlative
meaning.
"Share Issuance Agreement" means the Share Issuance Agreement between
Parent and IWCL, dated as of June 9, 1997, as amended from time to time.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act as in effect on the Issue Date.
"Space System Contract" means the Iridium Space System Contract between
Iridium, as successor to Parent, and Motorola, dated as of July 29, 1993, as
amended from time to time.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of either Issuer (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. Iridium's 14 1/2% Senior Subordinated Notes due 2006 will be
Subordinated Obligations.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by
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one or more other Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person or (ii) any other Person (other than a corporation)
in which such Person, or one or more other Subsidiaries of such Person or such
Person and one or more other Subsidiaries of such Person, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Subsidiary Guaranty" means any Guarantee of the Notes which may from time
to time be executed and delivered pursuant to the terms of the Indenture. Each
such Subsidiary Guaranty will be in the form prescribed in the Indenture.
"Tax Amount" means the aggregate amount of tax distributions required to be
made by (i) Parent to its members under the Parent LLC Agreement or (ii) Iridium
to its members under the Iridium LLC Agreement. Notwithstanding anything to the
contrary, Tax Amount will not include taxes resulting from Parent's or Iridium's
reorganization as or change in the status to a corporation.
"Terrestrial Network Development Contract" means the Terrestrial Network
Development Contract between Iridium, as successor to Parent, and Motorola,
entered into in June 1995, as amended from time to time.
"Total Invested Capital" means, as of any date of determination, the sum of
(a) Total Pro Forma Consolidated Indebtedness as of such date and (b) $1.983
billion plus the aggregate proceeds received by Iridium or any Restricted
Subsidiary in respect of the issuance of Capital Stock of Iridium, including the
fair value of property other than cash (as determined in good faith by the Board
of Directors in a resolution filed with the Trustee), less any redemptions of,
or dividends or other distributions on, Capital Stock of Iridium (other than any
Tax Amount or any dividend or distribution in Capital Stock) made after the
Issue Date and on or prior to the date of determination.
"Total Pro Forma Consolidated Indebtedness" means, as of any date of
determination, after giving effect to any Indebtedness to be Incurred by Iridium
and its Restricted Subsidiaries on a consolidated basis on such date and the
application of the proceeds therefrom, the aggregate amount of Outstanding
Indebtedness as of such date determined on a consolidated basis in accordance
with GAAP and which would appear on the consolidated balance sheet of Iridium.
"Unrestricted Subsidiary" means (i) any Subsidiary of Iridium designated as
such by the Board of Directors as set forth below where (a) neither Iridium nor
any of its other Subsidiaries (other than another Unrestricted Subsidiary) (1)
provides credit support for, or Guarantee of, any Indebtedness of such
Subsidiary or any Subsidiary of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (2) is directly or
indirectly liable for any Indebtedness of such Subsidiary or any Subsidiary of
such Subsidiary, or (3) has any obligation to make additional Investments (other
than Permitted Investments) in such Subsidiary or any Subsidiary of such
Subsidiary (other than, with respect to clauses (1) and (2) above, in the case
of any Indebtedness of Iridium or any Restricted Subsidiary, the proceeds of
which were received by Iridium or a Restricted Subsidiary, that is permitted
under the covenant described in "-- Certain Covenants -- Limitation on
Indebtedness" as to which the Unrestricted Subsidiary provides a Guarantee) and
(b) such Subsidiary and each Subsidiary of such Subsidiary has at least one
director on its board of directors that is not a director or executive officer
of Iridium or any Restricted Subsidiary, and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary to
be an Unrestricted Subsidiary by filing a resolution to such effect with the
Trustee unless such Subsidiary or any Subsidiary of such Subsidiary owns any
Capital Stock or Indebtedness of, or owns or holds any Lien (other than a
Permitted Lien) on any property of, Iridium or any other Subsidiary of Iridium
which is not a Subsidiary of the Subsidiary to be so designated or otherwise an
Unrestricted Subsidiary; provided, however, that either (A) the Subsidiary to be
so designated has total assets of $1,000 or less or (B) immediately after giving
effect to such designation, Iridium could incur an additional $1.00 of
Indebtedness pursuant to the first sentence of paragraph (a) under the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" above; and
provided further, however, that Iridium could make a Restricted Payment in an
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amount equal to the greater of the fair market value and the book value of such
Subsidiary pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" and such amount is thereafter
treated as a Restricted Payment for the purpose of calculating the aggregate
amount available for Restricted Payments thereunder. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary by filing a
resolution to such effect with the Trustee, provided that, immediately after
giving effect to such designation, Iridium could incur an additional $1.00 of
Indebtedness pursuant to the first sentence of paragraph (a) under the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" above and
such Subsidiary (as well as each of Iridium and the other Guarantor
Subsidiaries) complies with the covenant described under "-- Certain
Covenants -- Future Guarantor Subsidiaries" as if such Subsidiary were a newly
created Subsidiary. Notwithstanding the foregoing, neither Capital nor any of
its Subsidiaries may be Unrestricted Subsidiaries.
"Vendor Financing Facility" means any agreements between Iridium and/or any
Subsidiary of Iridium and one or more vendors or lessors of equipment to Iridium
and/or any Subsidiary (or any affiliate of any such vendor or lessor) providing
financing for the acquisition by Iridium or any such Subsidiary of equipment or
services from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Restricted Subsidiary" means, with respect to Iridium, a
Restricted Subsidiary of Iridium all of the outstanding Capital Stock or other
ownership interests of which (other than Capital Stock constituting directors'
qualifying shares or interests held by directors or shares or interests required
to be held by foreign nationals, in each case to the extent mandated by
applicable law) are owned by Iridium or by one or more Wholly Owned Restricted
Subsidiaries of Iridium, or by Iridium and one or more Wholly Owned Restricted
Subsidiaries of Iridium.
BOOK ENTRY; DELIVERY AND FORM
Upon issuance, the Notes will be represented by a permanent global Note or
Notes (the "Global Securities"). Each Global Security will be deposited with, or
on behalf of, The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee of DTC.
CERTAIN BOOK-ENTRY PROCEDURES FOR GLOBAL SECURITIES
The descriptions of the operations and procedures of DTC that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to change by DTC from time to
time. None of the Issuers, the Guarantor Subsidiaries or the Underwriters takes
any responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Issuers that it is (i) a limited purpose trust company
organized under the laws of the State of New York, (ii) a "banking organization"
within the meaning of the New York Banking Law, (iii) a member of the Federal
Reserve System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "Clearing Agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies
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(collectively, the "Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
Holders who are not Participants may beneficially own securities held by or on
behalf of DTC only through Participants or Indirect Participants.
The Issuers expect that pursuant to procedures established by DTC (i) upon
deposit of the Global Securities, DTC will credit the accounts of Participants
designated by the Underwriters with the respective amount of the beneficial
interests represented by the Global Securities and (ii) ownership of beneficial
interests in the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC or its nominees (with
respect to the interest of Participants), and the records of the Participants
and the Indirect Participants (with respect to interests of persons other than
Participants). The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own and that
security interests in negotiable instruments can only be perfected by delivery
of certificates representing the instruments. Consequently, the ability to
transfer Notes or to pledge the Notes as collateral will be limited to such
extent.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Security for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Security will not be entitled to have Notes represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of certificated securities (the "Certificated Securities"),
and will not be considered the owners or Holders thereof under the Indenture for
any purpose, including with respect to the giving of any direction, instruction
or approval to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in Notes represented by a Global Security to pledge
or transfer such interest to persons or entities that do not participate in
DTC's system or to otherwise take action with respect to such interest, may be
effected by the lack of a physical certificate evidencing such interest.
Accordingly, each holder owning a beneficial interest in a Global Security must
rely on the procedures of DTC and, if such holder is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
holder owns its interest, to exercise any rights of a holder of Notes under the
Indenture or such Global Security. The Issuers understand that under existing
industry practice, in the event the Issuers request any action of holders of
Notes or a holder that is an owner of a beneficial interest in a Global Security
desires to take any action that DTC, as the holder of such Global Security, is
entitled to take, DTC would authorize the Participants to take such action and
the Participants would authorize holders owning through such Participants to
take such action or would otherwise act upon the instruction of such holders.
Neither the Issuers, any Guarantor Subsidiary or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Security registered in the name of DTC or
its nominee on the applicable record date will be payable by the Trustee to or
at the direction of DTC or its nominee in its capacity as the registered holder
of the Global Security representing such notes under the Indenture. Under the
terms of the Indenture, the Issuers, any Guarantor Subsidiary and the Trustee
may treat the persons in whose names the Notes, including the Global Securities,
are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Consequently, none of the
Issuers, any Guarantor Subsidiary or the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owner
of an interest in a Global Security (including principal, premium and interest),
or to immediately credit the accounts of the relevant Participants with such
payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interest in such Global Security as shown on the records of
DTC. Payments by the Participants and the Indirect Participants to the
beneficial owners of interests in a
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Global Security will be governed by standing instruction and customary practice
and will be the responsibility of the Participants or the Indirect Participants
and DTC.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of the Notes only at the direction of one or more Participants
to whose account with DTC interests in the Global Securities are credited.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Issuers believe to be reliable, but the
Issuers take no responsibility for the accuracy thereof.
EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A Global Security may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC. A Global Security is exchangeable
for certificated Notes only if (i) the Issuers notify the Trustee in writing
that the Depositary (as defined in the Indenture) is no longer willing or able
to act as a Depositary for such Global Security or the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the Depositary
is required to be registered in order to act as Depositary, and, in each case, a
successor Depositary is not appointed by the Issuers within 90 days of such
notice, (ii) the Issuers, at their option, notify the Trustee in writing that
they elect to cause the issuance of certificated Notes, or (iii) an Event of
Default has occurred and is continuing and the Registrar (as defined in the
Indenture) has received a request from the Depositary to effect such exchange.
Any Global Security that is exchangeable for certificated Notes pursuant to the
preceding sentence will be transferred to, and registered and exchanged for,
certificated Notes in authorized denominations and registered in such names as
the Depositary holding such Global Security may direct. Subject to the
foregoing, a Global Security is not exchangeable, except for a Global Security
of like denomination to be registered in the name of the Depositary or its
nominee. In the event that a Global Security becomes exchangeable for
certificated Notes, (i) certificated Notes will be issued only in fully
registered form in denominations of $1,000 or integral multiples thereof, (ii)
payment of principal, any repurchase price, and interest on the certificated
Notes will be payable, and the transfer of the certificated Notes will be
registrable, at the office or agency of the Company maintained for such
purposes, and (iii) no service charge will be made for any registration of
transfer or exchange of the certificated Notes, although the Issuers may require
payment of a sum sufficient to cover any tax or governmental charge imposed in
connection therewith.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. All
payments of principal and interest will be made by the Issuers in immediately
available funds. The Notes will trade in the Same-Day Funds Settlement System of
DTC until maturity, and secondary market trading activity for the Notes will
therefore settle in immediately available funds.
None of the Issuers, the Guarantor Subsidiaries or the Trustee shall be
liable for any delay by DTC or any Participant or Indirect Participant in
identifying the beneficial owners of the related Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes (including with respect to the registration and delivery,
and the respective principal amounts, of the Notes to be issued).
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") to be entered into among the Iridium Parties and
the Underwriters, the Issuers have
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agreed to sell to the Underwriters, and the Underwriters have severally agreed
to purchase from the Issuers, the following respective amounts of the Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------- ----------------
<S> <C>
Chase Securities Inc. ...................................... $
Barclays Capital Inc. ......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
------------
Total.................................................. $350,000,000
============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Notes offered
hereby if any of the Notes are purchased. The Iridium Parties have been advised
by the Underwriters that the Underwriters propose to offer the Notes to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers initially at such price less a discount
not in excess of % of the principal amount of the Notes. The Underwriters
may allow, and such dealers may reallow, a concession to certain other dealers
not in excess of % of the principal amount of the Notes. After the initial
offering of the Notes to the public, the Underwriters may change the public
offering price, the discount and the concession.
The Notes comprise new issues of securities with no established trading
market. The Underwriters have advised the Iridium Parties that the Underwriters
currently intend to make a market in the Notes; however, they are not obligated
to do so and any market making may be discontinued by the Underwriters at any
time without notice. Accordingly, no assurance can be given as to the liquidity
of or the trading market for the Notes.
Chase Securities Inc. ("CSI") is an affiliate of The Chase Manhattan Bank
("Chase"), which is the Administrative Agent and a Guaranteed Lender to Iridium
under the Guaranteed Bank Facility. Barclays Capital Inc. is an affiliate of
Barclays Bank PLC ("Barclays"), which is the Documentation Agent and a
Guaranteed Lender to Iridium under the Guaranteed Bank Facility. Chase and
Barclays will receive their proportionate share of repayment by Iridium of
amounts outstanding under the Guaranteed Bank Facility from the proceeds of the
Offering. In addition, CSI was the Global Financial Advisor and CSI and Barclays
were Global Arrangers with respect to the Guaranteed Bank Facility. CSI was also
the Global Financial Advisor and CSI and Barclays were Global Arrangers to
Iridium with respect to the Secured Bank Facility. Chase is the Administrative
Agent and Collateral Agent, Barclays is the Documentation Agent, and both are
secured lenders under the Secured Bank Facility. Merrill Lynch Senior Floating
Rate Fund, Inc., an affiliate of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, is a secured lender under the Secured Bank Facility. See
"Description of Other Indebtedness."
The Iridium Parties will agree that for a period of 45 days from the date
of this Prospectus they will not, directly or indirectly, offer for sale, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
dispose of, directly or indirectly, or file a registration statement for, or
announce any offer, sale, contract for sale of or other disposition of debt
securities issued or guaranteed by any of the Iridium Parties or any of their
subsidiaries, other than the Series C/EN Notes of Iridium, without the prior
written consent of the Underwriters.
The Underwriters have informed the Iridium Parties that they will not
confirm sales to any accounts over which they exercise discretionary authority
without prior written approval of such transactions by the customer.
In connection with the Offering, CSI, on behalf of the Underwriters, may
engage in overallotment, stabilizing transactions and syndicate covering
transactions in accordance with Regulation M
178
<PAGE> 184
under the Securities Exchange Act of 1934, as amended. Overallotment involves
sales in excess of the offering size, which creates a short position for the
Underwriters. Stabilizing transactions involve bids to purchase the Notes in the
open market for purposes of pegging, fixing or maintaining the price of the
Notes. Syndicate covering transactions involve purchases of the Notes in the
open market after the distribution has been completed in order to cover short
positions. Such stabilizing transactions and syndicate covering transactions may
cause the price of the Notes to be higher than they would otherwise be in the
absence of such transactions. Such activities, if commenced, may be discontinued
at any time.
The Iridium Parties have agreed to indemnify the Underwriters, jointly and
severally, against certain civil liabilities, including liabilities under the
Securities Act, and to contribute to payments which the Underwriters might be
required to make in respect thereof.
VALIDITY OF THE SECURITIES
The validity of the Notes offered hereby will be passed on for the Iridium
Parties by Sullivan & Cromwell, New York, New York. Certain legal matters will
be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy, New
York, New York.
EXPERTS
The consolidated financial statements of Iridium as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, and for the period June 14, 1991 (Inception) through December 31, 1997
have been included herein and in the Registration Statement of which this
Prospectus forms a part in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Iridium Parties have filed with the Commission a Registration Statement
on Form S-1 (the "Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Notes
being offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
Iridium is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In addition, as a result of the exchange offers relating to the Series A
Notes and the Series B Notes, Capital, IP and Roaming became subject to the
periodic reporting and other informational requirements of the Exchange Act;
however, pursuant to relief granted by the Commission (and subject to the
conditions specified therein), Capital, IP and Roaming, subject to certain
conditions, are not required to file separate Exchange Act reports. Periodic
reports and additional information filed with the Commission may be inspected at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material also can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Commission maintains
179
<PAGE> 185
a Web site at http://www.sec.gov that contains information regarding registrants
that file electronically with the Commission.
The Iridium Parties have agreed that, notwithstanding that they may not be
required to be or remain subject to the reporting requirements of Sections 13 or
15(d) of the Exchange Act, they will file with the Commission, and provide the
Trustee (as defined) and Holders and prospective investors in the Notes (upon
request) with the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the Exchange Act. See
"Description of the Notes -- Certain Covenants -- SEC Reports."
180
<PAGE> 186
GLOSSARY
<TABLE>
<S> <C>
Aeronautical Mobile-Satellite Route
Service ("AMS(R)S")................ aviation communications services for safety and non-safety
purposes
"AMPS"............................... Advanced Mobile Phone Service -- a transmission protocol
used by some cellular operators primarily in the Americas
"antenna beams"...................... tightly focused radio beams transmitted by the Iridium
satellites
"Big LEO"............................ LEO MSS systems operating in the bands 1610-1626.5 MHZ/
2483.5-2500 MHZ
"bps"................................ bytes per second
"CDMA"............................... Code Division Multiple Access -- a transmission protocol
used by some cellular networks that is derived from spread
spectrum techniques of the military
"clearinghouse functions"............ expected to be performed by Iridium, clearinghouse functions
will include preparation of master billing tapes,
administration of the subscriber numbering plan and
settlement activities
"coordination"....................... the process of negotiation and agreement between ITU member
nations by which cases of potential harmful interference by
services duly authorized by ITU member nations are resolved
"co-rotating orbital planes"......... immediately adjacent orbital paths
"cross-link antennas"................ antennas used by the satellites to communicate with one
another
"dB"................................. decibel -- a unit used to express relative difference in
power
"earth terminals".................... land based units which communicate with the Iridium
satellite constellation
"excusable delay".................... has the meaning assigned thereto in the Space System
Contract
"ELVs"............................... expendable launch vehicles
"FCC"................................ the United States Federal Communications Commission
"feeder links"....................... communications links between gateways and satellites used to
relay message data; these links use the K-Band on the
IRIDIUM System; sometimes referred to as "gateway links"
FDMA/TDMA............................ Frequency Division Multiple Access/Time Division Multiple
Access -- a transmission protocol used by some cellular
networks
"gateways"........................... terrestrial interconnection points between the Iridium
satellite constellation and PSTNs
"gateway links"...................... communications links between gateways and satellites used to
relay message data; these links use the K-Band on the
IRIDIUM System; sometimes referred to as "feeder links"
"GEO"................................ geostationary earth orbit
"GHz"................................ gigahertz -- one billion cycles per second
"global roaming"..................... the ability to travel worldwide, subject to certain
limitations, and receive and make telephone calls from a
handheld mobile phone
"GMPCS".............................. Global Mobile Personal Communication Services
"GMSS"............................... Global Mobile Satellite Services
</TABLE>
181
<PAGE> 187
<TABLE>
<S> <C>
"GSM"................................ Global System for Mobile Communications -- a transmission
protocol used by cellular networks including most of Europe
and parts of Asia
"IIU"................................ Iridium Interoperability Unit being developed under the
direction of Motorola to permit system management
information, including customer authentication and location,
to be relayed between systems using different protocols
"Inmarsat"........................... the International Maritime Satellite Organization
"Intelsat"........................... the International Telecommunications Satellite Organization
"intersatellite links"............... communications links among the satellites in the Iridium
satellite constellation
"Iridium LLC Agreement".............. the agreement, dated as of December 18, 1997, pursuant to
which Iridium is organized
"Iridium World Cellular Services".... the satellite-based global roaming services to be offered by
Iridium
"Iridium World Paging Services....... the satellite-based paging services to be offered by Iridium
"Iridium World Satellite Services"... the satellite-based voice, data, facsimile and paging
services to be offered by Iridium
"Iridium World Services"............. the voice, data, facsimile and paging services to be offered
by Iridium
"IS-41".............................. International Standard-41 -- a transmission protocol used by
cellular networks including most of North America and South
America
"ITU"................................ International Telecommunication Union
"landline"........................... terrestrially-based telephone line
"LEO" (low earth orbit).............. earth orbit at a relatively low (e.g., 780 kilometers)
altitude
"link margin"........................ the amount (usually expressed in dB) by which a received
signal exceeds a predetermined lower limit for desired
message quality
"main mission antennas".............. the antennas used by Iridium satellites to communicate with
subscriber equipment (phased array antennas)
"MEO"................................ medium earth orbit
"MHz"................................ megahertz -- one million cycles per second
"MSS"................................ mobile satellite services
"multi-mode phone"................... a phone designed to operate both with a terrestrial wireless
system and with the IRIDIUM System; Motorola is designing a
multi-mode phone which, through the use of interchangeable
TRCs will work with various different terrestrial wireless
networks
"MXU"................................ multiplex units which contain numerous channels to be used
for communications between a terrestrial telephone system
and the Iridium satellite constellation
"near polar orbit"................... a flight path which generally follows the earth's
longitudinal lines and crosses both poles during each orbit
</TABLE>
182
<PAGE> 188
<TABLE>
<S> <C>
"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
"Parent LLC Agreement"............... the agreement, dated as of July 29, 1996, entered into by
the investors in Parent, and pursuant to which Parent is
organized
"phone".............................. a handset that can be used to provide Iridium voice services
"primary"............................ in the context of spectrum allocation, an allocation to a
service that is granted protection from harmful interference
from stations of a secondary service
"protocol"........................... technical standard used by a wireless communications system
permitting communications, user authentication and billing
"PSTN"............................... public switched telephone network
"Reserve Capital Call"............... the contractual commitment by 17 of Iridium's investors to
purchase up to 18,206,550 Class 1 Interests at $13.33 per
Interest
"secondary".......................... in the context of spectrum allocation, an allocation to a
service that (i) cannot cause harmful interference to
stations of primary or permitted services to which
frequencies are already assigned or to which frequencies may
be assigned at a later date and (ii) cannot claim protection
from harmful interference from stations of a primary or
permitted service to which frequencies are already assigned
or may be assigned at a later date
"service provider"................... the retail link in the IRIDIUM System distribution
chain -- Iridium service providers are expected to market
Iridium World Services to, provide services for, and
ultimately bill the consumers of, Iridium World 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
"SNOC"............................... the Satellite and Network Operations Center, the primary
facility from which the Iridium constellation of satellites
and the IRIDIUM System are managed
"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
</TABLE>
183
<PAGE> 189
<TABLE>
<S> <C>
"Terrestrial Network Development
Contract".......................... the Terrestrial Network Development Contract, entered into
in June 1995, between Iridium and Motorola, as amended from
time to time
"TRCs"............................... Terrestrial Radio Cassettes being designed by Motorola for
use with multi-mode phones to permit those phones to operate
with one or more terrestrial wireless protocols
"TT&C"............................... tracking, telemetry and command
"user links"......................... communications links between subscriber equipment and the
Iridium satellite constellation
"WRC-92/WRC-95"...................... the 1992/1995 World Administrative Radio Conference
"WRCs"............................... World Radiocommunication Conferences (formerly known as
World Administrative Radio Conferences -- WARCs)
"$".................................. United States Dollars
</TABLE>
184
<PAGE> 190
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
IRIDIUM OPERATING LLC
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997...................................................... F-3
Consolidated Statements of Loss for the years ended December
31, 1995, 1996 and 1997 and for the period from June 14,
1991 (Inception) through December 31, 1997................ F-4
Consolidated Statements of Member's Equity (Deficit) for the
period of June 14, 1991 (Inception) through December 31,
1991, the year ended December 31, 1992, the seven months
ended July 29, 1993, the five months ended December 31,
1993, and the years ended December 31, 1994, 1995, 1996
and 1997.................................................. F-5
Consolidated Statements of Cash Flows for the years December
31, 1995, 1996 and 1997, and the period from June 14, 1991
(Inception) through December 31, 1997..................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
- ---------------
NOTE -- Iridium LLC is the predecessor of Iridium Operating LLC, and on December
18, 1997 transferred substantially all of its assets and liabilities to
Iridium Operating LLC pursuant to the Asset Transfer Agreement between
Iridium LLC and Iridium Operating LLC. Iridium Operating LLC was formed
as a Delaware single member limited liability company on October 23,
1997. Iridium Capital Corporation ("Capital") was formed and capitalized
by Iridium LLC on June 16, 1997. Iridium Roaming LLC ("Roaming") was
formed by Iridium LLC on June 15, 1997. Iridium IP LLC ("IP") was formed
by Iridium LLC on February 28, 1997. Iridium Facilities Corporation
("Facilities") was formed by Iridium Operating LLC on February 6, 1998.
Roaming, IP and Facilities have no material assets, liabilities (actual
or contingent) or operations, except as covered in the consolidated
financial statements of Iridium Operating LLC. Other than with respect
to the Notes, none of Capital, Roaming, IP or Facilities has any
significant assets, liabilities (actual or contingent) or operations.
F-1
<PAGE> 191
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Member
Iridium Operating LLC and subsidiaries:
We have audited the accompanying consolidated balance sheets of Iridium
Operating LLC and subsidiaries (a wholly owned subsidiary of Iridium LLC) (a
development stage limited liability company) as of December 31, 1997 and 1996,
and the related consolidated statements of loss, member's equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 14, 1991 (inception) through December 31, 1997.
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
Operating LLC and subsidiaries (a development stage limited liability company)
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997, and for the period June 14, 1991 (inception) through December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
McLean, Virginia
January 16, 1998
F-2
<PAGE> 192
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT MEMBER INTEREST DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,889 $ 5,940
Restricted Cash (Note 2).................................. -- 350,220
Due from affiliates....................................... 3,476 13,604
Prepaid expenses and other current assets................. 7,154 6,612
---------- ----------
Total current assets................................... 12,519 376,376
Property and equipment, net (Note 4)........................ 2,065 1,526,326
System under construction (Note 7).......................... 2,388,320 1,625,054
Other assets................................................ 31,177 114,831
---------- ----------
Total assets........................................... $2,434,081 $3,642,587
========== ==========
LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 17,937 $ 106,794
Accounts payable to Parent's Member (Note 7).............. 100,563 10,601
Bank facilities, current portion (Note 5)................. -- 350,000
---------- ----------
Total current liabilities.............................. 118,500 467,395
Bank facilities, net of current portion (Note 5)............ 505,000 210,000
Long-term debt due to Parent's Members (Note 5)............. 230,904 273,302
Notes payable, $1,100,000 principal amount (Note 5)......... -- 1,054,288
Other liabilities (Note 8).................................. 7,648 6,065
---------- ----------
Total liabilities...................................... 862,052 2,011,050
---------- ----------
Commitments and Contingencies (Notes 1, 3, 5, 7, 8 and 10)
Member's equity (Notes 1, 3, 5, 7 and 8):
Member's Interest......................................... 1,706,602 2,059,421
Deficit accumulated during the development stage.......... (133,840) (427,241)
Adjustment for minimum pension liability (Note 8)......... (733) (643)
---------- ----------
Total member's equity.................................. 1,572,029 1,631,537
---------- ----------
Total liabilities and member's equity.................. $2,434,081 $3,642,587
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 193
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 14, 1991
YEAR ENDED DECEMBER 31, (INCEPTION) THROUGH
---------------------------- DECEMBER 31,
1995 1996 1997 1997
------- ------- -------- -------------------
<S> <C> <C> <C> <C>
OPERATING EXPENSES
Sales, general and administrative
(Note 5, 7, 8 and 10).............. $26,436 $70,730 $177,322 $313,149
Depreciation and amortization......... 751 674 119,124 121,429
------- ------- -------- --------
Total operating expenses........... 27,187 71,404 296,446 434,578
OTHER INCOME
Interest income....................... 5,226 2,395 3,045 15,308
------- ------- -------- --------
Loss before provision for income
taxes................................. 21,961 69,009 293,401 419,270
Provision for income taxes (Note 6)..... 1,684 4,589 -- 7,971
------- ------- -------- --------
Net loss................................ $23,645 $73,598 $293,401 $427,241
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 194
IRIDIUM OPERATING LLC
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
CONSOLIDATED STATEMENTS OF MEMBER'S EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENT DEFICIT
FOR ACCUMULATED
MEMBER'S MINIMUM DURING THE
INTEREST PENSION DEVELOPMENT
AMOUNT LIABILITY STAGE TOTAL
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Inception June 14, 1991.................... $ -- $ -- $ -- $ --
Net loss................................... -- -- (757) (757)
---------- -------- ---------- ----------
BALANCE, December 31, 1991................. -- -- (757) (757)
Net loss................................... -- -- (8,773) (8,773)
---------- -------- ---------- ----------
BALANCE, December 31, 1992................. -- -- (9,530) (9,530)
Net loss................................... -- -- (5,309) (5,309)
---------- -------- ---------- ----------
BALANCE, July 29, 1993..................... -- -- (14,839) (14,839)
Contributions by Parent.................... 316,071 -- -- 316,071
Net loss................................... -- -- (6,924) (6,924)
---------- -------- ---------- ----------
BALANCE, December 31, 1993................. 316,071 -- (21,763) 294,308
Contributions by Parent.................... 516,339 -- -- 516,339
Net loss................................... -- -- (14,834) (14,834)
---------- -------- ---------- ----------
BALANCE, December 31, 1994................. 832,410 -- (36,597) 795,813
Contributions by Parent.................... 633,507 -- -- 633,507
Net loss................................... -- -- (23,645) (23,645)
Adjustment for minimum pension liability... -- (1,065) -- (1,065)
---------- -------- ---------- ----------
BALANCE, December 31, 1995................. 1,465,917 (1,065) (60,242) 1,404,610
Contributions by Parent.................... 240,685 -- -- 240,685
Net loss................................... -- -- (73,598) (73,598)
Adjustment for minimum pension liability... -- 332 -- 332
---------- -------- ---------- ----------
BALANCE, December 31, 1996................. 1,706,602 (733) (133,840) 1,572,029
Contributions by Parent.................... 352,819 -- -- 352,819
Net loss................................... -- -- (293,401) (293,401)
Adjustment for minimum pension liability... -- 90 -- 90
---------- -------- ---------- ----------
BALANCE, December 31, 1997................. $2,059,421 $ (643) $ (427,241) $1,631,537
========== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 195
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED DECEMBER 31, JUNE 14, 1991
---------------------------------- (INCEPTION) THROUGH
1995 1996 1997 DECEMBER 31, 1997
--------- --------- ---------- -------------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net loss........................................... $ (23,645) $ (73,598) $ (293,401) $ (427,241)
Adjustments to reconcile net loss to net cash used in
operating activities -- Depreciation and
amortization....................................... 751 674 119,124 121,429
Expense recognized for warrants issued in
connection with debt guarantee................. -- 25,719 55,615 81,334
Loss on disposal of assets....................... -- -- 87 87
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and
other current assets......................... (171) (6,281) 542 (6,612)
Increase in due from affiliates................ -- (3,476) (10,128) (13,604)
Increase in other assets....................... (1,633) (4,079) (2,286) (18,659)
Increase in accounts payable and accrued
expenses..................................... 1,586 12,968 30,857 48,794
(Decrease) Increase in other liabilities....... 2,126 2,739 (1,493) 5,985
--------- --------- ---------- -----------
Net cash used in operating activities.......... (20,986) (45,334) (101,083) (208,487)
--------- --------- ---------- -----------
Cash Flows From Investing Activities:
Purchases of property and equipment................ (493) (1,475) (18,885) (23,255)
Additions to system under construction............. (762,000) (900,757) (842,678) (3,091,435)
--------- --------- ---------- -----------
Net cash used in investing activities.......... (762,493) (902,232) (861,563) (3,114,690)
--------- --------- ---------- -----------
Cash Flows From Financing Activities:
Net proceeds from issuance of Parent's Class 1 and
Class 2 Interests................................ 633,514 183,205 283,191 1,932,319
Net proceeds from issuance of senior notes and
warrants......................................... -- 238,453 1,039,189 1,277,642
Borrowings under guaranteed bank line of credit.... -- 505,000 655,000 1,160,000
Payments under guaranteed bank line of credit...... -- -- (950,000) (950,000)
Borrowings under senior secured line of credit..... -- -- 350,000 350,000
Restricted cash.................................... -- -- (350,220) (350,220)
Deferred financing costs........................... (1,094) (28,535) (57,363) (87,524)
Transfer to Parent................................. -- -- (3,100) (3,100)
--------- --------- ---------- -----------
Net cash provided by financing activities...... 632,420 898,123 966,697 3,329,117
--------- --------- ---------- -----------
Increase (decrease) in cash and cash equivalents..... (151,059) (49,443) 4,051 5,940
Cash and Cash Equivalents, beginning of period....... 202,391 51,332 1,889 --
--------- --------- ---------- -----------
Cash and Cash Equivalents, end of period............. $ 51,332 $ 1,889 $ 5,940 $ 5,940
========= ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 196
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Iridium Operating LLC ("Iridium"), a wholly owned subsidiary of Iridium LLC
(the "Parent") is devoting its present efforts to developing and commercializing
a global wireless system -- the Iridium(R) Communications System (the "IRIDIUM
System") -- that will enable subscribers to send and receive telephone calls
virtually anywhere in the world -- all with one phone, one phone number and one
customer bill.
Iridium, Inc. was incorporated on June 14, 1991. Iridium, Inc. operated as
a wholly owned subsidiary of Motorola, Inc. ("Motorola") until July 29, 1993. On
July 29, 1993, Iridium, Inc. closed on, and had its first capital draw under, a
private placement of shares of Common Stock, subscribed to by U. S. and foreign
investors. As a result of three private placements of equity, five supplemental
private placements with certain additional equity investors and proceeds
received from the initial public offering of common stock of Iridium World
Communications Ltd. ("IWCL") (See Note 3), Motorola's direct and indirect Class
1 Membership Interest in the Parent has been reduced to approximately 18% as of
December 31, 1997, before considering unexercised warrants held by Motorola.
On July 29, 1996, the Parent 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. Also on July 29, 1996, Iridium, Inc. was merged with and into the
Parent, with the Parent as the surviving entity. Concurrent with the merger, all
shares of Common Stock of Iridium, Inc. were exchanged for Class 1 membership
interests in the Parent ("Class 1 Interests").
On December 18, 1997, the Parent entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Iridium Operating LLC
("Iridium"), a newly formed wholly owned subsidiary of the Parent. Pursuant to
the Asset Drop-Down Transaction, substantially all of the assets and liabilities
of the Parent were transferred to Iridium, including, without limitation, all
liabilities with respect to the outstanding 13% Senior Notes due 2005, Series A
and 14% Senior Notes due 2005, Series B and the 11 1/4% Senior Notes due 2005,
Series C (collectively, the "Senior Notes"). Pursuant to the indentures relating
to the Senior Notes, Iridium has been substituted for the Parent, and the Parent
has been released from all obligations under the indentures relating to the
Senior Notes. All assets and liabilities were transferred to Iridium at the
Parent's carrying value. Accordingly, unless otherwise specified, references
within these notes to Iridium that relate to any action prior to the date of the
Asset Drop-Down Transaction should be construed as references to Parent, as
predecessor of Iridium. As a result of the Asset Drop-Down Transaction, the
Parent's only significant asset is its investment in Iridium.
Iridium has contracted with Motorola to design, develop, produce and
deliver into orbit the space segment component of the IRIDIUM System. The
scheduled date for delivery of the $3.45 billion space segment is in 1998.
Iridium plans to begin its commercial operations in September 1998. During 1997,
46 of the 66 satellites in the IRIDIUM System were successfully placed in orbit.
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 System, subject to certain conditions.
F-7
<PAGE> 197
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Iridium and
its wholly owned subsidiaries, Iridium Capital Corporation, Iridium Roaming LLC
and Iridium IP LLC. All significant intercompany transactions have been
eliminated.
The accompanying consolidated financial statements present the financial
position and results of operations of Iridium for all prior periods as if the
Asset Drop-Down Transaction with Iridium had occurred as of June 14, 1991
(inception).
DEVELOPMENT STAGE ENTERPRISE
Iridium is currently devoting its entire efforts to establishing and
commercializing the IRIDIUM System. Accordingly, Iridium's current principal
activities relate to managing the design, construction and development of the
system and preparing for its day-to-day operations.
MANAGEMENT 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 reporting periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Iridium considers all highly liquid investments with an original maturity
of three months or less at the date of purchase to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of the first stage of borrowing under the $1
billion secured credit facility with a syndicate of lenders, led by The Chase
Manhattan Bank, and Barclays Bank PLC. The funds are restricted subject to
Iridium meeting specified milestones.
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>
Satellites in service.................. 5 years
Furniture, fixtures and equipment...... 5 years
Leasehold improvements................. Shorter of 5 years or
remaining lease term
</TABLE>
The costs of constructing and placing satellites into service are
capitalized. Losses from satellite failures for which Iridium has financial
responsibility under its contractual arrangements with
F-8
<PAGE> 198
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Motorola are recognized currently. Motorola bears the risk of loss for launch
failures and satellite failures before a satellite is placed into service.
SYSTEM UNDER CONSTRUCTION
System under construction includes all costs incurred related to the
construction of the space and ground components of the IRIDIUM System.
Depreciation expense is recognized on a satellite-by-satellite basis as the
satellites are placed into service following delivery of each satellite to its
mission orbit. Depreciation related to the ground control stations will commence
with the placement in service of each such station.
Interest costs incurred during the construction of the IRIDIUM System are
capitalized. Total interest cost incurred and capitalized for the years ended
December 31, 1996 and 1997 was approximately $28,127,000 and $163,747,000,
respectively. Interest paid for the years ended December 31, 1996 and 1997 was
approximately $1,485,000 and $30,191,000, respectively. No interest was
incurred, paid or capitalized for the year ended December 31, 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 for impairment whenever events
or 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 years
ended December 31, 1996 and 1997.
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 in a manner that
approximates the effective yield method. 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
$30,200,000 and $113,394,000 at December 31, 1996 and 1997, respectively.
During October 1995, the Parent withdrew an intended public offering of
certain subordinated debt financing. Accordingly, approximately $3,200,000 of
deferred costs associated with the intended financing were written off. Such
costs are included in operating expenses in the accompanying consolidated
statement of loss for the year ended December 31, 1995.
INCOME TAXES
Iridium files its Federal and state income tax returns as a member of the
consolidated returns of the Parent. Iridium, Inc. was subject to Federal, state
and local income taxes directly. As a result of the merger of Iridium, Inc. with
and into the Parent, the Parent became a limited liability company. As a limited
liability company, the Parent and Iridium are no longer subject to U. S. federal
income tax directly. Rather, each member in Iridium 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
F-9
<PAGE> 199
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
income taxes under the asset and liability method as if it filed its income tax
returns on a separate basis. 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.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
standards for the reporting and display of comprehensive income and its
components in the consolidated financial statements. Iridium is required to
adopt the provisions of Statement 130 for the year ending December 31, 1998.
Earlier application is permitted; however, upon adoption of Statement 130,
Iridium will be required to reclassify previously reported annual and interim
consolidated financial statements. The disclosure of comprehensive income in
accordance with the provisions of Statement 130 will impact the manner of
presentation of Iridium's consolidated financial statements as currently and
previously reported.
RECLASSIFICATIONS
Certain 1995 and 1996 amounts have been reclassified to conform to the 1997
presentation.
3. MEMBER'S EQUITY
The sole member of Iridium is the Parent and the Parent holds all
outstanding membership interests in Iridium. The limited liability company
agreement of Iridium provides that the members of the Parent may manage Iridium
only through their designated directors and have no authority in their capacity
as members to act on the behalf of Iridium. Parent is generally not liable for
the debts, obligations or liabilities of Iridium.
Parent is entitled to receive dividends, as and when declared by the
Iridium Board of Directors, in its discretion. In the event that Parent is
required by the terms of the Parent's Limited Liability Agreement to declare or
pay a dividend to its members, Iridium is required to declare and pay a dividend
to the Parent in the same amount. Parent is currently required to declare and
pay a dividend sufficient to assure that each non-U.S. Class 1 Member of Parent
receives and amount at least equal to the amount of such member's U.S. federal,
state and local income tax liability resulting from allocations of Parent's
taxable income to such member. Iridium is presently restricted by the terms of
certain of its debt obligations from declaring or paying dividends to the Parent
in amounts in excess of those required to be made to the Parent.
F-10
<PAGE> 200
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Parent is generally not liable for the debts, obligations or liabilities of
Iridium.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997, consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ----------
<S> <C> <C>
Space system in service............... $ -- $1,624,120
Office equipment and furniture........ 3,113 13,920
Trade show booth...................... 826 --
Leasehold improvements................ 405 8,424
------ ----------
4,344 1,646,464
Less-accumulated depreciation and
amortization........................ (2,279) (120,138)
------ ----------
Property and equipment, net........... $2,065 $1,526,326
====== ==========
</TABLE>
5. DEBT
GUARANTEED BANK FACILITY
On August 21, 1996, the Parent entered into a $750 million credit agreement
with a group of banks led by The Chase Manhattan Bank, NA and Barclays Bank,
PLC. On the same date, the Parent entered into the Guarantee Agreement whereby
Motorola agreed to guarantee the entire $750 million commitment amount (the
"Motorola Guarantee"). In connection with the Asset Drop-Down Transaction, the
Parent's obligations under the Guaranteed Bank Facility were assigned to
Iridium. The Guaranteed Bank Facility provides that Iridium may elect to borrow
amounts at the then current short-term Eurodollar rate plus 1/4% or at the then
current Base Rate (generally, the higher of the Federal Funds Rate as
established by the Federal Reserve Bank of New York plus 0.50% or The Chase
Manhattan Bank's prime commercial lending rate). 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 5.63% to 8.50 %
during 1997 and from 5.75% to 5.94% during 1996. On July 21, 1997, the
commitment of the bank lenders under the Guaranteed Bank Facility was
permanently reduced from $750 million to $655 million. On October 22, 1997, the
commitment of the bank lenders under the Guaranteed Bank Facility was further
permanently reduced to $450 million. Depending on market conditions, Iridium may
make additional senior note offerings in order to further reduce the Guaranteed
Bank Facility. The Guaranteed Bank Facility matures on June 30, 1999.
Under the Guarantee Agreement, the Parent is required to issue warrants to
Motorola to purchase up to 150,000 Class 1 Interests. As consideration for its
guarantee, Motorola earns 82,500 warrants for each year the $750 million
guarantee is outstanding. As a result of the permanent reductions in the
Guaranteed Bank Facility, the maximum number of warrants Motorola may earn as
compensation for their guarantee of that facility until maturity in June 1999 is
131,377 warrants to purchase approximately 9,853,275 Class 1 Interests of
Parent. Warrants earned are issued to Motorola on a quarterly basis. Each
warrant entitles Motorola to purchase 75 Class 1 Interests at an exercise price
of $.01 per interest, subject to anti-dilution adjustments. The warrants may be
exercised after five years from date of issuance and expire ten years from date
of issuance.
F-11
<PAGE> 201
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Motorola earned 29,836 and 64,518 warrants to purchase Class 1 Interests in
accordance with the Guarantee Agreement during the years ended December 31, 1996
and 1997, respectively. Iridium recognized $25,719,000 and $55,615,000 as an
expense in the accompanying consolidated statements of operations to reflect the
fair market value of the warrants earned by Motorola for the years ended
December 31, 1996 and 1997, respectively. At December 31, 1996 and 1997,
$505,000,000 and $210,000,000, respectively, was outstanding under the
Guaranteed Bank Facility.
SENIOR SECURED BANK LINE OF CREDIT
Iridium has entered into a Credit Agreement with Chase Securities Inc., The
Chase Manhattan Bank, Barclays Bank PLC and Barclays Capital, the investment
banking division of Barclays Bank PLC, and a syndicate of lenders (the "Secured
Lenders") for a senior bank facility in a principal amount of $1 billion (the
"Secured Bank Facility"), of which $250 million is not available for borrowings
prior to the commercial activation date. The Secured Bank Facility is secured by
substantially all of Iridium's assets. The Secured Bank Facility is further
secured by a $243 million Reserve Capital Call of the members of Parent and all
of the Parent's membership interests in Iridium. The availability of the Secured
Bank Facility is subject to significant conditions, including technical
conditions relating to the IRIDIUM System, conditions relating to regulatory
approvals and conditions relating to other financing sources. Borrowings under
the Secured Bank Facility mature on September 30, 1998, subject to Iridium's
right to extend such maturity until up to June 30, 1999 if it can demonstrate by
July 1, 1998 that it has sufficient available or committed financing for its
budgeted project costs through such extended maturity. At December 31, 1997,
$350,000,000 was outstanding under the Secured Bank Facility.
NOTES PAYABLE
On July 16, 1997, the Parent, IWCL and Iridium Capital Corporation
completed an offering (the "High Yield Offering") of (i) 300,000 units, each
consisting of $1,000 principal amount of 13% Senior Notes due 2005, Series A
("Series A Notes"), and one IWCL Warrant representing the right to purchase 5.2
shares of Class A Common Stock of IWCL, and (ii) $500 million aggregate
principal amount of 14% Senior Notes due 2005, Series B ("Series B Notes").
Concurrent with the Asset Drop-Down Transaction, the Parent's obligations under
the Series A Notes and Series B Notes were assigned to Iridium. The Series A
Notes and Series B Notes are guaranteed by Iridium Roaming LLC and Iridium IP
LLC. The aggregate net proceeds received was approximately $746 million.
Interest on the Series A Notes and Series B Notes is payable in cash
semi-annually on January 15th and July 15th of each year, commencing on January
15, 1998. The notes are redeemable at the option of Iridium, in whole or in
part, at any time on or after July 15, 2002. The Series A and Series B Notes
mature on July 15, 2005.
On October 17, 1997, the Parent and Iridium Capital Corporation completed
an offering of $300 million principal amount of 11 1/4% Senior Notes due 2005,
Series C ("Series C Notes"). Concurrent with the Asset Drop-Down Transaction,
the Parent's obligations under the Series C Notes were assigned to Iridium. The
Series C Notes are guaranteed by Iridium Roaming LLC and Iridium IP LLC. The net
proceeds received were approximately $293 million. Interest on the Series C
Notes is payable in cash semi-annually on January 15th and July 15th of each
year, commencing on January 15, 1998. The Series C Notes are redeemable at the
option of Iridium, in whole or in part, at any time on or after July 15, 2002.
The Series C Notes mature on July 15, 2005.
F-12
<PAGE> 202
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes payable, net of discounts, for the year ended December 31, 1997
consists of the following (in thousands):
<TABLE>
<CAPTION>
1997
----------
<S> <C>
13% Senior Notes due 2005, Series A.............. $ 276,439
14% Senior Notes due 2005, Series B.............. 477,849
11 1/4% Senior Notes due 2005, Series C.......... 300,000
----------
$1,054,288
==========
</TABLE>
LONG-TERM DEBT DUE TO MEMBERS OF THE PARENT
During 1996, the Parent sold units to certain of its members and their
affiliates; each unit consisting of $1,000 principal amount at maturity 14 1/2%
Senior Subordinated Discount Notes due 2006 (the "Notes") and one warrant to
purchase 10.40775 Class 1 Interests of the Parent, for aggregate proceeds of
approximately $238,453,000. Concurrent with the Asset Drop-Down Transaction, the
Parent's obligations under the Notes were assigned to Iridium. 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.
6. 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, the Parent and Iridium are 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, 1995,
1996, and 1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C> <C>
Current.............. -- Federal $1,258 $3,435 $ --
-- State and
Local 426 1,154 --
Deferred............. -- Federal -- -- --
-- State and
Local -- -- --
------ ------ ------
$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, 1995 and the period from January 1, 1996 to July 29, 1996 (the date
of the merger of Iridium, Inc. into the Parent) 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,
Inc.'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 the Parent, deferred taxes are recognized
F-13
<PAGE> 203
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for those jurisdictions for which the Parent and Iridium are taxed directly,
resulting in a deferred tax asset for capitalized start-up expenditures of
$4,774,000 and $34,599,000 at December 31, 1996 and 1997, respectively, for
which a 100% valuation allowance has been established.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences become deductible. Management considers scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax
planning strategies that can be implemented in making this assessment.
7. TRANSACTIONS WITH MEMBERS OF THE PARENT
MANAGEMENT SERVICES AGREEMENT
In connection with the IWCL IPO, the Parent and IWCL entered into a
Management Services Agreement. The Management Services Agreement was amended and
restated in connection with the Asset Drop-Down Transaction to add Iridium as a
party.
Pursuant to the Management Services Agreement, the Parent has agreed to
supervise and manage the day-to-day activities of Iridium. Among other things,
the Parent is responsible for administering the following functions of Iridium:
contract administration (including the Space System Contract, the TNDC and the
O&M Contract), treasury, accounting, legal, tax, insurance, licenses and permits
and securities law compliance. The Parent similarly has agreed to supervise and
manage the day-to-day operations of IWCL. Among other things, the Parent is
responsible for administering the following functions of IWCL: treasury,
accounting, legal, tax, insurance, licenses and permits and securities law
compliance. In addition, Parent has agreed to advance funds to IWCL in the event
that IWCL does not have sufficient funds to pay income or similar taxes. The
Parent does not receive fees or reimbursement from IWCL for its services to IWCL
under the Management Services Agreement; however, the cost of such services
provided to IWCL to date is not significant.
In return for such services, Iridium has agreed to provide sufficient
funds, on a cost reimbursable basis, to the Parent to enable the Parent to
manage the business and operations of each of Iridium and IWCL, including
payments of Parent's obligations to its employees, consultants and directors,
and payments for Parent's office space and equipment, sales, general operating
and administrative expenses, insurance and its obligations under certain
contracts.
F-14
<PAGE> 204
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPORT AGREEMENT
Under a Support Agreement, Motorola provides certain general and
administrative support to the Parent, Iridium and its subsidiaries. On a cost
reimbursable basis, Motorola has provided payroll processing and related
benefits to the Parent employees, processed payments to certain contractors
providing support to the Parent and Iridium, and provided other administrative
support. In connection with the Asset Drop-Down Transaction, the Parent assigned
the Support Agreement to Iridium. The amounts and nature of such costs for the
years ended December 31, 1995, 1996 and 1997 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Consulting............................... $603 $826 $643
Other.................................... 1 26 5
---- ---- ----
$604 $852 $648
==== ==== ====
</TABLE>
As of December 31, 1996, and 1997, the balance payable to Motorola under
the Support Agreement was approximately $563,000 and $0, respectively.
SPACE SYSTEM CONTRACT
The Parent entered into the Space System Contract with Motorola to design,
develop, produce and deliver the Space Segment component of the IRIDIUM System.
In connection with the Asset Drop-Down Transaction, the Parent assigned the
Space System Contract to Iridium. 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, 1995, 1996, and 1997, $802 million, $836 million, and $577
million, respectively, was incurred under the Space System Contract. Such costs
are capitalized as system under construction in the accompanying consolidated
balance sheets and are transferred to property and equipment as the underlying
assets are placed into service. As of December 31, 1996 and 1997, the balance
payable to Motorola under the Space System Contract was $100 million and $0,
respectively.
The aggregate fixed and determinable portion of all remaining obligations
under the Space System Contract is $589 million expected to be payable in 1998.
TERRESTRIAL NETWORK DEVELOPMENT CONTRACT
The Parent entered into the Terrestrial Network Development Contract
("TNDC") with Motorola for an original amount of $160 million. In connection
with the Asset Drop-Down Transaction, the Parent assigned the TNDC to Iridium.
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, the TNDC was
amended to obligate Motorola to 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 from Iridium, the Parent may, at its election, issue 5,545
warrants to purchase Class 1 Interests of the Parent to Motorola. The warrants,
if issued, have an exercise price of $.01 and may be exercised beginning March
1, 2001 and will expire on March 1, 2006. During 1997, the TNDC was further
amended to obligate Motorola to provide additional services and support bringing
the total contract price of the TNDC to
F-15
<PAGE> 205
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$284 million. Certain of the Parent's members will own the individual gateways
and will have no obligation to Iridium or the Parent for any of the amounts due
to Motorola under the TNDC. For the years ended December 31, 1996 and 1997,
Iridium incurred $64 million and $74 million, respectively, under the TNDC. Such
costs are capitalized as system under construction in the accompanying
consolidated balance sheets. As of December 31, 1996 and 1997, the balance
payable to Motorola under the TNDC was $0 and $11 million, respectively.
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>
1998............................................... $139,405
1999............................................... 6,000
--------
$145,405
========
</TABLE>
OPERATIONS AND MAINTENANCE CONTRACT
To provide for the operations and maintenance of the space segment upon
completion of the Space System Contract, the Parent entered into the Operations
and Maintenance Contract ("O&M") with Motorola. In connection with the Asset
Drop-Down Transaction, the Parent assigned the O&M contract to Iridium. 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 $2.88 billion. During 1996, a
two-year option agreement was entered into for the extension of 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 $1.33 billion. Upon commencement of the O&M, Iridium
will capitalize the portion of the costs incurred that pertain to hardware and
software components of the space segment that extend its useful life. The
portion of the costs of the O&M associated with day-to-day operations will be
expensed as incurred. 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>
1998............................................. $ 129,000
1999............................................. 537,000
2000............................................. 558,000
2001............................................. 581,000
2002............................................. 605,000
2003............................................. 472,000
----------
$2,882,000
==========
</TABLE>
F-16
<PAGE> 206
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFITS
The Parent has adopted a comprehensive performance incentive and retirement
benefit package. Under the terms of the Management Services Agreement (See Note
7), Iridium has committed to reimburse the Parent for all costs associated with
employee benefits except for non-cash compensation related to employee stock
options. The performance incentive program became effective in 1993, while the
various retirement plans became effective on February 1, 1994.
INCENTIVE PROGRAMS
The Parent has established short- and long-term incentive plans primarily
based on employee performance. Effective December 31, 1995, the Parent
terminated the long-term incentive plan. The remaining liability of the
long-term incentive plan is approximately $2,426,000 and $1,738,000 as of
December 31, 1996 and 1997, respectively, and is expected to be paid in 1999.
Under these plans, the Parent incurred expenses of approximately $1,300,000,
$1,252,000 and $3,412,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.
401(K) EMPLOYEE RETIREMENT SAVINGS PLAN
The Parent adopted a 401(k) employee retirement savings plan in 1994
covering all employees. The Parent 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. The Parent's
contributions vest ratably over a seven-year period, including service credit
for any prior employment with Motorola. Under this plan, the Parent has incurred
approximately $161,000, $288,000, and $558,000 during the years ended December
31, 1995, 1996 and 1997, respectively.
RETIREMENT PLANS
All employees of the Parent 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, the Parent adopted a non-qualified defined benefit plan
covering employees earnings 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
The Parent maintains a non-qualified defined benefit plan for selected
senior officers. Vesting in these plans generally occurs upon the attainment of
age 55 with five years of service. Benefits under these plans are based on
average annual compensation prior to retirement. The Parent 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 $1,256,000, $1,925,000, and
$2,420,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
For the years ended December 31, 1996 and 1997, the amounts provided to cover
taxes associated with the plan benefits were $736,000 and $693,000,
respectively. In addition, an additional minimum pension liability adjustment of
$332,000 and $90,000 has been
F-17
<PAGE> 207
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded for the years ended December 31, 1996 and 1997, respectively, for its
non-qualified plans. The additional minimum pension liability is included as a
reduction to members' equity.
SUMMARY OF DEFINED BENEFIT PLANS
Pension cost for the qualified and non-qualified defined benefit plans in
total for the years ended December 31, 1995, 1996 and 1997, are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- --------------------- ---------------------
NON- NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service Cost.......................... $372 $377 $789 $ 438 $1,292 $ 512
Interest cost on projected benefit
obligation.......................... 70 246 133 339 206 285
Actual return on assets............... (66) -- (82) -- (138) --
Amortization of actuarial loss........ -- -- -- 51 -- 6
Amortization of transition
obligation.......................... 19 238 19 238 19 238
---- ---- ---- ------ ------ ------
Net periodic cost..................... $395 $861 $859 $1,066 $1,379 $1,041
==== ==== ==== ====== ====== ======
</TABLE>
The following table describes the funded status of the plans at December
31, 1996 and 1997 (in thousands). The actuarial calculations were determined by
the Parent's consulting actuaries:
<TABLE>
<CAPTION>
1996 1997
---------------------- ----------------------
NON- NON-
QUALIFIED QUALIFIED QUALIFIED QUALIFIED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated present value of
obligations:
Accumulated benefit obligation,
including vested benefits............. $ (1,828) $ (2,746) $ (3,334) $ (2,269)
======== ======== ======== ========
Projected benefit obligation for service
rendered to date...................... $ (2,554) $ (5,179) $ (4,722) $ (5,039)
Plan assets at fair value............... 1,931 -- 3,757 --
-------- -------- -------- --------
Projected benefit obligation in excess
of plan assets........................ (623) (5,179) (965) (5,039)
Unrecognized transition obligation...... 320 2,360 302 2,123
Unrecognized net (gain) loss............ (227) 609 118 870
-------- -------- -------- --------
Accrued pension cost.................... (530) (2,210) (545) (2,046)
Adjustment required to recognize minimum
liability............................. -- (733) -- (643)
-------- -------- -------- --------
Pension liability....................... $ (530) $ (2,943) $ (545) $ (2,689)
======== ======== ======== ========
Actuarial assumptions:
Discount rate........................... 7.5% 7.5% 7% 7%
Long-term rate of return................ 8% 8% 8% 8%
Salary increases........................ 5% 7.5% 5% 7.5%
</TABLE>
F-18
<PAGE> 208
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments as of December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Bank facilities...................... $505,000 $505,000 $ 560,000 $ 560,000
Long-term debt due to Members........ 230,904 230,904 273,302 273,302
Senior Notes, Series A, B, and C..... -- -- 1,054,288 1,156,000
</TABLE>
The fair value of long-term debt is estimated based on the current rates
offered for similar debt. The carrying amounts of due from affiliates and
accounts payable and accrued expenses approximate their fair market value as of
December 31, 1996 and 1997 because of the relatively short duration of these
assets.
10. OPERATING LEASE COMMITMENTS
The Parent leases its corporate headquarters office space and other office
space and equipment under non-cancelable operating lease agreements. The initial
lease term for the corporate headquarters office space is seven years. Future
minimum payments under all operating lease arrangements are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -------
<S> <C>
1998.................................................. $ 8,417
1999.................................................. 8,459
2000.................................................. 8,440
2001.................................................. 5,755
2002.................................................. 4,951
2003 and beyond....................................... 7,985
-------
$44,007
=======
</TABLE>
Rental expense under operating leases for the years ended December 31,
1995, 1996, and 1997 was approximately $1,025,000, $1,194,000, and $7,821,000,
respectively.
11. IRIDIUM SUBSIDIARIES
The Series A Notes, Series B Notes and Series C Notes are co-issued by
Iridium and Iridium Capital Corporation ("Capital") and are fully and
unconditionally guaranteed, jointly and severally, on a senior unsecured basis
by Iridium Roaming LLC and Iridium IP LLC (collectively, the "Guarantor
Subsidiaries" and together with Capital, the "Iridium Subsidiaries"). Each of
the Iridium Subsidiaries is a wholly owned subsidiary of Iridium and, as of
December 31, 1997, Iridium has no subsidiaries other than the Iridium
Subsidiaries. Capital was formed and capitalized by the Parent on June 16, 1997
(subscribed capital of $100). Iridium Roaming LLC was formed by the Parent on
June 15, 1997. Iridium IP LLC was formed by the Parent on February 28, 1997. In
connection with the Asset Drop-Down Transaction, Parent's interest in the
Iridium subsidiaries was transferred to Iridium.
F-19
<PAGE> 209
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is summarized financial information of Capital as of December
31, 1997 and for the period from inception through December 31, 1997. Full
financial statements of Capital are not presented because management believes
they are not material to investors.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
----------------
<S> <C>
Current assets............................... $0
Total assets................................. 0
Current liabilities.......................... 0
Total liabilities............................ 0
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION THROUGH
DECEMBER 31, 1997
-------------------
<S> <C>
Net revenues................................ $0
Cost of services............................ 0
Net loss.................................... 0
</TABLE>
Iridium has recognized the obligations relating to the Series A Notes, the
Series B Notes and the Series C Notes because Iridium will have the operations
to service such obligations.
The following is summarized financial information of the Guarantor
Subsidiaries as of December 31, 1997 and for the period from inception of each
of the Guarantor Subsidiaries through December 31, 1997. Full financial
statements of the Guarantor Subsidiaries are not presented because management
believes they are not material to investors.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
----------------
<S> <C>
Current assets............................... $0
Total assets................................. 0
Current liabilities.......................... 0
Total liabilities............................ 0
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
INCEPTION THROUGH
DECEMBER 31, 1997
-------------------
<S> <C>
Net revenues................................ $0
Cost of services............................ 0
Net loss.................................... 0
</TABLE>
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
In thousands:
The following is a summary of results of operations for each of the fiscal
quarters during 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating expenses......................... $5,753 $6,083 $5,911 $9,440 $27,187
Net loss................................... 4,528 5,033 5,092 8,992 23,645
</TABLE>
F-20
<PAGE> 210
IRIDIUM OPERATING LLC
(A WHOLLY OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of results of operations for each of the fiscal
quarters during 1996:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating expenses...................... $8,410 $10,321 $19,621 $33,052 $71,404
Net loss................................ 7,663 9,840 24,232 31,863 73,598
</TABLE>
The following is a summary of results of operations for each of the fiscal
quarters during 1997:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating expenses.................. $36,054 $48,414 $84,959 $127,019 $296,446
Net loss............................ 35,928 47,926 84,057 125,490 293,401
</TABLE>
F-21
<PAGE> 211
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO BE GIVEN ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE IRIDIUM PARTIES OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE IRIDIUM PARTIES SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CURRENT AT ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary................................ 1
Risk Factors........................... 17
Ownership Structure and Strategic
Investors............................ 49
Use of Proceeds........................ 52
Capitalization......................... 52
Selected Financial Data................ 53
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 54
Business............................... 61
Regulation of Iridium.................. 82
Principal Contracts for the Development
of the IRIDIUM System................ 91
Certain Matters Regarding Relationship
Among IWCL, Parent and Iridium....... 98
Management............................. 103
Interest Ownership of Certain
Beneficial Owners and Management in
Parent............................... 114
Certain Relationships and Related
Transactions of Iridium.............. 115
Parent's Investors, Number of Class 1
Interests Owned, Percentage Owner-
ship and Principal Gateway Service
Territories.......................... 121
Description of Parent Limited Liability
Company Agreement.................... 125
Description of Iridium Operating LLC
Limited Liability Company
Agreement............................ 132
Description of Other Indebtedness...... 137
Description of Notes................... 144
Book Entry; Delivery and Form.......... 175
Underwriting........................... 177
Validity of the Securities............. 179
Experts................................ 179
Available Information.................. 179
Glossary............................... 181
Index to Financial Statements.......... F-1
</TABLE>
PROSPECTUS
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
$350,000,000 % SENIOR NOTES DUE 2005,
SERIES D
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
IRIDIUM FACILITIES CORPORATION
IRIDIUM LOGO
CHASE SECURITIES INC.
BARCLAYS CAPITAL
MERRILL LYNCH & CO.
, 1998
<PAGE> 212
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......... $103,250
NASD Filing Fee............................................. 30,500
Printing and Engraving Expenses............................. 75,000
Accounting Fees and Expenses................................ 25,000
Attorneys' Fees and Expenses................................ 450,000
Trustees Fees............................................... 15,000
Blue Sky Fees and Expenses (including attorneys' fees)...... 10,000
Miscellaneous............................................... 141,250
--------
Total.................................................. $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Capital, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of Capital. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Certificate of Incorporation and by-laws of Capital provide for indemnification
of the directors and officers of such entities to the full extent permitted by
the Delaware General Corporation Law.
Pursuant to the Parent LLC Agreement, Iridium has agreed to indemnify any
person against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action brought
by Iridium), in which such person is made a party by reason of his being or
having been a director or officer of Iridium or is or was serving at the request
of Iridium as a manager, director, officer, employee, fiduciary or agent of
another limited liability company or of a corporation, partnership, joint
venture, trust or other enterprise, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of Iridium and, with respect to any criminal action or proceeding had
no reasonable cause to believe such person's conduct was unlawful.
Pursuant to the Iridium LLC Agreement, Iridium has agreed to indemnify any
person against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any threatened, pending or completed action, suit or proceeding (a
"proceeding"), whether civil, criminal, administrative or investigative (other
than an action brought by Iridium), in which such person is made a party by
reason of his being or having been a director or officer of Iridium or is or was
serving at the request of Iridium as a manager, director, officer, employee or
agent of another limited liability company or of a corporation, partnership,
joint venture, trust or other enterprise, if such person acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of Iridium and,
II-1
<PAGE> 213
with respect to such proceeding, had no reasonable cause to believe such
person's conduct was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 11, 1997, Parent, Capital and IWCL consummated a private offering
of 300,000 Units (the "Units") each consisting of $1,000 principal amount of the
13% Senior Notes due 2005, Series A and one warrant representing the right to
purchase 5.2 shares of Class A Common Stock. The aggregate offering price and
the aggregate underwriting discounts were $292,794,000 and $9,000,000,
respectively.
On July 11, 1997, Parent and Capital also consummated a private offering of
$500,000,000 aggregate principal amount of 14% Senior Notes due 2005, Series B
(the "Series B Notes"). The aggregate offering price and the aggregate
underwriting discounts were $477,145,000 and $15,000,000, respectively.
On October 17, 1997, Parent and Capital consummated a private offering of
$300,000,000 aggregate principal amount of 11 1/4% Senior Notes, Series C (the
"Series C Notes"). The aggregate offering price and the aggregate underwriting
discounts were $300,000,000 and $6,750,000, respectively.
In the case of the Units and the Series B Notes, the principal underwriters
were Chase Securities Inc. and Merrill Lynch, Pierce, Fenner and Smith. In the
case of the Series C Notes, the principal underwriters were Chase Securities
Inc., Merrill Lynch, Pierce Fenner and Smith Incorporated and BT Alex. Brown
Incorporated. The offerings of the Units, the Series B Notes and the Series C
Notes (collectively, the "Private Offerings") were made to qualified
institutional buyers (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act") and outside the United States to persons not
citizens or residents of the United States. The Private Offerings were exempt
from registration under the Securities Act because such securities were offered
or sold in reliance on Section 4(2) of the Securities Act, Rule 144A under the
Securities Act and Regulation S under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
A list of the exhibits included as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
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
II-2
<PAGE> 214
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 the purpose 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> 215
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 Washington,
District of Columbia, on April 22, 1998.
IRIDIUM ROAMING LLC
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
acting chief executive officer
IRIDIUM IP LLC
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
acting chief executive officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints each of Edward F. Staiano, Robert
W. Kinzie and F. Thomas Tuttle, acting individually, as his attorney-in-fact and
agent, with full power of substitution, for him in any and all capacities, to
sign the registration statement on Form S-1 of Iridium Roaming LLC and Iridium
IP LLC and any and all amendments thereto under the Securities Act of 1933,
including any and all pre-effective or post-effective amendments, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully as
he might or could do in person, and hereby ratifies, approves and confirms all
that his said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
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 indicated on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ ROBERT W. KINZIE Chairman, Iridium Operating LLC April 22, 1998
- ------------------------------------------------ (Sole Member of Iridium Roaming
Robert W. Kinzie LLC and Iridium IP LLC)
/s/ EDWARD F. STAIANO acting chief executive officer of April 22, 1998
- ------------------------------------------------ Iridium Roaming LLC and Iridium IP
Edward F. Staiano LLC
/s/ ROY GRANT acting chief financial officer of April 22, 1998
- ------------------------------------------------ Iridium Roaming LLC and Iridium IP
Roy Grant LLC
</TABLE>
II-4
<PAGE> 216
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 Washington,
District of Columbia, on April 22, 1998.
IRIDIUM OPERATING LLC
By: /s/ ROBERT W. KINZIE
-----------------------------------
Robert W. Kinzie
Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints each of Edward F. Staiano, Robert
W. Kinzie and F. Thomas Tuttle, acting individually, as his attorney-in-fact and
agent, with full power of substitution, for him in any and all capacities, to
sign the registration statement on Form S-1 of Iridium Operating LLC and any and
all amendments thereto under the Securities Act of 1933, including any and all
pre-effective or post-effective amendments, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as he might or could do
in person, and hereby ratifies, approves and confirms all that his said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
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/ ROBERT W. KINZIE Chairman, Iridium Operating LLC April 22, 1998
- ------------------------------------------------
Robert W. Kinzie
/s/ EDWARD F. STAIANO Vice Chairman and Chief Executive April 22, 1998
- ------------------------------------------------ Officer, Iridium Operating LLC
Edward F. Staiano
/s/ ROY GRANT Vice President and Chief Financial April 22, 1998
- ------------------------------------------------ Officer, Iridium Operating LLC
Roy Grant
Director April , 1998
- ------------------------------------------------
Aburizal Bakrie
Director April , 1998
- ------------------------------------------------
Hasan M. Binladin
/s/ ULF BOHLA Director April 22, 1998
- ------------------------------------------------
Ulf Bohla
/s/ GORDON J. COMERFORD Director April 22, 1998
- ------------------------------------------------
Gordon J. Comerford
</TABLE>
II-5
<PAGE> 217
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Director April , 1998
- ------------------------------------------------
Atilano de Oms Sobrinho
/s/ ROBERT A. FERCHAT Director April 22, 1998
- ------------------------------------------------
Robert A. Ferchat
Director April , 1998
- ------------------------------------------------
Alberto Finol
/s/ EDWARD GAMS Director April 22, 1998
- ------------------------------------------------
Edward Gams
/s/ DURRELL HILLIS Director April 22, 1998
- ------------------------------------------------
Durrell Hillis
/s/ KAZUO INAMORI Director April 22, 1998
- ------------------------------------------------
Kazuo Inamori
/s/ GEORG KELLINGHUSEN Director April 22, 1998
- ------------------------------------------------
Georg Kellinghusen
/s/ S. H. KHAN Director April 22, 1998
- ------------------------------------------------
S. H. Khan
/s/ ANATOLY I. KISELEV Director April 22, 1998
- ------------------------------------------------
Anatoly I. Kiselev
/s/ RICHARD L. LESHER Director April 22, 1998
- ------------------------------------------------
Richard L. Lesher
/s/ JOHN F. MITCHELL Director April 22, 1998
- ------------------------------------------------
John F. Mitchell
/s/ JUNG L. MOK Director April 22, 1998
- ------------------------------------------------
Jung L. Mok
/s/ GIUSEPPE MORGANTI Director April 22, 1998
- ------------------------------------------------
Giuseppe Morganti
/s/ J. MICHAEL NORRIS Director April 22, 1998
- ------------------------------------------------
J. Michael Norris
</TABLE>
II-6
<PAGE> 218
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ YUSAI OKUYAMA Director April 22, 1998
- ------------------------------------------------
Yusai Okuyama
/s/ JOHN A. RICHARDSON Director April 22, 1998
- ------------------------------------------------
John A. Richardson
/s/ THEODORE H. SCHELL Director April 22, 1998
- ------------------------------------------------
Theodore H. Schell
/s/ WILLIAM A. SCHREYER Director April 22, 1998
- ------------------------------------------------
William A. Schreyer
/s/ SRIBHUMI SUKHANETR Director April 22, 1998
- ------------------------------------------------
Sribhumi Sukhanetr
/s/ TAO-TSUN SUN Director April 22, 1998
- ------------------------------------------------
Tao-Tsun Sun
/s/ YOSHIHARU YASUDA Director April 22, 1998
- ------------------------------------------------
Yoshiharu Yasuda
Director April , 1998
- ------------------------------------------------
Wang Mei Yue
</TABLE>
II-7
<PAGE> 219
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 Washington,
District of Columbia, on April 22, 1998.
IRIDIUM CAPITAL CORPORATION
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
Chairman
IRIDIUM FACILITIES CORPORATION
By: /s/ EDWARD F. STAIANO
-----------------------------------
Edward F. Staiano
Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints each of Edward F. Staiano, Robert
W. Kinzie and F. Thomas Tuttle, acting individually, as his attorney-in-fact and
agent, with full power of substitution, for him in any and all capacities, to
sign the registration statement on Form S-1 of Iridium Capital Corporation and
Iridium Facilities Corporation and any and all amendments thereto under the
Securities Act of 1933, including any and all pre-effective or post-effective
amendments, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as he might or could do in person, and hereby ratifies,
approves and confirms all that his said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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 Chairman and Chief Executive April 22, 1998
- ------------------------------------------------ Officer, Iridium Capital
Edward F. Staiano Corporation and Iridium Facilities
Corporation
/s/ ROY GRANT Chief Financial Officer, Iridium April 22, 1998
- ------------------------------------------------ Capital Corporation and Iridium
Roy Grant Facilities Corporation
/s/ ROBERT W. KINZIE Director, Iridium Capital April 22, 1998
- ------------------------------------------------ Corporation and Iridium Facilities
Robert W. Kinzie Corporation
</TABLE>
II-8
<PAGE> 220
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
1 Form of Underwriting Agreement.*
3.1 Limited Liability Company Agreement of Iridium LLC, dated as
of July 29, 1996, as amended: Incorporated by reference to
Exhibit 10.1 to the Registration Statement on Form S-1 of
Iridium World Communications Ltd. and Iridium LLC
(Registration Nos. 333-23419 and 333-23419-01) (the "1997
Form S-1").
3.2 Articles of Incorporation of Iridium Capital Corporation:
Incorporated by reference to Exhibit 3.2 of the Registration
Statement on Form S-4 of Iridium LLC, Iridium Capital
Corporation, Iridium Roaming LLC, and Iridium IP LLC
(Registration Nos. 333-31741, -01, -02 and -03) (the "1997
Form S-4").
3.3 By-Laws of Iridium Capital Corporation: Incorporated by
reference to Exhibit 3.3 to the 1997 Form S-4.
3.4 Amended and Restated Limited Liability Company Agreement of
Iridium Roaming LLC: Incorporated by reference to Exhibit
3.4 of the Registration Statement on Form S-4 of Iridium
Operating LLC, Iridium Capital Corporation, Iridium Roaming
LLC, Iridium IP LLC and Iridium Facilities Corporation
(Registration Nos. 333-4439, -01, -02, -03 and -04) (the
"1998 Form S-4").
3.5 Amended and Restated Limited Liability Company Agreement of
Iridium IP LLC: Incorporated by reference to Exhibit 3.5 to
the 1998 Form S-4.
3.6 Limited Liability Company Agreement of Iridium Operating
LLC: Incorporated by reference to Exhibit 3.6 to the 1998
Form S-4.
3.7 Articles of Incorporation of Iridium Facilities Corporation:
Incorporated by reference to Exhibit 3.7 of the Annual
Report on Form 10-K of Iridium World Communications Ltd.,
Iridium LLC, Iridium Operating LLC, Iridium IP LLC, Iridium
Roaming LLC and Iridium Capital Corporation (the "1997 Form
10-K").
3.8 By-Laws of Iridium Facilities Corporation: Incorporated by
reference to Exhibit 3.8 to the 1997 Form 10-K.
4.1.1 Indenture dated as of July 16, 1997 relating to Iridium
LLC's and Iridium Capital Corporation's 13% Senior Notes due
2005, Series A, and 13% Senior Notes due 2005, Series A/EN:
Incorporated by reference to Exhibit 4.1 to the 1997 Form
S-4.
4.1.2 First Supplemental Indenture dated as of December 18, 1997
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 13% Senior Notes due 2005, Series A, and 13%
Senior Notes due 2005, Series A/EN: Incorporated by
reference to Exhibit 4.1.2 to the 1998 Form S-4.
4.1.3 Second Supplemental Indenture dated as of February 27, 1998
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 13% Senior Notes due 2005, Series A, and 13%
Senior Notes due 2005, Series A/EN: Incorporated by
reference to Exhibit 4.1.3 to the 1997 Form 10-K.
</TABLE>
II-9
<PAGE> 221
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
4.2 Forms of Series A Note and Series A/EN Note: Incorporated by
reference to Exhibit 4.1 to the 1997 Form S-4.
4.3.1 Indenture dated as of July 16, 1997 relating to Iridium
LLC's and Iridium Capital Corporation's 14% Senior Notes due
2005, Series B, and 14% Senior Notes due 2005, Series B/EN:
Incorporated by reference to Exhibit 4.2 to the 1997 Form
S-4.
4.3.2 First Supplemental Indenture dated as of December 18, 1997
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 14% Senior Notes due 2005, Series B, and 14%
Senior Notes due 2005, Series B/EN: Incorporated by
reference to Exhibit 4.3.2 to the 1998 Form S-4.
4.3.3 Second Supplemental Indenture dated as of February 27, 1998
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 14% Senior Notes due 2005, Series B, and 14%
Senior Notes due 2005, Series B/EN: Incorporated by
reference to Exhibit 4.3.3 to the 1997 Form 10-K.
4.4 Forms of Series B Note and Series B/EN Note: Incorporated by
reference to Exhibit 4.2 to the 1997 Form S-4.
4.5.1 Indenture dated as of October 17, 1997 relating to Iridium
LLC's and Iridium Capital Corporation's 11 1/4% Senior Notes
due 2005,
Series C: Incorporated by reference to Exhibit 4.5.1 to the
1998 Form S-4.
4.5.2 First Supplemental Indenture dated as of December 18, 1997
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 11 1/4% Senior Notes due 2005, Series C:
Incorporated by reference to Exhibit 4.5.2 to the 1998 Form
S-4.
4.5.3 Second Supplemental Indenture dated as of February 27, 1998
relating to Iridium Operating LLC's and Iridium Capital
Corporation's 11 1/4% Senior Notes due 2005, Series C:
Incorporated by reference to Exhibit 4.5.3 to the 1997 Form
10-K.
4.6 Forms of Series C Note and Series C/EN Note: contained in an
exhibit to Exhibit 4.5.1.
4.7 Form of Indenture dated as of , 1998 relating to
Iridium Operating LLC's and Iridium Capital Corporation's
% Senior Notes due 2005, Series D.*
4.8 Form of Series D Note: contained in an exhibit to Exhibit
4.7.
5 Opinion of Sullivan & Cromwell.*
10.1 Form of Interest Exchange Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.2 to the 1997
Form S-1.
10.2 Form of amended and restated Management Services Agreement
between IWCL, Iridium LLC and Iridium Operating LLC:
Incorporated by reference to Exhibit 10.2 to the 1998 Form
S-4.
10.3 Form of 1997 Subscription Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.4 to the 1997
Form S-1.
10.4 Space System Contract between Iridium LLC and Motorola, Inc.
effective July 29, 1993, as amended and conformed on January
14, 1997: Incorporated by reference to Exhibit 10.6 to the
1997 Form S-1.+
</TABLE>
II-10
<PAGE> 222
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
10.5 Communications System Operations & Maintenance Contract
between Iridium LLC and Motorola, Inc. effective July 29,
1993, as amended and conformed on January 14, 1997:
Incorporated by reference to Exhibit 10.7 to the 1997 Form
S-1.+
10.6 Terrestrial Network Development Contract between Iridium LLC
and Motorola, Inc. effective January 1, 1993, as amended and
conformed on January 14, 1997: Incorporated by reference to
Exhibit 10.8 to the 1997 Form S-1.+
10.7 Amendment No. 3 to the Terrestrial Network Development
Contract between Iridium LLC and Motorola, Inc. effective
June 20, 1997: Incorporated by reference to Exhibit 10.7 to
the 1997 Form S-4.+
10.8 Support Agreement between Iridium LLC and Motorola, Inc.:
Incorporated by reference to Exhibit 10.9 to the 1997 Form
S-1.
10.9 Agreement, executed as of December 16, 1996, between
Andersen Consulting LLC and Iridium LLC relating to the
development of business support systems: Incorporated by
reference to Exhibit 10.10 to the 1997 Form S-1.+
10.10 14 1/2% Senior Subordinated Discount Notes Due 2006 of
Iridium: Incorporated by reference to Exhibit 10.11 to the
1997 Form S-1.
10.11 Form of Warrant issued in respect of 14 1/2% Senior
Subordinated Discount Notes: Incorporated by reference to
Exhibit 10.13 to the 1997 Form S-1.
10.12 Warrant to purchase Series M Class 2 Interests dated July
29, 1993, as amended: Incorporated by reference to Exhibit
10.13 to the 1997 Form S-1.
10.13 Form of Gateway Authorization Agreement: Incorporated by
reference to Exhibit 10.14 to the 1997 Form S-1.
10.14 Guaranteed Bank Facility: Incorporated by reference to
Exhibit 10.15 to the 1997 Form S-1.
10.15 Amendment dated December 19, 1997 to Guaranteed
Bank Facility: Incorporated by reference to Exhibit 10.15 to
the 1997 Form 10-K.
10.17 Form of Second Amended and Restated Agreement regarding
Guarantee.*
10.18 Form of Amended and Restated Memorandum of Understanding
with Motorola, Inc.*
10.19 Share Issuance Agreement between IWCL and Iridium LLC:
Incorporated by reference to Exhibit 10.17 to the 1997 Form
S-1.
10.20 Purchase Agreement in respect of Series C Notes, dated
October 9, 1997: Incorporated by reference to Exhibit 10.20
to the 1998 Form S-4.
10.21 Exchange and Registration Rights Agreement: contained in an
Annex to Exhibit 10.20.
10.22 Iridium LLC Option Plan: Incorporated by reference to
Exhibit 10.5 to the 1997 Form S-1.++
10.23 Iridium LLC Selected Senior Officers' Supplementary
Retirement Plan: Incorporated by reference to Exhibit 10.27
to the 1997 Form S-4.
</TABLE>
II-11
<PAGE> 223
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
10.24 Agreement between Mr. Staiano and Iridium LLC: Incorporated
by reference to Exhibit 10.28 to the 1997 Form S-4.
10.25 Asset Transfer Agreement: Incorporated by reference to
Exhibit 10.25 to the 1998 Form S-4.
10.26 Consent of Arthur Andersen LLP to Contract Assignment:
Incorporated by reference to Exhibit 10.26 to the 1998 Form
S-4.
10.27 Consent of Motorola Inc. to Contract Assignment:
Incorporated by reference to Exhibit 10.27 to the 1998 Form
S-4.
10.28 Form of Credit Agreement among Iridium Operating LLC, Chase
Securities Inc., Barclays Capital, The Chase Manhattan Bank
and Barclays Bank PLC: Incorporated by reference to Exhibit
10.28 to the 1997 Form 10-K.
10.29 Conditions Precedent to the Disbursement of the Term Loans
under Section 2.01(a) of the Credit Agreement: Incorporated
by reference to Exhibit 10.29 to the 1997 Form 10-K.
10.30 Regulatory and Technical Conditions Precedent to
availability of funding under the Credit Agreement:
Incorporated by reference to Exhibit 10.30 to the 1997 Form
10-K.
10.31 Form of Assignment and Acceptance under the Credit
Agreement: Incorporated by reference to Exhibit 10.31 to the
1997 Form 10-K. \
10.32 Form of Pledge and Security Agreement among Iridium
Operating LLC, each of the Subsidiaries and The Chase
Manhattan Bank: Incorporated by reference to Exhibit 10.32
to the 1997 Form 10-K.
10.33 Form of Parent Security Agreement between Iridium LLC and
The Chase Manhattan Bank: Incorporated by reference to
Exhibit 10.33 to the 1997 Form 10-K.
10.34 Form of Subsidiary Guarantee Agreement between each of the
Subsidiary Guarantors and The Chase Manhattan Bank:
Incorporated by reference to Exhibit 10.34 to the 1997 Form
10-K.
10.35 Form of Subsidiary Guarantee Assumption Agreement:
Incorporated by reference to Exhibit 10.35 to the 1997 Form
10-K.
10.36 Form of Depositary Agreement between Iridium Operating LLC
and The Chase Manhattan Bank: Incorporated by reference to
Exhibit 10.36 to the 1997 Form 10-K.
10.37 Form of Motorola Consent under the Credit Agreement among
Motorola, Iridium Operating LLC and The Chase Manhattan
Bank: Incorporated by reference to Exhibit 10.37 to the 1997
Form 10-K.
10.38 Form of Motorola Pledge Agreement between Motorola, Inc. and
The Chase Manhattan Bank: Incorporated by reference to
Exhibit 10.38 to the 1997 Form 10-K.
10.39 Form of Progress Certificate (Pre-Commercial Activation)
under the Credit Agreement: Incorporated by reference to
Exhibit 10.39 to the 1997 Form 10-K.
10.40 Form of Verification of Independent Technical Advisor under
the Credit Agreement: Incorporated by reference to Exhibit
10.40 to the 1997 Form 10-K.
</TABLE>
II-12
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
10.41 Form of Progress Certificate (Post-Commercial Activation)
under the Credit Agreement: Incorporated by reference to
Exhibit 10.41 to the 1997 Form 10-K.
10.42 Form of Borrowing Request under the Credit Agreement:
Incorporated by reference to Exhibit 10.42 to the 1997 Form
10-K.
10.43 Form of China Gateway Compensation Agreement between
Motorola, Inc. and Iridium Operating LLC.*
10.44 Form of Standby Purchase Agreement between Iridium Operating
LLC and Motorola, Inc.*
10.45 Form of Standby Purchase Agreement between Iridium Operating
LLC and Kyocera Corporation.*
10.46 Form of Agreement Regarding Guarantee among Kyocera
Corporation, Iridium Operating LLC and Iridium LLC.*
12 Statement Regarding Computation of Ratios: Incorporated by
reference to Exhibit 12 to the 1998 Form S-4.
21 Subsidiaries of the Registrants: Incorporated by reference
to Exhibit 21 to the 1998 Form S-4.
23.1 Consent of KPMG Peat Marwick LLP.*
23.2 Consent of Sullivan & Cromwell: contained in Exhibit 5.
24 Power of Attorney: Contained on signature pages.
25 Statement on Form T-1 of Eligibility of Trustee respecting
the Series D Indenture.*
27 Financial Data Schedule*
</TABLE>
- ---------------
* Filed herewith.
+ Confidential treatment previously granted in connection with the 1997 Form
S-1 or the 1997 Form S-4.
++ Management Compensation Plan.
II-13
<PAGE> 1
EXHIBIT 1
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
$350,000,000 ___ % Senior Notes due 2005, Series D
UNDERWRITING AGREEMENT
May __, 1998
CHASE SECURITIES INC.
BARCLAYS CAPITAL INC.
MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
c/o Chase Securities Inc.
270 Park Avenue, 4th Floor
New York, New York 10017
Ladies and Gentlemen:
Iridium Operating LLC, a Delaware limited liability company
("Iridium"), and Iridium Capital Corporation, a Delaware corporation and a
wholly owned subsidiary of Iridium ("Capital" and, together with Iridium, the
"Note Issuers"), propose to issue and sell $350,000,000 aggregate principal
amount of ___% Senior Notes due 2005, Series D (the "Notes"). The Notes will be
guaranteed (the "Guarantees") on a senior unsecured basis by Iridium Roaming
LLC, Iridium IP LLC and Iridium Facilities Corporation (collectively, the
"Guarantor Subsidiaries" and, together with the Note Issuers, the "Issuers").
The Notes and the Guarantees are collectively referred to herein as the
"Securities"). The Notes will be issued pursuant to an Indenture to be dated as
of __________ __, 1998 (the "Indenture") among the Note Issuers, the Guarantor
Subsidiaries and State Street Bank and Trust Company, as trustee (the
"Trustee"), the form of which has been filed as an exhibit to the Registration
Statement (as defined below). The Issuers hereby confirm their agreement with
Chase Securities Inc. ("CSI"), Barclays Capital Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (collectively, the "Underwriters") concerning the
purchase of the Notes from the Note Issuers by the several Underwriters.
1. Representations, Warranties and Agreements of the Issuers.
Each of the Issuers, jointly and severally, represent and warrant to, and agree
with, the several Underwriters on and as of the date hereof and the Closing Date
(as defined in Section 3) that:
(a) A registration statement on Form S-1 (File No.
333-______), including a form of prospectus, relating to the Securities
has been prepared by the Issuers in conformity with the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") thereunder and has been
filed by the Issuers with the Commission. The Issuers may have filed
one or more amendments thereto, including the related preliminary
prospectus, each of which has previously been furnished to you. The
Issuers will next file with the Commission either (i) prior to
effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or
(ii) after effectiveness of such registration statement, a final
prospectus in accordance with Rules 430A and 424 (b)(1) or (4). In the
case of clause (ii) above, the Issuers have included in such
registration statement, as amended at the Effective Time (as defined
below), all information (other than information permitted to be omitted
from the Registration Statement when it becomes effective pursuant to
Rule 430A ("Rule 430A
<PAGE> 2
Information")) required by the Securities Act and the Rules and
Regulations to be included in the final prospectus with respect to the
Securities and the offering thereof. As filed, such amendment and form
of final prospectus, or such final prospectus, shall contain all Rule
430A Information, together with all other such required information,
with respect to the Securities and the offering thereof and, except to
the extent the Underwriters shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the execution of this Agreement or, to the extent not completed at
such time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary
Prospectus) as any Issuer has advised you, prior to the execution of
this Agreement, will be included or made therein. For purposes of this
Agreement, "Effective Time" means the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto, if any, was or is declared effective by the Commission, and
"Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it becomes
effective under the Securities Act, any prospectus filed with the
Commission by the Issuers pursuant to Rule 424(a) and the prospectus
included in the Registration Statement at the Effective Time that omits
Rule 430A Information. Such registration statement, as amended at the
Effective Time, including all Rule 430A Information, if any, is
hereinafter referred to as the "Registration Statement," and the form
of prospectus relating to the Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) or, if no
such filing is required, as included in the Registration Statement is
hereinafter referred to as the "Prospectus." Capitalized terms used but
not defined herein shall have the meanings given to such terms in the
Prospectus.
(b) At the Effective Time, the Registration Statement did or
will, and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Prospectus
(and any supplements thereto) will, comply in all material respects
with the applicable requirements of the Securities Act and the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the
respective rules and regulations of the Commission thereunder; at the
Effective Time, the Registration Statement did not or will not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading; at the Effective Time and on the
Closing Date, the Indenture did or will conform in all material
respects with the applicable requirements of the Trust Indenture Act
and the rules and regulations of the Commission thereunder; and, at the
Effective Time, the Prospectus, if not filed pursuant to Rule 424(b),
did not or will not, and on the date of any filing pursuant to Rule
424(b) and on the Closing Date, the Prospectus (together with any
supplement thereto) will not, include any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The preceding sentence does not
apply to (i) that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) of
the Trustee under the Trust Indenture Act or (ii) information contained
in or omitted from the Registration Statement or the Prospectus (or any
supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
specifically for use therein (the "Underwriters' Information").
(c) Each of Iridium, Iridium Roaming LLC and Iridium IP LLC
has been duly formed and is validly existing as a limited liability
company in good standing under the laws of the State of Delaware, is
duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its respective ownership or
lease of property or the conduct of its businesses requires such
qualification, and has all power and authority necessary to own or hold
its properties and to conduct the businesses in which it is engaged,
except where the failure to so qualify or have such power or authority
would not have a material adverse effect on the condition (financial or
otherwise), or in the earnings, business affairs or business prospects
of Iridium, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"). Iridium's only subsidiaries are Capital,
Iridium Roaming LLC, Iridium Facilities Corporation and Iridium IP LLC.
(d) Each of Capital and Iridium Facilities Corporation has
been duly incorporated and is validly existing as a corporation in good
standing under the laws of the state of Delaware, is duly qualified to
do business and is in good standing as foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct
of its businesses requires such qualification, and has all power and
authority necessary to own or hold its properties and to conduct the
businesses in which it is engaged, except where
2
<PAGE> 3
the failure to so qualify or have such power or authority would not,
singularly or in the aggregate, have a Material Adverse Effect. Neither
Capital nor Iridium Facilities Corporation has any subsidiaries.
(e) Iridium has an authorized capitalization as set forth in
the Prospectus under the heading "Capitalization." All of the
outstanding shares of capital stock or limited liability company
interests, as the case may be, of Capital and the Guarantor
Subsidiaries have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by Iridium, free
and clear of any lien, charge, encumbrance, security interest,
restriction upon voting or transfer or any other claim of any third
party.
(f) The Issuers have full right, power and authority to
execute and deliver this Agreement, the Indenture and the Securities
(collectively, the "Transaction Documents") to the extent a party
thereto and to perform their obligations hereunder and thereunder.
(g) This Agreement has been duly authorized, executed and
delivered by the Issuers.
(h) The Indenture has been duly authorized by the Note Issuers
and the Guarantor Subsidiaries and, when duly executed and delivered in
accordance with its terms by each of the parties thereto, will
constitute a valid and legally binding agreement of the Note Issuers
and the Guarantor Subsidiaries enforceable against the Note Issuers and
the Guarantor Subsidiaries in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(i) The Securities have been duly authorized by the Note
Issuers and the Guarantor Subsidiaries and, when the Securities have
been duly executed, authenticated, issued and delivered as provided in
the Indenture and paid for as provided herein, will be duly and validly
issued and outstanding and will constitute valid and legally binding
obligations of the Note Issuers and the Guarantor Subsidiaries, as the
case may be, entitled to the benefits of the Indenture and enforceable
against the Note Issuers and the Guarantor Subsidiaries, as the case
may be, in accordance with their terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(j) Each of the Transaction Documents, the Limited Liability
Company Agreement of Iridium LLC, dated as of July 29, 1996, as amended
(the "LLC Agreement"), and the Limited Liability Company Agreement of
Iridium Operating LLC dated as of December 18, 1997, as amended (the
"Iridium Operating LLC Agreement"), described in the Prospectus
conforms in all material respects to the description thereof contained
in the Prospectus; provided, however, that the Issuers make no
representation or warranty as to whether this Agreement conforms to the
description thereof contained in the Prospectus.
(k) The execution, delivery and performance by each of the
Issuers of each of the Transaction Documents to which it is a party,
the issuance, authentication, sale and delivery of the Securities and
compliance by the Issuers with the terms thereof and the consummation
of the transactions contemplated by the Transaction Documents will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Issuers
pursuant to, any material indenture, mortgage, deed of trust, loan
agreement or other material agreement or instrument to which the
Issuers are a party or by which the Issuers are bound or to which any
of the property or assets of the Issuers are subject (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated by this Agreement or the Transaction Documents), nor will
such actions result in any violation of the provisions of the charter,
by-laws, certificate of formation or limited liability company
agreement of the Issuers or any statute or any judgment, order,
3
<PAGE> 4
decree, rule or regulation of any court or arbitrator or governmental
agency or body having jurisdiction over the Issuers or any of their
properties or assets; and no consent, approval, authorization or order
of, or filing or registration with, any such court or arbitrator or
governmental agency or body under any such statute, judgment, order,
decree, rule or regulation is required for the execution, delivery and
performance by the Issuers of each of the Transaction Documents, the
issuance, authentication, sale and delivery of the Securities and
compliance by the Issuers with the terms thereof and the consummation
of the transactions contemplated by the Transaction Documents, except
for the registration of the Securities under the Securities Act, the
qualification of the Indenture under the Trust Indenture Act and such
consents, approvals, authorizations, filings, registrations or
qualifications (i) which shall have been obtained or made prior to the
Closing Date and (ii) as may be required to be obtained or made under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and applicable state securities laws in connection with the purchase
and distribution of the Securities by the Underwriters. As used herein,
a "Repayment Event" means any event or conditions which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the
repurchase, redemption or repayment of all or a portion of such
indebtedness by Iridium.
(l) The accountants who certified the financial statement and
the consolidated financial statements included in the Prospectus are
independent public accountants within the meaning of the Securities Act
and the Rules and Regulations thereunder. The financial statement and
the consolidated financial statements included in the Registration
Statement and Prospectus, together with the related notes, present
fairly the financial position of Iridium, Iridium's predecessor and
their respective consolidated subsidiaries at the dates indicated and
the statement of operations, stockholders' equity, members' equity and
cash flows of Iridium, Iridium's predecessor and their respective
consolidated subsidiaries for the periods specified; said financial
statement and the consolidated financial statements have been prepared
in conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved, except,
in the case of the interim financial statements, for the absence of
complete footnote disclosure and customary year-end adjustments. The
selected financial data included in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statement and the consolidated
financial statements included in the Prospectus.
(m) Except for matters which are described in the Prospectus,
there is no action, suit, proceeding, inquiry or investigation before
or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of Iridium, threatened,
against or affecting Iridium, which is required to be disclosed in the
Registration Statement, or which might reasonably be expected to result
in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement or the
Transaction Documents or the performance by Iridium of its obligations
hereunder or thereunder; all pending legal or governmental proceedings
to which Iridium is a party or of which any of its property or assets
is the subject which are not described in the Prospectus, including
ordinary routine litigation incidental to the business, would not
reasonably be expected to result in a Material Adverse Effect.
(n) No action has been taken and no statute, rule, regulation
or order has been enacted, adopted or issued by any governmental agency
or body which prevents the issuance of the Securities pursuant to the
Transaction Documents, or suspends the sale of the Securities in any
jurisdiction; no injunction, restraining order or order of any nature
by any federal or state court of competent jurisdiction has been issued
with respect to the Issuers which would prevent or suspend the issuance
or sale of the Securities or the use of the Preliminary Prospectus or
Prospectus in any jurisdiction; and the Issuers have complied with any
and all requests by any Federal or state securities authority for
additional information to be included in the Preliminary Prospectus or
Prospectus.
(o) There are no contracts or other documents which are
required under the Securities Act or the Rules and Regulations to be
described in the Prospectus or filed as exhibits to the Registration
Statement and which have not been so described or filed.
(p) None of the Issuers is (i) in violation of its by-laws,
certificate of formation, certificate of incorporation or limited
liability company agreement, as the case may be, (ii) in default in any
material respect, and no event has occurred which, with notice or lapse
of time or both, would constitute such a
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<PAGE> 5
default, in the due performance or observance of any term, covenant or
condition contained in any material indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which it is
a party or by which it is bound or to which any of its property or
assets is subject or (iii) in violation in any material respect of any
law, ordinance, governmental rule, regulation or court decree to which
it or its property or assets may be subject, except for any default or
violation that would not result in a Material Adverse Effect.
(q) Except as disclosed in the Prospectus or as would not have
a Material Adverse Effect, (i) Iridium possesses or has the right to
benefit from such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by Iridium and
(ii) Iridium is in compliance with the current terms and conditions of
all such Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, have a Material Adverse Effect;
all of the Governmental Licenses are valid and in full force and
effect, except where the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force and
effect would not have a Material Adverse Effect; and Iridium has not
received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect. This representation
does not extend to Governmental Licenses required for Iridium to
conduct its business as proposed to be conducted, most of which have
not been obtained.
(r) Each of the Issuers believes that it is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus, will not be, an "investment company" or an entity
"controlled" by a company registered as an "investment company", as
such terms are defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(s) Iridium maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(t) Iridium has insurance as required by Section 4.16 of the
Indenture.
(u) Except as described in the Prospectus or as would not have
a Material Adverse Effect, Iridium owns or possesses or reasonably
believes it can acquire on reasonable terms, adequate patents, patent
rights, licenses, inventions, copyrights (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures, but excluding any required
regulatory licenses or approvals), trademarks, service marks, trade
names or other intellectual property (collectively, "Intellectual
Property"), or that it can contract on reasonable terms with third
parties who can acquire the Intellectual Property necessary to carry on
the business now operated by Iridium or described in the Prospectus,
and Iridium has not received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property or of any facts or circumstances which
would render any Intellectual Property invalid or inadequate to protect
the interest of Iridium and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(v) Iridium has good and marketable title to all real property
it owns; Iridium has good title to all other properties owned by it
free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (i) are
described in the Prospectus or (ii) would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect;
and all of the leases
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<PAGE> 6
and subleases material to the business of Iridium and under which
Iridium holds properties described in the Prospectus, are in full force
and effect, and Iridium has no notice of any material claim of any sort
that has been asserted by anyone adverse to the rights of Iridium under
any of the leases or subleases mentioned above, or affecting or
questioning the rights of Iridium to the continued possession of the
leased or subleased premises under any such lease or sublease, except
such as would not reasonably be expected to have a Material Adverse
Effect.
(w) No labor dispute with the employees of any of the Issuers
exists or, to the knowledge of the Issuers, is imminent.
(x) No "prohibited transaction" (as defined in Section 406 of
the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended from time to time (the "Code")) or "accumulated funding
deficiency" (as defined in Section 302 of ERISA) or any of the events
set forth in Section 4043(b) of ERISA (other than events with respect
to which the 30-day notice requirement under Section 4043 of ERISA has
been waived) has occurred with respect to any employee benefit plan of
any of the Issuers which could reasonably be expected to have a
Material Adverse Effect; each such employee benefit plan (other than a
multiemployer plan) is in compliance in all material respects with
applicable law, including ERISA and the Code; the Issuers have not
incurred and do not expect to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from, any pension
plan for which any of the Issuers would have any liability; and each
such pension plan (other than a multiemployer plan) that is intended to
be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which could reasonably be expected to cause the loss of
such qualification.
(y) Except as described in the Prospectus and except as would
not, singly or in the aggregate, result in a Material Adverse Effect,
(i) Iridium is not in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (ii) Iridium has all permits, authorizations and approvals
required under any applicable Environmental Laws and is in compliance
with its requirements, (iii) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
Iridium and (iv) there are no events or circumstances that might
reasonably be expected or form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting Iridium relating to
Hazardous Materials or any Environmental Laws.
(aa) Except as disclosed in the Prospectus and except as would
not reasonably be expected to have a Material Adverse Effect, to the
best of the Issuers' knowledge, none of the parties to (i) the Gateway
Authorization Agreements, (ii) the Space System Contract, (iii) the
Operations and Maintenance Contract, (iv) the Iridium Business Support
System Contract with Andersen Consulting, (v) the Terrestrial Network
Development Contract, (vi) the Support Agreement between Iridium and
Motorola, (vii) the Amended and Restated Agreement Regarding Guarantee,
(viii) the Motorola MOU, (ix) the LLC Agreement and (x) the Iridium
Operating LLC Agreement (collectively, the foregoing are herein called
the "Principal Agreements"), is in breach of, or in default in the
performance or observance of, any material obligation, term, covenant
or condition contained therein. Each of the Principal Agreements that
Iridium has previously delivered to the Underwriters is a true and
correct copy, and there have been no additional amendments,
alterations, modifications or waivers thereto or in the exhibits or
schedules thereto. Iridium has duly and validly authorized, executed
and delivered each of the Principal Agreements to which it is a
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<PAGE> 7
party and, to the best of the Issuers' knowledge, the other parties to
each of the Principal Agreements have duly and validly executed and
delivered each of the Principal Agreements and, assuming due and valid
authorization, execution and delivery by such other parties, each of
the Principal Agreements (except for the LLC Agreement) is a valid and
legally binding agreement of Iridium, enforceable against Iridium in
accordance with its terms subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles; provided that no representation or warranty
is made with respect to any provision of any Principal Agreement
purporting to require indemnification of, or contribution to, the
liability losses, damages or claims of any person to the extent that
such provision may be limited by applicable laws.
(bb) The Federal Communications Commission (the "FCC") has
authorized Motorola, Inc. (Motorola, Inc., together with its
subsidiaries, "Motorola") to construct a mobile satellite system
capable of operating in the 1616 to 1626.5 MHz frequency bands,
consistent with the technical specifications set forth in its
application, the FCC's rules and the conditions set forth in the FCC's
Orders and Authorization (DA 95-131), released January 31, 1995, DA
95-372, released February 28, 1995, FCC 96-279, released June 27, 1996,
DA 96-1789, released October 30, 1996.
(cc) None of the Issuers is a party to any contract, agreement
or understanding with any person that would give rise to a valid claim
against the Underwriters for a brokerage commission, finder's fee or
like payment in connection with the offering and sale of the
Securities.
(dd) The Issuers have not taken and will not take, directly or
indirectly, any action prohibited of them by Regulation M under the
Exchange Act in connection with the offering of the Notes (other than
actions taken by the Underwriters on behalf of Iridium and its
affiliates).
(ee) The statements (including the assumptions described
therein) included in the Prospectus relating to Iridium's operations,
prospects, expected markets, expected technical capabilities, expected
funding needs, expected financing sources, expected pricing, expected
launch schedule, expected commercial operations schedule, estimates of
customer counts, estimates of the expected retail usage fees for
Iriduim World Satellite Services, estimates of the expected size of
addressable markets for mobile satellite services, the estimate of the
last year in which Iridium will have negative cash flow and a net
increase in year-end borrowings and expected 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, were made by Iridium with a reasonable basis and reflect
Iridium's good faith estimate of the matters described therein.
(ff) The Issuers have complied with, and are and will be in
compliance with, the provisions of that certain Florida act relating to
disclosure of doing business with Cuba, codified as Section 517.075 of
the Florida statutes, and the rules and regulations thereunder or is
exempt therefrom.
(gg) Since the respective dates as of which information is
given in the Prospectus, except as otherwise stated therein, (i) there
has been no material adverse change in the condition (financial or
otherwise), or in the earnings, business affairs or business prospects
of any of the Issuers, whether or not arising in the ordinary course of
business, (ii) the Issuers have not incurred any liability or
obligation, direct or contingent, other than in the ordinary course of
business which is material with respect to Iridium, (iii) the Issuers
have not entered into any transaction, other than in the ordinary
course of business which is material with respect to Iridium, and (iv)
there has not been any change in the capital stock, membership
interests or long-term debt of the Issuers other than fluctuations in
revolving credit agreements, or any dividend or distribution of any
kind declared, paid or made by the Issuers on any class of their
capital stock or membership interests. Launch delays shall not be
covered by this representation.
2. Purchase and Resale of the Securities. (a) On the basis of
the representations, warranties and agreements contained herein, and subject to
the terms and conditions set forth herein, the Issuers agree to issue and sell
to each of the Underwriters, severally and not
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<PAGE> 8
jointly, and each of the Underwriters, severally and not jointly, agrees to
purchase from the Issuers, the principal amount of Notes (together with the
related Guarantees) set forth opposite the name of such Underwriter on Schedule
1 hereto at a purchase price of ______% of the principal amount of the Notes
(together with accrued interest, if any, from May ___, 1998).
(b) The Issuers shall not be obligated to deliver any of the
Securities except upon payment for all of the Securities to be
purchased as provided herein. The Issuers acknowledge and agree that,
subject to the restrictions herein and under applicable law, the
Underwriters may sell Securities to any affiliate of an Underwriter and
that any such affiliate may sell Securities purchased by it to an
Underwriter.
3. Delivery of and Payment for the Securities. (a) Delivery
of the Notes and payment for the Notes shall be made at the offices of Milbank,
Tweed, Hadley & McCloy, Washington, D.C., or at such other place as shall be
agreed upon by the Underwriters and the Issuers, at 10:00 A.M., New York City
time, on May __, 1998, or at such other time or date, not later than seven full
business days thereafter, as shall be agreed upon by the Underwriters and the
Issuers (such date and time of payment and delivery being referred to herein as
the "Closing Date").
(b) On the Closing Date, payment of the purchase price for the
Securities shall be made to the Issuers by wire or book-entry transfer
of immediately available funds to such account or accounts as the
Issuers shall specify prior to the Closing Date or by such other means
as the parties hereto shall agree prior to the Closing Date against
delivery to the Underwriters of the certificates evidencing the
Securities. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of
the obligations of the Underwriters hereunder. Upon delivery, the
Securities shall be in global form, registered in the name of DTC (as
hereinafter defined) or its nominee and in such denominations as CSI on
behalf of the Underwriters shall have requested in writing not less
than two full business days prior to the Closing Date. The Issuers
agree to make one or more global certificates evidencing the Securities
available for inspection by CSI on behalf of the Underwriters in New
York, New York or Washington, D.C. at least 24 hours prior to the
Closing Date.
4. Further Agreements of the Issuers. Each of the Issuers
agrees with each of the several Underwriters:
(a) If the Effective Time is prior to the execution and
delivery of this Agreement, to file the Prospectus with the Commission
pursuant to and in accordance with subparagraph (1) (or, if applicable
and if consented to by the Underwriters, subparagraph (4)) of Rule
424(b) within the time period prescribed by such rule and to provide
evidence satisfactory to the Underwriters of such timely filing; to
file promptly all reports and any definitive proxy or information
statements required to be filed by the Note Issuers with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a Prospectus is required in connection with the offering
and sale of the Securities;
(b) to advise the Underwriters promptly of any proposal to
amend or supplement the Registration Statement or the Prospectus and
not to effect such amendment or supplement without the consent of the
Underwriters, which consent shall not be unreasonably withheld or
delayed; to advise the Underwriters promptly of the receipt of any
comments from the Commission and of the effectiveness of the
Registration Statement (in each case if the Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplement to the Registration Statement or the
Prospectus, or of any request by the Commission therefor, and upon
obtaining knowledge of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; to advise the
Underwriters promptly of any order preventing or suspending the use of
any prospectus relating to the Securities, of the suspension of the
qualification of the Securities for offering or sale in any
jurisdiction and of the initiation or threatening of any proceeding for
any such purpose; and to use its reasonable efforts to prevent the
issuance of any stop order or of any such order preventing or
suspending the use of any prospectus relating to the Securities or
suspending any such qualification and, if
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<PAGE> 9
any such stop order or order or suspension is issued, to obtain the
lifting thereof at the earliest possible time;
(c) to furnish to each of the Underwriters, without charge,
one signed copy of the Registration Statement as originally filed with
the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith; and to deliver
promptly without charge to the Underwriters such number of the
following documents as the Underwriters may from time to time
reasonably request: (i) conformed copies of the Registration Statement
as originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement, the Indenture
and the computation of the ratio of earnings to fixed charges) and (ii)
each Preliminary Prospectus, the Prospectus and any amended or
supplemented Prospectus;
(d) prior to making any amendment to the Registration
Statement or amendment or supplement to the Prospectus, to furnish a
copy thereof to each of the Underwriters and counsel for the
Underwriters and not to effect any such amendment to the Registration
Statement or amendment or supplement to the Prospectus to which the
Underwriters shall reasonably object by notice to the Issuers after a
reasonable period to review;
(e) if the delivery of a prospectus is required at any time in
connection with the sale of the Securities and if at such time any
event shall occur or condition exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters or counsel
for the Issuers, to amend or supplement the Prospectus in order that
the Prospectus will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the
time it is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with
applicable law as a request from the Commission, to promptly prepare
such amendment or supplement as may be necessary to correct such untrue
statement or omission or so that the Prospectus, as so amended or
supplemented, will comply with the Securities Act, the Exchange Act,
with a request from the Commission or with any applicable law;
(f) as soon as practicable to make generally available to the
Note Issuers' security holders and to deliver to the Underwriters an
earning statement of Iridium and Iridium's subsidiaries (which need not
be audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of Iridium, Rule 158);
(g) to promptly take from time to time such actions as the
Underwriters may reasonably request, in cooperation with the
Underwriters, to qualify the Securities for offering and sale under the
securities or Blue Sky laws of such jurisdictions as the Underwriters
may designate and to continue such qualifications in effect for so long
as required for the resale of the Securities; and to arrange for the
determination of the eligibility for investment of the Securities under
the laws of such jurisdictions as the Underwriters may reasonably
request; provided that no Issuer shall be obligated to qualify as a
foreign corporation or dealer in any jurisdiction in which it is not so
qualified, to subject itself to taxation or other governmental fees and
charges in respect of any jurisdiction to which it is not otherwise
subject or to file a general consent to service of process in any
jurisdiction;
(h) to reasonably assist the Underwriters in arranging for the
Securities to be eligible for clearance and settlement through The
Depository Trust Company ("DTC");
(i) for a period of 45 days from the date of the Prospectus,
not to, directly or indirectly, offer for sale, sell, contract to sell,
sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, or file a
registration statement for, or announce any offer, sale, contract for
sale of or other disposition of any debt securities issued or
guaranteed by any of the Issuers or any of their subsidiaries (other
than the Securities and pursuant to an exchange offer, Iridium's 11
1/4% Senior Notes due 2005), without the prior written consent of the
Underwriters;
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<PAGE> 10
(j) in connection with the offering of the Notes, until CSI on
behalf of the Underwriters shall have notified the Issuers of the
completion of the resale of the Securities, not to, and to cause its
affiliated purchasers (as defined in Regulation M under the Exchange
Act) not to (except for actions taken by the Underwriters whether or
not on behalf of the Issuers), either alone or with one or more other
persons, bid for or purchase, for any account in which it or any of its
affiliated purchasers has a beneficial interest, any Securities, or
attempt to induce any person to purchase any Securities; and not to,
and to cause its affiliated purchasers not to, make bids or purchase
for the purpose of creating actual, or apparent, active trading in or
of raising the price of the Securities; and
(k) to furnish to each of the Underwriters on or prior to the
Closing Date hereof a copy of the independent accountants' report
included in the Registration Statement signed by the accountants
rendering such report.
5. Conditions of Underwriters' Obligations. The respective
obligations of the several Underwriters hereunder are subject to the accuracy,
on and as of the date hereof and the Closing Date, of the representations and
warranties of the Issuers contained herein, to the accuracy of the statements of
the Issuers and their officers made in any certificates delivered pursuant
hereto, to the performance by the Issuers of their obligations hereunder, and to
each of the following additional terms and conditions:
(a) If the Effective Time is not prior to the execution and
delivery of this Agreement, the Registration Statement shall have
become effective and the Indenture shall have been qualified under the
Trust Indenture Act, and the Underwriters shall have received notice
thereof, not later than (i) 6:00 p.m. New York Time on the date of
determination of the public offering price, if such determination
occurred at or prior to 3:00 p.m. New York City time on such date or
(ii) 12:00 noon New York City time on the business day following the
day on which the offering price was determined if such determination
occurred after 3:00 p.m. New York City time on such date. If the
Effective Time is prior to the execution and delivery of this
Agreement, the Prospectus shall have been timely filed with the
Commission in accordance with Section 4(a) of this Agreement. Prior to
the Closing Date, no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and
no proceeding for that purpose shall have been initiated or threatened
by the Commission; and any request of the Commission for inclusion of
additional information in the Registration Statement or the Prospectus
or otherwise shall have been complied with to the reasonable
satisfaction of the Underwriters.
(b) The Prospectus (and any amendments or supplements thereto)
shall have been printed and copies distributed to the Underwriters as
promptly as practicable on or following the date of this Agreement or
at such other date and time as to which the Underwriters may agree.
(c) None of the Underwriters shall have discovered and
disclosed to Iridium on or prior to the Closing Date that the
Prospectus, as amended or supplemented, contains an untrue statement of
a fact which, in the opinion of counsel for the Underwriters specified
herein, is material or omits to state any fact which, in the opinion of
such counsel, is material and is required to be stated therein or is
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) All corporate proceedings and other legal matters incident
to the authorization, form and validity of each of the Transaction
Documents and the transactions contemplated thereby, shall be
satisfactory in all material respects to the Underwriters, and the
Issuers shall have furnished to the Underwriters all documents and
information that they or their counsel may reasonably request to enable
them to pass upon such matters.
(e) Sullivan & Cromwell shall have furnished to the
Underwriters their written opinion and letter, as counsel to the
Issuers, addressed to the Underwriters and dated the Closing Date, in
form and substance reasonably satisfactory to the Underwriters,
substantially to the effect set forth in Annex A hereto.
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(f) Steptoe & Johnson LLP shall have furnished to the
Underwriters their written opinion, as regulatory counsel for Space
System License, Inc. as FCC license holder, addressed to the
Underwriters and dated the Closing Date, in form and substance
reasonably satisfactory to the Underwriters, substantially to the
effect set forth in Annex B hereto.
(g) F. Thomas Tuttle, Esq. shall have furnished to the
Underwriters his written opinion, as General Counsel of Iridium,
addressed to the Underwriters and dated the Closing Date, in form and
substance reasonably satisfactory to the Underwriters, substantially to
the effect set forth in Annex C hereto.
(h) The Underwriters shall have received from Milbank, Tweed,
Hadley & McCloy, counsel for the Underwriters, such opinion or
opinions, dated the Closing Date, with respect to such matters as the
Underwriters may reasonably require, and the Issuers shall have
furnished to such counsel such documents and information as they
reasonably request for the purpose of enabling them to pass upon such
matters.
(i) The Underwriters shall have received from Goldberg,
Godles, Wiener & Wright, regulatory counsel for the Underwriters, such
opinion or opinions, dated the Closing Date, with respect to such
matters as the Underwriters may reasonably require, and the Issuers
shall have furnished to such counsel such documents and information as
they reasonably request for the purpose of enabling them to pass upon
such matters.
(j) The Issuers shall have furnished to the Underwriters a
letter (the "Initial Letter") of KPMG Peat Marwick LLP, addressed to
the Underwriters and dated the date hereof, containing statements and
information of the type ordinarily included in accountants "comfort
letters" with respect to the financial statements and certain financial
information contained in the Prospectus.
(k) The Issuers shall have furnished to the Underwriters a
letter (the "Bring-Down Letter") of KPMG Peat Marwick LLP, addressed to
the Underwriters and dated the Closing Date (i) confirming that they
are independent public accountants with respect to the Issuers within
the meaning of the Securities Act and the Rules and Regulations
thereunder, (ii) stating, as of the date of the Bring-Down Letter (or,
with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than three business days prior
to the date of the Bring-Down Letter), that the conclusions and
findings of such accountants with respect to the financial information
and other matters covered by the Initial Letter are accurate and (iii)
confirming in all material respects the conclusions and findings set
forth in the Initial Letter.
(l) As of the Closing Date, there shall not have been, since
the date hereof or since the respective dates as of which information
is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs
or business prospects of Iridium, whether or not arising in the
ordinary course of business, and the Underwriters shall have received a
certificate of the President or a Vice President of Iridium and of the
chief financial or chief accounting officer of Iridium, dated as of
Closing Date, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 2
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Date, (iii) each of the Issuers, as
the case may be, has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Date pursuant hereto and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and, to the
best of their knowledge, no proceedings for that purpose has been
instituted or are pending or are contemplated by the Commission. Launch
delays and satellite anomalies shall not be covered by this condition.
(m) The Underwriters shall have received a certificate, dated
the Closing Date, of the President or Vice President of Motorola, in
form and substance satisfactory to counsel for the Underwriters, as to
the accuracy of the statements attributed to Motorola in the
Prospectus, and to such other matters relating to Motorola as counsel
for the Underwriters may reasonably request, substantially to the
effect set forth in Annex D hereto.
11
<PAGE> 12
(n) The Indenture shall have been duly executed and delivered
by the Note Issuers, the Guarantor Subsidiaries and the Trustee, and
the Notes shall have been duly executed and delivered by the Issuers
and duly authenticated by the Trustee.
(o) If any event shall have occurred that requires the Issuers
under Section 4(e) to prepare an amendment or supplement to the
Prospectus, such amendment or supplement shall have been prepared, the
Underwriters shall have been given a reasonable opportunity to comment
thereon, and copies thereof shall have been delivered to the
Underwriters reasonably in advance of the Closing Date.
(p) Subsequent to the execution and delivery of this Agreement
or, if earlier, the dates as of which information is given in the
Registration Statement (exclusive of any amendment thereto) and
Prospectus (exclusive of any amendment or supplement thereto), there
shall not have been any material adverse change in the condition
(financial or otherwise), or in the earnings, business affairs or
business prospects of Iridium, whether or not arising in the ordinary
course of business, the effect of which, in any such case described
above, is, in the judgment of the Underwriters, so material and adverse
as to make it impracticable or inadvisable to proceed with the sale or
delivery of the Securities on the terms and in the manner contemplated
by this Agreement and the Prospectus (exclusive of any amendment or
supplement thereto).
(q) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency or body which would, as of the Closing Date,
prevent the issuance or sale of the Securities, as contemplated by the
Prospectus; and no injunction, restraining order or order of any other
nature by any federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the
issuance or sale as contemplated by the Prospectus of the Securities.
(r) Subsequent to the execution and delivery of this Agreement
(i) no downgrading shall have occurred in the rating accorded the
Securities by Moody's Investors Service Inc. or Standard and Poor's
Ratings Group and (ii) no such organization shall have publicly
announced that it has under surveillance or review (other than an
announcement with positive implications of a possible upgrading), its
rating of the Securities.
(s) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange, the American Stock
Exchange, the Nasdaq National Market System or the over-the-counter
market shall have been suspended or materially limited, or minimum
prices shall have been established on any such exchange or market by
the Commission or the Nasdaq National Market by any such exchange or by
any other regulatory body or governmental authority having
jurisdiction, or trading in any securities of the Issuers on any
exchange or in the over-the-counter market shall have been suspended or
(ii) any moratorium on commercial banking activities shall have been
declared by federal or New York state authorities or (iii) an outbreak
or escalation of hostilities or a declaration by the United States of a
national emergency or war or a material adverse change in general
economic, political or financial conditions (or the effect of
international conditions on the financial markets in the United States
shall be such) the effect of which, in the case of this clause (iii),
is, in the judgment of the Underwriters, so material and adverse as to
make it impracticable to market the Securities or to enforce contracts
for the sale of the Securities on the terms and in the manner
contemplated by this Agreement and in the Prospectus.
6. Effectiveness and Termination. This Agreement shall become
effective upon the later of (i) when the Underwriters and the Issuers shall have
received notification of the effectiveness of the Registration Statement or (ii)
the execution of this Agreement. The obligations of the Underwriters hereunder
may be terminated by the Underwriters by notice given to and received by Issuers
prior to delivery of and payment for the Securities if, prior to that time, any
of the events described in Section 5(p), (q), (r) or (s) shall have occurred and
be continuing.
12
<PAGE> 13
7. Defaulting Underwriters. (a) If, on the Closing Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
principal amount of the Notes (and the related Guarantees) which the defaulting
Underwriter agreed but failed to purchase in the respective proportions which
the principal amount of Notes set forth opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 bears to the aggregate principal amount
of Notes set forth opposite the names of all the remaining non-defaulting
Underwriters in Schedule 1 hereto; provided, however, that the remaining
non-defaulting Underwriters shall not be obligated to purchase any of the Notes
on such Closing Date if the total principal amount of Notes which the defaulting
Underwriters agreed but failed to purchase on such date exceeds one-eleventh of
the aggregate principal amount of Notes to be purchased on such Closing Date and
any remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the principal amount of Notes which it agreed to purchase on such
Closing Date. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters or those other purchasers satisfactory to the
Underwriters who so agree, shall have the right, but shall not be obligated, to
purchase, in such proportion as may be agreed upon among them, all the Notes to
be purchased on such Closing Date.
(b) If, after giving effect to any arrangements for the
purchase of the Notes of a defaulting Underwriter by the non-defaulting
Underwriters as provided in subsection (a) above, the aggregate
principal amount of such Notes which remain unpurchased exceeds
one-eleventh of the aggregate principal amount of all the Notes, then
this Agreement shall thereupon terminate without liability on the part
of any Underwriter or the Issuers, except for the expenses to be borne
by the Issuers as provided in Section 8 and 12 and the indemnity and
contribution agreement in Sections 9 and 10, but nothing herein shall
relieve a defaulting Underwriter from liability for its default. If
other Underwriters are obligated or agree to purchase the Notes of a
defaulting or withdrawing Underwriters, either the non-defaulting
Underwriters or the Note Issuers may postpone the Closing Date for up
to seven full business days in order to effect any changes that in the
opinion of counsel for the Note Issuers or counsel for the Underwriters
may be necessary in the Registration Statement and the Prospectus or in
any other document or arrangement, and the Note Issuers agree to
promptly prepare any amendment or supplement to the Registration
Statement and the Prospectus that effects any such changes.
8. Reimbursement of Underwriters' Expenses. If this Agreement
shall have been terminated pursuant to Section 6 or due to the failure of the
Issuers to fulfill a condition stated in Section 5, the Issuers shall reimburse
the Underwriters for such out-of-pocket expenses (including reasonable fees and
disbursements of counsel) as shall have been reasonably incurred by the
Underwriters in connection with this Agreement and the proposed public offering
and sale of the Notes. If this Agreement is terminated pursuant to Section 7 by
reason of the default of one or more of the Underwriters, the Issuers shall not
be obligated to reimburse any Underwriter on account of such expenses.
9. Indemnification. (a) The Issuers shall, jointly and
severally, indemnify and hold harmless each Underwriter and its affiliates, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act or the Exchange Act (collectively referred to for purposes of
this Section 9(a) and Section 10 as an Underwriter), from and against any loss,
claim, damage or liability, joint or several, or any action in respect thereof
(including, without limitation, any loss, claim, damage, liability or action
relating to purchases and sales of the Securities), to which that Underwriter
may become subject, whether commenced or threatened, under the Securities Act,
the Exchange Act, any other federal or state statutory law or regulation, at
common law or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (ii) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and shall reimburse each Underwriter promptly upon demand for any
legal or other expenses reasonably incurred by that Underwriter in connection
with investigating or defending or preparing to defend against any such loss,
claim, damage, liability or action as such expenses are incurred; provided,
however, that the Issuers shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of, or is
based upon, an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with any Underwriters' Information; and provided, further, that with respect to
any such untrue statement in or omission from any Preliminary Prospectus, or
13
<PAGE> 14
any Prospectus that has been amended or supplemented to reflect an event
subsequent to the effective date of the Registration Statement, the indemnity
agreement contained in this Section 9(a) shall not inure to the benefit of any
such Underwriter to the extent that the sale to the person asserting any such
loss, claim, damage, liability or action was an initial resale by such
Underwriter and any such loss, claim, damage, liability or action of or with
respect to such Underwriter results from the fact that both (A) to the extent
required by applicable law, a copy of the Prospectus was not sent or given to
such person at or prior to the written confirmation of the sale of such Notes to
such person and (B) the untrue statement in or omission from such Preliminiary
Prospectus, or any Prospectus that has been amended or supplemented to reflect
an event subsequent to the effective date of the Registration Statement, was
corrected in the Prospectus unless, in either case, such failure to deliver the
Prospectus was a result of non-compliance by the Company with Section 4(c).
(b) Each Underwriter, severally and not jointly, shall
indemnify and hold harmless the Issuers and their respective
affiliates, and each person, if any, who controls the Issuers within
the meaning of the Securities Act or the Exchange Act (collectively
referred to for purposes of this Section 9(b) and Section 10 as the
Issuers), from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof, to which the Issuers may
become subject, whether commenced or threatened, under the Securities
Act, the Exchange Act, any other federal or state statutory law or
regulation, at common law or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto or (ii) the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with any Underwriters'
Information, and shall reimburse the Issuers for any legal or other
expenses reasonably incurred by the Issuers in connection with
investigating or defending or preparing to defend against any such
loss, claim, damage, liability or action as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party pursuant to Section 9(a) or 9(b), notify
the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have under this Section 9 except to the extent that it has been
materially prejudiced by such failure; and, provided, further, that the
failure to notify the indemnifying party shall not relieve it from any
liability which it may have to an indemnified party otherwise than
under this Section 9. If any such claim or action shall be brought
against an indemnified party, and it shall notify the indemnifying
party thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof
with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its
election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under
this Section 9 for any legal or other expenses subsequently incurred by
the indemnified party in connection with the defense thereof; provided,
however, that an indemnified party shall have the right to employ its
own counsel in any such action, but the fees, expenses and other
charges of such counsel for the indemnified party will be at the
expense of such indemnified party unless (1) the employment of counsel
by the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably concluded
(based upon advice of independent counsel to the indemnified party)
that there may be legal defenses available to it or other indemnified
parties that are different from or in addition to those available to
the indemnifying party, (3) a conflict or potential conflict exists
(based upon advice of independent counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of
such action on behalf of the indemnified party) or (4) the indemnifying
party has not in fact employed counsel reasonably satisfactory to the
indemnified party to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying
party or parties. It is understood that the indemnifying
14
<PAGE> 15
party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees, disbursements and other charges of more than one
separate firm of attorneys (in addition to any local counsel) at any
one time for all such indemnified party or parties. Each indemnified
party, as a condition of the indemnity agreements contained in Sections
9(a) and 9(b), shall use all reasonable efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any action
effected without its written consent. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which
any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party unless such
settlement includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
proceeding.
10. Contribution. If the indemnification provided for in
Section 9 is unavailable or insufficient to hold harmless an indemnified party
under Section 9(a) or 9(b), then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Issuers on the one hand and the
Underwriters on the other from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Issuers on
the one hand and the Underwriters on the other with respect to the statements or
omissions that resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Issuers on the one hand and the Underwriters
on the other with respect to such offering shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Securities
purchased under this Agreement (before deducting expenses) received by or on
behalf of the Issuers without duplication, on the one hand, and the total
underwriting discounts and commissions received by the Underwriters with respect
to the Securities purchased under this Agreement, on the other, bear to the
total gross proceeds from the sale of the Securities under this Agreement, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to the Issuers or information
supplied by the Issuers on the one hand or to any Underwriters' Information on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Issuers and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 10 were to be determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take into
account the equitable considerations referred to herein. The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 10
shall be deemed to include, for purposes of this Section 10, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending or preparing to defend any such action or claim.
Notwithstanding the provisions of this Section 10, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities purchased by it and resold to investors were
offered to investors exceeds the amount of any damages which such Underwriter
has otherwise paid or become liable to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 10 are several in proportion to their respective
purchase obligations and not joint.
11. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Underwriters, the Issuers
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except as provided in
Sections 9 and 10 with respect to affiliates and controlling persons of the
Issuers and the Underwriters. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this Section
11, any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein.
15
<PAGE> 16
12. Expenses. The Issuers agree with the Underwriters to pay
(a) the costs incident to the authorization, issuance, sale, preparation and
delivery of the Securities and any taxes payable in that connection; (b) the
costs incident to the preparation, printing and filing under the Securities Act
of the Registration Statement and amendments and exhibits thereto, (c) the costs
of printing and distributing the Registration Statement as originally filed and
each exhibit thereto and any post-effective amendments thereof (including, in
each case, exhibits), any Preliminary Prospectus, the Prospectus and any
amendments or supplements thereto all as provided in this Agreement; (d) the
costs of reproducing and distributing each of the Transaction Documents; (e) the
costs incident to the preparation, printing and delivery of the certificates
evidencing the Securities, including stamp duties and transfer taxes, if any,
payable upon issuance of the Securities; (f) the fees and expenses of the
Issuers' counsel and independent accountants; (g) the fees and expenses of
qualifying the Securities under the securities laws of the several jurisdictions
as provided in Section 4(g) and of preparing, printing and distributing Blue Sky
Memoranda (including related fees and expenses of counsel for the Underwriters);
(h) any fees charged by rating agencies for rating the Securities; (i) the fees
and expenses of the Trustee and any paying agents (including related fees and
expenses of any counsel to such parties); (j) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the Securities; and (k) all expenses and
application fees incurred in connection with the approval of the Securities for
book-entry transfer by DTC. Except as provided in this Section 12 and Section 8,
the Underwriters shall pay their own costs and expenses.
13. Survival. The respective indemnities, rights of
contribution, representations, warranties and agreements of the Issuers and the
Underwriters contained in this Agreement or made by or on behalf of the Issuers
or the Underwriters pursuant to this Agreement or any certificate delivered
pursuant hereto shall survive the delivery of and payment for the Securities and
shall remain in full force and effect, regardless of any termination or
cancellation of this Agreement or any investigation made by or on behalf of any
of them or any of their respective affiliates, officers, directors, employees,
representatives, agents or controlling persons.
14. Notices, etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or
sent by mail or telecopy transmission to Chase Securities Inc., 270
Park Avenue, New York, New York 10017, Attention: Stephanie Cuskley
(telecopier no.: (212) 270-0994); or
(b) if to the Note Issuers or Guarantor Subsidiaries,
shall be delivered or sent by mail or telecopy transmission to c/o
Iridium Operating LLC at 1575 Eye Street N.W., Washington, D.C. 20005,
Attention: General Counsel (telecopier no.: 202-408-3761);
provided that any notice to an Underwriter or Issuer pursuant
to Section 9(c) shall also be delivered or sent by mail to such Underwriter or
Issuer at its address set forth on the signature page hereof. Any such
statements, requests, notices or agreements shall take effect at the time of
receipt thereof. The Issuers shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by CSI.
15. Definition of Terms. For purposes of this Agreement, (a)
the term "business day" means any day on which the New York Stock Exchange, Inc.
is open for trading, (b) the term "subsidiary" has the meaning set forth in the
"Description of Notes" section of the Prospectus and (c) except where otherwise
expressly provided, the term "affiliate" has the meaning set forth in Rule 405
of the Rules and Regulations.
16. Underwriters' Information. The parties hereto acknowledge
and agree that, for all purposes of this Agreement, the Underwriters'
Information consists solely of the following information in any Preliminary
Prospectus and Prospectus: (i) the last paragraph on the front cover page
concerning the terms of the offering by the Underwriters; (ii) the legend on the
first inside cover page concerning over-allotment and trading activities by the
Underwriters; and (iii) the statements concerning the Underwriters contained in
the ___ paragraph under the heading "Underwriting."
16
<PAGE> 17
17. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
18. Counterparts. This Agreement may be executed in one or
more counterparts (which may include counterparts delivered by telecopier) and,
if executed in more than one counterpart, the executed counterparts shall each
be deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
19. Amendments. No amendment or waiver of any provision of
this Agreement, nor any consent or approval to any departure therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
parties hereto.
20. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
17
<PAGE> 18
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement between the Issuers and the several
Underwriters in accordance with its terms.
Very truly yours,
IRIDIUM OPERATING LLC
By
-------------------------------
Name:
Title:
IRIDIUM CAPITAL CORPORATION
By
-------------------------------
Name:
Title:
IRIDIUM ROAMING LLC
By
-------------------------------
Name:
Title:
IRIDIUM IP LLC
By
-------------------------------
Name:
Title:
IRIDIUM FACILITIES CORPORATION
By
-------------------------------
Name:
Title:
18
<PAGE> 19
Accepted:
CHASE SECURITIES INC.
By
----------------------------
Authorized Signatory
Address for notices pursuant to Section 9(c):
1 Chase Plaza, 25th floor
New York, New York 10081
Attention: Legal Department
BARCLAYS CAPITAL INC.
By
----------------------------
Authorized Signatory
Address for notices pursuant to Section 9(c):
[_________________]
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By
----------------------------
Authorized Signatory
Address for notices pursuant to Section 9(c):
5500 Sears Tower
Chicago, Illinois 60606
Attention: M. Gray Stevens
19
<PAGE> 20
SCHEDULE 1
Underwriters Principal Amount of Notes
Chase Securities Inc.
Barclays Capital Inc.
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
-------------------
Total $350,000,000
<PAGE> 21
ANNEX A
FORM OF OPINION AND LETTER OF
SULLIVAN & CROMWELL TO BE
DELIVERED PURSUANT TO
SECTION 5(e)
<PAGE> 22
ANNEX B
FORM OF OPINION OF STEPTOE & JOHNSON LLP
TO BE DELIVERED PURSUANT TO
SECTION 5(f)
<PAGE> 23
ANNEX C
FORM OF OPINION OF GENERAL COUNSEL OF IRIDIUM
TO BE DELIVERED PURSUANT TO
SECTION 5(g)
<PAGE> 24
ANNEX D
FORM OF CERTIFICATE OF
VICE PRESIDENT OF MOTOROLA
TO BE DELIVERED PURSUANT TO
SECTION 5(m)
<PAGE> 1
EXHIBIT 4.7
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
_____% Senior Notes due 2005, Series D
Guaranteed by Iridium Roaming LLC,
Iridium IP LLC and
Iridium Facilities Corporation
SERIES D NOTE INDENTURE
Dated as of May __, 1998
State Street Bank and
Trust Company,
Trustee
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I Definitions and Incorporation by Reference........................1
SECTION 1.01. Definitions.............................................1
SECTION 1.02. Other Definitions......................................16
SECTION 1.03. Incorporation by Reference of Trust Indenture Act......16
SECTION 1.04. Rules of Construction..................................16
ARTICLE II The Notes.......................................................17
SECTION 2.01. Form and Dating........................................17
SECTION 2.02. Execution and Authentication...........................17
SECTION 2.03. Registrar and Paying Agent.............................18
SECTION 2.04. Paying Agent To Hold Money in Trust....................18
SECTION 2.05. Holder Lists...........................................19
SECTION 2.06. Transfer and Exchange..................................19
SECTION 2.07. Replacement Notes......................................19
SECTION 2.08. Outstanding Notes......................................20
SECTION 2.09. Temporary Notes........................................20
SECTION 2.10. Cancellation...........................................20
SECTION 2.11. Defaulted Interest.....................................20
SECTION 2.12. CUSIP Numbers..........................................20
SECTION 2.13. Book-Entry Provisions for Global Notes.................21
ARTICLE III Redemption.....................................................22
SECTION 3.01. Notices to Trustee.....................................22
SECTION 3.02. Selection of Securities to be Redeemed.................22
SECTION 3.03. Notice of Redemption...................................22
SECTION 3.04. Effect of Notice of Redemption.........................23
SECTION 3.05. Deposit of Redemption Price............................23
SECTION 3.06. Notes Redeemed in Part.................................23
SECTION 3.07. Optional Redemption....................................23
ARTICLE IV Covenants.......................................................23
SECTION 4.01. Payment of Notes.......................................23
SECTION 4.02. SEC Reports............................................24
SECTION 4.03. Limitation on Indebtedness.............................24
SECTION 4.04. Limitation on Restricted Payments......................25
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries................................27
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.....28
SECTION 4.07. Limitation on Transactions with Affiliates.............29
SECTION 4.08. Change of Control......................................30
SECTION 4.09. Compliance Certificate.................................30
<PAGE> 3
SECTION 4.10. [Reserved].............................................30
SECTION 4.11. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries.......................31
SECTION 4.12. Limitation on Liens....................................31
SECTION 4.13. Limitation on Lines of Business........................31
SECTION 4.14. Limitation on Business Activities of Capital...........31
SECTION 4.15. Future Guarantor Subsidiaries..........................31
SECTION 4.16. Maintenance of Insurance...............................31
ARTICLE V Successor Companies..............................................32
SECTION 5.01. When Issuers May Merge or Transfer Assets..............32
ARTICLE VI Defaults and Remedies...........................................33
SECTION 6.01. Events of Default......................................33
SECTION 6.02. Acceleration...........................................35
SECTION 6.03. Other Remedies.........................................35
SECTION 6.04. Waiver of Past Defaults................................35
SECTION 6.05. Control by Majority....................................35
SECTION 6.06. Limitation on Suits....................................35
SECTION 6.07. Rights of Holders to Receive Payment...................36
SECTION 6.08. Collection Suit by Trustee.............................36
SECTION 6.09. Trustee May File Proofs of Claim.......................36
SECTION 6.10. Priorities.............................................36
SECTION 6.11. Undertaking for Costs..................................36
SECTION 6.12. Waiver of Stay or Extension Laws.......................37
SECTION 6.13. Restoration of Rights and Remedies.....................37
ARTICLE VII Trustee........................................................37
SECTION 7.01. Duties of Trustee......................................37
SECTION 7.02. Rights of Trustee......................................38
SECTION 7.03. Individual Rights of Trustee...........................38
SECTION 7.04. Trustee's Disclaimer...................................38
SECTION 7.05. Notice of Defaults.....................................38
SECTION 7.06. Reports by Trustee to Holders..........................39
SECTION 7.07. Compensation and Indemnity.............................39
SECTION 7.08. Replacement of Trustee.................................39
SECTION 7.09. Successor Trustee by Merger............................40
SECTION 7.10. Eligibility; Disqualification..........................40
SECTION 7.11. Preferential Collection of Claims Against Issuers......40
ARTICLE VIII Discharge of Indenture; Defeasance............................40
SECTION 8.01. Discharge of Liability on Notes; Defeasance............40
SECTION 8.02. Conditions to Defeasance...............................41
SECTION 8.03. Application of Trust Money.............................42
SECTION 8.04. Repayment to Note Issuers..............................42
SECTION 8.05. Indemnity for Government Securities....................42
SECTION 8.06. Reinstatement..........................................42
<PAGE> 4
ARTICLE IX Amendments......................................................43
SECTION 9.01. Without Consent of Holders.............................43
SECTION 9.02. With Consent of Holders................................43
SECTION 9.03. Compliance with Trust Indenture Act....................44
SECTION 9.04. Revocation and Effect of Consents and Waivers..........44
SECTION 9.05. Notation on or Exchange of Notes.......................44
SECTION 9.06. Trustee To Sign Amendments.............................44
ARTICLE X Subsidiary Guarantees............................................44
SECTION 10.01. Subsidiary Guarantees.................................44
SECTION 10.02. Limitation on Liability...............................46
SECTION 10.03. Successors and Assigns................................46
SECTION 10.04. No Waiver.............................................46
SECTION 10.05. Modification..........................................46
SECTION 10.06. Initial Guarantors; Execution of Supplemental
Indenture for Future Guarantor Subsidiaries...........46
ARTICLE XI Miscellaneous...................................................47
SECTION 11.01. Trust Indenture Act Controls..........................47
SECTION 11.02. Notices...............................................47
SECTION 11.03. Communication by Holders with Other Holders...........47
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent.............................................47
SECTION 11.05. Statements Required in Certificate or Opinion.........48
SECTION 11.06. When Notes Disregarded................................48
SECTION 11.07. Rules by Trustee Paying Agent and Registrar...........48
SECTION 11.08. Legal Holidays........................................48
SECTION 11.09. Governing Law.........................................48
SECTION 11.10. No Recourse Against Others............................48
SECTION 11.11. Successors............................................49
SECTION 11.12. Multiple Originals....................................49
SECTION 11.13. Table of Contents; Headings...........................49
Exhibit A - Form of Note
Exhibit B - Form of Supplemental Indenture
Schedule I - Other Existing Affiliate Agreements
<PAGE> 5
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310.(a)(1)......................................................7.10
(a)(2)......................................................7.10
(a)(3)......................................................N.A.
(a)(4)......................................................N.A.
(b).........................................................7.08; 7.10
(c).........................................................N.A.
311 (a).........................................................7.11
(b).........................................................7.11
(c).........................................................N.A.
312 (a).........................................................2.05
(b).........................................................11.03
(c).........................................................11.03
313 (a).........................................................7.06
(b)(1)......................................................N.A.
(b)(2)......................................................7.06
(c).........................................................11.02
(d).........................................................7.06
314 (a).........................................................4.02; 4.09
(b).........................................................N.A.
(c)(1)......................................................11.04
(c)(2)......................................................11.04
(c)(3)......................................................N.A.
(d).........................................................N.A.
(e).........................................................11.05
(f).........................................................4.09
315 (a).........................................................7.01
(b).........................................................7.05; 11.02
(c).........................................................7.01
(d).........................................................7.01
(e).........................................................6.11
316 (a)(last sentence)..........................................11.06
(a)(1)(A)...................................................6.05
(a)(1)(B)...................................................6.04
(a)(2)......................................................N.A.
(b).........................................................6.07
317 (a)(1)......................................................6.08
(a)(2)......................................................6.09
(b).........................................................2.04
318 (a).........................................................11.01
N.A. means Not Applicable.
- ------------------
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
<PAGE> 6
INDENTURE dated as of May __, 1998, among IRIDIUM OPERATING LLC, a
Delaware limited liability company ("Iridium"), IRIDIUM CAPITAL CORPORATION, a
Delaware corporation ("Capital" and, together with Iridium, the "Note Issuers"),
as joint and several obligors, IRIDIUM ROAMING LLC, IRIDIUM IP LLC and IRIDIUM
FACILITIES CORPORATION, as guarantors hereunder (the "Initial Guarantors", and
together with the Note Issuers, the "Issuers") and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts bank and trust company (the "Trustee").
Each party agrees as follows for the benefit of the other parties
and for the equal and ratable benefit of the Holders of the Note Issuers' __%
Senior Notes due 2005, Series D (the "Notes").
RECITALS OF THE ISSUERS
The Issuers have duly authorized the execution and delivery of this
Indenture to provide for the issuance of $350,000,000 aggregate principal amount
of the Notes issuable as provided in this Indenture. Pursuant to the terms of an
Underwriting Agreement dated _______ __, 1998 (the "Underwriting Agreement")
among the Issuers, Chase Securities Inc., Barclays Capital Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, the Note Issuers have agreed to
issue and sell up to $350,000,000 aggregate principal amount of the Notes. All
things necessary to make this Indenture a valid agreement of the Issuers, in
accordance with its terms, have been done, and the Issuers have done all things
necessary to make the Notes, when executed by the Issuers and authenticated and
delivered by the Trustee hereunder and duly issued by the Issuers, the valid
obligations of the Issuers as hereinafter provided.
For and in consideration of the premises and the purchase of the
Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders, as follows:
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means, with respect to any specified Person,
(i) Indebtedness of any other Person existing at the time such Person merges
with or into or consolidates with or becomes a Restricted Subsidiary of such
specified Person and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person, which Indebtedness or Lien was not Incurred
in anticipation of, and was outstanding prior to, such merger, consolidation or
acquisition.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of Voting Stock, by contract or otherwise; provided, however, that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control. The terms "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing, (a) no individual
shall be an Affiliate of Iridium solely by reason of his or her being a
director, officer or employee of IWCL, Iridium or any Subsidiary of either and
(b) none of the Restricted Subsidiaries shall be Affiliates of Iridium.
"Agreement Regarding Guarantee" means the Second Agreement Regarding
Guarantee among Iridum LLC, Iridium and Motorola, dated as of April 1998,
as amended and restated as of July 11, 1997, and as further amended from time to
time.
"Asset Disposition" means any transfer, conveyance, sale, lease or
other disposition (collectively, any "disposition") by Iridium or any Restricted
Subsidiary (including any disposition by means of a consolidation, merger or
similar transaction) but excluding a disposition by a Restricted Subsidiary to
Iridium or a Wholly-Owned Restricted Subsidiary or by Iridium to a Wholly-Owned
Restricted Subsidiary of (i) shares of Capital Stock of a
<PAGE> 7
2
Restricted Subsidiary, (ii) all or substantially all of the assets of Iridium or
any Restricted Subsidiary representing a division or line of business or (iii)
other assets or rights of Iridium or any of its Restricted Subsidiaries other
than a disposition (a) in the ordinary course of business, (b) that constitutes
a Restricted Payment which is permitted under Section 4.04, (c) that is subject
to Article V herein, or (d) that constitutes the grant, establishment or
exercise of any Lien permitted pursuant to Section 4.12; provided, however, that
a transaction described in clauses (i), (ii) and (iii) shall constitute an Asset
Disposition only to the extent that the aggregate consideration for all such
transfers, conveyances, sales, leases or other dispositions exceeds $10,000,000
in any 12-month period.
"Asset Drop-Down Transaction" means the transfer of substantially
all of the assets and liabilities of Iridium LLC to Iridium pursuant to an Asset
Transfer Agreement dated December 18, 1997.
"Attributable Indebtedness" in respect of a Sale and Leaseback
Transaction means, as at the time of determination, the present value
(discounted at the interest rate borne by the Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale and Leaseback Transaction (including any period
for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect
to any Indebtedness, the quotient obtained by dividing (i) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of such Indebtedness (or scheduled
redemption or similar payment with respect to Disqualified Stock) multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means any one or more credit agreements
(which may include or consist of revolving credit agreements or similar
arrangements) between Iridium and/or any Subsidiary and one or more banks or
other financial institutions providing financing for the business of Iridium and
its Subsidiaries, and as any such agreement may be amended from time to time.
The Guaranteed Bank Facility shall be, and the Secured Bank Facility (when
executed and delivered by all the parties thereto) shall be, Bank Credit
Agreements.
"Board of Directors" means the Board of Directors of Iridium or any
committee thereof duly authorized to act on behalf of such Board.
"Build-out" means the construction, acquisition, improvement,
operation and development (including all costs related thereto) of the IRIDIUM
System up to the occurrence of Commercial Activation and the construction,
acquisition, improvement and development (including all costs related thereto)
thereafter of contemplated enhancements to the IRIDIUM System described in the
Prospectus.
"Business Day" means a day other than a Saturday, Sunday or other
day on which banking institutions in Massachusetts or New York State are
authorized or required by law to close.
"Capital" means Iridium Capital Corporation, a Delaware corporation,
and any successor Person to Capital.
"Capital Lease Obligation" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP. The amount of Indebtedness represented by a
Capital Lease Obligation will be the capitalized amount of such obligation
determined in accordance with GAAP, and the Stated Maturity thereof will be the
date of the last scheduled payment of rent or any other amount due under the
relevant lease prior to the first date upon which such lease may be terminated
by the lessee without payment of a penalty.
"Capital Stock" of any Person means (i) in the case of a
corporation, corporate stock issued by such Person, (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock issued by
such Person, (iii) in the case of a partnership, partnership interests (whether
general or limited) issued by such Person, (iv) in the case of a limited
liability company, membership interests issued by such Person, (v) any other
interest or participation that confers on another Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person, and
<PAGE> 8
3
(vi) any rights (other than debt securities convertible into, or exchangeable
for, Capital Stock), warrants or options to purchase any of the foregoing.
"Change of Control" means the occurrence of any of the following:
(a) one or more Dispositions which cause the amount of Motorola's
Holdings of the Capital Stock of Iridium to be reduced by more than 50% as
compared to Motorola's direct holding of Capital Stock in Iridium as of
July 16, 1997 (in each such case without giving effect to any rights,
warrants or options to purchase Capital Stock of Iridium, unless exercised
prior thereto);
(b) the first day on which Iridium fails to own, of record and
beneficially, 100% of the Capital Stock of Capital (other than directors'
qualifying shares);
(c) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by Iridium or its Restricted
Subsidiaries of all or substantially all of the assets of Iridium and its
Restricted Subsidiaries to any Person; or
(d) the adoption of a plan relating to the liquidation or
dissolution of Iridium or Capital.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
result from (x) the acquisition by IWCL, Motorola or any wholly owned subsidiary
of Motorola of substantially all the assets of Iridium or Iridium LLC,
(y) any transfer of assets or merger reversing the Asset Drop-Down Transition
or (z) the merger of Iridium LLC or Iridium with and into IWCL, Motorola or
any wholly owned subsidiary of Motorola.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Activation" means the date on which Iridium commences
generally available commercial service on the IRIDIUM System.
"Consolidated Cash Flow" of Iridium means for any period the
Consolidated Net Income of Iridium and the consolidated Restricted Subsidiaries
for such period increased by (i) Consolidated Interest Expense of Iridium and
the consolidated Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of Iridium and the consolidated Restricted Subsidiaries for
such period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of Iridium and the consolidated Restricted
Subsidiaries for such period (including any depreciation of any asset that
represents depreciation in respect of previously capitalized interest), plus
(iv) other non-cash charges of Iridium and the consolidated Restricted
Subsidiaries for such period deducted from consolidated revenues in determining
Consolidated Net Income for such period, minus (v) non-cash items of Iridium and
the consolidated Restricted Subsidiaries for such period which increased
consolidated revenues in determining Consolidated Net Income for such period,
minus (vi) the consolidated amortization expense related to payments made by
Iridium and the Restricted Subsidiaries to Motorola pursuant to the Operations
and Maintenance Contract included in the income statement of Iridium and the
consolidated Restricted Subsidiaries for such period.
"Consolidated Income Tax Expense" of any Person means for any period
the consolidated provision for income taxes of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP or, so long as such Person is treated as a partnership or
other pass through entity for United States federal income tax purposes, the Tax
Amount paid by such Person during such period.
"Consolidated Interest Expense" for any Person means for any period
the consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of
Indebtedness discounts; (ii) any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities; (iii) fees with respect to
Interest Rate or Currency Protection Agreements; (iv) Preferred Stock dividends
of such Person (other than with respect to Disqualified Stock) declared and paid
or
<PAGE> 9
4
payable; (v) accrued Disqualified Stock dividends of such Person and all
Restricted Subsidiaries of such Person, whether or not declared or paid; (vi)
interest on Indebtedness Guaranteed by such Person; (vii) the portion of any
rental obligation allocable to interest expense; and (viii) capitalized
interest.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its consolidated Restricted
Subsidiaries for such period determined on a consolidated basis in accordance
with GAAP; provided, however, that there is excluded therefrom (to the extent
not already excluded therefrom) (i) the net income (or loss) of any Person
acquired by such Person or a Restricted Subsidiary of such Person in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (ii) the net income (but not the net loss) of any Restricted
Subsidiary of such Person which Restricted Subsidiary is subject to restrictions
which prevent the payment of dividends or the making of distributions to such
Person, but only to the extent of such restrictions, (iii) the net income (or
loss) of any Person that is not a Restricted Subsidiary (including any
Unrestricted Subsidiary) except to the extent of the amount of dividends or
other distributions actually paid to such Person by such other Person during
such period, (iv) gains or losses on Asset Dispositions by Iridium or any
Restricted Subsidiary, (v) all extraordinary gains and losses, (vi) the
cumulative effect of changes in accounting principles in the year of adoption of
such changes, (vii) non-cash gains or losses resulting from fluctuations in
currency exchange rates, and (viii) the tax effect of any of the items described
in clauses (i) through (vii) above; provided further, however, that for purposes
of any determination pursuant to Section 4.04, there shall be deducted from the
Consolidated Net Income of Iridium and the Restricted Subsidiaries for such
period an amount equal to the Tax Amount paid by Iridium during such period.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person and its consolidated Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP, less amounts
attributable to Disqualified Stock of such Person; provided, however, that, with
respect to Iridium, adjustments following the date of the Indenture to the
accounting books and records of Iridium in accordance with Accounting Principles
Board Opinions Nos. 16 and 17 (or successor opinions thereto) or otherwise
resulting from the acquisition of control of Iridium by another Person shall not
be given effect to.
"Consolidation" means the consolidation of the accounts of each of
the Restricted Subsidiaries with those of the Issuers in accordance with GAAP
consistently applied; provided, however, that "Consolidation" shall not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Issuers or any Restricted Subsidiary in an Unrestricted Subsidiary shall
be accounted for as an investment. The term "Consolidated" or "consolidated" has
a correlative meaning.
"Debt to Capital Ratio" means on any date of determination for
Iridium and its Restricted Subsidiaries, on a consolidated basis, the ratio
(expressed as a percentage) of Outstanding Indebtedness on such date to Total
Invested Capital on such date.
"Debt to Cash Flow Ratio" means on any date of determination (the
"Determination Date") for Iridium and its Restricted Subsidiaries, on a
consolidated basis, the ratio of Outstanding Indebtedness on the Determination
Date to Consolidated Cash Flow for the four most recently completed fiscal
quarters immediately preceding the Determination Date (the "Measurement Period")
determined on a pro forma basis as if any Indebtedness to be Incurred had been
Incurred and the proceeds thereof had been applied on the first day of the
Measurement Period; provided, however, that in making such computations, (i) the
Consolidated Interest Expense attributable to interest on any proposed
Indebtedness bearing a floating interest rate shall be computed on a pro forma
basis as if the rate in effect on such Determination Date had been the
applicable rate for the entire Measurement Period, (ii) the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility shall be computed based upon the average daily balance of such
Indebtedness during such Measurement Period, (iii) in the event Iridium or any
of its Restricted Subsidiaries has made asset dispositions or acquisitions of
assets not in the ordinary course of business (including acquisitions of other
Persons by merger, consolidation or purchase of Capital Stock) or has repaid
Indebtedness or Incurred additional Indebtedness during or after such
Measurement Period, such computation shall be made on a pro forma basis as if
the asset dispositions, acquisitions, repayment or incurrence had taken place on
the first day of such Measurement Period, (iv) the net proceeds of the
Indebtedness to be Incurred shall be deemed to have been applied on the first
day of such Measurement Period to acquire direct obligations of the United
States government having a maturity most closely approximating the maturity of
the Indebtedness to be incurred (or Indebtedness incurred during or after such
<PAGE> 10
5
Measurement Period); provided, however, that the adjustment in this clause (iv)
shall not be made if, and to the extent, that application of such net proceeds
has otherwise been fully reflected in the computation, and (v) the actual
application of the net proceeds of Indebtedness Incurred during or after such
Measurement Period shall be given pro forma effect as if such application had
taken place on the first day of such Measurement Period.
"Default" means an event that is, or after the passing of time or
the giving of notice or both would be, an Event of Default.
"Definitive Notes" means Notes that are in the form of Exhibit A
attached hereto that do not include the information called for by footnote 1
thereof.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 as the
Depositary with respect to the Notes, until a successor shall have been
appointed and becomes such pursuant to the applicable provisions of this
Indenture, and thereafter, "Depositary" shall mean or include such successor.
"Disposition" means (i) the sale, transfer or other conveyance by
Motorola or any of its Subsidiaries (other than to a wholly owned Subsidiary of
Motorola) of (a) Iridium LLC's membership interests or (b) equity interests in
any entity (an "intermediate entity") which owns, directly or indirectly,
Iridium's membership interests or (ii) the issue and sale by any such
intermediate entity of its equity securities to one or more third parties if and
to the extent the proceeds of such issue and sale are distributed by such
intermediate entity to Motorola or any of its Subsidiaries.
"Disqualified Stock" of any Person means any Capital Stock of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock, or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the earlier of the Stated Maturity of the Notes or the date
on which no Notes remain outstanding. Disqualified Stock does not include any
Capital Stock that is not otherwise Disqualified Stock if by its terms the
holders have the right to require the issuer to repurchase such stock upon a
Change of Control (or upon events substantially similar to a Change of Control).
"Eligible Institution" means a commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Equity Offering" means an offering made on a primary basis of
Capital Stock (other than Disqualified Stock) of IWCL or Iridium that results in
Net Cash Proceeds to IWCL or Iridium, as the case may be, provided, however, if
any such offering is an offering of the Capital Stock of IWCL, only the Net Cash
Proceeds thereof that are contributed to Iridium shall be taken into
consideration for the purposes of this definition.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act) and the rules and regulations thereunder.
"Existing Affiliate Agreements" means (i) the Space System Contract,
(ii) the Terrestrial Network Development Contract, (iii) the Operations and
Maintenance Contract, (iv) the Agreement Regarding Guarantee, (v) the Interest
Exchange Agreement, (vi) the Share Issuance Agreement, (vii) the Management
Services Agreement, (viii) the Motorola MOU and any subordination agreement
contemplated thereunder, (ix) the agreement or agreements among Iridium,
Motorola and other parties thereto providing for the development, manufacture
and sale of individual subscriber equipment to be used in the IRIDIUM System,
which agreement or agreements are to be executed and delivered after the Issue
Date as a condition to borrowings under the Secured Bank Facility, and (x) any
other agreements with Affiliates or Related Persons of Iridium, existing on the
Issue Date and listed on Schedule I to this Indenture.
<PAGE> 11
6
"Foreign Subsidiary" means, with respect to any Person, any
Subsidiary of such Person which is incorporated or otherwise organized under the
laws of any jurisdiction other than the United States of America, any state
thereof or the District of Columbia and substantially all of whose consolidated
assets are located primarily outside of the United States of America.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in (i) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in the Indenture shall be computed in
conformity with GAAP.
"Global Note" means a Note that is in the form of Exhibit A hereto
that includes the information called for by footnote 1 thereof.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged and which
have a remaining weighted Average Life to maturity of not more than one year
from the date of Investment therein.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
(the "primary obligor") through an agreement enforceable by or for the benefit
of the holder of such Indebtedness and any such obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness, (ii) to purchase
property, securities or services for the purpose of assuring the holder of such
Indebtedness of the payment of such Indebtedness, (iii) to maintain working
capital, equity capital or other financial statement condition or liquidity of
the primary obligor so as to enable the primary obligor to pay such
Indebtedness, or (iv) to act as a co-obligor with such Person on its
Indebtedness (and "Guaranteed" and "Guaranteeing" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business.
"Guaranteed Bank Facility" means the credit facility established by
the credit agreement dated as of August 21, 1996 by and among Iridium, as
successor to Iridium LLC, and certain lenders providing for an unsecured $750
million revolving credit facility, as amended from time to time.
"Guarantor Subsidiary" means any Person that has issued a Subsidiary
Guaranty by execution and delivery of this Indenture, including each of the
Initial Guarantors.
"Holders" means the registered holders from time to time of the
Notes.
"Incur" means, with respect to any Indebtedness or other obligation
of any Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation including by acquisition of Subsidiaries or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person (and "Incurrence", "Incurred" and
"Incurring" have meanings correlative to the foregoing); provided, however, that
a change in GAAP that results in an obligation of such Person that exists at
such time becoming Indebtedness shall not be deemed an Incurrence of such
Indebtedness and that neither the accrual of interest nor the accretion of
original issue discount shall be deemed an Incurrence of Indebtedness.
Notwithstanding the foregoing, Iridium may elect to treat all or any portion of
revolving credit debt of Iridium or a Subsidiary as being Incurred from and
after any date beginning the date the revolving credit commitment is extended to
Iridium or a Subsidiary, by furnishing notice thereof to the Trustee, and any
borrowings or reborrowings by Iridium or a Subsidiary under such commitment up
to the amount of such commitment designated by Iridium as Incurred shall not be
deemed to be new Incurrences of Indebtedness by Iridium or such Subsidiary;
provided, however, that in such event the undrawn portion of any such
<PAGE> 12
7
revolving credit debt shall be deemed to be outstanding Indebtedness until such
time as the commitment thereunder is terminated. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person for money
borrowed, (ii) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including any such obligations Incurred in
connection with the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of such
Person, (iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business which are not overdue by more than 30 days or
which are being contested in good faith), (v) every Capital Lease Obligation of
such Person, (vi) all Receivables Sales of such Person, together with any
obligation of such Person to pay any discount, interest, fees, indemnities,
penalties, recourse, expenses or other amounts in connection therewith, (vii)
all obligations to redeem or repurchase outstanding Disqualified Stock issued by
such Person, (viii) all Attributable Indebtedness, (ix) every obligation under
Interest Rate or Currency Protection Agreements of such Person, (x) every
obligation of the type referred to in clauses (i) through (ix) of another Person
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the fair market value of such property or assets and
the amount of the obligation so secured and (xi) every obligation of the type
referred to in clauses (i) through (x) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Indebtedness at any time of determination
as used herein represented by (a) any Indebtedness issued at a price that is
less than the principal amount at maturity thereof, shall be the amount of the
liability in respect thereof determined in accordance with GAAP, (b) any
Receivables Sale, shall be the amount of the unrecovered capital or principal
investment of the purchaser (other than Iridium or a Wholly-Owned Restricted
Subsidiary) thereof, excluding amounts representative of yield or interest
earned on such investment, (c) any Disqualified Stock, shall be the maximum
fixed redemption or repurchase price in respect thereof, (d) any Capital Lease
Obligation, shall be determined in accordance with the definition thereof and
(e) any Permitted Interest Rate or Currency Protection Agreement, shall be zero.
In no event shall Indebtedness include any liability for taxes. For purposes of
determining any particular amount of Indebtedness, Guarantees or Liens with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of a particular amount shall not be included. The term
"Indebtedness" does not include any obligations of Iridium or any Restricted
Subsidiary (x) under the Space System Contract, the Operations and Maintenance
Contract or the Terrestrial Network Development Contract (including any agreed
upon deferrals of payment obligations thereunder) or (y) in respect of amounts
owing to gateway operators and other service providers in connection with the
clearinghouse system to be established and operated by Iridium (as described
under "Business--The IRIDIUM System--Business Support Systems" in the
Prospectus).
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
judgment of the Board of Directors, qualified to perform the task for which it
has been engaged and disinterested and independent with respect to the Note
Issuers and their Subsidiaries and Affiliates.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Initial Guarantors" means Iridium Roaming LLC and Iridium IP LLC,
each a Delaware limited liability company, and Iridium Facilities Corporation, a
Delaware corporation.
"Interest Exchange Agreement" means the Interest Exchange Agreement
among Iridium LLC and IWCL, dated June 9, 1997, as amended from time to time.
"Interest Rate or Currency Protection Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates or indices.
<PAGE> 13
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"Investment" by any Person means any direct or indirect loan,
advance or other extension of credit or capital contribution (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person, but excluding any loan,
advance or extension of credit to an employee of Iridium or any Restricted
Subsidiary in the ordinary course of business, accounts receivable and other
commercially reasonable extensions of trade credit. A delay in the purchase of
any of Iridium's Capital Stock under a purchase or similar agreement shall not
be deemed to be an Investment by Iridium in the purchaser.
"Investment Grade Rating" means a rating equal to or higher than
"Baa3" (or the equivalent) by Moody's Investors Service, Inc. (or any successor
to the rating agency business thereof) and "BBB-" (or the equivalent) by
Standard & Poor's Ratings Group (or any successor to the rating agency business
thereof).
"Iridium" means Iridium Operating LLC, a Delaware limited liability
company, and any successor Person to Iridium Operating LLC.
"Iridium LLC" means Iridium LLC, a Delaware limited liability
company, and any successor Person to Iridium LLC.
"Iridium Operating LLC Agreement" means the Limited Liability
Agreement of Iridium, dated as of December 18, 1997, as amended from time to
time.
"IRIDIUM System" means Iridium's global mobile wireless
communications system as described in the Prospectus.
"Issue Date" means the date on which the Notes are first issued
and delivered.
"Issuers" means the parties named as such in this Indenture until a
successor replaces one or more of such parties pursuant to the applicable
provisions of this Indenture and, thereafter, includes such successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the indenture securities (within the meaning of the TIA). In
particular, upon execution and delivery of this Indenture, the "Issuers" shall
mean Iridium, Capital and the Initial Guarantors.
"IWCL" means Iridium World Communication Ltd., a Bermuda company,
and any successor Person to IWCL.
"Lien" means, with respect to any property or assets, any mortgage
or deed of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
Sale and Leaseback Transaction).
"LLC Agreement" means the Limited Liability Company Agreement of
Iridium LLC, dated as of July 29, 1996, as amended from time to time.
"Management Services Agreement" means the Amended and Restated
Management Services Agreement among Iridium LLC, Iridium and IWCL, dated as
of December 18, 1997, as amended from time to time.
"Marketable Securities" means: (i) Government Securities; (ii) any
time deposit account, money market deposit and certificate of deposit maturing
not more than 270 days after the date of acquisition issued by, or time deposit
of, an Eligible Institution; (iii) commercial paper maturing not more than 270
days after the date of acquisition issued by a corporation (other than an
Affiliate of Iridium) with a rating, at the time as of which any investment
therein is made, of "P-1" or higher according to Moody's Investors Service, Inc.
or "A-1" or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's
<PAGE> 14
9
acceptances or money market deposit accounts issued or offered by an Eligible
Institution; (v) repurchase obligations with a term of not more than seven days
for Government Securities entered into with an Eligible Institution; and (vi)
any fund investing exclusively in investments of the types described in clauses
(i) through (v) above.
"Master Subscription Agreement" means the Agreement between Iridium
LLC and IWCL, dated as of June 30, 1997, as amended from time to time, pursuant
to which IWCL has agreed to sell shares of its Class B Common Stock to Iridium
LLC.
"Motorola" means Motorola, Inc., a Delaware corporation, and any
successor Person to Motorola.
"Motorola Additional Guarantee" means the commitment by Motorola
pursuant to the Motorola MOU to guarantee up to an additional $350 million of
Indebtedness (inclusive of principal and interest), under the Guaranteed Bank
Facility or another credit agreement on identical terms, in excess of the
Motorola Guarantee.
"Motorola Guarantee" means the guarantee by Motorola of up to $750
million of Indebtedness under the Guaranteed Bank Facility.
"Motorola MOU" means the Amended and Restated Memorandum of
Understanding, dated as of April 1998, among Iridium LLC, Iridium and
Motorola, as amended from time to time.
"Motorola's Holding of Capital Stock of Iridium" means the amount of
Capital Stock of Iridium LLC held directly by Motorola multiplied by the
percentage of Iridium LLC's direct or indirect holdings of the Capital Stock of
Iridium.
"Net Available Proceeds" from any Asset Disposition by any Person
means cash or Marketable Securities received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any other consideration received in the form of assumption by the acquiror of
Indebtedness or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred and all federal,
state, provincial, foreign and local taxes (including taxes payable upon payment
or other distribution of funds from a foreign subsidiary to Iridium or another
Subsidiary of Iridium) required to be accrued as a liability as a consequence of
such Asset Disposition, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Indebtedness which is secured by such assets in accordance
with the terms of any Lien upon or with respect to such assets or which must by
the terms of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments made to minority
interest holders in Restricted Subsidiaries of such Person or joint ventures as
a result of such Asset Disposition, (iv) appropriate amounts to be provided by
such Person or any Restricted Subsidiary thereof, as the case may be, as a
reserve in accordance with GAAP against any liabilities associated with such
assets and retained by such Person or any Restricted Subsidiary thereof, as the
case may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, in each case
as determined by the Board of Directors, in its reasonable good faith judgment
evidenced by a resolution filed with the Trustee; provided, however, that any
reduction in such reserve within twelve months following the consummation of
such Asset Disposition will be treated for all purposes of this Indenture and
the Notes as a new Asset Disposition at the time of such reduction with Net
Available Proceeds equal to the amount of such reduction, and (v) any
consideration for an Asset Disposition (which would otherwise constitute Net
Available Proceeds) that is required to be held in escrow pending determination
of whether a purchase price adjustment will be made, but amounts under this
clause (v) will become Net Available Proceeds at such time and to the extent
such amounts are released to such Person.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
<PAGE> 15
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"Non-U.S. Person" means a Person who is not a U.S. Person, as
such term is defined in Rule 902 of the Securities Act.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Note Issuers by first class mail, postage prepaid, to each Holder at his address
appearing in the note register on the date of the Offer offering to purchase up
to the principal amount of Notes specified in such Offer at the purchase price
specified in such Offer (as determined in accordance with Section 4.06). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of Notes within five Business Days after the Expiration Date. The
Note Issuers shall notify the Trustee in writing at least 15 Business Days (or
such shorter period as is acceptable to the Trustee) prior to the mailing of the
Offer of the Note Issuers' obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Note Issuers or, at the Note Issuers' request, by
the Trustee in the name and at the expense of the Note Issuers. The Offer shall
contain information concerning the business of Iridium and its Subsidiaries
which Iridium in good faith believes shall enable such holders to make an
informed decision with respect to the Offer to Purchase (which at a minimum
shall include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to this Indenture (which requirements may be satisfied by delivery of
such documents together with the Offer), (ii) a description of material
developments in Iridium's business subsequent to the date of the latest of such
financial statements referred to in clause (i) (including a description of the
events requiring Iridium to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring Iridium to make the Offer to Purchase and (iv) any other
information required by applicable law to be included therein). The Offer shall
contain all instructions and materials necessary to enable such holders to
tender Notes pursuant to the Offer to Purchase.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the Chief Financial Officer, the President, any Vice President, the
Treasurer, the Secretary or any Assistant Secretary of such Person.
"Officers' Certificate" means a certificate signed by two
Officers.
"Operations and Maintenance Contract" means the IRIDIUM System
Operations and Maintenance Contract between Iridium, as successor to Iridium
LLC, and Motorola, dated as of July 29, 1993, as amended from time to time.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
Iridium.
"Outstanding Indebtedness" means the aggregate consolidated
principal amount (or the accreted value in the case of any Indebtedness issued
at a discount) of Indebtedness of Iridium and its Restricted Subsidiaries, on a
consolidated basis, outstanding as of the date of determination.
"pari passu", when used with respect to the ranking of any
Indebtedness of any Person in relation to other Indebtedness of such Person,
means that each such Indebtedness (a) either (i) is not subordinated in right of
payment to any other Indebtedness of such Person or (ii) is subordinate in right
of payment to the same Indebtedness of such Person as is the other and is so
subordinate to the same extent and (b) is not subordinate in right of payment to
the other or to any Indebtedness of such Person as to which the other is not so
subordinate.
"Permitted Interest Rate or Currency Protection Agreement" of any
Person means any Interest Rate or Currency Protection Agreement entered into
with one or more financial institutions that is designed to protect such Person
against fluctuations in interest rates or currency exchange rates with respect
to Indebtedness Incurred and which shall have a notional amount no greater than
the payments due with respect to the Indebtedness being hedged thereby, or with
respect to obligations or receivables denominated in foreign currencies, and not
for purposes of speculation.
"Permitted Investment" means an Investment by Iridium or any
Restricted Subsidiary (i) in any Person as a result of which such Person becomes
a Restricted Subsidiary, the primary business of which is to engage
<PAGE> 16
11
in all or a portion of a Related Business, (ii) in Marketable Securities, (iii)
in Permitted Interest Rate or Currency Protection Agreements, (iv) made as a
result of the receipt of noncash consideration from an Asset Disposition that
was made pursuant to and in compliance with Section 4.06 herein, (v) consisting
of loans or advances to employees of Iridium or any Restricted Subsidiary made
in the ordinary course of business not to exceed $2,000,000 in the aggregate
outstanding at any one time and (vi) in any Person for a purpose which is
related, ancillary or complementary to the businesses of Iridium and the
Restricted Subsidiaries on the date such Investment is made; provided that the
aggregate amount of Investments made pursuant to this clause (vi) and then
outstanding does not exceed $100,000,000. The amount of Investments outstanding
pursuant to clause (vi) of the prior sentence shall be included in the
calculation of the aggregate amount of Restricted Payments made since July 16,
1997 pursuant to Section 4.04.
"Permitted Liens" means:
(i) Prior to Commercial Activation, Liens to secure up to
$750,000,000 in principal amount of Indebtedness permitted to be
incurred pursuant to Section 4.03(b)(i);
(ii) After Commercial Activation, Liens to secure up to
$1,700,000,000 in principal amount of Indebtedness (inclusive of the
Indebtedness secured by the Liens described in clause (i) above and
any secured Indebtedness which refinanced such Indebtedness)
permitted to be Incurred pursuant to Section 4.03;
(iii) Liens in favor of Holders of the Notes, the holders of
the Exchange Notes and the Trustee;
(iv) Liens in favor of the Issuers or a Wholly-Owned
Restricted Subsidiary;
(v) Liens on property at the time such Person or any of its
Subsidiaries acquires such property, including any acquisition by
means of a merger or consolidation with or into such Person or a
Subsidiary of such Person, other than any property delivered
pursuant to the Space System Contract or the Operations and
Maintenance Contract; provided, however, that such Liens are not
created, incurred or assumed in connection with, or in contemplation
of, such acquisition; provided further, however, that the Liens may
not extend to any other property owned by such Person or any of its
Subsidiaries;
(vi) other than in connection with Indebtedness, any Lien
arising in the ordinary course of business (a) to secure payments of
workers' compensation, unemployment insurance, pension or other
social security or retirement benefits, or to secure the performance
of bids, tenders, leases, progress payments, contracts (other than
for the payment of money) or to secure public or statutory
obligations of Iridium or any Restricted Subsidiary, or to secure
surety or appeal bonds to which Iridium or any Restricted Subsidiary
is a party, (b) imposed by law dealing with materialmen's,
mechanics', workmen's, repairmen's, warehousemen's landlords',
vendors' or carriers' Liens created by law, or deposits or pledges
which are not yet due or, if due, the validity of which is being
contested in good faith by Iridium or any Restricted Subsidiary by
appropriate proceedings promptly instituted and diligently conducted
and against which Iridium has established appropriate reserves in
accordance with GAAP, (c) rights of financial institutions to set
off and chargeback arising by operation of law, (d) rights, if any,
of gateway operators and other service providers to setoff and
chargeback arising under agreements between Iridium and any such
Person in respect of clearinghouse services provided by Iridium to
such Person, and (e) similar Liens;
(vii) servitudes, licenses, easements, encumbrances,
restrictions, rights-of-way and rights in the nature of easements or
similar charges which shall not in the aggregate materially
adversely impair the use of the subject property by Iridium or a
Restricted Subsidiary;
<PAGE> 17
12
(viii) zoning and building by-laws and ordinances, municipal
bylaws and regulations, and restrictive covenants, which do not
materially interfere with the use of the subject property by Iridium
or a Restricted Subsidiary;
(ix) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business;
(x) Liens existing on the Issue Date;
(xi) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, however, that any reserve or other
appropriate provision as shall be required in conformity with GAAP
shall have been made therefor;
(xii) any interest in or title of a lessor to any property
subject to a Capital Lease Obligation which is permitted under this
Indenture; and
(xiii) Liens incurred in the ordinary course of business of
the Issuers and the Restricted Subsidiaries with respect to
obligations that do not exceed $10,000,000 at any one time
outstanding and that:
(a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business); and
(b) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in
the operation of business by Iridium and the Restricted
Subsidiaries.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" of any Person means Capital Stock of such Person
of any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of 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.
"principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note that is due or overdue or is to become due
at the relevant time (except when used in Section 2.02 hereof).
"Prospectus" means the prospectus, dated ________ __, 1998, relating
to the offering of the Notes.
"Ratings Agencies" means Standard & Poor's Rating Group and
Moody's Investors Services, Inc. or any successor to the respective credit
rating businesses thereof.
"Receivables" means receivables, chattel paper, instruments,
documents or intangibles evidencing or relating to the right to payment of money
in respect of the sale of goods or services.
"Receivables Sale" of any Person means any sale of Receivables of
such Person (pursuant to a purchase facility or otherwise), other than (x) any
sale of Receivables by such Person as to which (i) such Person is neither
directly or indirectly liable (as guarantor or otherwise) nor provides credit
support of any kind and (ii) the purchaser of such Receivables has no recourse
to any assets or property of such Person or (y) in connection with a disposition
of the business operations of such Person relating thereto or a disposition of
defaulted Receivables for purpose of collection and not as a financing
arrangement.
<PAGE> 18
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"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of Iridium or any Restricted Subsidiary existing on the Issue Date
or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that except in the case
of a Refinancing of the Guaranteed Bank Facility after any extension thereof (as
contemplated by the Motorola MOU) (i) such Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus accrued and unpaid
interest and fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced and (iv) in the event the Indebtedness
being Refinanced constitutes a Subordinated Obligation, the Refinancing
Indebtedness is subordinated to the Notes to at least the same extent as the
Indebtedness being Refinanced; provided further, however, that Refinancing
Indebtedness shall not include Indebtedness of the Issuers or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means the business of developing, owning,
engaging in and dealing with all or any part of the business of the provision of
telecommunications services and businesses and (i) reasonably related extensions
thereof, including but not limited to the manufacture, purchase, ownership,
operation, leasing, licensing, financing and selling of, and generally dealing
in or with, communications satellites, earth stations, gateways, ground
infrastructure and subscriber equipment, used or intended for use with
telecommunications services and businesses and (ii) any other activities that
are reasonably related to the provision of telecommunications services and
businesses.
"Related Person" of any Person means any other Person directly or
indirectly owning (a) 5% or more of the outstanding Capital Stock of such Person
or (b) 5% or more of the combined voting power of the Voting Stock of such
Person.
"Reserve Capital Call" means the agreement of each of Iridium LLC's
members to purchase additional Class I Interests in Iridium LLC pursuant to
Section 4.02 of the LLC Agreement.
"Restricted Subsidiary" means any Subsidiary of Iridium, whether
existing on or after the Issue Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"Sale and Leaseback Transaction" means an arrangement relating to
property now owned or hereafter acquired by Iridium or a Restricted Subsidiary
whereby Iridium or such Restricted Subsidiary transfers such property to a
Person and Iridium or such Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission and any
successor agency.
"Secured Indebtedness" means any Indebtedness of either Note
Issuer secured by a Lien. "Secured Indebtedness" of any Guarantor Subsidiary
has a correlative meaning.
"Securities Act" means the Securities Act of 1933, as amended (or
any successor act) and the rules and regulations thereunder.
"Share Issuance Agreement" means the Share Issuance Agreement
between Iridium LLC and IWCL, dated as of June 9, 1997, as amended from time to
time.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act as in effect on the Issue Date.
<PAGE> 19
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"Space System Contract" means the Iridium Space System Contract
between Iridium, as successor to Iridium LLC, and Motorola, dated as of July 29,
1993, as amended from time to time.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of either Note
Issuer (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect. Iridium's 14-1/2% Senior Subordinated Notes due 2006
shall be Subordinated Obligations.
"Subsidiary" of any Person means (i) a corporation more than 50% of
the combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person or
(ii) any other Person (other than a corporation) in which such Person, or one or
more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries of such Person, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Subsidiary Guaranty" means any Guarantee of the Notes which may
from time to time be executed and delivered pursuant to the terms of this
Indenture. Each such Subsidiary Guaranty shall be in the form prescribed in this
Indenture.
"Tax Amount" means the aggregate amount of distributions required to
be made by (i) Iridium LLC to its members under Section 3.07(c) of the LLC
Agreement (or a successor provision relating to distributions by Iridium LLC
with respect to members' U.S. tax liability) or (ii) Iridium to its members
under the provisions in the Iridium Operating LLC Agreement corresponding to
Section 3.07(c) of the LLC Agreement (or a successor provision relating to
distributions by Iridium with respect to members' U.S. tax liability).
Notwithstanding anything to the contrary, Tax Amount shall not include taxes
resulting from Iridium LLC's or Iridium's reorganization as or change in the
status to a corporation.
"Terrestrial Network Development Contract" means the Terrestrial
Network Development Contract between Iridium, as successor to Iridium LLC, and
Motorola, entered into June, 1995, as amended from time to time.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of this Indenture.
"Total Invested Capital" means, as of any date of determination, the
sum of (a) Total Pro Forma Consolidated Indebtedness as of such date and (b)
$1,983,000,000 plus the aggregate proceeds received by Iridium or any Restricted
Subsidiary in respect of the issuance of Capital Stock of Iridium, including the
fair value of property other than cash (as determined in good faith by the Board
of Directors in a resolution filed with the Trustee), less any redemptions of,
or dividends or other distributions on, Capital Stock of Iridium (other than any
Tax Amount or any dividend or distribution in Capital Stock) made after the
Issue Date and on or prior to the date of determination.
"Total Pro Forma Consolidated Indebtedness" means, as of any date of
determination, after giving effect to any Indebtedness to be Incurred by Iridium
and its Restricted Subsidiaries on a consolidated basis on such date and the
application of the proceeds therefrom, the aggregate amount of Outstanding
Indebtedness as of such date determined on a consolidated basis in accordance
with GAAP and which would appear on the consolidated balance sheet of Iridium.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
<PAGE> 20
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"Trust Officer" means any officer or assistant officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of Iridium
designated as such by the Board of Directors as set forth below where (a)
neither Iridium nor any of its other Subsidiaries (other than another
Unrestricted Subsidiary) (1) provides credit support for, or Guarantee of, any
Indebtedness of such Subsidiary or any Subsidiary of such Subsidiary (including
any undertaking, agreement or instrument evidencing such Indebtedness), (2) is
directly or indirectly liable for any Indebtedness of such Subsidiary or any
Subsidiary of such Subsidiary, or (3) has any obligation to make additional
Investments (other than Permitted Investments) in such Subsidiary or any
Subsidiary of such Subsidiary (other than, with respect to clauses (1) and (2)
above, in the case of any Indebtedness of Iridium or any Restricted Subsidiary,
the proceeds of which were received by Iridium or a Restricted Subsidiary, that
is permitted under Section 4.03 as to which the Unrestricted Subsidiary provides
a Guarantee) and (b) such Subsidiary and each Subsidiary of such Subsidiary has
at least one director on its board of directors that is not a director or
executive officer of Iridium or any Restricted Subsidiary, and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Subsidiary to be an Unrestricted Subsidiary by filing a resolution to such
effect with the Trustees unless such Subsidiary or any Subsidiary of such
Subsidiary owns any Capital Stock or Indebtedness of, or owns or holds any Lien
(other than a Permitted Lien) on any property of, Iridium or any other
Subsidiary of Iridium which is not a Subsidiary of the Subsidiary to be so
designated or otherwise an Unrestricted Subsidiary; provided, however, that
either (A) the Subsidiary to be so designated has total assets of $1,000 or less
or (B) immediately after giving effect to such designation, Iridium could incur
an additional $1.00 of Indebtedness pursuant to the first sentence of paragraph
(a) under Section 4.03; and provided further, however, that Iridium could make a
Restricted Payment in an amount equal to the greater of the fair market value
and the book value of such Subsidiary pursuant to Section 4.04 and such amount
is thereafter treated as a Restricted Payment for the purpose of calculating the
aggregate amount available for Restricted Payments thereunder. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary by filing a resolution to such effect with the applicable Trustee,
provided that, immediately after giving effect to such designation, Iridium
could incur an additional $1.00 of Indebtedness pursuant to the first sentence
of paragraph (a) under Section 4.03 and such Subsidiary (as well as each of
Iridium and the other Guarantor Subsidiaries) complies with Section 4.15 as if
such Subsidiary were a newly created Subsidiary. Notwithstanding the foregoing,
neither Capital nor any of its Subsidiaries may be Unrestricted Subsidiaries.
"Vendor Financing Facility" means any agreements between Iridium
and/or any Subsidiary of Iridium and one or more vendors or lessors of equipment
to Iridium and/or any Subsidiary (or any affiliate of any such vendor or lessor)
providing financing for the acquisition by Iridium or any such Subsidiary of
equipment or services from any such vendor or lessor.
"Voting Stock" of any Person means Capital Stock of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly-Owned Restricted Subsidiary" means, with respect to Iridium,
a Restricted Subsidiary of Iridium all of the outstanding Capital Stock or other
ownership interests of which (other than Capital Stock constituting directors'
qualifying shares or interests held by directors or shares or interests required
to be held by foreign nationals, in each case to the extent mandated by
applicable law) are owned by Iridium or by one or more Wholly-Owned Restricted
Subsidiaries of Iridium, or by Iridium and one or more Wholly-Owned Restricted
Subsidiaries of Iridium.
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SECTION 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction".............................................4.07
"Agent Members......................................................2.13
"Bankruptcy Law"....................................................6.01
"covenant defeasance option".....................................8.01(b)
"Custodian".........................................................6.01
"Event of Default"..................................................6.01
"Global Notes"...................................................2.01(b)
"Insurance Proceeds"................................................4.16
"legal defeasance option"........................................8.01(b)
"Legal Holiday"....................................................11.08
"Notes".....................................................Introduction
"Obligations"......................................................10.01
"Paying Agent"......................................................2.03
"Registrar".........................................................2.03
"Restricted Payment"................................................4.04
"Successor Companies"...............................................5.01
"Underwriting Agreement.........................................Recitals
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The
following TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture Securityholder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuers and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular unless the context otherwise requires;
<PAGE> 22
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(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness of either Note Issuer or a Guarantor
Subsidiary, as the case may be, merely by virtue of its nature as
unsecured Indebtedness; and
(7) the principal amount of any noninterest bearing or other
discount security at any date shall be the principal amount thereof that
would be shown on a balance sheet of the issuer dated such date prepared
in accordance with GAAP and accretion of principal on such security shall
be deemed to be the Incurrence of Indebtedness.
ARTICLE II
The Notes
SECTION 2.01. Form and Dating. (a) The Notes and the Trustee's
certificate of authentication thereon shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture, and as otherwise provided in this Article II. The Notes may have
notations, legends or endorsements required by law, stock exchange rule,
agreements to which any Issuer is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a form acceptable to the Note
Issuers). Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibit A hereto are part of the terms of this Indenture.
The Notes shall be issuable only in registered form without coupons and only in
denominations of $1,000 and any integral multiple of thereof. The Notes are
being offered and sold by the Note Issuers pursuant to the Underwriting
Agreement.
(b) Notes offered and sold as provided in the Underwriting
Agreement, shall be issued on the Issue Date initially in the form of one or
more permanent global Notes in registered form, substantially in the form set
forth in Exhibit A hereto (the "Global Notes"), deposited with the Trustee, as
custodian for the Depositary, duly executed by the Issuers and authenticated by
the Trustee as hereinafter provided. The aggregate principal amount of any
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depositary or its nominee,
as hereinafter provided.
SECTION 2.02. Execution and Authentication. An Officer shall sign
the Notes for each of the Note Issuers by manual or facsimile signature. Any
reference herein to the execution of a Note by a Subsidiary Guarantor shall be
interpreted as a reference to the endorsement by such Subsidiary Guarantor of
its Subsidiary Guaranty with respect thereto.
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates such Note, such Note shall be valid
nevertheless.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee shall authenticate and deliver Notes for original issue
in an aggregate principal amount of up to $350,000,000 upon the receipt of a
written order of the Note Issuers signed by an Officer of each Note Issuer. Such
order shall specify the amount of the Notes to be authenticated and the date on
which the original issue of Notes is to be authenticated. The aggregate
principal amount of Notes outstanding at any time may not exceed $350,000,000
except as provided in Section 2.07.
The Trustee may appoint an authenticating agent reasonably
acceptable to Iridium to authenticate the Notes. Any such appointment shall be
evidenced by an instrument signed by an authorized officer of the Trustee, a
copy of which shall be furnished to Iridium. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as any Registrar, Paying Agent or agent for service of notices and
demands.
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Upon execution and delivery of the Indenture, the Notes shall be
endorsed by each of the Initial Guarantors to evidence their Guaranties of the
obligations thereunder.
The Issuers, the Trustee and any agent of the Issuers or the Trustee
may treat the person in whose name any Note is registered as the owner of such
Note for the purpose of receiving payment of principal of and (subject to the
provisions of this Indenture and the Notes with respect to record dates)
interest on such Note and for all other purposes whatsoever, whether or not such
Note is overdue, and neither the Issuers, the Trustee nor any agent of the
Issuers or the Trustee shall be affected by notice to the contrary.
SECTION 2.03. Registrar and Paying Agent. The Note Issuers shall
maintain an office or agency in the Borough of Manhattan, City of New York where
Notes may be presented for registration of transfer or for exchange (the
"Registrar") and an office or agency where Notes may be presented for payment
(the "Paying Agent"). The Registrar shall keep a register of the Notes and of
their transfer and exchange. The Note Issuers may have one or more co-registrars
and one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent.
The Note Issuers shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture,
which shall incorporate the applicable terms of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such agent. The Note
Issuers shall notify the Trustee in writing of the name and address of any such
agent. If the Note Issuers fail to maintain a Registrar or Paying Agent, the
Trustee shall act as such and shall be entitled to appropriate compensation and
indemnity therefor pursuant to Section 7.07. The Note Issuers or any of their
domestically incorporated Wholly-Owned Restricted Subsidiaries may act as Paying
Agent, Registrar, co-registrar or transfer agent.
The Note Issuers initially appoint the Trustee as Registrar and
Paying Agent in connection with the Notes. The office of the Registrar and
Paying Agent for purposes of this Section 2.03 shall be at 61 Broadway, 15th
Floor, New York, New York 10006.
The Note Issuers initially appoint The Depository Trust Company to
act as Depositary with respect to the Global Notes.
Iridium may remove any Registrar or Paying Agent upon written notice
to such Registrar or Paying Agent and to the Trustee; provided that no such
removal shall become effective until (1) acceptance of an appointment by a
successor as evidenced by an appropriate agreement entered into by the Note
Issuers and such successor Registrar or Paying Agent, as the case may be, and
delivered to the Trustee or (2) notification to the Trustee that the Trustee
shall serve as Registrar or Paying Agent until the appointment of a successor in
accordance with clause (1) above. The Registrar or Paying Agent may resign at
any time upon written notice; provided, however, that the Trustee may resign as
Paying Agent or Registrar only if the Trustee also resigns as Trustee in
accordance with Section 7.08.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
date of the principal and interest on any Note, the Note Issuers shall deposit
with the Paying Agent (or if a Note Issuer or a domestically organized
Wholly-Owned Restricted Subsidiary is acting as Paying Agent, segregate and hold
in trust for the benefit of the Persons entitled thereto) a sum sufficient to
pay such principal and interest when so becoming due. The Note Issuers shall
require each Paying Agent (other than the Trustee) to agree in writing that the
Paying Agent shall hold in trust for the benefit of Holders or the Trustee all
money held by the Paying Agent for the payment of principal of or interest on
the Notes and shall notify the Trustee of any default by the Note Issuers in
making any such payment, if a Note Issuer or a domestically organized
Wholly-Owned Restricted Subsidiary acts as Paying Agent, it shall segregate the
money held by it as Paying Agent and hold it as a separate trust fund. The Note
Issuers at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee.
Any money deposited with any Paying Agent, or then held by a Note
Issuer or a domestically organized Wholly-Owned Restricted Subsidiary in trust
for the payment of principal or interest on any Note and remaining unclaimed for
two years after such principal and interest has become due and payable shall,
subject to the requirements of applicable escheat laws, be paid to Iridium at
its request, or, if then held by a Note Issuer or such a Subsidiary, shall be
discharged from such trust; and the Holders shall thereafter, as unsecured
general creditors, look
<PAGE> 24
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only to the Note Issuers for payment thereof, and all liability of the Paying
Agent with respect to such money shall thereupon cease.
SECTION 2.05. Holder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders. If the Trustee is not the Registrar, Iridium
shall furnish, or cause the Registrar to furnish, to the Trustee, in writing at
least five Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of
Holders.
SECTION 2.06. Transfer and Exchange. The Notes shall be issued in
registered form and shall be transferable only upon the surrender of a Note for
registration of transfer. When a Note is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar shall register
the transfer as requested if the requirements of Section 8-401(l) of the Uniform
Commercial Code are met, as stated to the Registrar in an opinion of counsel if
requested by the Registrar. When Notes are presented to the Registrar or a
co-registrar with a request to exchange them for an equal principal amount of
Notes of other denominations, the Registrar shall make the exchange as requested
if the same requirements are met. To permit registration of transfers and
exchanges, the Issuers shall execute and the Trustee shall authenticate Notes at
the Registrar's or co-registrar's request. The Note Issuers may require payment
of a sum sufficient to pay all taxes, assessments or other governmental charges
in connection with any transfer or exchange pursuant to this Section. The Note
Issuers shall not be required to make and the Registrar need not register
transfers or exchanges of Notes selected for redemption (except, in the case of
Notes to be redeemed in part, the portion thereof not to be redeemed) or any
Notes for a period of 15 days before a selection of Notes to be redeemed or 15
days before an Interest Payment Date.
Prior to the due presentation for registration of transfer of any
Note, the Issuers, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the Person in whose name a Note is registered as
the absolute owner of such Note for the purpose of receiving payment of
principal of and interest, if any, on such Note and for all other purposes
whatsoever, whether or not such Note is overdue, and none of the Issuers, the
Trustee, the Paying Agent, the Registrar or any co-registrar shall be affected
by notice to the contrary.
Any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interest in such Global Note may be
effected only through a book-entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in such
Global Note shall be required to be reflected in a book entry.
All Notes issued upon any transfer or exchange pursuant to this
Section 2.06 shall evidence the same debt and shall be entitled to the same
benefits under this Indenture as the Notes surrendered upon such transfer or
exchange.
SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered
to the Registrar or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Note Issuers shall issue, the Guarantor
Subsidiaries shall execute and the Trustee shall authenticate a replacement Note
if the requirements of Section 8-405 of the Uniform Commercial Code are met,
such that the Holder (i) satisfies Iridium or the Trustee within a reasonable
time after he has notice of such loss, destruction or wrongful taking and the
Registrar does not register a transfer prior to receiving such notification that
such requirements are met, (ii) makes such request to Iridium or the Trustee
prior to the Note being acquired by a bona fide purchaser and (iii) satisfies
any other reasonable requirements of the Trustee including, if requested, an
opinion of counsel for the Holder to the effect that the Holder has complied
with the requirements of this Section 2.07. If required by the Trustee or
Iridium, such Holder shall furnish an indemnity bond sufficient in the judgment
of the Trustee or Iridium, as the case may be, to protect the Issuers, the
Trustee, the Paying Agent, the Registrar and any co-registrar from any loss that
any of them may suffer if a Note is replaced. Iridium and the Trustee may charge
the Holder for their expenses in replacing a Note. In the event any such
mutilated, lost, destroyed or wrongfully taken Note has become or is about to
become due and payable, the Issuers in its discretion may pay such Note instead
of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Issuers.
<PAGE> 25
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The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, lost, destroyed or wrongfully taken Notes.
SECTION 2.08. Outstanding Notes. Notes outstanding at any time are
all senior Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding. A Note does not cease to be outstanding because an Issuer or an
Affiliate of an Issuer holds the Note.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and Iridium receive proof satisfactory to them
that the replaced Note is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance
with this Indenture, on a redemption date or maturity date money sufficient to
pay all principal and interest payable on that date with respect to the Notes
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Holders on that
date pursuant to the terms of this Indenture, then on and after that date such
Notes (or portions thereof) cease to be outstanding and interest on them ceases
to accrue.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Issuers or any of its Affiliates shall be disregarded, except that, for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which the Trustee knows or has
reason to know are so owned shall be disregarded.
SECTION 2.09. Temporary Notes. Until Definitive Notes and Global
Notes are ready for delivery, the Issuers may prepare and the Trustee shall
authenticate temporary Notes. Temporary Notes shall be substantially in the form
of Definitive Notes but may have variations that Iridium considers appropriate
for temporary Notes. Without unreasonable delay, the Issuers shall prepare and
the Trustee shall authenticate Definitive Notes and deliver them in exchange for
temporary Notes upon surrender of such temporary Notes at the office or agency
of the Note Issuers, without charge to the Holder.
SECTION 2.10. Cancellation. A Note Issuer at any time may deliver
Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Notes surrendered for registration of transfer, exchange, payment or
cancellation unless Iridium directs the Trustee to deliver canceled Notes to
Iridium. The Issuers may not issue new Notes to replace Notes they have
redeemed, paid or delivered to the Trustee for cancellation. The Trustee shall
not authenticate Notes in place of canceled Notes other than pursuant to the
terms of this Indenture.
SECTION 2.11. Defaulted Interest. If the Issuers default in a
payment of interest on the Notes, the Issuer shall pay the defaulted interest
(plus interest on such defaulted interest to the extent lawful) in any lawful
manner. The Issuers may pay the defaulted interest to the persons who are
Holders on a subsequent special record date. The Note Issuers shall fix or cause
to be fixed any such special record date and payment date to the reasonable
satisfaction of the Trustee and shall promptly mail or cause to be mailed to
each Holder a notice that states the special record date, the payment date and
the amount of defaulted interest to be paid.
The Issuers may make payment of any defaulted interest in any other
lawful manner not inconsistent with the requirements (if applicable) of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, if, after notice given by the Note Issuers to
the Trustee of the proposed payment pursuant to this paragraph, such manner of
payment shall be deemed practicable by the Trustee.
SECTION 2.12. CUSIP Numbers. The Note Issuers in issuing the Notes
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Notes or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Notes, and any such redemption
shall not be affected by any defect in or omission of such numbers.
<PAGE> 26
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SECTION 2.13. Book-Entry Provisions for Global Notes.
(a) Each Global Note initially shall (i) be registered in the name
of the Depositary for such Global Note or the nominee of such Depositary and
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
the Global Securities legend as set forth in Exhibit A hereto.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depositary, or the Trustee as its custodian, or under
such Global Note, and the Depositary may be treated by the Issuers, the Trustee
and any agent of the Issuers or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Issuers, the Trustee or any agent of the Issuers or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary.
Beneficial owners of interests in a Global Note may obtain Definitive Notes in
exchange for their beneficial interests in a Global Note only if (i) the Note
Issuers notify the Trustee in writing that the Depositary is no longer willing
or able to act as Depositary for such Global Note or the Depositary ceases to be
a "clearing agency" registered under the Exchange Act, at a time when the
Depositary is required to be so registered in order to act as Depositary, and,
in each case, a successor depositary is not appointed by the Note Issuers within
90 days of such notice, (ii) the Note Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of Definitive Notes or
(iii) an Event of Default has occurred and is continuing and the Registrar has
received a request from the Depositary to effect such exchange.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Note pursuant to Section 2.13(b), the Registrar shall
reflect on its books and records the date and a decrease in the principal amount
of such Global Note in an amount equal to the principal amount of the beneficial
interest in the Global Note to be transferred, and the Issuers shall execute,
and the Trustee shall authenticate and deliver, one or more Definitive Notes of
like tenor and amount.
(d) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other corresponding Global Note will, upon transfer, cease to be an interest in
such Note and become an interest in the other corresponding Note and,
accordingly, will thereafter be subject to all transfer restrictions, if any,
and other procedures applicable to beneficial interest in such other
corresponding Note for as long as it remains such an interest.
(e) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to subsection (b) of this Section 2.13, such Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Issuers shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such Global Note, an equal aggregate principal amount of Definitive
Notes of authorized denominations.
(f) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
(g) The Registrar shall retain copies of all letters, notices and
other written communications received pursuant to this Section 2.13. The Issuers
shall have the right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the giving of
reasonable written notice to the Registrar.
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ARTICLE III
Redemption
SECTION 3.01. Notices to Trustee. If either Note Issuer elects to
redeem Notes pursuant to Section 3.07, it shall notify the Trustee in writing of
the redemption date and the principal amount of Notes to be redeemed.
The Note Issuer shall give each notice to the Trustee provided for
in this Section 3.01 at least 30 days before the redemption date unless the
Trustee consents to a shorter period. Such notice shall be accompanied by an
Officers' Certificate from the Note Issuer to the effect that such redemption
shall comply with the conditions herein. If fewer than all the Notes are to be
redeemed, the record date relating to such redemption shall be selected by
Iridium and given to the Trustee, which record date shall be not less than 15
days after the date of notice to the Trustee (unless a shorter period shall be
acceptable to the Trustee). Any such notice may be canceled by notice in writing
to the Trustee at any time prior to notice of such redemption being mailed to
any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities to be Redeemed. If fewer than
all the Notes are to be redeemed, the Trustee shall select the Notes to be
redeemed pro rata or by lot or by such other method as the Trustee in its sole
discretion deems to be fair and appropriate. The Trustee shall make the
selection from outstanding Notes not previously called for redemption. The
Trustee may select for redemption portions of the principal of Notes that have
denominations larger than $1,000. Securities and portions of them the Trustee
selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions
of this Indenture that apply to Notes called for redemption also apply to
portions of Notes called for redemption. The Trustee shall notify the Note
Issuers promptly of the Notes or portions of Notes to be redeemed.
SECTION 3.03. Notice of Redemption. Any notice of redemption shall
identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Notes are to be redeemed, the
certificate numbers and principal amounts of the particular Notes to be
redeemed;
(6) that, unless the Note Issuers default in making such redemption
payment or the Paying Agent is prohibited from making such payment
pursuant to the terms of this Indenture, interest on Notes (or portion
thereof) called for redemption ceases to accrue on and after the
redemption date;
(7) the CUSIP number, if any, printed on the Notes being redeemed;
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes; and
(9) that if a Note is to be redeemed in part, only the portion of
the principal amount (equal to $1,000 or an integral multiple thereof) of
such Note to be redeemed and that a new Note in the aggregate principal
amount equal to the unredeemed portion thereof shall be issued without
charge to the holder.
At either Note Issuer's request (which may be revoked at any time in
writing prior to the time at which the Trustee shall have given such notice to
the Holders), the Trustee shall give the notice of redemption in the
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applicable Note Issuer's name and at the Note Issuer's expense. In such event,
the Note Issuer shall provide the Trustee with the information required by this
Section 3.03.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Notes shall be paid at the redemption price stated in
the notice, plus accrued interest, if any, to the redemption date; provided that
if the redemption date is after a regular record date and on or prior to the
interest payment date, the accrued interest shall be payable to the Holder of
the redeemed Notes registered on the relevant record date. If mailed in the
manner provided herein, the notice shall be conclusively presumed to have been
given whether or not the Holder receives such notice. Failure to give notice or
any defect in the notice to any Holder shall not affect the validity of the
notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. At least one Business Day
prior to the redemption date, the applicable Note Issuer shall deposit with the
Paying Agent (or, if a Note Issuer or a Subsidiary is the Paying Agent, shall
segregate and hold in trust) money sufficient to pay the redemption price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions of Notes called for redemption which have been delivered by such Note
Issuer to the Trustee for cancellation.
SECTION 3.06. Notes Redeemed in Part. Upon surrender of a Note that
is redeemed in part, the Issuers shall execute and the Trustee shall
authenticate for the Holder (at the Note Issuers' expense) a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. Optional Redemption. (a) Except as set forth in
Section 3.07(b), the Notes may not be redeemed prior to July 15, 2002. On and
after that date, either Note Issuer may redeem the Notes in whole or in part at
the following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption),
if redeemed during the 12-month period commencing on July 15 of the years set
forth below:
Redemption
Period Price
- ------ -----
2002................................................... ______%
2003................................................... ______%
2004 and thereafter.................................... 100.000%
(b) In addition, at any time on or prior to July 15, 2000, either
Note Issuer may redeem in the aggregate up to 33-1/3% of the original aggregate
principal amount of Notes with the proceeds of one or more Equity Offerings at a
redemption price (expressed as a percentage of principal amount thereof) of
______% plus accrued and unpaid interest to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date that is on or prior to the date of
redemption); provided, however, that at least 66-2/3% of the original aggregate
principal amount of the Notes being redeemed must remain outstanding after each
such redemption.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes. The Note Issuers, as joint and
several obligors, shall promptly pay the principal of and interest on the Notes
on the dates and in the manner provided in the Notes and in this Indenture.
Principal and interest shall be considered paid on the date due if on such date
the Trustee or the Paying Agent holds in accordance with this Indenture money
sufficient to timely pay all principal and interest then due and the Trustee or
the Paying Agent, as the case may be, is not prohibited from paying such money
to the Holders on that date pursuant to the terms of this Indenture.
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The Note Issuers, as joint and several obligors, shall pay interest
on overdue principal at the rate specified therefor in the Notes, and shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
SECTION 4.02. SEC Reports. Notwithstanding that Iridium may not be
required to be or remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, Iridium shall file with the SEC, and provide the
Trustees and Holders and prospective Holders (upon request) with the annual
reports and the information, documents and other reports which are specified in
Sections 13 and 15(d) of the Exchange Act.
The foregoing shall not require Capital or any Guarantor Subsidiary
to file, provide or furnish with or to any Person any report or information
separate from any report or information filed, provided or furnished by Iridium
to the extent Capital or any Guarantor Subsidiary would not be required to do so
under Section 13 or 15(d) of the Exchange Act.
SECTION 4.03. Limitation on Indebtedness.
(a) Iridium shall not, and shall not permit any Restricted
Subsidiary to, Incur any Indebtedness (including any Acquired Indebtedness)
unless (i) immediately after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the Debt
to Cash Flow Ratio would be less than 4.0 to 1.0 and (ii) if such Indebtedness
is Incurred by a Restricted Subsidiary, such Restricted Subsidiary is a
Guarantor Subsidiary. Notwithstanding the foregoing, prior to June 30, 2000,
Iridium, Capital and any other Restricted Subsidiary that is a Guarantor
Subsidiary may Incur Indebtedness if immediately after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Debt to Capital Ratio would be less than 65%.
(b) Notwithstanding the foregoing paragraph (a), Iridium, Capital
and any other Restricted Subsidiary that is a Guarantor Subsidiary may Incur the
following Indebtedness:
(i) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements to finance the Build-out of the IRIDIUM System; provided,
however, that Indebtedness Incurred pursuant to this clause (i), other
than Indebtedness Incurred pursuant to a Bank Credit Agreement or Vendor
Financing Facility, shall not have a Stated Maturity earlier than the
Stated Maturity of the Notes, and shall not be mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or be redeemable at
the option of the holder thereof, in whole or in part, prior to the Stated
Maturity of the Notes (other than pursuant to provisions which are
substantially similar to those contained in Section 4.08 which permit the
holders of such Indebtedness to require the issuer thereof to repurchase
or repay such Indebtedness upon a Change of Control (or an event
substantially similar thereto) or to make an offer to purchase as a result
of the occurrence of an Asset Disposition (or an event substantially
similar thereto) or receipt of insurance proceeds);
(ii) After Commercial Activation, Indebtedness under any one
or more Bank Credit Agreements or other agreements or arrangements to
finance working capital requirements of Iridium and any Refinancing
Indebtedness in respect of such Indebtedness; provided, however, at the
time of the Incurrence of such Indebtedness and after giving effect
thereto, the aggregate principal amount of all Indebtedness Incurred
pursuant to this clause (ii) and then outstanding does not exceed
$950,000,000;
(iii) Indebtedness Incurred under any one or more Bank Credit
Agreements, Vendor Financing Facilities or other agreements or
arrangements that is guaranteed pursuant to the Motorola Additional
Guarantee; provided, however, at the time of Incurrence of such
Indebtedness and after giving effect thereto, the aggregate principal
amount of all Indebtedness incurred pursuant to this clause (iii) and then
outstanding does not exceed $350,000,000;
(iv) Indebtedness owed by Iridium to Capital or any
Wholly-Owned Restricted Subsidiary that is a Guarantor Subsidiary or
Indebtedness owed by Capital or any Wholly-Owned Restricted Subsidiary
that is a Guarantor Subsidiary to Iridium or to Capital or another
Wholly-Owned Restricted Subsidiary that is a Guarantor Subsidiary;
provided, however, that upon either (x) the transfer or other disposition
by Capital, such Wholly-Owned Restricted Subsidiary or Iridium of any
Indebtedness so permitted to a Person other than Iridium, Capital or
another Wholly-Owned Restricted Subsidiary that is a
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Guarantor Subsidiary or (y) the issuance, sale, lease, transfer or other
disposition of shares of Capital Stock (including by consolidation or
merger, but not including directors' qualifying shares or interests
required to be held by foreign nationals, in each case to the extent
mandated by applicable law) of such Wholly-Owned Restricted Subsidiary or
Capital to a Person other than Iridium, Capital or another such
Wholly-Owned Restricted Subsidiary, the provisions of this clause (iv)
shall no longer be applicable to such Indebtedness and such Indebtedness
shall be deemed to have been Incurred by the issuer thereof at the time of
such issuance, sale, lease, transfer or other disposition;
(v) Refinancing Indebtedness Incurred to Refinance
Indebtedness Incurred pursuant to Section 4.03(a) or pursuant to clause
(i), (ii), (iii), (vii) or (viii) or this clause (v) of this Section
4.03(b);
(vi) Indebtedness consisting of Permitted Interest Rate or
Currency Protection Agreements;
(vii) Indebtedness represented or evidenced by the Notes and
the Subsidiary Guaranties;
(viii) Indebtedness outstanding on the Issue Date (other than
the Guaranteed Bank Facility and other Indebtedness described in clause
(i), (ii), (iii), (iv) or (vii) of this Section 4.03(b));
(ix) Indebtedness consisting of performance and other similar
bonds and reimbursement obligations Incurred in the ordinary course of
business securing the performance of contractual, franchise or license
obligations of Iridium, Capital or a Restricted Subsidiary, or in respect
of a letter of credit obtained to secure such performance; and
(x) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of Iridium, Capital and other
Restricted Subsidiaries that are Guarantor Subsidiaries outstanding on the
date of such Incurrence (without duplication and other than Indebtedness
permitted by clauses (i) through (ix) above or Section 4.03(a)) does not
exceed $100,000,000.
(c) For purposes of determining compliance with this covenant, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness, Iridium, Capital and the other Restricted
Subsidiaries are permitted to Incur, Iridium, Capital or such Restricted
Subsidiary, as the case may be, shall have the right, in Iridium's sole
discretion, to classify such item of Indebtedness at the time of its Incurrence
and shall only be required to include the amount and type of such Indebtedness
under the clause permitting the Indebtedness as so classified.
SECTION 4.04. Limitation on Restricted Payments.
(a) Iridium shall not, and shall not permit any Restricted
Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or
in respect of its Capital Stock (including any payment in connection with
any merger or consolidation involving the Note Issuers), except dividends
or distributions payable solely in its Capital Stock (other than
Disqualified Stock) and cash to the extent required to pay for fractional
shares of such Capital Stock or payable to Iridium or another Restricted
Subsidiary (and, if such Restricted Subsidiary has shareholders other than
the Note Issuers or other Restricted Subsidiaries, to its other
shareholders on a pro rata basis or on a basis that results in the receipt
by the Note Issuers or a Restricted Subsidiary of dividends or
distributions of equal or greater value);
(ii) purchase, redeem, retire or otherwise acquire for value
any Capital Stock of Iridium or any Restricted Subsidiary held by Persons
other than Iridium or another Restricted Subsidiary;
(iii) purchase, repurchase, redeem, defease, acquire or retire
for value, or otherwise make any principal payment on, any Subordinated
Obligations prior to the scheduled maturity, scheduled repayment or
scheduled sinking fund payment thereof (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the
date of acquisition, or any
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purchase, repurchase, redemption or other acquisition or prepayment
thereof in connection with any Refinancing thereof permitted pursuant to
clause (v) of paragraph (b) of Section 4.03); or
(iv) make any Investment (other than a Permitted Investment)
in any Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement, Investment or
payment being herein referred to as a "Restricted Payment"), if at the
time Iridium or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default has occurred and is continuing (or would result therefrom);
(2) Iridium could not Incur at least $1.00 of additional Indebtedness
pursuant to the terms of the first sentence of paragraph (a) of Section
4.03; or (3) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made subsequent to the Issue Date would
exceed the sum of:
(A) 50% of the Consolidated Net Income of Iridium
accrued during the period (treated as one accounting period) from
the beginning of the fiscal quarter immediately following the fiscal
quarter during which July 16, 1997 occurs to the end of the most
recent fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, in case such
Consolidated Net Income is a deficit, minus 100% of such deficit);
provided, however, that the aggregate amount calculated pursuant to
this clause (A) (if such aggregate amount is a negative amount)
shall be reset to zero on the first date on which the Notes are
assigned an Investment Grade Rating by both Rating Agencies;
(B) the aggregate Net Cash Proceeds received by Iridium
from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than an
issuance or sale to a Restricted Subsidiary and other than an
issuance or sale to an employee stock ownership plan or to a trust
established by Iridium or any Restricted Subsidiaries for the
benefit of their employees);
(C) the amount by which Indebtedness of Iridium is
reduced on the balance sheet of Iridium upon the conversion or
exchange (other than by a Restricted Subsidiary) subsequent to the
Issue Date of any Indebtedness of Iridium convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of
Iridium (less the amount of any cash, or the fair value of any other
property or assets of Iridium or any Restricted Subsidiary,
distributed by Iridium upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction
in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers of
assets, in each case to Iridium or any Restricted Subsidiary from
Unrestricted Subsidiaries, and (ii) the portion (proportionate to
Iridium's equity interest in such Subsidiary) of the fair market
value of the net assets of an Unrestricted Subsidiary (as evidenced
by a resolution of the Board of Directors in the manner set forth in
Section 4.04(c)) at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum does not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by Iridium or any Restricted Subsidiary in
such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Iridium may:
(i) subject to clause (vii) below, pay any dividend on Capital Stock
of any class within 60 days after the declaration thereof if, on the date
when the dividend was declared, Iridium could have paid such dividend in
accordance with the foregoing provisions;
(ii) repurchase any Capital Stock from Persons who were formerly
officers, managers or employees of Iridium LLC or any of its Subsidiaries
(or from IWCL in connection with or relating to a repurchase by IWCL of
its Capital Stock from such Persons); provided, however, that the
aggregate amount of all such repurchases made pursuant to this clause (ii)
shall not exceed $2,000,000, plus the aggregate cash proceeds received by
Iridium since July 16, 1997 from the issuance of its Capital Stock to
officers, managers and employees of Iridium or any of its Subsidiaries (or
from IWCL in connection with or relating to such an issuance by IWCL to
such Persons);
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(iii) Refinance, and permit its Restricted Subsidiaries to
Refinance, any Indebtedness otherwise permitted to be Refinanced by clause
(v) of paragraph (b) under Section 4.03.
(iv) during the period any of Iridium or Iridium LLC is treated as a
partnership for U.S. federal income tax purposes and after such period to
the extent relating to the liability for such period, make distributions
in respect of members' or partners' income tax liability with respect to
Iridium or Iridium LLC in an amount not to exceed the Tax Amount;
(v) make distributions to Iridium LLC to pay Iridium LLC's or IWCL's
ordinary and reasonable operating expenses related to Iridium LLC, as set
forth in an Officers' Certificate delivered to the Trustee;
(vi) repurchase any Capital Stock pursuant to Section 11.03 of the
LLC Agreement in the event a member of Iridium fails to pay any of the
amounts required by a Reserve Capital Call;
(vii) make any Restricted Payment by exchange for, or out of the
proceeds of the substantially concurrent sale of, or capital contribution
in respect of, Capital Stock of Iridium (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of Iridium or an
employee stock ownership plan or to a trust established by Iridium or any
of its Subsidiaries for the benefit of their employees);
(viii) make any Restricted Payment pursuant to the Interest Exchange
Agreement, the Share Issuance Agreement, the Master Subscription Agreement
or the Management Services Agreement; and
(ix) make other Restricted Payments in an aggregate amount not to
exceed $10,000,000.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vii),
(viii) and (ix) of the immediately preceding paragraph shall be excluded from
the calculation of the aggregate amount of Restricted Payments made since the
Issue Date; provided, however, that the Net Cash Proceeds from the issuance of
Capital Stock pursuant to clauses (ii) and (vii) of the immediately preceding
paragraph shall be excluded from the calculation of amounts under clause (B) of
the second preceding paragraph. A dividend or distribution by a Restricted
Subsidiary in respect of its Capital Stock shall only be deemed to be a
Restricted Payment to the extent such dividend or distribution is paid to
entities other than Iridium and the Restricted Subsidiaries.
(c) The net proceeds from the issuance of shares of Capital Stock upon
conversion of Indebtedness shall be deemed to be an amount equal to (i) the
accreted value of such Indebtedness on the date of such conversion and (ii) the
additional consideration, if any, received by Iridium upon such conversion
thereof, less any cash payment on account of fractional shares. The amount of
all Restricted Payments (other than cash) shall be the fair market value
(evidenced by a resolution of the Board of Directors determined in good faith
and set forth in an Officers' Certificate delivered to the Trustee) on the date
of the Restricted Payment of the asset(s) proposed to be transferred by Iridium
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than the date of making any Restricted Payment, Iridium shall
deliver to the Trustee an Officers' Certificate identifying each Restricted
Payment made by Iridium during such fiscal quarter and stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.04 were computed, which calculations may
be based upon Iridium's latest available financial statements. If Iridium makes
a Restricted Payment which, at the time of the making of such Restricted
Payment, would in the good faith determination of Iridium be permitted under
this Indenture, such Restricted Payment shall be deemed to have been made in
compliance with this Indenture notwithstanding any subsequent adjustments made
in good faith to Iridium's financial statements affecting Consolidated Net
Income for any period.
SECTION 4.05. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. Iridium shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions to Iridium or any Restricted Subsidiary on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits, (ii) pay any Indebtedness owed to Iridium or any Restricted Subsidiary,
(iii) make any loans or advances to Iridium or any Restricted Subsidiary or (iv)
transfer any of its property or assets to Iridium or any Restricted Subsidiary,
except:
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(1) any encumbrance or restriction pursuant to an agreement relating
to the Guaranteed Bank Facility or any other agreement in effect at or
entered into on the Issue Date, or any encumbrance or restriction imposed
pursuant to this Indenture or the Notes (or similar limitations pursuant
to other notes issued by Iridium, or indentures relating thereto, that are
substantially similar to those set forth in this Indenture), or any
agreement relating to the Secured Bank Facility;
(2) any encumbrance or restriction pursuant to an agreement relating
to any Acquired Indebtedness, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person so acquired and its Subsidiaries;
(3) any encumbrance or restriction pursuant to (x) an agreement or
instrument pursuant to which Indebtedness which Refinances Indebtedness
Incurred pursuant to an agreement referred to in clause (1) or (2) or this
clause (3) is Incurred or contained in any amendment to an agreement or
instrument referred to in clause (1) or (2) of this clause (3), or (y)
Indebtedness described in clause (i), (ii) or (iii) of paragraph (b) of
Section 4.03 and permitted Refinancing Indebtedness with respect thereto;
provided, however, that the encumbrances and restrictions contained in any
such refinancing agreement, instrument or amendment referred to in clause
(x) above are, taken as a whole, no more restrictive in any material
respect than the encumbrances and restrictions contained in the
predecessor agreements (as determined by the chief financial officer of
Iridium in good faith and evidenced by a certificate filed with the
Trustee);
(4) any encumbrance or restriction contained in security agreements
or mortgages securing Indebtedness, or under any documents providing for
Capital Lease Obligations, of a Restricted Subsidiary which are not
prohibited by Section 4.12 herein to the extent such encumbrances or
restrictions restrict the assignment or transfer of the property or assets
subject to such security agreements or mortgages, or subject to such
Capital Lease Obligations;
(5) any encumbrance or restriction existing under or by reason of
applicable law or regulations;
(6) customary non-assignment provisions of any licensing agreement
or of any lease but only to the extent such provisions restrict the
transfer of the license, lease or the property thereunder;
(7) any encumbrance or restriction contained in contracts for sales
of assets otherwise permitted by this Indenture;
(8) with respect to a Restricted Subsidiary, any encumbrance or
restriction imposed pursuant to an agreement that has been entered into
for the sale of all or substantially all of the Capital Stock of such
Restricted Subsidiary; provided, however, that after giving effect to such
transaction no Default shall have occurred or be continuing, that such
restriction terminates if such transaction is not consummated and that
such consummation or abandonment of such transaction occurs within one
year of the date such agreement was entered into;
(9) any encumbrance or restriction, with respect to a Restricted
Subsidiary that is not a Restricted Subsidiary on the date of this
Indenture, in existence at the time such Person becomes a Restricted
Subsidiary and not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary; and
(10) any restriction on the sale or other disposition of assets or
property securing Indebtedness as a result of a Permitted Lien on such
assets or property.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
(a) Iridium shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Disposition unless:
(i) Iridium or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition,
as determined by the Board of Directors in good faith and evidenced by a
resolution filed with the Trustee;
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(ii) at least 80% of the consideration therefor received by Iridium
or such Restricted Subsidiary, as the case may be, consists of cash or
Marketable Securities (provided that an amount equal to the fair value (as
determined in good faith by the Board of Directors as evidenced by a
resolution filed with the Trustee) of assets utilized or to be utilized in
a Related Business and received by Iridium or any Restricted Subsidiary in
connection with any Asset Disposition shall be treated as cash solely for
purposes of this clause (ii)) or the assumption of Indebtedness of Iridium
(other than Indebtedness that is a Subordinated Obligation) or the
Restricted Subsidiary, as the case may be, and the release of Iridium or
such Restricted Subsidiary, as the case may be, from all liability on the
Indebtedness assumed; and
(iii) all Net Available Proceeds, less any amounts invested within
180 days of such disposition (or committed by such 180th day for
investment pursuant to a written agreement which commits such investment
within 180 days after the date of such agreement) in assets that comply
with Section 4.13, are applied within 180 days of such Asset Disposition
(1) first, to the permanent repayment or reduction of Indebtedness then
outstanding under any Bank Credit Agreement or Vendor Financing Facility,
to the extent such agreement or facility would require such application or
prohibit payments pursuant to the following clause (2), (2) second, to the
extent of remaining Net Available Proceeds, to make an Offer to Purchase
outstanding Notes at a purchase price in cash equal to 100% of the
principal amount of the Notes plus accrued and unpaid interest to the date
of purchase and, to the extent required by the terms thereof, any other
Indebtedness of Iridium or a Restricted Subsidiary that ranks pari passu
with the Notes at a purchase price no greater than 100% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase
and (3) third, to the extent of any remaining Net Available Proceeds after
application of clauses (1) and (2) of this Section 4.06(a)(iii), to the
repayment of other Indebtedness of Iridium or Indebtedness of a Restricted
Subsidiary, to the extent permitted under the terms thereof. To the extent
any Net Available Proceeds remain after such uses, Iridium and the
Restricted Subsidiaries may use such amounts for any purposes not
prohibited by this Indenture. Notwithstanding the foregoing, Iridium shall
not be required to repurchase or redeem Notes pursuant to clause (2) of
this Section 4.06(a)(iii) until Net Available Proceeds from all Asset
Dispositions in the aggregate, less (x) any amounts invested within 180
days of such dispositions (or committed by such 180th day for investment
pursuant to a written agreement which commits such investment within 180
days after the date of such agreement) in a Related Business, (y) any
amounts applied pursuant to clause (1) above and (z) any amounts
previously applied pursuant to clause (1), (2) or (3) of this Section
4.06(a)(iii), are greater than $10,000,000.
(b) The Note Issuers shall comply, to the extent applicable, with
the requirements of Section 14(e) of the Exchange Act and any other securities
laws or regulations in connection with the repurchase of Notes pursuant to this
Section 4.06. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached their obligations described under Section 4.06 by virtue thereof.
SECTION 4.07. Limitation on Transactions with Affiliates. (a)
Iridium shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, enter into any transaction (including the purchase, sale, lease
or exchange of any property or the rendering of any service) with any Affiliate
or Related Person of Iridium (other than Iridium or a Wholly-Owned Restricted
Subsidiary) that involves consideration in excess of $5,000,000 (an "Affiliate
Transaction") on terms (i) that, taken as a whole, are less favorable to Iridium
or such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not such an Affiliate and (ii) that, in the event such Affiliate
Transaction involves an aggregate amount in excess of $10,000,000, are not in
writing and have not been approved either by a majority of the members of the
Board of Directors having no material direct or indirect financial interest in
or with respect to such Affiliate Transaction or by the Related Party Contracts
Committee, as defined by the Iridium Operating LLC Agreement (if appropriate
under Iridium's Bylaws or the Iridium Operating LLC Agreement). In addition, if
such Affiliate Transaction is an Asset Disposition involving any Affiliate or
Related Person of Iridium (other than Iridium or a Wholly-Owned Restricted
Subsidiary) for an aggregate consideration in excess of $25,000,000, a fairness
opinion to the effect that such transaction is fair (from a financial point of
view) to Iridium or the Restricted Subsidiary, as applicable, must be obtained
from an Independent Financial Advisor or, with respect to
telecommunications-related matters, a recognized expert in the satellite
telecommunications industry.
(b) The provisions of the paragraph (a) of this Section 4.07 shall
not apply to:
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(i) employee benefit or compensation arrangements entered into
in the ordinary course of business and approved by the Board of
Directors;
(ii) transactions solely between or among Iridium and the
Restricted Subsidiaries;
(iii) Restricted Payments permitted by Section 4.04;
(iv) Investments by IWCL, an Affiliate or Related Person of
Iridium or Capital in the Capital Stock (other than Disqualified Stock)
of Iridium or any Restricted Subsidiary; and
(v) a transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not, taken as a
whole, less favorable to Iridium than the terms of the relevant
agreement prior to such amendment.
SECTION 4.08. Change of Control. (a) Upon the occurrence of a
Change of Control, each Holder shall have the right to require the Note Issuers
to repurchase all or any part of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount of the Notes, plus accrued and unpaid
interest to the date of purchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date in accordance with the terms of this Indenture); provided, however,
that notwithstanding the occurrence of a Change of Control, the Note Issuers
shall not be obligated to purchase any Note pursuant to this Section 4.08 to the
extent that the Note Issuers have exercised their rights to redeem such Note as
described in Section 3.07.
(b) Within 30 days following any Change of Control, the Note
Issuers shall mail a notice to each Holder with a copy to the Trustees stating,
among other things: (1) that a Change of Control has occurred and that such
Holder has the right to require the Note Issuers to purchase all or any portion
of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount of such Notes, plus accrued and unpaid interest to the date of
purchase (subject to the right of Holders of record on a record date to receive
interest due on the relevant interest payment date in accordance with the terms
of this Indenture); (2) the circumstances and relevant facts regarding such
Change of Control (including information with respect to pro forma historical
income, cash flow and capitalization, each after giving effect to such Change of
Control); (3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Note Issuers, consistent with this Section 4.08,
that a Holder must follow in order to have its Notes or any portion thereof
purchased.
(c) The Note Issuers shall comply, to the extent applicable,
with the requirements of Section 14(e) of the Exchange Act and any other
securities laws or regulations in connection with the repurchase of Notes
pursuant to this Section 4.08. To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Section 4.08,
the Note Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations described
above by virtue thereof.
SECTION 4.09. Compliance Certificate. The Note Issuers shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Note Issuers an Officers' Certificate complying with Section 314(a)(4) of the
TIA and stating that in the course of the performance by the signers of their
duties as Officers of the Note Issuers they would normally have knowledge of any
Default or Event of Default and, if such signer does know of such a Default or
Event of Default, the certificate shall describe such Default or Event of
Default with particularity and describe what actions, if any, the Note Issuers
propose to take with respect to such Default or Event of Default.
SECTION 4.10. [Reserved]
SECTION 4.11. Limitation on the Sale or Issuance of Capital
Stock of Restricted Subsidiaries. Iridium shall not, and shall not permit any
Restricted Subsidiary to, issue, transfer, convey, sell or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary or securities convertible
or exchangeable into Capital Stock of a Restricted Subsidiary to any person
other than Iridium, Capital or a Wholly-Owned Restricted Subsidiary except (i)
in a transaction consisting of a sale of all the Capital Stock of such
Restricted Subsidiary and that complies with Section 4.06 to the extent such
provisions apply; (ii) if required, the issuance, transfer, conveyance, sale or
other disposition of directors' qualifying shares or of interests required to be
held by foreign nationals, in each case to the extent mandated by applicable
law; (iii) in a transaction in which, or in connection with which,
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Iridium or a Restricted Subsidiary acquires at the same time sufficient Capital
Stock of such Restricted Subsidiary to at least maintain the same percentage
ownership interest it had prior to such transaction; (iv) any grant,
establishment or exercise of any Lien permitted under Section 4.12; and (v)
Disqualified Stock of a Restricted Subsidiary Incurred to Refinance Disqualified
Stock of such Restricted Subsidiary; provided, however, that the amounts of the
redemption obligations of such Disqualified Stock may not exceed the amounts of
the redemption obligations of, and such Disqualified Stock shall have redemption
obligations no earlier than those required by, the Disqualified Stock being
Refinanced.
SECTION 4.12. Limitation on Liens. (a) Iridium shall not, and
shall not permit any Restricted Subsidiary to, directly or indirectly, create or
permit to exist any Lien on any of its property or assets (including Capital
Stock), whether owned on the Issue Date or thereafter acquired, unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such obligation for so long as such obligation is so
secured. The preceding sentence shall not require Iridium or any Restricted
Subsidiary to equally and ratably secure the Notes if the Lien consists of
Permitted Liens.
(b) Any Lien created for the benefit of the Holders of the
Notes pursuant to Section 4.12(a) shall provide by its terms that such Lien
shall be automatically and unconditionally released and discharged upon the
earlier of the release and discharge of the Lien which gave rise to the
obligation to secure the Notes and the release and discharge of this Indenture.
SECTION 4.13. Limitation on Lines of Business. Iridium shall
not, and shall not permit any Restricted Subsidiary to, engage in any business
other than a Related Business.
SECTION 4.14. Limitation on Business Activities of Capital.
Capital shall not hold any material assets, become liable for any material
obligations, engage in any trade or business, or conduct any business activity,
other than the issuance of Capital Stock to Iridium or any Wholly-Owned
Restricted Subsidiary, the Incurrence of Indebtedness as a co-obligor or
guarantor of Indebtedness Incurred by Iridium (including the Notes) that is
permitted to be Incurred by Iridium pursuant to Section 4.03 (provided that the
net proceeds of such Indebtedness are retained or utilized by Iridium or loaned
to one or more of Iridium's Restricted Subsidiaries other than Capital), and
activities incidental thereto. Neither Iridium nor any Restricted Subsidiary
(other than Capital) shall engage in any transactions with Capital in violation
of the immediately preceding sentence.
SECTION 4.15. Future Guarantor Subsidiaries. Iridium shall
cause each Subsidiary created or acquired after the Issue Date (other than an
Unrestricted Subsidiary or a Foreign Subsidiary) to execute and deliver to the
Trustee a supplemental indenture, substantially in the form of Exhibit B,
pursuant to which such Subsidiary shall Guarantee payment of the Notes. Iridium
may cause any Foreign Subsidiary to execute and deliver a Subsidiary Guaranty in
accordance with the provisions of this Indenture. Each Subsidiary Guaranty shall
be limited to an amount not to exceed the maximum amount that can be Guaranteed
by that Subsidiary without rendering the Subsidiary Guaranty, as it relates to
such Subsidiary, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer or similar laws affecting the rights of creditors
generally. In addition, the Note Issuers shall not, and shall not permit any of
the Guarantor Subsidiaries to, make any Investment in any Subsidiary that is not
a Guarantor Subsidiary unless either (i) such Investment is permitted by Section
4.04 or (ii) such Subsidiary executes and delivers a Subsidiary Guaranty in
accordance with the provisions of this Indenture.
SECTION 4.16. Maintenance of Insurance. Iridium shall procure
and maintain insurance with financially sound and reputable insurance companies
in such amounts, with such deductibles and covering such risks as is customarily
carried by companies engaged in a business or businesses similar to Iridium and
owning properties in localities where Iridium and the Restricted Subsidiaries
operate, including without limitation in-orbit insurance.
Within 30 days following the Issue Date and within 30 days
following any date on which Iridium renews or obtains insurance, Iridium shall
deliver to the Trustee an insurance certificate certifying the amount of
insurance then renewed or obtained and an Officers' Certificate stating that
such insurance, together with any other insurance, complies with this Section
4.16. In addition, Iridium shall cause to be delivered to the Trustee no less
than once each year an insurance certificate setting forth the amount of
insurance then carried, which insurance certificate shall entitle the Trustee to
(i) notice of any claim under any such insurance policy; and (ii) at least 30
days' notice from the provider of such insurance prior to the cancellation of
any such insurance.
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In the event that Iridium receives any proceeds of any
in-orbit insurance, such proceeds shall constitute "Insurance Proceeds."
Promptly following the receipt of any Insurance Proceeds, Iridium shall apply
such Insurance Proceeds in accordance with Section 4.06(a)(iii) (treating such
Insurance Proceeds as Net Available Proceeds thereunder); provided, however,
that Insurance Proceeds shall only be required to be so applied to the extent
that the aggregate amount of all Insurance Proceeds received by Iridium exceeds
$10,000,000 in any 12-month period.
ARTICLE V
Successor Companies
SECTION 5.01. When Issuers May Merge or Transfer Assets. (a)
Neither Note Issuer shall consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to any Person unless:
(i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the
laws of the United States of America, any State thereof or the District
of Columbia or the laws of Bermuda and the Successor Company (if not
Iridium) shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of Iridium under the Notes and this
Indenture;
(ii) immediately after giving effect to such transaction on a
pro forma basis (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Subsidiary as a result of
such transaction as having been Incurred by such Successor Company or
such Subsidiary at the time of such transaction), no Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness under Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount which
is not less than the Consolidated Net Worth of Iridium immediately
prior to such transaction; and
(v) Iridium shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if
any) comply with this Indenture.
The requirements of clause (iii) above shall not apply where Iridium merges with
or into, or conveys, transfers or leases, in one transaction or a series of
transactions, all or substantially all of its assets to, any Person with no
outstanding Indebtedness (other than Indebtedness which is also Indebtedness of
Iridium).
(b) Iridium shall not permit any Guarantor Subsidiary to
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, all or substantially all of its assets
to any Person unless: (i) the resulting, surviving or transferee Person (if not
such Subsidiary) is a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of the
United States of America, or any State thereof, the District of Columbia or the
laws of Bermuda, and such Person expressly assumes, by a guaranty agreement, in
a form satisfactory to the Trustee, all the obligations of such Subsidiary, if
any, under its related Subsidiary Guaranty (except to the extent it would not
otherwise have been required to provide a Subsidiary Guaranty); (ii) immediately
after giving effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been issued by such
Person at the time of such transaction), no Default has occurred and is
continuing under this Indenture; and (iii) Iridium has delivered to the Trustee
an Officer's Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such guaranty agreement, if any, complies
with this Indenture.
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(c) The Successor Company shall be the successor to Iridium
and shall succeed to, and be substituted for, and may exercise every right and
power of, Iridium, Capital or any Guarantor Subsidiary, respectively, under this
Indenture, the Notes and the related Subsidiary Guaranty, as applicable, and the
predecessor Iridium, Capital or Guarantor Subsidiary, respectively (other than
in the case of a lease), shall be released from all obligations and covenants
under this Indenture and the Notes or the related Subsidiary Guaranty, as
applicable.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs
if:
(1) a default occurs in any payment of interest on any Note
when the same becomes due and payable, and such default continues for a
period of 30 days;
(2) a default occurs in the payment of the principal of any
Note when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise;
(3) either Note Issuer fails to comply with Section 5.01;
(4) either Note Issuer fails to comply with Section 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 (in
each case, other than a failure to purchase Notes when required under
Section 4.06 or 4.08) and such failure continues for 30 days after the
notice specified in the penultimate paragraph of this Section 6.01;
(5) any Note Issuer or Guarantor Subsidiary fails to comply
with any of its agreements in the Notes or this Indenture (other than
those referred to in clause (1), (2), (3) or (4) above) and such
failure continues for 60 days after the notice specified in the
penultimate paragraph 6.01;
(6) any Note Issuer or Significant Subsidiary fails to pay any
Indebtedness of such Person within any applicable grace period after
final maturity or the acceleration of any such Indebtedness by the
holders of such Indebtedness because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds $10,000,000 or its
foreign currency equivalent at the time;
(7) any Note Issuer or Significant Subsidiary pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief
against it in an involuntary case;
(C) consents to the appointment of a Custodian of it
or for any substantial part of its property;
(D) makes a general assignment for the benefit of its
creditors; or
(E) takes any comparable action under any foreign
laws relating to insolvency;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against any Note Issuer or
Significant Subsidiary in an involuntary case;
(B) appoints a Custodian of any Note Issuer or
Significant Subsidiary or for any substantial part of its
property;
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(C) orders the winding up or liquidation of any Note
Issuer or Significant Subsidiary; or
(D) any similar relief is granted under foreign laws;
and the order or decree remains unstayed and in effect for 60 days;
(9) the rendering of any final judgment or decree (not subject
to appeal) in excess of $10,000,000 or its foreign currency equivalent
(net of amounts paid within 30 days of such judgment or decree under
any insurance, indemnity, bond, surety or similar instrument) against
any Note Issuer or Significant Subsidiary by a court or other
adjudicatory authority of competent jurisdiction to the extent which
such Note Issuer or Significant Subsidiary, as applicable, is not
insured by a third Person and such judgment or decree remains
outstanding and is not discharged, waived or stayed within 30 days
after the notice specified in the penultimate paragraph of this Section
6.01;
(10) any Subsidiary Guaranty ceases to be in full force and
effect (except as contemplated by the terms thereof) or any Guarantor
Subsidiary shall deny or disaffirm its obligations under this Indenture
or any Subsidiary Guaranty;
(11) termination by Motorola of the Space System Contract
prior to delivery thereunder by Motorola of the Space System (as
defined therein), provided that such termination has not been contested
by Iridium in accordance with the Space System Contract or by
appropriate proceedings and, if such termination is so contested,
within 180 days of such notice such termination has not been withdrawn
or declared ineffective by any recognized court or mediator; or
(12) termination by Motorola of the Operation and Maintenance
Contract, or Motorola ceases to be the operator of the IRIDIUM System
prior to the Stated Maturity of the Notes, in each such case for a
period of more than 30 days.
The foregoing shall constitute Events of Default whatever the
reason for any such Event of Default and whether it is voluntary or involuntary
or is effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body.
The term "Bankruptcy Law" means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (4), (5) or (9) shall not constitute an
Event of Default until the Trustee or the Holders of at least 25% in principal
amount of the outstanding Notes notify the Note Issuers of the Default and the
Note Issuers do not cure such Default within the time specified in clauses (4),
(5), or (9) hereof after receipt of such notice.
The Note Issuers shall deliver to the Trustee, within 30 days
thereof, written notice in the form of an Officers' Certificate of any Event of
Default under clause (3), (6), (7) or (10) and any event which with the giving
of notice or the lapse of time would become an Event of Default under clause
(4), (5), (8), (9), (11) or (12), its status and what action Iridium is taking
or proposes to take in respect thereof.
SECTION 6.02. Acceleration. If an Event of Default (other than
an Event of Default specified in Section 6.01(7) or 6.01(8) with respect to
either Note Issuer) occurs and is continuing, the Trustee by notice to the Note
Issuers, or the Holders of at least 25% in principal amount of the outstanding
Notes by notice to the Note Issuers and the Trustee, may declare the principal
of and accrued but unpaid interest on all of the Notes to be due and payable.
Upon such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 6.01(7) or 6.01(8) with
respect to either Note Issuer occurs and is continuing, the principal of and
interest on all the Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holders. The Holders of a majority in principal amount of the Notes by notice to
the Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default have been cured or waived except
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nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of principal of or interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a
majority in principal amount of the Notes by written notice to the Trustee may
waive an existing Default and its consequences except (i) a Default in the
payment of the principal of or interest on a Note or (ii) a Default in respect
of a provision that under Section 9.02 cannot be amended without the consent of
each Holder affected. When a Default is waived, it is deemed cured, but no such
waiver shall extend to any subsequent or other Default or impair any consequent
right.
SECTION 6.05. Control by Majority. The Holders of a majority
in principal amount of the outstanding Notes may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee may
refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Holders or would involve the Trustee in personal liability.
Prior to taking any action hereunder, the Trustee shall be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Holder may not pursue any
remedy with respect to this Indenture or the Notes unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in principal amount of the
Notes then outstanding make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of security or
indemnity; and
(5) the Holders of a majority in principal amount of the Notes
do not give the Trustee a direction inconsistent with the request
during such 60-day period.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another Holder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of principal of and interest on the Notes held by such
Holder, on or after the respective due dates expressed in the Notes, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default specified in Section 6.01(1) or 6.01(2) occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Note Issuers for the whole amount then due and owing (together with
interest on any unpaid interest to the extent lawful) and the amounts provided
for in Section 7.07.
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SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents and take such other
actions, including participating as a member, voting or otherwise, of any
committee of creditors appointed in the matter, as may be necessary or advisable
in order to have the claims of the Trustee and the Holders allowed in any
judicial proceedings relative to the Note Issuers, any Guarantor Subsidiary,
their respective creditors or their property and, unless prohibited by law or
applicable regulations, may vote on behalf of the Holders in any election of a
trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.07.
Nothing herein shall be deemed to empower the Trustee to
authorize or consent to, or accept or adopt on behalf of any Holder, any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money or
property from the Issuers pursuant to this Article VI, it shall pay out the
money or property in the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for
principal and interest, respectively; and
THIRD: to Iridium.
The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10 At least 15 days before such
record date, the Trustee shall mail to each Holder and the Note Issuers a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Note Issuers, a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Notes.
SECTION 6.12. Waiver of Stay or Extension Laws. The Issuers
(to the extent either may lawfully do so) shall not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture, any
of the Subsidiary Guaranties or any of the Notes; and the Issuers (to the extent
that either may lawfully do so) hereby expressly waive all benefit or advantage
of any such law, and shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
SECTION 6.13. Restoration of Rights and Remedies. If the
Trustee or any Holder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then, and in every such case, subject to any determination in such
proceeding, the Issuers, the Trustee and the Holders shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Issuers, Trustee and Holders shall continue as though no
such proceeding had been instituted.
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ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in its
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01 and Section 7.02(e);
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a written
direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
(f) Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct
or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.01 and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. Subject to Section 7.01:
(a) The Trustee may conclusively rely on any document believed
by it to be genuine and to have been signed or presented by the proper person.
The Trustee need not investigate any fact or matter stated in the document.
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(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers created in it by this Indenture at the request or
direction of any of the Holders pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction.
(g) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Issuers or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Note Issuers'
use of the proceeds from the Notes, it shall not be responsible for the use or
application of any monies received by a Paying Agent other than the Trustee, and
it shall not be responsible for any statement of the Issuers in this Indenture
or in any document issued in connection with the sale of the Notes or in the
Notes other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Holder notice of such Default within the earlier of 90 days after it occurs or
30 days after it is known to a Trust Officer or written notice of it is received
by the Trustee. Except in the case of a Default in payment of principal of,
premium or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
the notice is in the interests of Holders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after each May 15 beginning with May 15, 1998, and in any event
prior to July 15 in each year, the Trustee shall mail to each Holder a brief
report dated as of July 15 that complies with TIA Section 313(a) (but if no
event described in TIA Section 313(a) has occurred within the twelve months
preceding the reporting date, no report shall be transmitted). The Trustee shall
also comply with TIA Section 313(b) and TIA Section 313(c).
A copy of each report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange (if any) on which the Notes
are listed. The Note Issuers agrees to notify promptly the Trustee whenever the
Notes become listed on any stock exchange and of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Note Issuers
shall pay to the Trustee, Paying Agent and Registrar from time to time
reasonable compensation for its services as agreed between the Note Issuers and
the Trustee, Paying Agent and Registrar. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The Issuers
shall reimburse the Trustee upon request for all
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reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Trustee's agents, counsel, accountants and other professionals.
The Note Issuers shall indemnify the Trustee, Paying Agent, Registrar, and each
of their officers, directors and employees (each in their respective
capacities), for and hold each of them harmless against any and all loss,
liability or expense (including attorneys' fees) incurred by them without
negligence or bad faith on their part in connection with the administration of
this trust and the performance of their duties hereunder, including the
reasonable costs and expenses of defending itself against any claim or liability
in connection with the acceptance, exercise or performance of any of its powers
or duties hereunder. The Trustee, Paying Agent and Registrar shall notify the
Note Issuers of any claim for which they may seek indemnity promptly upon
obtaining knowledge thereof; provided, however that any failure so to notify the
Note Issuers shall not relieve the Note Issuers of their indemnity obligations
hereunder except to the extent the Issuers shall have been adversely affected
thereby. The Note Issuers shall defend the claim and the indemnified party shall
provide reasonable cooperation at the Note Issuers' expense in the defense. Such
indemnified parties may have separate counsel and the Note Issuers shall pay the
fees and expenses of such counsel; provided, however that the Note Issuers shall
not be required to pay such fees and expenses if it assumes such indemnified
parties' defense and, in such indemnified parties' reasonable judgment, there is
no conflict of interest between the Note Issuers and such parties in connection
with such defense. The Note Issuers need not pay for any settlement made without
their written consent. The Note Issuers need not reimburse any expense or
indemnify against any loss, liability or expense incurred by an indemnified
party through such party's own willful misconduct, negligence or bad faith.
The Note Issuers' payment obligations pursuant to this Section
7.07 shall survive the discharge of this Indenture. When the Trustee, Paying
Agent or Registrar incurs expenses after the occurrence of a Default specified
in Section 6.01(7) or 6.01(8) with respect to the Issuers, the expenses are
intended to constitute expenses of administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
at any time by so notifying the Note Issuers in writing. The Holders of a
majority in principal amount of the Notes may remove the Trustee by so notifying
the Note Issuers and the Trustee and may appoint a successor Trustee with the
consent of the Note Issuers, which shall not be unreasonably withheld. The Note
Issuers shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Note Issuers or by
the Holders of a majority in principal amount of the Notes and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Note Issuers shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Note Issuers. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee or the
Holders of 10% in principal amount of the Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
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Notwithstanding the replacement of the Trustee pursuant to
this Section 7.08, the Issuers' obligations under Section 7.07 shall continue
for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger,
conversion or consolidation to the Trustee shall succeed to the trusts created
by this Indenture any of the Notes shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Notes or in this Indenture provided that the certificate
of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall
at all times satisfy the requirements of TIA Section 310(a). The Trustee shall
have a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Issuers are outstanding if the requirements for such exclusion set forth in
TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Issuers. The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Notes; Defeasance. (a)
When (i) either Note Issuer delivers to the Trustee all outstanding Notes (other
than Notes replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Notes have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article III hereof
and either Note Issuer irrevocably deposits with the Trustee funds or Government
Securities on which payment of principal and interest when due shall be
sufficient to pay at maturity or upon redemption all outstanding Notes,
including interest thereon to maturity or such redemption date (other than Notes
replaced pursuant to Section 2.07), as certified to the Trustee by a nationally
recognized firm of independent accountants, and if in either case the Note
Issuers pay all other sums payable hereunder by the Note Issuers including, but
not limited to fees and expenses of the Trustee and its counsel, then this
Indenture shall, subject to Section 8.01(c), cease to be of further effect. The
Trustee shall acknowledge satisfaction and discharge of this Indenture on demand
of either Note Issuer accompanied by an Officers' Certificate and an Opinion of
Counsel.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the Note
Issuers at any time may terminate (i) all its obligations under the Notes and
this Indenture ("legal defeasance option") or (ii) its obligations under
Sections 4.02, 4.03, 4.04, 4.05, 4.06, 4.07, 4.08, 4.11, 4.12, 4.13, 4.14, 4.15,
4.16, 5.01(a)(ii), 5.01(a)(iii) and 5.01(a)(iv) and the operation of Sections
6.01(4), 6.01(5) (with respect to obligations that have been defeased), 6.01(6),
6.01(7) (with respect to Significant Subsidiaries only), 6.01(8) (with respect
to Significant Subsidiaries only), 6.01(9), 6.01(10), 6.01(11) and 6.01(12)
("covenant defeasance option"). The Note Issuers may exercise their legal
defeasance option notwithstanding their prior exercise of its covenant
defeasance option. If the Note Issuers exercise their legal defeasance option or
their covenant defeasance option, each Guarantor Subsidiary shall be released
from all of its obligations with respect to its Subsidiary Guaranty (and no
Restricted Subsidiary (other than Capital) will thereafter be obligated to
execute, deliver or endorse any Note; nor shall any such execution, delivery or
endorsement thereafter bind any Restricted Subsidiary).
If the Note Issuers exercise their legal defeasance option,
payment of the Notes may not be accelerated because of an Event of Default. If
the Note Issuers exercise their covenant defeasance option, payment
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of the Notes may not be accelerated because of an Event of Default specified in
Sections 6.01(4), 6.01(5) (with respect to obligations that have been defeased),
6.01(6), 6.01(7) (with respect to Significant Subsidiaries only), 6.01(8) (with
respect to Significant Subsidiaries only), 6.01(9), 6.01(10), 6.01(11) and
6.01(12) or because of the failure of the Note Issuers to comply with Sections
5.01(a) (ii), 5.01(a) (iii) and 5.01(a) (iv).
Upon satisfaction of the conditions set forth herein and upon
request of either Note Issuer, the Trustee shall acknowledge in writing the
discharge of those obligations that have been discharged, released, satisfied or
defeased.
(c) Notwithstanding clauses (a) and (b) above, the Note
Issuers' obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04,
8.05 and 8.06 shall survive until the Notes have been paid in full. Thereafter,
the Note Issuers' obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Note Issuers may
exercise their legal defeasance option or its covenant defeasance option only
if:
(1) either Note Issuer irrevocably deposits in trust with the
Trustee money and/or Government Securities for the payment of
principal, premium and interest on the Notes to maturity or redemption,
as the case may be;
(2) the Note Issuers deliver to the Trustee a certificate from
a nationally recognized firm of independent accountants expressing
their opinion that the payments of principal and interest when due and
without reinvestment on the deposited Government Securities plus any
deposited money without investment shall provide cash at such times and
in such amounts as shall be sufficient to pay principal and interest
when due on all the Notes to maturity or redemption, as the case may
be;
(3) 90 days pass after the deposit is made and during the
90-day period no Default specified in Section 6.01(7) or 6.01(8) with
respect to either Note Issuer occurs which is continuing at the end of
the period;
(4) the deposit does not constitute a default under any other
agreement binding on either Note Issuer;
(5) the Note Issuers deliver to the Trustee an Opinion of
Counsel to the effect that the trust resulting from the deposit does
not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, unless such trust shall be
registered under and act as exempt from registration thereunder;
(6) in the case of the legal defeasance option, the Note
Issuers shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Note Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the
date of this Indenture there has been a change in the applicable
federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Note
Issuers shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and
(8) the Note Issuers delivers to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Securities as
contemplated by this Article VIII have been complied with.
Anything in this Section 8.02 to the contrary notwithstanding,
the Trustee shall deliver or pay to Iridium from time to time upon the request,
in writing, by either Note Issuer any cash in dollars or Government
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Securities held by it as provided in paragraph (2) above 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 an
equivalent legal defeasance or covenant defeasance.
Before or after a deposit, the Note Issuers may make
arrangements satisfactory to the Trustee for the redemption of Notes at a future
date in accordance with Article III.
SECTION 8.03. Application of Trust Money. The Trustee shall
hold in trust money or Government Securities deposited with it pursuant to this
Article VIII. It shall apply the deposited money and the money from Government
Securities through the Paying Agent and in accordance with this Indenture to the
payment of principal of and interest on the Notes.
SECTION 8.04. Repayment to Note Issuers. The Trustee and the
Paying Agent shall promptly turn over to Iridium upon request any excess money
or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee
and the Paying Agent shall pay to Iridium upon request any money held by them
for the payment of principal or interest that remains unclaimed for two years,
and, thereafter, Holders entitled to the money must look to the Issuers for
payment as general creditors.
SECTION 8.05. Indemnity for Government Securities. The Note
Issuers shall pay and shall indemnify the Trustee against any tax, fee or other
charge imposed on or assessed against deposited Government Securities or the
principal and interest received on such Government Securities other than any
tax, fee or other charge which by law is for the account of the Holders.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
unable to apply any money or Government Securities in accordance with this
Article VIII by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Note Issuers' obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to this Article VIII until such time as the Trustee or Paying
Agent is permitted to apply all such money or Government Securities in
accordance with this Article VIII; provided, however, that, if the Note Issuers
have made any payment of interest on or principal of any Notes because of the
reinstatement of its obligations, the Note Issuers shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
Government Securities held by the Trustee or Paying Agent.
ARTICLE IX
Amendments
SECTION 9.01. Without Consent of Holders. The Note Issuers,
the Guarantor Subsidiaries and the Trustee may amend this Indenture or the
Securities without notice to or consent of any Holder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Section 4.15 or Article V;
(3) to provide for uncertificated Securities in addition to or
in place of Notes; provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code or
in a manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code;
(4) to add further Subsidiary Guaranties with respect to the
Notes or to release Guarantor Subsidiaries when permitted by the terms
hereof, or to secure the Notes;
(5) to add to the covenants of the Note Issuers for the
benefit of the Holders or to surrender any right or power herein
conferred upon the Note Issuers;
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(6) to comply with any requirements of the SEC in connection
with qualifying this Indenture under the TIA; and
(7) to make any change that does not adversely affect the
rights of any Holder.
After an amendment under this Section 9.01 becomes effective,
the Note Issuers shall mail to Holders a notice briefly describing such
amendment. The failure to give such notice to all Holders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section 9.01.
SECTION 9.02. With Consent of Holders. The Note Issuers, the
Guarantor Subsidiaries and the Trustee may amend this Indenture or the Notes
without notice to any Holder but with the written consent of the Holders of at
least a majority in principal amount of the Notes. The Holders of at least a
majority in principal amount of the Notes may waive compliance by the Note
Issuers or any Guarantor Subsidiary with any provision or covenant of this
Indenture or the Notes. However, without the consent of each Holder of an
outstanding Note, an amendment or waiver may not:
(1) reduce the amount of Notes whose Holders must consent to
an amendment or waiver;
(2) reduce the rate of or extend the time for payment of
interest on any such Note;
(3) reduce the principal of or extend the Stated Maturity of
any such Note;
(4) reduce the premium payable upon the redemption of any Note
or change the time at which any Note may be redeemed in accordance with
Article III;
(5) make any Note payable in money other than that stated in
such Note;
(6) impair the right of any Holder to receive payment of
principal of and premium and interest on such Holder's Notes on or
after the due dates therefor or to institute suit for the enforcement
of any payment on or with respect to such Holder's Notes;
(7) modify the Subsidiary Guaranties (except as contemplated
by the terms thereof or of this Indenture) in any manner adverse to the
Holders; or
(8) make any change in Section 6.04, Section 6.07 or the third
sentence of this Section 9.02.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent approves the substance thereof.
After an amendment under this Section 9.02 becomes effective,
the Note Issuers shall mail to Holders a notice briefly describing such
amendment. The failure to give such notice to all Holders, or any defect
therein, shall not impair or affect the validity of an amendment under this
Section 9.02.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to this Indenture or the Notes shall comply with the TIA as then in
effect.
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
consent to an amendment or a waiver by a Holder of a Note shall bind the Holder
and every subsequent Holder of that Note or portion of the Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
or waiver is not made on the Note. However, any such Holder or subsequent Holder
may revoke the consent or waiver as to such Holder's Note or portion of the Note
if the Trustee receives the notice of revocation before the date the amendment
or waiver becomes effective. After an amendment or waiver becomes effective, it
shall bind every Holder. An amendment or waiver becomes effective once the
consents from the Holders of the requisite percentage in principal amount of
outstanding Notes are received by the Notes Issuers or the Trustee.
The Note Issuers may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled to give their
consent or take any other action described above or required or permitted to be
taken pursuant to this Indenture. If a record date is fixed, then
notwithstanding the immediately
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preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
give such consent or to revoke any consent previously given or to take any such
action, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 120 days after
such record date.
SECTION 9.05. Notation on or Exchange of Notes. If an
amendment changes the terms of a Note, the Trustee may require the Holder of the
Note to deliver it to the Trustee. The Trustee may place an appropriate notation
on the Note regarding the changed terms and return it to the Holder.
Alternatively, if the Note Issuers or the Trustee so determines, the Note
Issuers in exchange for the Note shall issue and the Trustee shall authenticate
a new Note that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Note shall not affect the validity of such amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall
sign any amendment authorized pursuant to this Article IX if the amendment does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may but need not sign it. In signing any
amendment the Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Officers' Certificate and an Opinion of Counsel
stating that such amendment is authorized or permitted by this Indenture and
complies with the provisions hereof (including Section 9.03).
ARTICLE X
Subsidiary Guarantees
SECTION 10.01. Subsidiary Guarantees. Each Guarantor
Subsidiary hereby jointly and severally unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, to each Holder and
to the Trustee and its successors and assigns (a) the full and punctual payment
of principal of and interest on the Notes when due, whether at maturity, by
acceleration, by redemption or otherwise, and all other monetary obligations of
the Note Issuers under this Indenture (including obligations to the Trustee) and
the Notes and (b) the full and punctual performance within applicable grace
periods of all other obligations of the Issuers whether for expenses,
indemnification or otherwise under this Indenture and the Notes (all the
foregoing being hereinafter collectively called the "Obligations"). Each
Guarantor Subsidiary further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or further assent from each such
Guarantor Subsidiary, and that each such Guarantor Subsidiary shall remain bound
under this Article X notwithstanding any extension or renewal of any Obligation.
Each Guarantor Subsidiary waives presentation to, demand of,
payment from and protest to the Note Issuers of any of the Obligations and also
waives notice of protest for nonpayment. Each Guarantor Subsidiary waives notice
of any default under the Notes or the Obligations. The obligations of each
Guarantor Subsidiary hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Note Issuers or any other Person under this Indenture, the
Notes or any other agreement or otherwise; (b) any extension or renewal of any
thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Notes or any other agreement; (d) the
release of any security held by any Holder or the Trustee for the Obligations or
any of them; (e) the failure of any Holder or Trustee to exercise any right or
remedy against any other guarantor of the Obligations; or (f) any change in the
ownership of such Guarantor Subsidiary, except as provided in Section 10.02(b).
Each Guarantor Subsidiary further agrees that its Subsidiary
Guaranty herein constitutes a guarantee of payment, performance and compliance
when due (and not a guarantee of collection) and waives any right to require
that any resort be had by any Holder or the Trustee to any security held for
payment of the Obligations.
The obligations of each Guarantor Subsidiary hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason (except based on actual payment or performance or any release or
termination contemplated by this Indenture), including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
each Guarantor Subsidiary herein shall not be discharged or impaired
<PAGE> 50
45
or otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Notes or any
other agreement, by any waiver or modification of any thereof, by any default,
failure or delay, willful or otherwise, in the performance of the Obligations,
or by any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of, or would
otherwise operate as a discharge of, a surety as a matter of law or equity.
Each Guarantor Subsidiary further agrees that its Subsidiary
Guaranty herein shall continue to be effective or be reinstated, as the case may
be, if at any time payment, or any part thereof, of principal of or interest on
any Obligation is rescinded or must otherwise be restored by any Holder or the
Trustee upon the bankruptcy or reorganization of the Note Issuers or otherwise.
In furtherance of the foregoing and not in limitation of any
other right which any Holder or the Trustee has at law or in equity against any
Guarantor Subsidiary by virtue hereof, upon the failure of the Note Issuers to
pay the principal of or interest on any Obligation when and as the same shall
become due, whether at maturity, by acceleration, by redemption or otherwise, or
to perform or comply with any other Obligation, each Guarantor Subsidiary hereby
promises to and shall, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued
and unpaid interest on such Obligations (but only to the extent not prohibited
by law) and (iii) all other monetary Obligations of the Note Issuers to the
Holders and the Trustee.
Each Guarantor Subsidiary agrees that it shall not be entitled
to any right of subrogation in relation to the Holders in respect of any
Obligations guaranteed hereby until payment in full of all Obligations. Each
Guarantor Subsidiary further agrees that, as between it, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
Obligations guaranteed hereby may be accelerated as provided in Article VI for
the purposes of any Subsidiary Guaranty herein, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article VI, such Obligations
(whether or not due and payable) shall forthwith become due and payable by such
Guarantor Subsidiary for the purposes of this Section 10.01.
Each Guarantor Subsidiary also agrees to pay any and all costs
and expenses (including reasonable attorneys' fees and expenses) incurred by the
Trustee or any Holder in enforcing any rights under this Section 10.01.
SECTION 10.02. Limitation on Liability. (a) Any term or
provision of this Indenture to the contrary notwithstanding, the maximum,
aggregate amount of the obligations guaranteed hereunder by any Guarantor
Subsidiary shall not exceed the maximum amount that can be hereby guaranteed
without rendering this Indenture, as it relates to any Guarantor Subsidiary,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
(b) This Subsidiary Guaranty as to any Guarantor Subsidiary
shall terminate and be of no further force or effect and such Guarantor
Subsidiary shall be released from its obligations in respect of this Subsidiary
Guaranty upon (i) the sale or other transfer (x) by such Guarantor Subsidiary of
all or substantially all of its assets or (y) of all of the Capital Stock of
such Guarantor Subsidiary, to a Person other than Iridium or a Subsidiary of
Iridium; provided, however, that such sale or transfer shall be deemed to
constitute an Asset Disposition and the Note Issuers shall comply with its
obligations under Section 4.06; (ii) the designation by Iridium of such
Guarantor Subsidiary as an Unrestricted Subsidiary in accordance with this
Indenture; (iii) reorganization of such Guarantor Subsidiary as a Foreign
Subsidiary; or (iv) upon satisfaction of the requirements of Section 5.01(c) or
8.01(b), as the case may be, that would permit such a release.
SECTION 10.03. Successors and Assigns. This Article X shall be
binding upon each Guarantor Subsidiary and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Notes shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 10.04. No Waiver. Neither a failure nor a delay on the
part of either the Trustee or the Holders in exercising any right, power or
privilege under this Article X shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege. The rights, remedies and benefits of the Trustee and
the Holders herein expressly specified are cumulative and not exclusive of
<PAGE> 51
46
any other rights, remedies or benefits which either may have under this Article
X at law, in equity, by statute or otherwise.
SECTION 10.05. Modification. No modification, amendment or
waiver of any provision of this Article X, nor the consent to any departure by
any Guarantor Subsidiary therefrom, shall in any event be effective unless the
same shall be in writing and signed by the Trustee, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Guarantor Subsidiary in any case
shall entitle such Guarantor Subsidiary to any other or further notice or demand
in the same, similar or other circumstances.
SECTION 10.06. Initial Guarantors; Execution of Supplemental
Indenture for Future Guarantor Subsidiaries. Each Restricted Subsidiary which is
required to become, or is designated by Iridium to become, a Guarantor
Subsidiary pursuant to Section 4.15 shall promptly execute and deliver to the
Trustee a supplemental indenture in the form of Exhibit B hereto pursuant to
which such Subsidiary shall become a Guarantor Subsidiary under this Article X
and shall guarantee the Obligations. Concurrently with the execution and
delivery of such supplemental indenture, the Note Issuers shall deliver to the
Trustee an Opinion of Counsel and an Officers' Certificate to the effect that
such supplemental indenture has been duly authorized, executed and delivered by
such Subsidiary and that, subject to the application of bankruptcy, insolvency,
moratorium, fraudulent conveyance or transfer and other similar laws relating to
creditors' rights generally and to the principles of equity, whether considered
in a proceeding at law or in equity, the Subsidiary Guaranty of such Guarantor
Subsidiary is a legal, valid and binding obligation of such Guarantor
Subsidiary, enforceable against such Guarantor Subsidiary in accordance with its
terms.
ARTICLE XI
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 11.02. Notices. Any notice or communication shall be
in writing and delivered in person or mailed by first-class mail or by national
overnight courier service addressed as follows:
if to any of the Issuers:
c/o Iridium Operating LLC
1575 Eye Street, N.W.
Washington, DC 20006
Attention: General Counsel
Facsimile: (202) 408-3761
if to the Trustee:
State Street Bank and Trust Company
Corporate Services Division
4th Floor
2 International Place
Boston, MA 02110
Attention: Mr. Shawn George
Facsimile: (617) 664-5371
The Issuers or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
<PAGE> 52
47
Any notice or communication mailed to a Holder shall be mailed
to the Holder at such Holder's address as it appears on the registration books
of the Registrar and shall be sufficiently given if so mailed by first class
mail within the time prescribed.
Failure to mail a notice or communication to a Holder or any
defect in it shall not affect its sufficiency with respect to other Holders. If
a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it, except that any such notice to
the Trustee must be received by a Trust Officer to be duly given.
Where this Indenture 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.
SECTION 11.03. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Issuers, the
Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent. Upon any request or application by the Issuers to the Trustee to take
or refrain from taking any action under this Indenture, the Note Issuers shall,
if requested by the Trustee, furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee and complying with Section 11.05 stating
that, in the opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee and complying with Section 11.05 stating
that, in the opinion of such counsel, all such conditions precedent
have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a covenant or
condition provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 11.06. When Notes Disregarded. In determining whether
the Holders of the required principal amount of Notes have concurred in any
direction, waiver or consent, Notes owned by the Issuers or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuers shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Notes outstanding at the time shall be considered
in any such determination.
SECTION 11.07. Rules by Trustee Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of Holders. The
Registrar and the Paying Agent may make reasonable rules for their functions.
<PAGE> 53
48
SECTION 11.08. Legal Holidays. If a payment date is not a
Business Day, payment shall be made on the next succeeding day that is a
Business Day, and no interest shall accrue for the intervening period. If a
regular record date is not a Business Day, the record date shall not be
affected.
SECTION 11.09. Governing Law. THIS INDENTURE AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW
TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 11.10. No Recourse Against Others. A director,
officer, employee, incorporator or member or stockholder, as such, of Iridium
shall not have any liability for any obligations of any Issuer under the Notes
or this Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. By accepting a Note, each Holder shall waive and
release all such liability. The waiver and release shall be part of the
consideration for the issue of the Notes. Such waiver will not constitute a
waiver of liabilities under the federal securities laws if it is the view of the
SEC that such a waiver would be against public policy.
SECTION 11.11. Successors. All agreements of the Issuers in
this Indenture and the Notes shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table of
contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
<PAGE> 54
49
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed as of the date first written above.
IRIDIUM OPERATING LLC
By:
-------------------------------
Name:
Title:
IRIDIUM CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
IRIDIUM ROAMING LLC
By:
-------------------------------
Name:
Title:
IRIDIUM IP LLC
By:
-------------------------------
Name:
Title:
IRIDIUM FACILITIES CORPORATION
By:
-------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
-------------------------------
Name:
Title:
<PAGE> 55
EXHIBIT A
FORM OF FACE OF NOTE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"),
TO THE ISSUERS OR THEIR AGENTS FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.(1)
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO HEREIN.(1)
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
_____% SENIOR NOTE DUE 2005, SERIES D
No. CUSIP No. [ ]
$[ ]
IRIDIUM OPERATING LLC, a Delaware limited liability
corporation and IRIDIUM CAPITAL CORPORATION, a Delaware corporation, as joint
and several obligors, promise to pay to [ ], or registered assigns, the
principal sum of $[ ] on July 15, 2005.
Interest Payment Dates: January 15 and July 15
Record Dates: January 1 and July 1
- ----------
1 These paragraphs should only be added if the Security is issued in
global form.
<PAGE> 56
2
Additional provisions of this Note are set forth on the other
side of this Note.
Dated:
IRIDIUM OPERATING LLC
By:
-------------------------------
Name:
Title:
IRIDIUM CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
STATE STREET BANK AND
TRUST COMPANY
as Trustee, certifies
that this is one of
the Notes referred
to in the Indenture,
By:
-------------------------------
Authorized Signatory
<PAGE> 57
3
Guaranteed pursuant to the
Indenture:
IRIDIUM ROAMING LLC
By:
-------------------------------
Name:
Title:
IRIDIUM IP LLC
By:
-------------------------------
Name:
Title:
IRIDIUM FACILITIES CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 58
4
FORM OF REVERSE SIDE OF NOTE
____% Senior Note due 2005, Series D
1. Interest.
IRIDIUM OPERATING LLC, a Delaware limited liability company
("Iridium") and IRIDIUM CAPITAL CORPORATION, a Delaware corporation ("Capital"
and together with Iridium, the "Note Issuers"), as joint and several obligors,
and IRIDIUM ROAMING LLC, IRIDIUM IP LLC and IRIDIUM FACILITIES CORPORATION
(together, the "Guarantor Subsidiaries", and together with the Note Issuers, the
"Issuers"), promise to pay interest on the principal amount of the Notes at the
rate per annum shown above. Iridium will pay interest in cash semi-annually in
arrears on January 15 and July 15 of each year (each an "Interest Payment
Date"), commencing July 15, 1998. Interest payable on the Notes shall be
computed on the basis of a 360-day year comprised of 30-day months.
2. Method of Payment.
The Note Issuers shall pay interest on the Notes (except
defaulted interest) to the persons who are the registered holders at the close
of business on the Record Date immediately preceding the interest payment date
even if the Notes are cancelled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender the Notes to the Trustee
to collect principal payments. The Note Issuers shall pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Note
Issuers may pay principal and interest by wire transfer of Federal funds, or
interest by check payable in such U.S. Legal Tender. The Note Issuers may
deliver any such interest payment to the Trustee or to a holder at the holder's
registered address.
3. Paying Agent and Registrar.
Initially, STATE STREET BANK AND TRUST COMPANY, a
Massachusetts banking corporation ("Trustee"), will act as Paying Agent and
Registrar. Iridium may appoint and change any Paying Agent, Registrar or
co-registrar without notice to the Holders. Iridium, Capital or any of Iridium's
domestically incorporated Wholly-Owned Subsidiaries may not act as Paying Agent,
Registrar or co-registrar.
4. Indenture and Guarantees.
The Note Issuers issued the Notes under an Indenture dated as
of _______, 1998 (the "Indenture"), among the Note Issuers, as joint and several
obligors, the Guarantor Subsidiaries (as defined in the Indenture) and the
Trustee. Capitalized terms used herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Notes include those stated in
the Indenture and those made part of such Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Notes are subject to all such terms, and holders of Notes are
referred to the Indenture and the TIA for a statement of them. The Notes are
obligations of the Note Issuers limited in aggregate principal amount to
$350,000,000. Payment on each Note is guaranteed on a senior basis, jointly and
severally, by the Guarantor Subsidiaries pursuant to Article X of the Indenture.
<PAGE> 59
5
5. Optional Redemption.
Except as described in the next succeeding paragraph, the
Notes will not be redeemable at the option of the Note Issuers prior to July 15,
2002. On and after such date, the Notes will be redeemable, at either Note
Issuer's option, in whole or in part, at any time upon not less than 30 nor more
than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in percentages
of principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of redemption), if redeemed during the 12-month period commencing on
July 15 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
<S> <C>
2002 %
2003 %
2004 and thereafter 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to
July 15, 2000, either Note Issuer may redeem in the aggregate up to 33-1/3% of
the original aggregate principal amount of the Notes with the cash proceeds to
Iridium of one or more Equity Offerings, at a redemption price (expressed as a
percentage of principal amount thereof) of ______% plus accrued and unpaid
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date that is on or prior to the date of redemption); provided, however,
that at least 66-2/3% of the original aggregate principal amount of the Notes
must remain outstanding after each such redemption.
6. Notice of Redemption.
In the case of any partial redemption, selection of the Notes
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such other method as the Trustee in its sole discretion deems to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
7. Subsidiary Guaranties.
The Initial Guarantors will provide Subsidiary Guaranties on
the Issue Date. In the event that, after the Issue Date, Iridium acquires or
creates a Subsidiary other than a Foreign Subsidiary, Iridium will cause such
Subsidiary (unless such Subsidiary is an Unrestricted Subsidiary) to, jointly
and severally, as primary obligors and not merely as sureties, irrevocably
Guarantee on a senior unsecured basis the performance and punctual payment when
due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Note Issuers under the Indenture and the Notes issued
pursuant thereto. Iridium may cause any Foreign Subsidiary to execute and
deliver a Subsidiary Guaranty in accordance with the provisions of the
Indenture, in which case such Foreign Subsidiary will be a "Guarantor
Subsidiary" for purposes of the Indenture. Each Subsidiary Guaranty will be
limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by the applicable Guarantor Subsidiary without rendering such
Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
A Subsidiary Guaranty will be released upon (i) the sale of
all of the Capital Stock, or all or substantially all of the assets, of the
applicable Guarantor Subsidiary (in each case to an entity other than to Iridium
or a Subsidiary of Iridium), (ii) the designation by Iridium of the applicable
Guarantor Subsidiary as an Unrestricted Subsidiary, in each case in compliance
with the Indenture, (iii) the reorganization of the applicable Guarantor
Subsidiary as a Foreign Subsidiary, or (iv) upon satisfaction of the
requirements of Section 5.01(d) (merger) or 8.01(b) (defeasance) of the
Indenture.
<PAGE> 60
6
8. Change of Control Offer.
Upon the occurrence of a Change of Control, each Holder will
have the right to require the Note Issuers to repurchase all or any part of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
of the Notes, plus accrued and unpaid interest to the date of purchase.
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in
denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or
exchange Notes in accordance with the Indenture. Upon any transfer or exchange,
the Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements or transfer documents and to pay any taxes
required by law or permitted by the Indenture. The Registrar need not register
the transfer of or exchange any Notes selected for redemption (except, in the
case of a Note to be redeemed in part, the portion of the Note not to be
redeemed) or to transfer or exchange any Notes for a period of 15 days prior to
a selection of Notes to be redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners.
The registered Holder of this Note may be treated as the owner
of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee or Paying Agent shall, subject to the
requirements of applicable escheat laws, pay the money back to the Note Issuers
at its written request unless an abandoned property law designates another
Person. After any such payment, Holders entitled to the money must look only to
the Note Issuers and not to the Trustee for payment.
12. Legal Defeasance and Covenant Defeasance.
The Note Issuers at any time may terminate all their
obligations under the Notes and the Indenture upon satisfaction of certain
conditions specified in the Indenture, except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes
and to maintain a registrar and paying agent in respect of the Notes. The Note
Issuers at any time may terminate their obligations under certain restrictive
covenants. If the Note Issuers exercise their legal defeasance option or their
covenant defeasance option, each Guarantor Subsidiary will be released from all
of its obligations with respect to its Subsidiary Guaranty (and no Restricted
Subsidiary (other than Capital) will thereafter be obligated to execute,
deliver, or endorse any Note; nor shall any such execution, delivery or
endorsement thereafter bind any Restricted Subsidiary).
13. Amendment and Waiver.
Subject to certain exceptions, the Indenture may be amended
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding and any past default and its consequences or compliance with
any provisions may be waived with the consent of the Holders of a majority in
principal amount of the Notes then outstanding. Without the consent of any
Holder, the Note Issuers and the Trustee may amend the Indenture to cure any
ambiguity, omission, defect or inconsistency, to provide for the assumption by a
successor corporation of the obligations of either Note Issuer under the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to add further Subsidiary Guaranties with respect to such
Notes, to release Guarantor Subsidiaries when permitted by such Indenture, to
secure such Notes, to add to the covenants of the Note Issuers for the benefit
of the Holders of such Notes or to surrender any right or power conferred upon
the Note Issuers, to make any change that does not adversely affect the rights
of any Holder of such Notes or to comply with any requirement of the SEC in
connection with the qualification of such Indenture under the TIA.
<PAGE> 61
7
14. Restrictive Covenants.
The Indenture contains certain covenants that, among other
things, limit the ability of Iridium and its Restricted Subsidiaries to make
restricted payments, to incur indebtedness, to create liens, to issue capital
stock of subsidiaries, to sell assets, to permit restrictions on dividends and
other payments by subsidiaries to Iridium, to consolidate, merge or sell all or
substantially all of its assets, to engage in transactions with affiliates, to
maintain insurance or to engage in certain businesses. The limitations are
subject to a number of important qualifications and exceptions. The Note Issuers
must report to the Trustee on compliance with such limitations.
15. Defaults and Remedies.
If an Event of Default under the Indenture occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by notice to the Note Issuers and the Trustee in writing
may declare the principal of and accrued but unpaid interest on all the Notes to
be due and payable. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of either Note Issuer occurs and is
continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Holders of Notes may not enforce the Indenture or
the Notes except as provided in the Indenture. Under certain circumstances, the
Holders of a majority in principal amount of the Notes then outstanding may
rescind any such acceleration with respect to the Notes and its consequences.
16. No Recourse Against Others.
No director, officer, employee, incorporator or member of
Iridium, as such, will have any liability for any obligations of the Note
Issuers or any Guarantor Subsidiary under the Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability (such waiver will not constitute a waiver of liabilities under the
Federal securities laws, however, if it is the view of the SEC that such a
waiver would be against public policy).
17. Trustee Dealings with the Note Issuers.
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by the Note Issuers or its Affiliates and may otherwise deal with the
Note Issuers or its Affiliates with the same rights it would have if it were not
Trustee.
18. Governing Law.
THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
19. Authentication.
This Note shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Note.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
21. CUSIP Numbers.
<PAGE> 62
8
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Note Issuers have caused CUSIP
numbers to be printed on the Notes and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Note Issuers will furnish to any Holder upon written
request and without charge to the Holder a copy of the Indenture which has in it
the text of this Note in larger type. Requests may be made to:
IRIDIUM LLC
1575 Eye Street, N.W.
Washington, DC 20006
Attention: General Counsel
<PAGE> 63
9
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Note to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Note on the books of the Note Issuers. The agent may substitute
another to act for him.
________________________________________
Date: _______________ Your Signature: ______________________________
Signature Guarantee: _______________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
_____________________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE> 64
10
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE(2)
The following increases or decreases in this Global Note have
been made:
<TABLE>
<CAPTION>
Principal amount
Amount of decrease Amount of increase of this Global Signature of
in Principal in Principal Note authorized officer
Date of Amount of this Amount of this following such of Trustee or
Exchange Global Note Global Note decrease or increase Notes Custodian
- -------- ----------- ----------- -------------------- ----------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------
2 This Schedule should only be added if the Security is issued in global
form.
<PAGE> 65
11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Note
Issuers pursuant to Section 4.06 or 4.08 of the Indenture, check the box:
/ /
If you want to elect to have only part of this Note purchased
by the Note Issuers pursuant to Section 4.06 or 4.08 of the Indenture, state the
amount: $
Date: _______________ Your Signature: ______________________________
Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee: _______________________________________
(Signature must be guaranteed by a
participant in a recognized signature
guarantee medallion program)
<PAGE> 66
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of [ ], among [NEW GUARANTOR SUBSIDIARY] (the "New Guarantor Subsidiary"), a
subsidiary of [IRIDIUM OR CAPITAL] (or its successor), a ______________________
(the "Note Issuers"), IRIDIUM OPERATING LLC, a Delaware limited liability
company and IRIDIUM CAPITAL CORPORATION, a Delaware corporation, on behalf of
themselves and the Guarantor Subsidiaries (the "Existing Guarantor
Subsidiaries") under the Indenture referred to below, and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts bank and trust company, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS Iridium Operating LLC, a Delaware limited liability
company and Iridium Capital Corporation a Delaware corporation, as joint and
several obligors, have heretofore executed and delivered to the Trustee an
Indenture (the "Indenture"), dated as of _______ __, 1998, providing for the
issuance of an aggregate principal amount of up to $350,000,000 of ___% Senior
Notes due 2005, Series D (the "Notes") and the Initial Guarantors agreed to
guarantee those obligations;
WHEREAS Section 4.15 of the Indenture provides that under
certain circumstances the Note Issuers are required to cause the New Guarantor
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which the New Guarantor Subsidiary shall unconditionally guarantee
all of the Note Issuers' obligations under the Notes pursuant to a Subsidiary
Guaranty on the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the
Trustee, the Note Issuers and Existing Guarantor Subsidiaries are authorized to
execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the New Guarantor Subsidiary, the Note Issuers, the Existing Guarantor
Subsidiaries and the Trustee mutually covenant and agree for the equal and
ratable benefit of the holders of the Notes as follows:
1. Definitions. (a) Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(i) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture; and (ii) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplement refer to this Supplement as a whole and not to any particular section
hereof.
2. Agreement to Guarantee. The New Guarantor Subsidiary hereby
agrees, jointly and severally with all other Guarantor Subsidiaries, to
Guarantee the Note Issuers' obligations under the Notes on the terms and subject
to the conditions set forth in Article X of the Indenture and to be bound by all
other applicable provisions of the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Notes heretofore or
hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT
<PAGE> 67
2
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Trustee Makes No Representation. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
7. Effect of Headings. The Section headings herein are for
convenience only and shall not effect the construction thereof.
<PAGE> 68
3
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR SUBSIDIARY],
By:
-------------------------------
Name:
Title:
IRIDIUM OPERATING LLC, on
behalf of itself and the Existing
Guarantor Subsidiaries
By:
-------------------------------
Name:
Title:
IRIDIUM CAPITAL CORPORATION
By:
-------------------------------
Name:
Title:
STATE STREET BANK AND TRUST
COMPANY,
as Trustee
By:
-------------------------------
Name:
Title:
<PAGE> 69
SCHEDULE I
Support Agreement, dated as of July 15, 1992 between Motorola and Iridium, as
successor to Iridium LLC, as amended.
<PAGE> 1
EXHIBIT 5
April 27, 1998
Iridium Operating LLC,
Iridium Capital Corporation,
Iridium Roaming LLC,
Iridium IP LLC,
Iridium Facilities Corporation,
1575 Eye Street, N.W.,
Washington, D.C. 20005.
Dear Sirs:
In connection with the registration under the Securities Act
of 1933 (the "Act") of (i) $350,000,000 principal amount of [ ]% Senior Notes
due 2005, Series D (the "Notes") of Iridium Operating LLC, a Delaware limited
liability company ("Iridium"), and its wholly-owned subsidiary Iridium Capital
Corporation, a Delaware corporation (together with Iridium, the "Note Issuers"),
and (ii) the Guarantees of the Notes (the "Guarantees") by Iridium Roaming LLC,
a Delaware limited liability company and a wholly-owned subsidiary of Iridium
("Roaming"), Iridium IP LLC, a Delaware limited liability company and a
wholly-owned subsidiary of Iridium ("IP"), and Iridium
<PAGE> 2
-2-
Iridium Operating LLC
Iridium Capital Corporation
Iridium Roaming LLC
Iridium IP LLC
Iridium Facilities Corporation
Facilities Corporation, a Delaware corporation and a wholly-owned subsidiary of
Iridium ("Facilities", and together with Roaming and IP, the "Guarantor
Subsidiaries"), we, as your counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion. The Notes
and the Guarantees are collectively referred to herein as the "Securities".
Upon the basis of such examination, we advise you that, in our
opinion, when the Registration Statement has become effective under the Act, the
Indenture relating to the Securities has been duly authorized executed and
delivered, the terms of the Securities and of their issuance and sale have been
duly established in conformity with the Indenture so as not to violate any
applicable law or result in a default under or breach of any agreement or
instrument binding upon any of the Note Issuers or the Guarantor Subsidiaries
and so as to comply with any requirement or restriction imposed by any court or
governmental body having jurisdiction over any of the Note Issuers or the
Guarantor Subsidiaries, and the Securities have been duly executed and
authenticated in accordance with the Indenture and issued and sold as
contemplated in the Registration Statement,
<PAGE> 3
-3-
Iridium Operating LLC
Iridium Capital Corporation
Iridium Roaming LLC
Iridium IP LLC
Iridium Facilities Corporation
(i) the Notes will constitute valid and legally binding obligations of the Note
Issuers, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, and (ii) the Guarantees will
constitute valid and legally binding obligations of the Guarantor Subsidiaries,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
In rendering the foregoing opinion, we are expressing no
opinion as to Federal or state laws relating to fraudulent transfers.
The foregoing opinion is limited to the Federal laws of the
United States, the laws of the State of New York and the General Corporation Law
and Limited Liability Company Act of the State of Delaware, and we are
expressing no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained
from public officials, officers of the
<PAGE> 4
-4-
Iridium Operating LLC
Iridium Capital Corporation
Iridium Roaming LLC
Iridium IP LLC
Iridium Facilities Corporation
Note Issuers and Guarantor Subsidiaries and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the refer ence to us under the heading
"Validity of the Securities" in the Prospectus. In giving such consent, we do
not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
Very truly yours,
<PAGE> 1
EXHIBIT 10.17
SECOND AMENDED AND RESTATED
AGREEMENT REGARDING GUARANTEE
This Second Amended and Restated Agreement Regarding Guarantee
(this "Agreement") is made by and among Motorola, Inc., a Delaware corporation
("Motorola"), Iridium LLC, a Delaware limited liability company ("Iridium"),
and Iridium Operating LLC, a Delaware limited liability company and a
wholly-owned subsidiary of Iridium ("Operating"), is dated as of April ,
1998, and amends and restates the Amended and Restated Agreement Regarding
Guarantee, dated as of July 11, 1997 (the "First Amended Agreement Regarding
Guarantee"), which amended and restated the Agreement Regarding guarantee
originally dated as of August 21, 1996 (the "Original Agreement Regarding
Guarantee") between Motorola and Iridium. Reference is made to that certain
Amended and Restated Memorandum of Understanding (the "MOU"), dated April ,
1998, between Motorola, Iridium and Operating.
Motorola has entered into a Guarantee Agreement, dated as of
August 21, 1996, as amended (the "Bridge Guarantee Agreement"), pursuant to
which Motorola has guaranteed the payment of up to $450,000,000 of the
obligations of Iridium under that certain Credit Agreement, dated as of August
21, 1996, as amended, between Iridium and the Lenders named therein (the
"Bridge Agreement"). The First Amended Agreement Regarding Guarantee and the
Original Agreement Regarding Guarantee defined certain rights and obligations
of the parties relating to such guarantee and possible additional guarantees by
Motorola. Capitalized terms used and not otherwise defined herein shall have
the meanings defined in the Bridge Agreement.
On December 18, 1997, following the date of the First Amended
Agreement Regarding Guarantee, Iridium entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Operating, pursuant to
which substantially all of the assets and liabilities of Iridium were
transferred to Operating.
Operating and Motorola have entered in to that certain Standby
Purchase Agreement dated as of April ___, 1998 (the "Handset Purchase
Agreement") pursuant to which Operating may become obligated to purchase
hand-held phones or belt-worn pagers (collectively, "Subscriber Equipment")
from Motorola to use with the Iridium communications system (the "IRIDIUM
System"). In order to fund such purchases of Subscriber Equipment from
Motorola, Operating may be required to borrow funds from one or more lenders
pursuant to a Credit Agreement. Motorola desires to assist Operating in
obtaining such a Credit Agreement by agreeing to provide a guarantee of
Operating's obligations relating to such Credit Agreement, subject to certain
conditions.
The purpose of this Agreement is to set forth certain binding
agreements among Motorola, Iridium and Operating that are intended to (i)
incorporate the remaining pertinent terms of the First Amended Agreement
Regarding Guarantee, as modified in
<PAGE> 2
connection with the Asset Drop-Down Transaction and (ii) reflect the
agreements of the parties in respect of the Handset Guarantee (as defined).
The parties agree as follows:
1. Handset Guarantee
(a) Motorola Agreement to Provide Handset Guarantee. If
at any time and from time to time Operating becomes obligated to purchase
Subscriber Equipment pursuant to the Handset Purchase Agreement, Motorola
hereby agrees, upon the written request of Operating, to provide a Guarantee
relating to an aggregate of up to $175 million (the "Handset Guarantee") under
the Bridge Agreement or under a separate Credit Agreement having the same terms
as the then current Bridge Agreement provided, however, that Motorola shall not
be required to provide the Handset Guarantee unless the Commitments (and
corresponding borrowings) under the Bridge Agreement have been permanently
reduced to $275 million or less (not including the Commitment Increase or
the Handset Increase (each as defined in the MOV)).
(b) Operating Agreements with Respect to Handset
Guarantee. Operating hereby agrees that any funds borrowed that are subject to
the Handset Guarantee ("Handset Borrowings") will be used exclusively for (i)
payments to Motorola under the Handset Purchase Agreement, (ii) payments of
overdue amounts owed by Operating to Motorola under other agreements ("Overdue
Amounts") and (iii) payments of interest (including interest on interest),
fees and expenses payable to the Lenders and agents in respect of borrowings
to fund the payments described clauses (i) and (ii). Operating hereby agrees
that, if Motorola provides the Handset Guarantee, to the extent of available
funds that are subject to the Handset Guarantee, Operating shall borrow
available funds under the Handset Guarantee and pay all Overdue Amounts.
2. Reimbursement Obligation.
(a) Operating Default. Other than as set forth under
Section 2(b) below, if and to the extent that any Lenders demand that Motorola
pay, and Motorola does pay, any Guaranteed Amount pursuant to any Guarantee,
Operating shall, promptly upon receipt from Motorola of a written demand for
reimbursement, reimburse Motorola for such Guarantee Payment, plus interest
accruing at a rate equal to that which would be in effect under the Credit
Agreement relating to such Guaranteed Amount, without duplication.
(b) Motorola Default. If a Guarantee Payment is made in
respect of a Guaranteed Amount that has been accelerated or otherwise become
due as a result of a Motorola-Based Default, then (i) Motorola shall assume and
become subject to the obligations of the Lenders under the applicable Credit
Agreement vis-a-vis Operating
-2-
<PAGE> 3
(including, without limitation, the obligation to make loans in the aggregate
principal amount of such Lenders' commitments under such Credit Agreement),
(ii) Motorola shall assume and become entitled to the benefits of the rights of
the Lenders under such Credit Agreement vis-a-vis Operating (including, without
limitation, the right to receive payments in respect of loans made under such
Credit Agreement, upon acceleration or otherwise), but not including any
provisions relating to a Guarantee or any right or remedy arising as a result
of the occurrence of a Motorola-Based Default, (iii) Operating shall become
obligated to reimburse Motorola for such Guarantee Payment and to repay any
additional amounts for which Operating may become indebted to Motorola pursuant
to clause (ii) above on the terms and conditions contained in such Credit
Agreement as such Credit Agreement is modified by clause (ii) above, and (iv)
Operating shall continue to be subject to the terms and conditions of such
Credit Agreement (including, without limitation, the covenants contained
therein), as such Credit Agreement is modified by clause (ii) above, it being
expressly understood that Motorola shall in such circumstances have the right
to accelerate payments under and otherwise exercise its rights under any such
Credit Agreement to the extent set forth therein as if it were a lender
thereunder to the extent that such right to accelerate or other rights arise
from some event or circumstance other than a Motorola-Based Default or a
Guarantee.
(c) Costs and Expenses. Operating further agrees to
reimburse Motorola for all reasonable out-of-pocket costs and expenses
(including, without limitation, the fees and expenses of legal counsel) in
connection with any enforcement of Operating's obligations under Section 2(a)
(including, without limitation, any fees and expenses incurred in connection
with any bankruptcy proceedings).
(d) Subordination. The rights of Motorola under this
Section 2 shall be subject to the terms and conditions of any applicable
subordination agreements then in effect executed by Motorola for the benefit of
creditors of Operating.
3. Compensation to Motorola.
(a) Warrant Compensation. Except as described in Section
3(e), Iridium shall compensate Motorola for incurring the Motorola Exposure by
issuing warrants (the "Warrants") to purchase Class 1 Interests in Iridium
("Shares") to Motorola. The Warrants shall (i) be in substantially the form of
the warrants issued pursuant to the Original Agreement Regarding Guarantee,
(ii) provide for a ten year term and an exercise price of $0.00013 per Class 1
Interest; (iii) become exercisable on March 1, 2001 and (iv) provide for
issuance of Shares that (A) with respect to Shares issued for warrants received
on or prior to the Commercial Activation Date, may be sold without transfer
restrictions (other than transfer restrictions imposed by the LLC Agreement,
the Interest Exchange Agreement and applicable securities law) at any time
after the fifth anniversary of the exercise of the Warrants and (B) with
respect to Shares issued for warrants received after
-3-
<PAGE> 4
the Commercial Activation Date, may be sold without transfer restrictions
(other than transfer restrictions imposed by the LLC Agreement, the Interest
Exchange Agreement and applicable law) at any time after the exercise of the
Warrants. In addition, in the event that Motorola earns Warrants with respect
to periods beginning after March 1, 2001, Iridium shall compensate Motorola
with Shares issued directly to Motorola in the amounts described below in lieu
of Warrants. On the 45th day following the end of each calendar quarter during
which any Motorola Exposure was outstanding at any time, Iridium shall issue a
certificate to Motorola evidencing the Warrants or Shares earned by Motorola in
respect of the total of such Motorola Exposure outstanding in such quarter.
(b) Calculation of Warrant Compensation. Motorola shall
earn Warrants or Shares based on the amount and duration of Motorola Exposure.
The number of Warrants or Shares shall be earned according to the following
table, pro rated both (A) for the actual dollar amount of Motorola Exposure
outstanding during each relevant period and (B) for the number of days such
Motorola Exposure was outstanding during such period. The following table
indicates the maximum amount of Warrants or Shares issuable for each full $100
million of Motorola Exposure, assuming such Motorola Exposure was outstanding
during the entire relevant period.
<TABLE>
<CAPTION>
MOTOROLA EXPOSURE NUMBER OF WARRANTS PER $100 MILLION
OF MOTOROLA EXPOSURE PER YEAR
(PRIOR TO THE COMMERCIAL ACTIVATION DATE)
<S> <C>
$ 0 -- $ 275,000,000 0/412,500(1)
275,000,001 -- 499,999,000 412,500
500,000,000 -- 749,999,999 637,500
750,000,000 -- (or more) 825,000
(AFTER THE COMMERCIAL ACTIVATION DATE)
$ 0 -- $275,000,000 0/412,500(1)
275,000,001 -- 499,999,999 412,500
500,000,000 -- 749,999,999 637,500
750,000,000 -- 849,999,999 825,000
850,000,000 -- 949,999,999 847,500
950,000,000 -- 1,049,999,999 877,500
1,050,000,000 -- (or more) 900,000
</TABLE>
- ----------
(1) See Section 3(e) below
For example, (A) if there is $750,000,000 of Motorola Exposure outstanding for
a period of one year, which year is prior to the Commercial Activation Date,
Motorola will have earned Warrants relating to 6,187,500 Shares ($750,000,000 /
100,000,000 = 7.5; 7.5* 825,000 = 6,187,500), and (B) if there is $850,000,000
of Motorola Exposure outstanding for a period of two years, one of which years
is prior to the Commercial Activation Date and one of which is after the
Commercial Activation Date, Motorola will have earned Warrants relating to
14,216,250 Shares ($850,000,000 / 100,000,000 = 8.5; 8.5 * 825,000 = 7,012,500;
8.5 * 847,500 = 7,203,750; 7,012,500+7,203,750 = 14,216,250).
-4-
<PAGE> 5
(c) Limitations on Warrant Compensation. Prior to the
Commercial Activation Date, Motorola shall not be eligible to earn Warrants
relating to more than (i)11,250,000 Shares with respect to the first
$749,999,999 in Motorola Exposure and (ii) 3,750,000 Shares with respect to the
additional amounts between and including $750,000,000 and $1,100,000,000 in
Motorola Exposure, in each case subject to antidilution adjustments in
accordance with the terms of the Warrants. Motorola shall earn Warrants on the
entire Motorola Exposure from and after the Commercial Activation Date.
(d) Warrants Issued to Date. The parties acknowledge that
Warrants for 7,534,275 Shares have been earned by Motorola as of March 31, 1998
with respect to outstanding Motorola Exposure and such Warrants apply toward
the limitations set forth in Section 3(c)(i) of this Agreement.
(e) High Yield Equivalent Compensation. During any period
in which each of the following conditions (the "High Yield Equivalent
Conditions") exists: (i) the Motorola Exposure outstanding shall be $275,000,00
or less; (ii) no other person or party providing guarantees for the support of
Iridium's indebtedness for borrowed money is receiving equity compensation from
Iridium or IWCL in respect of such guarantees (other than Kyocera Corporation
in connection with its Guarantee of Operating's borrowings to fund the purchase
of Subscriber Equipment from Kyocera); (iii) Kyocera is receiving equity
compensation, if any, at no greater rate (in relation to amount of Guarantee)
than Motorola, (iv) no mandatory prepayment or redemption or acceleration of
any Senior Notes (as defined in the MOU) has occurred (except as a result of
Motorola's disposition of Class 1 Interests causing a "change in control" (as
defined in the Offering Memorandum) to occur under the Senior Notes); and (v)
Iridium has complied with the terms of this Agreement and the MOU, then at
Iridium's option, in lieu of issuing Warrants pursuant to Section 3(a) above:
(1) Operating shall pay Motorola cash
compensation for the Motorola Exposure, in an amount equal to (x) the
average daily Motorola Exposure during any period for which the
Motorola Exposure is greater than zero multiplied by the excess, if
any, of (A) the weighted average daily interest rate applicable to the
Series A Notes and Series B Senior Notes over (B) the weighted average
daily interest rate actually charged by the Lenders under the Credit
Agreements related to the Motorola Exposure for such period.
(2) Iridium shall issue to Motorola Warrants to
purchase Shares in an amount equal to the average daily principal
amount of Motorola Exposure during such period multiplied by the daily
equivalent of the warrant compensation payable to the initial holders
of the units comprised of warrants to purchase IWCL common stock and
Series A Notes with respect to such amount (calculated on a
-5-
<PAGE> 6
pro rata daily basis from the date of the issuance of such Series A
Notes to the stated maturity thereof).
(3) In each case (1) and (2) multiplied by the
number of days the Motorola Exposure is
outstanding.
(4) High Yield Equivalent Compensation shall be
paid semi-annually in arrears within 45 days after the end of each
semi-annual period.
(f) Guarantee Reduction. In connection with any permanent
reduction of the Commitments under the Bridge Agreement, as amended, or any
separate Credit Agreement Iridium will use its reasonable efforts to cause the
Lenders thereunder to amend the Bridge Agreement Guarantee or other Guarantee
to provide for a similar reduction in Motorola's maximum liability thereunder.
(g) Additional Member and Interests. Iridium shall
provide Motorola with the additional Banking and Finance Committee member and
the Series B, Class 2 interests as described in Section 7 of the MOU.
4. Representations and Warranties of Iridium and
Operating. Each of Iridium and Operating represents and warrants that:
(a) the representations and warranties of Iridium and
Operating set forth in Section 7 of the Bridge
Agreement were true and correct as of the date given
under the Bridge Agreement and the representations
and warranties given under any subsequent Credit
Agreement will be true and correct on the date given;
(b) the Certificates of Designation relating to Iridium's
Series B Class 2 interests and Series C Class 2
Interests have been duly adopted by Iridium's Banking
and Financing Committee in the form attached as Annex
J to the Original Agreement Regarding Guarantee and
all other necessary corporate actions have been taken
to duly authorize the issuance to Motorola of the
Series B Class 2 Interests and Series C Class 2
Interests; and
(c) the execution, delivery and performance of this
Agreement, the Warrants, the amendments and the other
agreements and instruments contemplated hereby to
which Iridium or Operating is a party, have been duly
authorized by Iridium or Operating (as the case may
be); this Agreement, the Warrants, such amendments,
such waiver letter and the Certificates of
Designation relating to
-6-
<PAGE> 7
Iridium's Series B Class 2 Interests and Series C
Class 2 Interests and all other agreements
contemplated hereby to which Iridium or Operating is
a party each constitutes a valid and binding
obligation of Iridium or Operating (as the case may
be), enforceable in accordance with its terms; the
execution and delivery by Iridium and Operating of
this Agreement, the Warrants, such amendments, such
other agreements and instruments contemplated hereby
to which Iridium or Operating is a party, the
offering, sale and issuance of Iridium's Series B
Class 2 Interests and the Warrants hereunder, the
issuance of Iridium's Class 1 interests upon exercise
of Warrants and the fulfillment of and compliance
with the respective terms hereof and thereof by
Iridium and Operating, do not and shall not (i)
conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a
default under, (iii), except as provided in the
Security Agreement, result in the creation of any
lien, security interest, charge or encumbrance upon
Iridium's or Operating's or any Subsidiary's equity
capital or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate
any obligation under, (v) result in a violation of,
or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration
to, or filing with, any court or administrative or
governmental body or agency by, or in respect of,
Iridium, Operating, any Subsidiary, IWCL or any of
their respective directors or shareholders pursuant
to, the charter, limited liability company agreement
or bylaws of Iridium, Operating, any Subsidiary or
IWCL (as the case may be), or any law, statute, rule
or regulation to which Iridium, Operating, any
Subsidiary or IWCL is subject, or any agreement,
instrument, order, judgment or decree to which
Iridium, Operating, any Subsidiary or IWCL is
subject.
5. Motorola Protection Rights. Either Operating or
Iridium (as the case may be) will provide Motorola with written notice at least
five full business days (and no more than ten business days) prior to giving
notice to the banks under any Credit Agreement or any proposed borrowing which
is covered by a Guarantee. In addition, for so long as any Guarantees remain
outstanding (unless the High Yield Equivalent Conditions exist), without the
prior written approval of Motorola (which may be withheld in the absolute
discretion of Motorola), Iridium shall not (in the case of (a), (b), (e), (f)
and (g) below) and Operating shall not (in the case of (c), (d), (e), (g) and
(h) below):
(a) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of,
more than 5% of the consolidated assets of Iridium
and its Subsidiaries (computed on the basis of
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<PAGE> 8
book value, determined in accordance with generally
accepted accounting principles consistently applied,
or fair market value, determined by Iridium's board
of directors in its reasonable good faith judgment)
in any transaction or series of related transactions
or sell or permanently dispose of any of its or any
Subsidiary's Intellectual Property Rights (other than
commercially available software designed for
operation on a personal computer or network of
personal computers);
(b) merger or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person
(other than a Wholly-Owned Subsidiary);
(c) liquidate, dissolve or effect a recapitalization or
reorganization of its capital structure in any form
of transaction;
(d) effect a change in its equity capitalization that
requires the approval of the holders of Shares;
(e) directly or indirectly declare or pay any dividends
or make any distributions upon any of its equity
capital other than distributions of Iridium to
members made pursuant to Section 3.07(a) of the LLC
Agreement with respect to certain members' U.S. tax
liabilities;
(f) directly or indirectly redeem (other than a
redemption of the Series B or C Class 2 Interests of
Iridium pursuant to the LLC Agreement), purchase or
otherwise acquire, or permit any Subsidiary to
redeem, purchase or otherwise acquire, any of
Iridium's or any Subsidiary's capital stock or other
equity securities (including, without limitation,
warrants, options and other rights to acquire such
capital stock or other equity securities) other than
pursuant to the exercise of Iridium's remedies
against any holder of Shares pursuant to the terms of
the LLC Agreement or the 1993 Stock Purchase
Agreement (as defined in the LLC Agreement);
(g) incur any indebtedness for borrowed money other than
indebtedness the amount, terms and conditions
(including without limitations, the subordination
provisions) or which have been approved in advance by
the lenders to the extent required under any Credit
Agreement; or
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(h) take any action or permit any circumstances
to exist which is prohibited under the terms
of any Credit Agreement or fail to take any
action required to be taken by it under the
terms of any Credit Agreement, in each case
subject to the grace period applicable to any
default created by such action or
circumstance pursuant to such Credit
Agreement; provided, however, that this
clause (h) shall not apply to any action or
circumstance that would constitute a Motorola
Default (as defined in the Bridge Agreement).
6. Amendments and Modifications to Credit Agreements.
Operating shall not enter into any amendment, waiver, supplement or
modification of any Credit Agreement (other than as contemplated by this
Agreement or the MOU) without the prior written consent of Motorola, which
consent may be granted or withheld by Motorola in its sole discretion, but
acting in good faith.
7. Use of Proceeds. Operating will use the proceeds of
the loans made under any Credit Agreement solely (i) to make payments to
Motorola at the times and in the amounts required pursuant to the SSC, the TNDC
or the O&M Contract, (ii) to pay fees and expenses payable to the Lenders and
agents in connection with such Credit Agreement, (iii) to pay for Subscriber
Equipment and (iv) for general corporate purposes so long as the amount subject
to this clause (iv) does not exceed the amounts budgeted for such purposes in
the budget plans approved by Iridium's board of directors from time to time.
8. Copies of Information and Notices. Any and all
material information, notices and correspondence provided by or on behalf of
Operating to any Lender (whether or not required under the applicable Credit
Agreement) shall be provided at the same time to Motorola.
9. Referral of Matters to Related Party Contracts
Committee. Each of Iridium and Operating acknowledges and agrees that the
Contract Committee (as defined in the LLC Agreement) of Iridium's board of
directors has a limited scope of authority with respect to the relationship
between Motorola on the one hand and Iridium and Operating on the other, and
that only those matters specifically required by the LLC Agreement and matters
related to the Amended Guarantee Agreement, other contracts between Motorola
and Iridium and actions or claims by Iridium or Operating against Motorola and
other Affiliate Transactions (as defined in the Offering Memorandum) will be
taken to the Contract Committee for approval.
10. Access. Operating shall permit Motorola to have
access to relevant meetings, documents or other materials, other than Internal
Meetings, Documents and Materials (as defined below), directly relating to the
Guarantees or any Credit Agreement.
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"Internal Meetings, Documents and Materials" means meetings between or among
executives or employees of IWCL, Operating or Iridium or between or among
Iridium, Operating or IWCL and their consultants, advisors and/or counsel;
documents or other materials which are prepared in connection with such
meetings; and documents or other materials which are circulated solely between
or among executives or employees of Iridium, Operating or IWCL or between or
among Iridium, Operating or IWCL and their consultants, advisors and/or
counsel.
11. Notices under this Agreement. All notices, requests,
demands, claims, and other communications hereunder will be in writing. Any
notice, request, demand, claim or other communication hereunder shall be deemed
duly given (i) when delivered, if personally delivered, (ii) when receipt is
electronically confirmed, if faxed (with hard copy to follow via first class
mail, postage prepaid) or (iii) one day after deposit with a reputable
overnight courier, in each case addressed to the intended recipient as set
forth below:
If to Iridium:
Iridium LLC
1575 Eye Street, NW
Washington, D.C. 20005
Attention: Vice President and Chief Financial Officer and
Vice President - General Counsel
Telecopy #: (202) 842-0006
If to Operating:
Iridium Operating LLC
1575 Eye Street, NW
Washington, D.C. 20005
Attention: Vice President and Chief Financial Officer and
Vice President - General Counsel
Telecopy #: (202) 842-0006
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If to Motorola:
Motorola, Inc.
1303 East Algonquin Road
Schaumburg, Illinois 60196
Attention: Treasurer
Telecopy #: (847) 576-4768
with a copy (which shall not constitute notice) to:
Motorola, Inc.
425 North Martingale Road
Schaumburg, Illinois 60173
Attention: Vice President - Law Department, Iridium Matters
Telecopy #: (847) 435-3328
12. Definitions. The following terms when used in this
Agreement have the following meanings:
"Commercial Activation Date" means the date of the first
"Revenue Producing Communication Message" as defined in the SSC
(excluding subscriber trials).
"Credit Agreement" means any agreement pursuant to which
Iridium incurs indebtedness for borrowed money which is Guaranteed by
Motorola, including without limitation, the Bridge Agreement, as
amended.
"Guarantee" means any guarantee by Motorola of any obligations
of Iridium under any Credit Agreement or any note, agreement or other
instrument executed in connection therewith, including without
limitation, the guarantee set forth in the Amended Guarantee Agreement
with respect to the Bridge Agreement.
"Guarantee Agreement" means any agreement which evidences any
Guarantee, including without limitation the Bridge Guarantee
Agreement.
"Guarantee Payment" means any payment which is demanded of
Motorola by a Lender pursuant to any Guarantee which is actually paid
by Motorola, to the extent so paid.
"Guaranteed Amount," with respect to any period, means the
maximum amount of Iridium's obligations for which Motorola has
provided a Guarantee during such period (regardless of the actual
amount of Iridium's obligations
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<PAGE> 12
outstanding to any Lender during such period) together, without
duplication, with any Guarantee Payments which have been made by
Motorola but not repaid by Iridium.
"Lender" means any lender under any Credit Agreement, or any
agent or other authorized representative of any lender, including
without limitation the Global Arrangers (as defined in the Bridge
Agreement, as amended).
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trademarks,
service marks, trade dress, trade names, logos and corporate names and
registrations and applications for registration thereof together with
all of the goodwill associated therewith, (iii) copyrights (registered
or unregistered) and copyrightable works and registrations and
applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer
software, data, data bases and documentation thereof, (vi) trade
secrets and other confidential information (including, without
limitation, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and
information), (vii) other intellectual property rights and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
"Interest Exchange Agreement" means the Interest Exchange
Agreement, dated as of June 9, 1997, by and between IWCL and Iridium.
"IWCL" means Iridium World Communications Ltd.
"LLC Agreement" means the limited liability company Agreement
of Iridium LLC dated as of July 19, 1996 as amended.
"Motorola-Based Default" means a default under the Bridge
Agreement or any other Credit Agreement which is caused solely and
directly by actions taken by Motorola other than a default occurring
as the result of the ownership percentage of Motorola and its
affiliates falling below the thresholds set forth in the Bridge
Agreement (as amended by the amendment described in Section 1(c))
unless it falls below such thresholds as the result of Motorola or an
affiliate disposing of Iridium's voting securities.
Also, a Motorola-Based Default means a default under the
Bridge Agreement or any other Credit Agreement which is caused solely
and directly by
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<PAGE> 13
actions taken by Motorola as a result of a demand for payment under a
Guarantee which has arisen as a result of a material default by
Motorola under (1) the SSC, the TNDC or the O&M Contract, so long as
Iridium has fully complied in all material respects with its
obligations under the SSC, the TNDC and the O&M Contract and
Motorola's default is the primary cause for the default under the
applicable Credit Agreement which has caused such demand for payment,
or (2) under any gateway purchase agreement between Motorola and a
gateway purchaser, so long as the default by Motorola thereunder was
not excused or caused by any default on the part of the purchaser
thereunder.
"Motorola Exposure" means the Commitments (including
Commitments under the Bridge Agreement or a separate Credit Agreement
having the same terms as the Bridge Agreement), the Guarantee Payments
(to the extent not repaid by Iridium) and the Vendor Financing
Amount.
"Offering Memorandum" means the Offering Memorandum dated
October 9, 1997 related to the issuance and sale by Iridium of its
11.25% Senior Notes due 2005, Series C.
"O&M Contract" means the Operations and Maintenance Contract
effective July 29, 1993 between Iridium and Motorola, as amended from
time to time.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
"Senior Notes" has the meaning set forth in the MOU.
"SSC" means the Space System Contract effective July 29, 1993
between Iridium and Motorola, as amended from time to time.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or
other business entity of which (i) if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a
limited liability company, partnership, association or other business
entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or
indirectly,
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<PAGE> 14
by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability
company, partnership, association or other business entity if such
Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or
losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other
business entity.
"TNDC" means the Terrestrial Network Development Contract
effective January 1, 1993 between Iridium and Motorola, as amended
from time to time.
"Vendor Financing Amount" means the total amount (including
interest and expenses) of any vendor financing, including without
limitation, vendor financing contemplated by an amendment to the TNDC
or any other payment deferrals or payments made to, or for the benefit
of, Iridium, provided to Iridium or third parties by Motorola but not
including any vendor financing or payment deferrals under the TNDC
(including Amendment No. 3) in effect on the date hereof, so long as
payment are made under the TNDC when owed.
13. Complete Agreement. This Agreement and the other
agreements and instruments referred to herein embody the complete agreement and
understanding among the parties with respect to the matters addressed herein
and supersede and preempt the Original Agreement Regarding Guarantee and any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any
way.
14. Miscellaneous. This Agreement (a) is made under and
shall be governed by the laws of the State of New York without regard to
principles of conflict of laws, (b) is intended for the benefit of the parties
hereto and is not intended to benefit any other person and no person other than
the parties hereto may rely upon the provisions hereof, (c) may be executed in
counterparts, each of which taken together shall constitute one and the same
instrument, and (d) may be amended or waived only if such amendment or waiver
is in writing and signed by the party against whom it is sought to be enforced.
15. No Third Party Beneficiaries; Limited Rights Against
Motorola. The parties hereto agree that Iridium shall have no rights (apart
from those set forth in this Agreement, the MOU or any other written agreements
between such parties) against Motorola as a result of Iridium's inability to
meet drawing or other conditions under the Bridge Agreement.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have entered into this
Amended and Restated Agreement Regarding Guarantee in each case as of the date
first above written.
IRIDIUM LLC
By:____________________________
Name:
Title:
IRIDIUM OPERATING LLC
By:____________________________
Name:
Title:
MOTOROLA, INC.
By:____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.18
AMENDED AND RESTATED
MEMORANDUM OF UNDERSTANDING
This Amended and Restated Memorandum of Understanding ("MOU"), dated
as of April , 1998, among Motorola, Inc., a Delaware corporation
("Motorola"), Iridium LLC, a Delaware limited liability company ("Iridium") and
Iridium Operation LLC, a Delaware limited liability company and a wholly-owned
subsidiary of Iridium ("Operating") amends and restates the Memorandum of
Understanding originally dated as of July 11, 1997, between Iridium and
Motorola (the "Original MOU").
Reference is made to (i) that certain Guarantee Agreement, dated as of
August 21, 1996, as amended (the "Bridge Guarantee Agreement"), pursuant to
which Motorola has guaranteed the payment of up to $450,000,000 of the
obligations of Operating under that certain Credit Agreement, dated as of
August 21, 1996, as amended, between Operating and the Lenders named therein
(the "Bridge Agreement"), and (ii) the Second Amended and Restated Agreement
Regarding Guarantee, dated as of April , 1998, among Motorola, Iridium and
Operating (the "Agreement Regarding Guarantee"). Capitalized terms used herein
and not defined herein shall have the meanings ascribed to them in the
Agreement Regarding Guarantee.
On July 16, 1997, Iridium issued (i) $300 million aggregate principal
amount of 13% Senior Notes due 2005, Series A (the "Series A Notes") and (ii)
$500 million aggregate principal amount of 14% Senior Notes due 2005, Series B
(the "Series B Notes"). On October 17, 1997, Iridium issued $300 million
aggregate principal amount of 11.25% Senior Notes due 2005, Series C (the
"Series C Notes and, together with the Series A Notes and the Series B Notes,
the "Outstanding Senior Notes"). Other than their respective interest rates,
the Series A Notes, the Series B Notes and the Series C Notes have
substantially similar terms.
On December 18, 1997 Iridium entered into an asset drop-down
transaction (the "Asset Drop-Down Transaction") with Operating, pursuant to
which substantially all of the assets and liabilities of Iridium were
transferred to Operating, including without limitation the Outstanding Senior
Notes and the Bridge Agreement.
Operating has entered into a $1 billion senior secured interim Credit
Agreement, dated as of December 19, 1997, with the banks and financial advisers
named therein (the "Secured Bank Facility"). In connection with the execution
of the Secured Bank Facility, Motorola, Operating and The Chase Manhattan Bank
entered into that certain Consent and Agreement, dated as of December , 1997
(the "Motorola Consent").
In order to finance the development, construction and operation of the
Iridium satellite communications system (the "Iridium System"), Operating may
issue and sell additional senior notes ("Additional Senior Notes" and, together
with the Outstanding
<PAGE> 2
Senior Notes, the "Senior Notes"). In addition, after commencement of
commercial operations, Operating intends to replace the Secured Bank Facility
with a permanent credit facility or facilities (collectively, the "Proposed
Permanent Facility").
The purpose of this MOU is to set forth certain binding agreements
among Motorola, Iridium and Operating that are intended to (i) incorporate the
remaining pertinent terms of the Original MOU, as modified in connection with
the Asset Drop-Down Transaction, and (ii) reflect certain agreements of the
parties in respect of (A) the issuance of Additional Senior Notes and (B)
Handset Borrowings.
Section 1. Bridge Agreement.
(a) Extension Amendment. Upon the written request of Operating, Motorola
will consent to Operating's entering into an amendment to the Bridge Agreement
(the "Extension Amendment") pursuant to which only the following change shall
be made to the Bridge Agreement: the definition of "Commitment Termination
Date" shall be changed to a date (the "Extended Maturity Date") which is after
(but no more than six months after) the maturity of the Outstanding Senior
Notes provided, however, that in the case of commitments pursuant to the
commitment increases contemplated by Section 1(c) the maturity of such
commitment increases shall be as set forth in section 1(c).
(b) Commitment Increase Amendment. Subject to the terms
of Section 7, upon the written request of Operating provided prior to February
28, 1999, Motorola will consent to Operating's entering into an amendment or
amendments to the Bridge Agreement (the "Commitment Increase Amendment")
pursuant to which only the following changes shall be made to the Bridge
Agreement: the Commitments thereunder shall be increased by $350 million for
borrowings made on or prior to February 28, 1999 (the "Commitment Increase").
If requested by Operating, the substance of the Commitment Increase Amendment
may be provided pursuant to a separate Credit Agreement on the same terms as
the then current terms of the Bridge Agreement.
(c) Handset Increase Amendment Subject to the terms of Section 7,
upon the written request of Operating provided prior to February 28, 1999,
Motorola will consent to Operating's entering into an amendment or amendments
to the Bridge Agreement (the "Handset Increase Amendment") pursuant to which
only the following changes shall be made to the Bridge Agreement: the
Commitments thereunder shall be increased by up to $175 million in respect of
Handset Borrowings (the "Handset Increase"), provided, however, that Motorola
shall not be required to (i) consent to the Handset Increase Amendment unless
the Commitments (and corresponding borrowings) under the Bridge Agreement have
been permanently reduced to $275 million or less (not including the Commitment
Increase or the Handset Increase) pursuant to Section 2(b) or (ii) agree to a
maturity date or Commitment Termination Date for the Handset Increase (the
"Handset Maturity Date") that is later than the date that is one year after the
date on which Operating has full access to, and has drawn upon, $1.7 billion or
more of financing under the Proposed Permanent Facility (the "Permanent Funding
Date"). If
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requested by Operating or Motorola, the substance of the Handset Increase
Amendments may be provided pursuant to a separate Credit Agreement on the same
terms (other than maturity) as the then current terms of the Bridge Agreement.
(d) Guarantee Agreement Amendments. Subject to the terms of
Section 7, Motorola will enter into the amendments to the Bridge Guarantee
Agreement pursuant to which only the changes necessary to effect the Extension
Amendment, the Commitment Increase Amendment and the Handset Increase
Amendments shall be made to the Bridge Guarantee Agreement; provided, however,
that Motorola shall not be required to agree to (i) a Guarantee Agreement
amendment corresponding to the Commitment Increase (the "Guarantee Increase")
to the extent Motorola's liability relating to such Guarantee Increase would
exceed $350 million (inclusive of principal and interest) or (ii) a Guarantee
Agreement amendment corresponding to the Handset Increase (the "Handset
Guarantee") to the extent Motorola's liability relating to such Handset
Guarantee would exceed $175 million (inclusive of principal and interest);
provided, further, that Motorola shall not be required to (i) enter into the
Handset Guarantee unless the Commitments(and corresponding borrowings) under
the Bridge Agreement have been permanently reduced to $275 million or less (not
including the Commitment Increase or the Handset Increase) pursuant to Section
2(b) or (ii) agree to a Handset Maturity Date that is later than the date that
is one year after the Permanent Funding Date. In addition, subject to the terms
of Section 7, Motorola will enter into any amendment to a Guarantee Agreement,
and will consent to any amendment or other modification of a Credit Agreement,
pursuant to which solely the following changes shall be made: (i) the maximum
liability of Motorola under such agreement shall be reduced and (ii) the
Commitment of the Lenders shall be reduced.
(e) Consolidation or Separation of Amendments. The
foregoing Amendments may be consolidated or separated into one or more
Amendments to the extent that such Amendments address the substantive issues
described in Sections 1(a)-(d) within the time frames set forth therein.
Section 2. Senior Notes.
(a) Terms of the Additional Senior Notes. Each of Iridium
and Operating agree with Motorola that the Additional Senior Notes will have
terms that are no less favorable to Motorola than the Material Terms (as
defined). The "Material Terms" are those described under "Description of Notes"
in the Offering Memorandum for the Series C Notes, dated October 9, 1997 (the
"Offering Memorandum") under the captions "Change of Control", "Certain
Covenants--Limitations on Indebtedness," "--Limitation on Restricted Payments,"
"--Limitation on Transactions with Affiliates," "--Limitations on Liens" and
"Defaults" (as well as any definitions used in such provisions), each only as
they relate to (i) Motorola or (ii) the ability of Operating (as successor to
Iridium) to make
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<PAGE> 4
payments to Motorola under any written agreement between Motorola and Iridium
or prepay indebtedness under any Credit Agreement.
(b) Use of Proceeds. Operating agrees that, to the extent
that it receives proceeds from the issuance and sale of Additional Senior Notes
in excess of $175 million, it will apply such excess proceeds to a prepayment
of the Loans under the Bridge Agreement and to a permanent reduction of the
Commitments thereunder (subject to the obligations to prepay Loans in multiples
of $1 million under section 2.03(b) of the Bridge Agreement); provided,
however, that Operating shall not be required to reduce the Commitments under
the Bridge Agreement to an amount less than $275 million.
(c) Repurchase of Senior Notes. Operating agrees to repay
all amounts outstanding under the Bridge Agreement and to terminate the
Commitments thereunder prior to or simultaneously with any redemption of any
Senior Notes pursuant to any optional redemption provisions thereof. In the
event that Operating is required to purchase any Senior Notes as a result of a
"change of control" as defined in the Offering Memorandum (other than a "change
of control" triggered by a change in Motorola's ownership of Iridium),
Operating agrees to repay the Bridge Agreement (and any other Motorola Exposure
(as defined below)) pro rata with such purchase or, if Operating is unable or
unwilling to do so, Operating hereby waives its right to pay Motorola High
Yield Compensation pursuant to Section 3(e) of the Agreement Regarding
Guarantee, as amended, until it does so.
Section 3. Subordination. Motorola hereby agrees with Operating
that Motorola will comply with its obligations under Article VI of the Motorola
Consent, including its obligations to agree that the Guarantee Increase and the
Handset Increase will be Motorola Subordinated Claims (as defined in the
Motorola Consent) with respect to Operating's obligations under Operating's
Senior Bank Debt (as defined in the Motorola Consent), and will rank pari passu
with all other senior unsecured indebtedness of Operating. Operating hereby
agrees with Motorola that Operating will comply with its obligations under
Article VI of the Motorola Consent.
Section 4. Agreement Regarding Guarantee. Motorola, Iridium and
Operating each agree to execute and deliver the Second Amended and Restated
Agreement Regarding Guarantee in the form attached hereto as Annex A
contemporaneously with the execution and delivery of this MOU.
Section 5. Vendor Financing. Reference is made to the
Terrestrial Network Development Contract between Motorola and Iridium, as
amended and as assigned to Operating by Iridium in connection with the Asset
Drop-Down Transaction (the "TNDC"), pursuant to which Operating is required to
make payments to Motorola for certain features and functionality contained in
Amendment No. 3 thereto "TNDC
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<PAGE> 5
Amendment No. 3") totaling $96,437,662 (including interest to be accrued from
September 30, 1998 to the dates certain payments become due under the TNDC) on
September 30, 1998 and thereafter (the "FOC Payments"). Motorola hereby agrees
to allow Operating to defer paying Motorola the amounts of any of the FOC
Payments from the dates they become due under the TNDC to the Extended Maturity
Date. The amount of the FOC Payments deferred pursuant to this MOU, including
accruing or accrued but unpaid interest to the extent such deferral or interest
would exceed the amount which would have been payable at such dates payments
become due will be deemed to be "Vendor Financing" and compensated as such (and
not pursuant to the 10% interest charge under TNDC Amendment No. 3) until paid
pursuant to the terms of the Agreement Regarding Guarantee. The FOC Payments,
if deferred to the Extended Maturity Date will be deemed to be Motorola
Subordinated Claims with respect to Operating's obligations under Operating's
Senior Bank Debt and will rank pari passu with all other senior unsecured
indebtedness of Operating. Operating agrees that any funds paid to Motorola by
Operating to reduce Vendor Financing will first be applied to deferred payments
then due generally and then to the FOC Payments.
Section 6. Certain Additional Agreements.
(a) Each of Iridium and Operating agrees that, Iridium
and Operating (on a consolidated basis) shall not have outstanding at any time
prior to the Extended Maturity Date (i) in excess of $1.7 billion of
indebtedness for borrowed money that is secured by the assets of Operating,
(ii) in excess of $1.62 billion in aggregate principal amount (or initial gross
proceeds in the case of the Outstanding Senior Notes) of Senior Notes,
including the Outstanding Senior Notes and the aggregate principal amount for
any Additional Senior Notes or (iii) any other indebtedness of the types
described in (i) and (ii) above if the aggregate amount of indebtedness of the
types described in (i) and (ii) would be in excess of $3.32 billion, unless,
in each case, (A) the total Motorola Exposure (other than Excluded
Indebtedness) is less than or equal to $275 million, (B) Motorola is being
compensated for such Motorola Exposure pursuant to Section 2(e) of the
Agreement Regarding Guarantee and (C) none of the Motorola Exposure is
subordinated to any Senior Notes.
"Excluded Indebtedness" means: (i) up to $ 175 million of
indebtedness incurred in respect of the Handset Increase, (ii) up to $150
million of unsecured indebtedness owed to Motorola relating to approved
amendments to the TNDC (including TNDC Amendment No. 3) and (iii) up to $50
million of unsecured indebtedness owed to Motorola relating to the development
of second generation enhancements or additions to the IRIDIUM System,
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<PAGE> 6
(b) For the duration of any period in which the Motorola
Exposure is less than $275 million, Motorola is being compensated for such
Motorola Exposure pursuant to Section 3(e) of the Agreement Regarding
Guarantee, as amended, and Motorola has not been required to make any payments
under the Bridge Guarantee Agreement (amended as contemplated by Section 1(d))
or any other Credit Agreement, Motorola will [, on or prior to the date of the
next annual meeting of the members of Iridium,] (i) cause its Series B Class 2
Director to resign from the Iridium Board and (ii) deliver over to an escrow
agent selected by Motorola and Iridium all of its Series B and Series C Class 2
Interests under an agreement specifying that such agent shall not exercise any
rights represented by those interests. Iridium intends to reregister the
transfer immediately after the Motorola Exposure is more than $275 million.
(c) Iridium will exercise its existing option to extend
the Operation & Maintenance Contract between Motorola and Iridium if, and at
the time when, it is required to do so by the terms of the Senior Notes or the
Secured Bridge Facility or the terms of any other Credit Agreement.
Section 7. Conditions. Iridium, Operating and Motorola
acknowledge that the execution and delivery of each document contemplated
hereby is subject to the compliance of Iridium and Operating with the Agreement
Regarding Guarantee and this MOU. As a condition to Motorola's execution and
delivery of Amendment No. 2, Iridium must deliver to Motorola: (i) a duly
authorized and executed amendment of its Limited Liability Company Agreement
(the "LLC Agreement") which provides for (A) the issuance to Motorola of an
aggregate number of Series B Class 2 Interests (as defined in the LLC
Agreement) sufficient to provide Motorola with at least six members of the
Iridium Board of Directors so long as the Motorola Exposure exceeds
$750,000,000 and (B) the right of Motorola to appointment of at least two
members of the Iridium Banking and Finance
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<PAGE> 7
Committee so long as the Motorola Exposure exceeds $750,000,000; (ii) evidence
of the authorization of such amendment and the issuance of the Series B Class 2
Interests by the Iridium Board and are applicable committees thereof; and (iii)
a certificate evidencing such Series B Class 2 Interests. As a condition to
Motorola's execution and delivery of Amendment No. 2 Operating must take all
actions necessary to ensure that any changes to the composition of the Iridium
Board of Directors as a result of obligations of Iridium set forth in the
previous sentence are made to the Operating Board of Directors on a consistent
basis as provided in the Limited Liability Company Agreement of Operating.
Iridium acknowledges that Motorola's agreements set forth in this MOU also are
conditioned upon consistency of the transactions and agreements contemplated
hereby with the terms set forth, or referenced in this MOU. If the terms of
the transactions or agreements contemplated hereby vis-a-vis Motorola differ
materially and adversely from such documents, or contain additional material
and adverse terms (in each case, in Motorola's discretion acting in good
faith), Iridium acknowledges that Motorola has no obligation to execute any
documents or to consent to the transactions contemplated hereby.
* * * *
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Memorandum of
Understanding as of April , 1998.
MOTOROLA, INC.
By:____________________________
Name:
Title:
IRIDIUM LLC
By:____________________________
Name:
Title:
IRIDIUM OPERATING LLC
By:____________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 10.43
CHINA GATEWAY COMPENSATION AGREEMENT
This China Gateway Compensation Agreement (this "Agreement"), dated as
of April __, 1998, is made by and between Motorola, Inc., a Delaware
corporation ("Motorola"), and Iridium Operating LLC, a Delaware limited
liability company ("Iridium").
WHEREAS, the Board of Directors of Iridium LLC ("Parent") authorized a
gateway incentive program pursuant to which Parent, under certain
circumstances, would issue warrants ("Gateway Incentive Warrants") to its
gateway territory owners and to Motorola;
WHEREAS, (i) Iridium China (Hong Kong), Ltd. ("IC(HK)"), the owner of
the gateway territory which includes China (the "China Gateway Territory"), has
agreed to waive any right to receive Gateway Incentive Warrants for the timely
construction and operation of the gateway in the China Gateway Territory (the
"China Warrants") and (ii) the Board of Directors of Parent at a meeting on
March 13, 1998 has agreed, subject to certain conditions, to issue the China
Warrants to Motorola for using its best efforts to cause such gateway to
achieve commercial activation on a timely basis and for certain revenue earned
by that gateway;
WHEREAS, in an effort to facilitate the construction and
implementation of a gateway in China, (i) pursuant to the Iridium Gateway
Conveyance Agreement, dated as of April 10, 1998 (the "MPT Agreement"), among
Motorola, Iridium and China Telecommunications Broadcast Satellite Corporation
("China Sat"), Motorola has agreed to provide to China Sat, at no cost to China
Sat, certain equipment and services relating to the construction and operation
of the China gateway (the "China Gateway Equipment") and (ii) Iridium has
agreed to provide to China Sat, at no cost to China Sat, a Gateway Business
System; and
WHEREAS, pursuant to an Iridium China Call Option Agreement between
Motorola and IC(HK), dated as of March 30, 1998, Motorola has granted to IC(HK)
an option to purchase from Motorola (the "China Call Option") all China
Warrants that Motorola receives;
NOW, THEREFORE, in order to properly allocate the compensation
reflected by any exercise of the China Call Option or the benefit of the China
Warrants, the parties agree as follows:
<PAGE> 2
1. Definitions.
China Call Option Expiration Date: The last date upon which the China
Call Option shall remain available to IC(HK) under the MPT Agreement,
calculated as the ninetieth (90th) calendar day following the date that Parent
declares as the last date for issuance of Gateway Incentive Warrants.
China Call Option Payment: The receipt of full payment by Motorola
from IC(HK) in respect of the exercise of the China Call Option.
Interest: Interest with respect to any amount means interest thereon,
calculated at a rate equal to 10.5% on the basis of a 360 day year and the
actual days elapsed compounded monthly, from the date of Motorola's shipment of
equipment pursuant to the MPT Agreement, until the date of payment of such
amount.
2. China Call Option. Motorola agrees not to amend the China Call Option
in writing without Iridium's consent. Motorola agrees not to accept any
payment in respect of the China Call Option from IC(HK) other than full payment
and not to transfer any Gateway Incentive Warrants to IC(HK) except in exchange
for full payment under the China Call Option made within 30 calendar days after
the China Call Option Expiration Date.
3. China Call Option Payment Distribution Obligation. If IC(HK)
exercises the China Call Option on or prior to the China Call Option Expiration
Date and makes the China Call Option Payment within 30 calendar days after such
Expiration Date, then Motorola shall, within five (5) days of receipt of the
China Call Option Payment, distribute to Iridium the sum of $6 million plus
Interest on the $6 million.
4. Sale and Purchase Rights. (a) If IC(HK) does not exercise the China
Call Option on or prior to the China Call Option Expiration Date and make the
China Call Option Payment within 30 calendar days after such Expiration Date,
then:
(i) Motorola may, by written notice delivered to Iridium
at any time within sixty (60) calendar days after the China Call
Option Expiration Date, elect to sell to Iridium, and Iridium shall
have the obligation to buy from Motorola, all (but not less than all)
of the China Warrants; and
(ii) Iridium may, by written notice delivered to Motorola
at any time within sixty (60) calendar days after the China Call
Option Expiration Date, elect to purchase from Motorola, and Motorola
shall have the obligation to sell to Iridium, all (but not less than
all) of the China Warrants.
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<PAGE> 3
(b) The aggregate purchase price for the China Warrants
in any purchase and sale under Section 4(a) above shall be (a) US
$26,005,880 plus (b) the actual cost of shipping the China Gateway
Equipment plus (c) optional gateway services provided (which shall not
exceed US $1,250,000). Settlement of such purchase and sale shall be
made at the offices of Iridium on the tenth (10th) business day
following the first election notice sent pursuant to Section 4(a)
above. Payment of such purchase price shall be made against delivery
of the certificate(s) evidencing the Iridium Warrants, together with
any stock powers or other instruments reasonably requested by Iridium
to give effect to such purchase and sale.
5. In the event (i) IC(HK) does not exercise the China Call Option on or
prior to the China Call Option Expiration Date and (ii) the China Warrants are
not purchased by Iridium pursuant to Section 4(a) above on or prior to the date
that is thirty (30) calendar days after the China Call Option Expiration Date,
Motorola shall have the obligation to sell to Iridium, and Iridium shall have
the obligation to purchase, 6/32 (18.75%) of the China Warrants for an
aggregate purchase price of $1. Payment of such purchase price shall be made
against delivery of the certificate(s) evidencing the Iridium Warrants,
together with any stock powers or other instruments reasonably requested by
Iridium to give effect to such purchase and sale. Settlement of such purchase
and sale shall be made at the offices of Iridium on the tenth (10th) business
day following the date that is thirty (30) calendar days after the China Call
Option Expiration Date.
6. Enforceability of Agreement Contingent Upon Issuance of China
Warrants. This Agreement shall terminate upon the latest of (i) the date when
Parent has complied with its obligations to issue the China Warrants, (ii) the
date when Iridium's obligations under this Agreement have expired or been
satisfied and (iii) the date when Motorola's obligations under this Agreement
have expired or been satisfied.
7. Assignment. Neither party shall have the right to assign or delegate
its rights or obligations hereunder to any other person without the prior
written consent of the other party.
8. Iridium Representations. Iridium hereby represents that (a) Iridium
has the power and authority to perform this Agreement, (b) this Agreement is
the binding obligation of Iridium, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, moratorium and other laws of general
applicability relating to or affecting creditors' rights and general equity
principles and (c) the actions of Iridium and Parent contemplated hereby have
been duly authorized by Iridium and Parent, as the case may be and each of
Iridium, Parent and IWCL has received all the approvals necessary for Iridium
to enter into this Agreement, as applicable, and to fully carry out the
transactions contemplated by this Agreement.
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<PAGE> 4
9. Motorola Representations. Motorola hereby represents that (a)
Motorola has the power and authority to perform this Agreement and the MPT
Agreement, (b) each of this Agreement and the MPT Agreement is a binding
obligation of Motorola, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, moratorium and other laws of general applicability
relating to or affecting creditors' rights and general equity principles and
(c) the actions of Motorola contemplated hereby and by the MPT Agreement have
been duly authorized by Motorola and Motorola has received all approvals
necessary for it to enter into this Agreement and to carry out the transactions
contemplated by this Agreement.
10. Notices. All notices and other communications hereunder will be in
writing. Any notice or other communication hereunder shall be deemed duly
given (i) when delivered, if personally delivered, (ii) when receipt is
electronically confirmed, if telecopied (with hard copy to follow via first
class mail, postage prepaid) or (iii) one business day after deposit with a
reputable overnight courier, in each case addressed to the intended recipient
as set forth below:
(a) If to Motorola:
Motorola, Inc.
Satellite Ventures Division
425 Martingale Drive
Schaumburg, Illinois 60173
(Telecopy No.: (847) 435-3328)
(b) If to Iridium:
Iridium Operating LLC
1575 Eye Street, N.W.
Washington, D.C. 20005
Attention: General Counsel
(Telecopy No.: (202) 408-3897)
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, without regard to its
principle of conflicts of laws.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instruments.
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<PAGE> 5
13. Amendment. This Agreement cannot be amended except in a
writing signed by both parties.
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<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
MOTOROLA, INC.
By:
----------------------------
Name:
Title:
IRIDIUM OPERATING LLC
By:
----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 10.44
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this __ day of ______, 1998 by and between Iridium Operating LLC, a
Delaware limited liability company ("Iridium"), and Motorola, Inc., a Delaware
corporation ("Motorola").
In order to stimulate the manufacture and distribution of Iridium
hand-held and mobile phones (each, a "Transceiver") and belt-worn pagers (each,
a "Pager") to be used in the IRIDIUM System (Transceivers and Pagers are
collectively referred to herein as "Subscriber Devices"), Iridium and Motorola
have agreed as follows:
1.Subscriber Device Purchases. Subject to Section 3 of this Agreement, and
upon receipt of a Purchase Notice by Motorola, Iridium agrees to purchase (I)
the number of Transceivers up to a total of (x) minus (y) the aggregate
amount of Transceivers Paid For by Gateway Operators and Service Providers,
(as defined in the Iridium LLC Limited Liability Company Agreement) as
specified in the Purchase Notice, at a purchase price per Transceiver of
Dollars, and (II) the number of Pagers up to a total of (x) minus (y) the
aggregate amount of Pagers Paid For by Gateway Operators, (as defined in the
Iridium LLC Limited Liability Company Agreement) as specified in the Purchase
Notice, at a purchase price per Pager Dollars.
The calculations set forth in subparagraphs (I) and (II) above are
intended to cover a commitment from Iridium and the Gateway Operators that a
total of Transceivers and Pagers will be purchased from Motorola
prior to December 31, 1998. Purchase orders for delivery dates after December
31, 1998 are not part of the commitment or calculations. In this Agreement,
Transceivers will be deemed "Paid For" if (i) payment for such Transceivers has
been made by or on behalf of the relevant Gateway Operator or Service Provider
pursuant to the terms of the purchase order applicable to such Transceiver, or
(ii) such Transceivers has been shipped pursuant to a standby letter of credit.
In this Agreement, Pagers will be deemed "Paid For" if (i) payment for such
Transceivers has been made by or on behalf of the relevant Gateway Operator
pursuant to the terms of the purchase order applicable to such Transceiver, or
(ii) such Transceivers has been shipped pursuant to a standby letter of credit.
As used in this Agreement, the term "Purchase Notice" shall mean one of a series
of written notices dated no earlier than January 1, 1999, or the first business
day thereafter, which is sent by Motorola and received by Iridium, in which the
aggregate number of Transceivers Paid For by Gateway Operators and Service
Providers and the aggregate number of Pagers Paid For by Gateway Operators, all
as of the date of such Purchase Notice, shall be specified. Sales of Subscriber
Devices to the U.S. Government by Motorola are outside the terms of this
Agreement and will not be included in any calculations to determine Iridium's
purchase
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<PAGE> 2
obligations herein.
2. Delivery and Payment Obligations. Upon the purchase of Subscriber
Devices by Iridium pursuant to Section 1 hereof, Motorola shall promptly ship to
Iridium or its designee the Subscriber Devices so purchased. All deliveries are
FOB Libertyville. Title to the Subscriber Devices will pass to Iridium at the
FOB point. If any Subscriber Device has been previously shipped by Motorola to a
Gateway Operator and such Subscriber Device has not been Paid For, then Motorola
may fulfill its shipment obligations pursuant to this Section 2 with respect to
such Subscriber Device by assigning to Iridium all of Motorola's rights against
the relevant Gateway Operator with respect to such Subscriber Device pursuant to
the purchase order and other documents with respect to such Subscriber Device.
Payment for Subscriber Devices delivered to Iridium is due and payable within
ten (10) business days from date of invoice. Motorola will invoice for
Subscriber Devices upon shipment. Payment for Subscriber Devices not Paid For by
Gateway Operators is due and payable within ten (10) business days of receipt of
Purchase Notice by Iridium from Motorola. If after the date of the Purchase
Notice Motorola receives any payment with respect to a Subscriber Device
specified or any return thereof, Motorola shall immediately pay over to Iridium
such payment or shall deliver to Iridium or its designee such returned
Subscriber Device. As more fully described in a Memorandum of Understanding,
Iridium agrees to use the funds available under a new $175 million credit
agreement, which Motorola has conditionally agreed to guarantee, only to make
payments to Motorola, Inc. for amounts that Iridium owes under this Standby
Purchase Agreement, as well as other agreements with Motorola, Inc., to the
extent those amounts are owed but have not been paid and to the extent that
other funds are not available.
3. Limitation on Purchases. The parties acknowledge that purchases of
Subscriber Devices by Gateway Operators will be made pursuant to written
purchase agreements between Motorola and such Gateway Operators (such
agreements, the "Purchase Agreements"). Motorola has the right, without
receiving the consent of Iridium, to modify, amend, waive, extend or otherwise
change the Purchase Agreements, and the Gateway Operators' obligations
thereunder, except that Motorola agrees that it will not consent to
modifications, deletions or additions to paragraph 5.2 of the Purchase
Agreements. To the extent that Motorola has not filled firm orders placed by
Gateway Operators for reasons under Motorola's control and the Gateway Operators
and Motorola have been unable to work out a reasonable extension of time for
delivery dates after good faith attempts to do so, (as described in Paragraph
5.3 of the Purchase Agreements with Gateway Operators), Iridium shall be
entitled to reduce the number of Subscriber Devices specified in clauses (I)(x)
and (II)(x) of Section 1 of this Agreement by the amount of any such production.
4. Other Terms of Purchase. All terms of any purchase of Subscriber
Devices
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<PAGE> 3
by Iridium pursuant to the Agreement, other than purchase price, payment
and delivery terms, shall be subject to the terms set forth in Attachment A.
5. Termination. This Agreement shall terminate on the date that (i) an
aggregate of Transceivers shall have been Paid For by the Gateway
Operators, or Service Providers or Iridium or any combination of them and (ii)
an aggregate of Pagers shall have been Paid For by either the Gateway
Operators or Iridium or both.
6. Party Relationship. Each party will be deemed to be an independent
contractor and not an agent, joint venturer, or representative of the other, and
neither party may create any obligations or responsibilities on behalf of or in
the name of the other. Under no circumstances may Iridium hold itself out to be
a partner, employee, franchisee, representative, servant or agent of Motorola.
Iridium will not impose or create any obligation or responsibility, express or
implied, or make any promises, representations or warranties on behalf of
Motorola, other than as expressly provided herein.
7. Dispute Resolution. The parties agree that any claims or disputes
arising from this Agreement will be submitted to non-binding mediation prior to
initiation of any formal legal process; provided, however, that this provision
shall not preclude either party from resorting to judicial proceedings if: (i)
good faith efforts to resolve the dispute under mediation are unsuccessful; or
(ii) the claim or dispute relates to intellectual property rights; or (iii)
interim relief from a court is necessary to prevent serious and irreparable
injury to the party or to third parties.
8. Representations. This Standby Purchase Agreement constitutes the valid
and legally binding obligation of Iridium and Motorola enforceable in accordance
with its terms. The parties each represent that they have the power to execute
and deliver this Agreement and to perform the obligations hereunder. Iridium
agrees that it will take all necessary steps to obtain any required approvals
for performance under this Agreement from its directors and its securities
holders, and from anyone else whose approval or consent is required for
Iridium's performance of this Agreement.
9. Notices. All notices and other communications hereunder will be in
writing. Any notice or other communication hereunder shall be deemed duly given:
(i) when delivered, if personally delivered; (ii) when receipt is electronically
confirmed, if faxed (with a hard copy to follow via first class mail, postage
prepaid); or (iii) one day after deposit with a reputable overnight courier, in
each case addressed to the intended recipient as set forth below:
If to Iridium:
Iridium Operating LLC
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<PAGE> 4
1575 Eye Street, NW
Washington, D.C. 20005
Attention: Chief Financial Officer
Fax #: (202)408-3801
If to Motorola:
Bill Zancho
Director of Marketing and Business Development
Satellite Subscriber Products Division
Cellular Subscriber Sector
600 North U.S. Highway 45
Libertyville, Illinois 60048
Fax #: (847) 576-7847
and
Ken Elkin
Marketing Manager
Iridium Pager Operations
Messaging Systems Products Group
MS112 Boynton Beach, FL 33426
Fax #: (561) 739-6020
10. Governing Law: This Agreement shall be governed by the laws of the
State of Illinois.
11. General: This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instruments. The failure of either party to insist
in any one or more instances upon the performance of any of the terms or
conditions herein or to exercise any right hereunder will not be construed as a
waiver or relinquishment of the future performance of any such terms or
conditions or the future exercise of such right but the obligation of the other
party with respect to such future performance will continue in full force and
effect. Except as otherwise expressly permitted hereunder, no alterations or
modifications of this Agreement will be binding upon either Iridium or Motorola
unless made in writing and signed by an authorized representative of each party.
If any term or condition of this Agreement will to any extent be held by a court
or other tribunal to be invalid, void or unenforceable, then that term or
condition will be inoperative and void insofar as it is in conflict with law,
but the remaining rights and obligations of the parties will be construed and
enforced as if this Agreement did not contain the particular term or condition
held to be invalid, void or unenforceable. Neither party may disclose the terms
of this Agreement to any party without the prior written consent of the other
party hereto; provided, however,
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<PAGE> 5
that a party may make such disclosure (I) upon order of a court of competent
jurisdiction subject to first providing the other party hereto with prompt
written notice of such court order to allow the other party to seek relief from
such order, (ii) if so required by law including but not limited to any federal
or states securities laws, or (iii) if requested in connection with any due
diligence investigation by such party's financial or legal advisors or by any
lending institution or its representatives. In the event that a party so
discloses, other than in accordance with the preceding sentence, the other party
may immediately terminate this Agreement.
IN WITNESS WHEREOF, the parties have hereunder signed their names in the
space provided below as of the date first above written.
MOTOROLA, INC.
By:
Name:
Title:
IRIDIUM OPERATING, LLC
By:
Name:
Title:
5
<PAGE> 6
ATTACHMENT A
PURCHASE TERMS
The following terms apply to the Purchase of Subscriber Devices by Iridium
from Motorola to the extent that Iridium purchases Subscriber Devices pursuant
to the Standby Purchase Agreement:
1. WARRANTY
Subscriber Devices Warranty. Motorola will warrant each Subscriber Device
only to the original end user buyers or lessees in accordance with a limited one
year, parts and labor warranty which will be shipped with the Subscriber
Devices.
Accessory Warranty. Motorola will warrant each Accessory only to the
original end user buyers or lessees in accordance with a limited one year, parts
and labor warranty which will be shipped with the Accessories.
EXCEPT AS OTHERWISE PROVIDED IN THE LIMITED WARRANTIES, MOTOROLA
SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. IF ANY PRODUCT IS DEFECTIVE AT TIME OF DELIVERY TO CUSTOMER,
CUSTOMER'S SOLE REMEDY WILL BE TO RETURN THE PRODUCT TO MOTOROLA FOR
REPLACEMENT, REPAIR, OR REFUND, AS DETERMINED BY MOTOROLA.
2. FORCE MAJEURE
Neither party shall be held liable for any delay or failure to perform due
to any cause beyond its reasonable control, including, without limitation, lack
of supplies due to a supplier's inability or failure to deliver materials,
except the obligation to pay money when due. The delivery schedule shall be
considered extended by a period of time equal to the time lost because of any
excusable delay.
3. EXPORT CONTROL
Iridium or Brightpoint shall be the exporter of record and shall be
responsible for obtaining all export licenses that may be required to export the
Subscriber Devices from the U.S. to Iridium's requested "ship to" location(s).
Iridium agrees to comply with all applicable export laws, regulations and
orders. Specifically, but without limitation, Iridium agrees that it will not
resell, re-export or ship, directly or indirectly, any Subscriber Device or
technical data in any form without obtaining appropriate export or re-export
licenses
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<PAGE> 7
from the United States Government.
4. TAXES
The prices set forth in the Standby Purchase Agreement are exclusive of
any amount for federal, state, provincial and/or local excise, sales, use,
property, retailer's, occupation or any other assessment in the nature of taxes
however designated, on the Subscriber Devices and/or services provided under
this Agreement. Iridium shall pay all applicable fees, custom duties,
assessments or taxes which may be assessed or levied by the government of any
applicable jurisdiction and any departments and subdivision thereof, as a result
of Iridium's performance under this Agreement or against any of the Subscriber
Devices purchased hereunder by Iridium.
5. PATENT AND COPYRIGHT INDEMNIFICATION.
Motorola agrees to defend, at its expense, any suits against Iridium based
upon a claim that any Subscriber Device furnished hereunder directly infringe a
patent or copyright in the Gateway Operator's Marketing Area where Iridium sells
the Subscriber Device and to pay costs, fines, and damages finally awarded in
any such suit, provided that Motorola is notified promptly in writing of the
suit and at Motorola's request and at its expense is given control of said suit
and all requested assistance for defense of same. If the use or sale of any
Subscriber Devices furnished hereunder is enjoined as a result of such suit,
Motorola at its option and at no expense to Iridium, will obtain for Iridium the
right to use or sell said Subscriber Device or will substitute an equivalent
Device reasonably acceptable to Iridium and extend this indemnity thereto or
will accept the return of the Subscriber Device and reimburse Iridium the
purchase price therefor, less a reasonable charge for reasonable wear and tear.
This indemnity does not extend to any suit based upon any infringement or
alleged infringement of any patent or copyright by the alteration of any
Subscriber Devices furnished by Motorola or by the combination of any Subscriber
Devices furnished by Motorola and other elements nor does it extend to any
Subscriber Devices of Iridium's design or formula. The foregoing states the
entire liability of Motorola for patent or copyright infringement.
IN NO EVENT WILL MOTOROLA BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES TO
IRIDIUM ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS,
COPYRIGHTS, OR OTHER INTELLECTUAL PROPERTY RIGHTS.
6. LIMITATION OF LIABILITY
EXCEPT FOR PERSONAL INJURY, AND EXCEPT FOR PARAGRAPH 16 (PATENT AND
COPYRIGHT INDEMNIFICATION) ABOVE, MOTOROLA'S TOTAL LIABILITY, WHETHER FOR BREACH
OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY
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IN TORT OR OTHERWISE, IS LIMITED TO THE PRICE OF THE PARTICULAR PRODUCTS SOLD
HEREUNDER WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED. CUSTOMER'S SOLE
REMEDY IS TO REQUEST MOTOROLA, AT MOTOROLA'S OPTION, TO EITHER REFUND THE
PURCHASE PRICE OR REPAIR OR REPLACE PRODUCT(S) THAT ARE NOT AS WARRANTED. IN NO
EVENT WILL MOTOROLA BE LIABLE FOR ANY LOSS OF USE, LOSS OF TIME, INCONVENIENCE,
COMMERCIAL LOSS, LOST PROFITS OR SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL
DAMAGES TO THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW. MOTOROLA EXPRESSLY
DISCLAIMS ANY LIABILITY FOR FAILURE TO OBTAIN EQUIPMENT CERTIFICATION IN TIME
FOR CUSTOMER'S SERVICE LAUNCH; FOR ANY FAILURE OF THE IRIDIUM SYSTEM WHATSOEVER;
AND FOR RANGE, COVERAGE, AVAILABILITY OR OPERATION OF ANY COMMUNICATIONS SYSTEM.
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<PAGE> 9
7. LOGOS AND TRADEMARKS
All use of Motorola's trademarks, service marks, tradenames, slogan, and
logos by Iridium shall be in accordance with the terms specified in the
"Motorola Subscriber Devices Marketing Guidelines" incorporated herein by
reference. Iridium shall not deviate from the Motorola Subscriber Devices
Marketing Guidelines without Motorola's written approval, which shall not be
unreasonably withheld. Any goodwill deriving from such use by Iridium shall
inure to Motorola's benefit.
8. GOVERNMENT SALES
In the event that Iridium elects to sell Subscriber Devices to a
government entity, directly or indirectly, Motorola makes no representations
with respect to the ability of the Subscriber Devices or any of its other
products, services or prices, to satisfy any statutes, regulations or provisions
relating to such governmental sales.
9
<PAGE> 1
EXHIBIT 10.45
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (this "Agreement"), dated as
of 1998, is made by and between Iridium Operating LLC, a Delaware
limited liability company ("Iridium"), and Kyocera Corporation, a
corporation ("Kyocera").
In order to stimulate the manufacture and distribution of
hand-held phones (each, a "Handset") and belt-worn pagers (each, a "Pager") to
be used in the IRIDIUM System (Handsets and Pagers are collectively referred to
herein as "Products"), Iridium and Kyocera have agreed as follows:
1. Product Purchases. Subject to Section 3 of this
Agreement, within 60 days after receipt of a Purchase Notice, Iridium agrees to
purchase from Kyocera (I) the number of Handsets equal to (x) ,
minus (y) the aggregate amount of Handsets Paid For by Gateway Operators and
Service Providers (in each case within the meaning of the Iridium LLC Limited
Liability Company Agreement) as specified in the Purchase Notice, at a purchase
price per Handset of $ , and (II) the number of Pagers equal to
(x) ,minus(y) the aggregate amount of Pagers Paid For by Gateway Operators
and Service Providers (in each case within the meaning of the Iridium LLC
Limited Liability Company Agreement) as specified in the Purchase Notice, at a
purchase price per Pager of $ . In this Agreement, Products
will be deemed "Paid For" if (i) payment for such Product has been made by or
on behalf of the relevant Gateway Operator or Service Provider pursuant to the
terms of the purchase order applicable to such Product, or (ii) such Product
has been shipped pursuant to a trade letter of credit. As used in this
Agreement, the term "Purchase Notice" shall mean a written notice dated on
January 1, 1999 or the first business day thereafter, which is sent by Kyocera
and received by Iridium, in which the aggregate number of Handsets Paid For by
Gateway Operators and Service Providers and the aggregate number of Pagers Paid
For by Gateway Operators and Service Providers, all as of the date of such
Purchase Notice, shall be specified.
2. Delivery Obligations. Upon the purchase of Products
by Iridium pursuant to Section 1 hereof, Kyocera shall promptly deliver to
Iridium or its designee the Products so purchased; provided, however, that if
any Product has been shipped by Kyocera to a Gateway Operator or Service
Provider and such Product has not been Paid For, then Kyocera may fulfill its
delivery obligations pursuant to this Section 2 with respect to such Product by
assigning to Iridium all of Kyocera's rights against the relevant Gateway
Operator or Service Provider with respect to such Product pursuant to the
purchase order and other documents with respect to such Product. If after the
date of the Purchase Notice Kyocera receives any payment with respect to a
Product covered in the proviso to the preceding sentence or any return thereof,
Kyocera shall immediately pay
<PAGE> 2
over to Iridium such payment or shall deliver to Iridium or its designee such
returned Product.
3. Limitation on Purchases. The parties acknowledge
that purchases of Products by Gateway Operators and Service Providers will be
made pursuant to written purchase agreements between Kyocera and such Gateway
Operators and Service Providers (such agreements, the "Purchase Agreements").
To the extent that any Gateway Operator or Service Provider is entitled
pursuant to any Purchase Agreement to reduce the number of Products it is
obligated to take delivery of on or prior to December 31, 1998 thereunder for
any reason, including but not limited to poor manufacture and delivery delay,
and such Gateway Operator or Service Provider makes such reduction (a
"Reduction"), Iridium shall be entitled to reduce the number of Products
specified in clauses (I)(x) and (II)(x) of Section 1 of this Agreement by the
amount of any such Reduction.
4. Other Terms of Purchase. All terms of any purchase
of Products by Iridium pursuant to this Agreement, other than purchase price,
payment and delivery terms, shall be as set forth in the attached form of
purchase order.
5. Termination. This Agreement shall terminate on the
date that an aggregate of Handsets and Pagers shall have been
Paid For by any of the Gateway Operators, Service Providers, Iridium, or any
combination thereof.
6. Notices. All notices and other communications
hereunder will be in writing. Any notice or other communication hereunder
shall be deemed duly given (i) when delivered, if personally delivered, (ii)
when receipt is electronically confirmed, if faxed (with hard copy to follow
via first class mail, postage prepaid) or (iii) one day after deposit with a
reputable overnight courier, in each case addressed to the intended recipient
as set forth below:
If to Iridium:
Iridium Operating LLC
1575 Eye Street, NW
Washington, D.C. 20005
Attention: [Vice President and Chief Financial Officer]
Telecopy #: (202) 408-3801
-2-
<PAGE> 3
If to Kyocera:
Kyocera Corporation
[address]
Attention: _____________
Telecopy #: ____________
7. Governing Law. This Agreement shall be governed by
the laws of the State of New York.
8. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instruments.
IN WITNESS WHEREOF, the parties have hereunto signed their
names in the space provided below as of the date first above written.
KYOCERA CORPORATION
By: _________________________
Name:
Title:
IRIDIUM OPERATING LLC
By: _________________________
Name:
Title:
-3-
<PAGE> 1
EXHIBIT 10.46
AGREEMENT REGARDING GUARANTEE
This Agreement Regarding Guarantee (this "Agreement") is dated
as of , 1998, between Kyocera Corporation, a
corporation, ("Kyocera"), Iridium Operating LLC, a Delaware limited liability
company ("Iridium") and Iridium LLC, a Delaware limited liability company and
the parent of Iridium ("Parent").
WHEREAS, Iridium and Kyocera have entered into the Standby
Purchase Agreement dated as of , 1998 (the "Purchase Agreement").
WHEREAS, pursuant to the Purchase Agreement Iridium may become
obligated to purchase hand-held phones or belt-worn pagers to be used in the
IRIDIUM System from Kyocera.
WHEREAS, in order to fund any such obligations under the
Purchase Agreement to Kyocera, Iridium will be required to borrow funds from
one or more lenders (the "Borrowings").
WHEREAS, Kyocera wishes to assist Iridium in obtaining
Borrowings, which Kyocera acknowledges will be to Kyocera's benefit, by
guaranteeing the obligations of Iridium relating to such Borrowings.
WHEREAS, Parent will benefit from the foregoing arrangements.
NOW THEREFORE, the parties agree as follows:
1. Kyocera Agreement to Guarantee. Kyocera hereby
agrees to provide a guarantee of Iridium's obligations relating to any
Borrowings (the "Guarantee") in form and substance reasonably satisfactory to
any lenders ("Lenders", which term shall include any agents or representatives
thereof), under any credit agreement, note, or other loan document or documents
(the "Credit Documents") under which Borrowings are made.
2. Reimbursement Obligation.
(a) Iridium Default. Other than as set forth under
Section 2(b) below, to the extent that any Lenders demand that Kyocera pay, and
Kyocera does pay, any amount pursuant to the Guarantee (a "Guarantee Payment"),
Iridium shall, promptly upon receipt from Kyocera of a written demand for
reimbursement, reimburse Kyocera for such
<PAGE> 2
Guarantee Payment, plus interest accruing at a rate equal to that which would
be in effect under any Credit Documents pursuant to which the relevant
Borrowing was made. The obligations under this Section 2(a) shall be without
duplication for obligations under the Credit Documents pursuant to which the
relevant Borrowing was made.
(b) Kyocera Default. If a Guarantee Payment is made in
respect of a Borrowing that has been accelerated or otherwise become due as a
result of a default under the Credit Documents arising out of any action, event
or failure to take action by or with respect to Kyocera (a "Kyocera-Based
Default"), then (i) Kyocera shall assume and become subject to the obligations
of the Lenders under the Credit Documents vis-a-vis Iridium (including, without
limitation, any remaining obligation to make loans in the aggregate principal
amount of such Lenders' commitments under such Credit Documents), (ii) Kyocera
shall assume and become entitled to the benefits of the rights of the Lenders
under such Credit Documents vis-a-vis Iridium (including, without limitation,
the right to receive payments in respect of loans made under such Credit
Documents, upon acceleration or otherwise), but not including any provisions
relating to a Guarantee or any right or remedy arising as a result of the
occurrence of a Kyocera-Based Default, (iii) Iridium shall become obligated to
reimburse Kyocera for such Guarantee Payment and to repay any additional
amounts for which Iridium may become indebted to Kyocera pursuant to clause
(ii) above on the terms and conditions contained in such Credit Documents as
such Credit Documents are modified by clause (ii) above, and (iv) Iridium shall
continue to be subject to the terms and conditions of such Credit Documents
(including, without limitation, the covenants contained therein), as such
Credit Documents are modified by clause (ii) above, it being expressly
understood that Kyocera shall in such circumstances have the right to
accelerate payments under and otherwise exercise its rights under any such
Credit Documents to the extent set forth therein as if it were a Lender
thereunder to the extent that such right to accelerate or other rights arise
from some event or circumstance, other than a Kyocera-Based Default or a
Guarantee.
(c) Costs and Expenses. Iridium further agrees to
reimburse Kyocera for all reasonable out-of-pocket costs and expenses
(including, without limitation, the reasonable fees and expenses of legal
counsel) in connection with any enforcement of Iridium's obligations under
Section 2(a) (including, without limitation, any such fees and expenses
incurred in connection with any bankruptcy proceedings).
(d) Subordination. The rights of Kyocera under this
Section 2 shall be subordinated in right of payment and collection to the
rights of the Lenders under the Credit Documents.
-2-
<PAGE> 3
3. (a) High Yield Equivalent Compensation. During any
period in which Borrowings are outstanding, (i) Iridium will pay Kyocera cash
compensation ("High Yield Equivalent Compensation") for the Guarantee, in an
amount equal to (x) the average daily principal amount of Borrowings
outstanding during any period during which Borrowings are outstanding
multiplied by the excess, if any, of (A) the weighted average interest rate
applicable to the Series A and Series B Notes of Iridium over (B) the average
daily interest rate actually charged by the Lenders under the Credit Documents
for such period, and (ii) Parent will issue to Kyocera warrants to purchase
Class 1 Interests of Parent (such warrants to be on terms comparable to those
warrants issued pursuant to Section 2(e) of the Amended and Restated Agreement
Regarding Guarantee between Parent and Motorola, Inc., dated July 11, 1997
("Motorola Agreement")) in an amount equal to the average daily principal
amount of Borrowings outstanding during such period multiplied by the daily
equivalent of the warrant compensation payable to holders of the Series A Notes
of Iridium with respect to such amount (calculated on a pro rata daily basis
from the date of the issuance of such Series A Notes to the stated maturity
thereof); in each case (i) and (ii) multiplied by the number of days the
Borrowings are outstanding. High Yield Equivalent Compensation shall be paid
semi-annually in arrears within 45 days after the end of each semi-annual
period.
(b) Warrant Compensation. At Iridium's option in lieu of
any compensation under Section 3(a) above, Kyocera will be compensated for
providing the Guarantee with warrants (the "Warrants") issued by Parent to
purchase Class 1 Interests in Parent ("Shares"). The Warrants shall (i) be in
substantially the form of the warrants issuable pursuant to Section 2(a) of the
Motorola Agreement, (ii) provide for a ten year term and an exercise price of
$0.00013 per Class 1 Interest (subject to adjustment as contemplated in the
Motorola Agreement); (iii) become exercisable on and (iv)
provide for issuance of Shares that (A) with respect to Shares issued for
Warrants received on or prior to the Commercial Activation Date, may be sold
without transfer restrictions (other than transfer restrictions imposed by the
Parent's Limited Liability Company Agreement, the Interest Exchange Agreement
and applicable securities law ("Mandatory Restrictions") at any time after the
fifth anniversary of the exercise of the Warrants and (B) with respect to
Shares issued for Warrants received after the Commercial Activation Date, may
be sold without transfer restrictions (other Mandatory Restrictions) at any
time after the exercise of the Warrants. In addition, in the event that
Kyocera earns Warrants with respect to periods beginning after
, Iridium shall compensate Kyocera with Shares issued by Parent directly to
Motorola in the amounts described below in lieu of Warrants. On the 45th day
following the end of each calendar quarter during which any Borrowings were
outstanding at any time, Parent shall issue a certificate to Kyocera evidencing
the Warrants or Shares earned by Kyocera in respect of the total of such
Borrowings outstanding in such quarter.
-3-
<PAGE> 4
(c) Calculation of Warrant Compensation. Kyocera shall
earn Warrants or Shares based on the amount and duration of Borrowings. The
number of Warrants or Shares shall be earned according to the following
sentence, pro rated both (A) for the actual principal amount of Borrowings
outstanding during each relevant period and (B) for the number of days such
Borrowings were outstanding during such period. The maximum amount of Warrants
or Shares issuable for each full $100 million of Borrowings, assuming such
Borrowings were outstanding during the entire relevant period, shall be 412,500
per year.
For example, if there is $50,000,000 of Borrowings outstanding for a period of
one year, Kyocera will have earned Warrants relating to 6,187,500 Shares
($50,000,000 / 100,000,000 = .5; .5* 412,500 = 206,250).
4. Iridium Covenants. Iridium covenants that:
(a) any representations and warranties of Iridium set
forth in the Credit Documents will be true and
correct in all material respects on the date given;
(b) Iridium will use the proceeds of any Borrowings made
under any Credit Documents solely (i) to make
payments to Kyocera at the times and in the amounts
required pursuant to the Purchase Agreement and (ii)
to pay fees and expenses payable to the Lenders in
connection with the Credit Documents.
(c) copies of any and all material information, notices
and correspondence provided by or on behalf of
Iridium to any Lender under any Credit Documents
shall be promptly sent to Kyocera.
5. Iridium Representation and Warranties. Iridium
represents and warrants that this Agreement (I) has been duly executed and
delivered by Iridium and this constitutes a valid and binding obligation of
Iridium, enforceable in accordance with its terms, subject only to various
laws, such as bankruptcy law, which may effect its enforceability; and (II) does
not and shall not (i) conflict with or result in a breach of the terms,
conditions or provisions of, (ii) constitute a default under, (iii) result in
the creation of any lien, security interest, charge or encumbrance upon
Iridium's assets pursuant to, (iv) give any third party the right to modify,
terminate or accelerate any obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by
or notice or declaration to, or filing with, any court or administrative or
governmental body or agency pursuant to, the charter, limited liability company
agreement
-4-
<PAGE> 5
or bylaws of Iridium, or any law, statute, rule or regulation to which Iridium
is subject, or any agreement, instrument, order, judgment or decree to which
Iridium is subject.
6. Kyocera Representation and Warranties. Kyocera
represents and warrants that this Agreement (I) has been duly executed and
delivered by Kyocera and this constitutes a valid and binding obligation of
Kyocera, enforceable in accordance with its terms, subject to bankruptcy
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles; and (II) does not and shall not (i) conflict with or result
in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon Kyocera's assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with, any
court or administrative or governmental body or agency pursuant to, the
charter, limited liability company agreement or bylaws of Kyocera, or any law,
statute, rule or regulation to which Kyocera is subject, or any agreement,
instrument, order, judgment or decree to which Kyocera is subject.
7. Notices under this Agreement. All notices, requests,
demands, claims, and other communications hereunder will be in writing. Any
notice, request, demand, claim or other communication hereunder shall be deemed
duly given (i) when delivered, if personally delivered, (ii) when receipt is
electronically confirmed, if faxed (with hard copy to follow via first class
mail, postage prepaid) or (iii) one day after deposit with a reputable
overnight courier, in each case addressed to the intended recipient as set
forth below:
If to Iridium:
Iridium Operating LLC
1575 Eye Street, NW
Washington, D.C. 20005
Attention: Vice President and Chief Financial Officer and
Vice President - General Counsel
Telecopy #: (202) 842-0006
-5-
<PAGE> 6
If to Parent:
Iridium LLC
1575 Eye Street, NW
Washington, D.C. 20005
Attention: Vice President and Chief Financial Officer and
Vice President - General Counsel
Telecopy #: (202) 842-0006
If to Kyocera:
Kyocera Corporation
Address:
Attention: ______________
Telecopy #: _____________
8. Miscellaneous. This Agreement (a) is made under and
shall be governed by the laws of the State of New York without regard to
principles of conflict of laws, (b) is intended for the benefit of the parties
hereto and is not intended to benefit any other person and no person other than
the parties hereto may rely upon the provisions hereof, (c) may be executed in
counterparts, each of which taken together shall constitute one and the same
instrument, and (d) may be amended or waived only if such amendment or waiver
is in writing and signed by the party against whom it is sought to be enforced.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have entered into this
Agreement Regarding Guarantee in each case as of the date first above written.
IRIDIUM OPERATING LLC
By:____________________________
Name:
Title:
IRIDIUM LLC
By:____________________________
Name:
Title:
KYOCERA CORPORATION
By:____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Iridium Operating LLC:
We consent to the use of our report included herein and to the references
to our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
McLean, Virginia
April 27, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
IRIDIUM OPERATING LLC
(Exact name of obligor as specified in its charter)
DELAWARE 52-2066319
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 EYE STREET, N.W.
WASHINGTON, DC 20005
(Address of principal executive offices) (Zip Code)
IRIDIUM CAPITAL CORPORATION
(Exact name of obligor as specified in its charter)
DELAWARE 52-2048739
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 EYE STREET, N.W.
WASHINGTON, DC 20005
(Address of principal executive offices) (Zip Code)
IRIDIUM ROAMING LLC
(Exact name of guarantor as specified in its charter)
DELAWARE 52-2048734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 EYE STREET, N.W.
WASHINGTON, DC 20005
(Address of principal executive offices) (Zip Code)
<PAGE> 2
IRIDIUM IP LLC
(Exact name of guarantor as specified in its charter)
DELAWARE 52-2048736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 EYE STREET, N.W.
WASHINGTON, DC 20005
(Address of principal executive offices) (Zip Code)
IRIDIUM FACILITIES CORPORATION
(Exact name of guarantor as specified in its charter)
DELAWARE 52-2083969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 EYE STREET, N.W.
WASHINGTON, DC 20005
(Address of principal executive offices) (Zip Code)
SENIOR NOTES DUE 2005
SERIES D
(Title of indenture securities)
<PAGE> 3
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH
IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its parent,
State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No. 1
to the Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc. (File
No. 22-17940) and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST
POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange Commission
as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1)
filed with the Registration Statement of Eastern Edison Company
(File No. 33-37823) and is incorporated herein by reference thereto.
1
<PAGE> 4
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter of the
obligor, the trustee has relied upon the information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary, to
reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 23rd day of April, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ James E. Mogavero
--------------------------------
NAME JAMES E. MOGAVERO
TITLE VICE PRESIDENT
2
<PAGE> 5
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by IRIDIUM
OPERATING LLC, IRIDIUM CAPITAL CORPORATION, IRIDIUM ROAMING LLC IRIDIUM IP LLC.
AND IRIDIUM FACILITIES CORPORATION of its SENIOR NOTES DUE 2005, SERIES D, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By /s/James E. Mogavero
-------------------------------------
NAME JAMES E. MOGAVERO
TITLE VICE PRESIDENT
DATED: APRIL 23 1998
3
<PAGE> 6
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ................... 2,220,829
Interest-bearing balances ............................................ 10,076,045
Securities ................................................................. 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary .................................. 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income .................6,270,348
Allowance for loan and lease losses .........................82,820
Allocated transfer risk reserve ...................................... 0
Loans and leases, net of unearned income and allowances .............. 6,187,528
Assets held in trading accounts ............................................ 1,241,555
Premises and fixed assets .................................................. 410,029
Other real estate owned .................................................... 100
Investments in unconsolidated subsidiaries ................................. 38,831
Customers' liability to this bank on acceptances outstanding ............... 44,962
Intangible assets .......................................................... 224,049
Other assets ............................................................... 1,507,650
Total assets ............................................................... 37,449,709
===========
LIABILITIES
Deposits:
In domestic offices .................................................. 10,115,205
Noninterest-bearing ................................7,739,136
Interest-bearing ...................................2,376,069
In foreign offices and Edge subsidiary ............................ 14,791,134
Noninterest-bearing ...................................71,889
Interest-bearing ..................................14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary .................................. 7,603,920
Demand notes issued to the U.S. Treasury and Trading Liabilities ........... 194,059
Trading liabilities ........................................................ 1,036,905
Other borrowed money
. .......................................................................... 459,252
Subordinated notes and debentures .......................................... 0
Bank's liability on acceptances executed and outstanding ................... 44,962
Other liabilities .......................................................... 972,782
Total liabilities .......................................................... 35,218,219
EQUITY CAPITAL
Perpetual preferred stock and related surplus .............................. 0
Common stock ............................................................... 29,931
Surplus .................................................................... 444,620
Undivided profits and capital reserves/Net unrealized holding gains (losses) 1,763,076
Cumulative foreign currency translation adjustments ........................ (6,137)
Total equity capital ....................................................... 2,231,490
Total liabilities and equity capital ....................................... 37,449,709
</TABLE>
4
<PAGE> 7
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Iridium
Operating LLC's financial statements for the year ended December 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001051721
<NAME> IRIDIUM OPERATING LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,940
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 379,476
<PP&E> 3,271,518
<DEPRECIATION> 120,138
<TOTAL-ASSETS> 3,645,687
<CURRENT-LIABILITIES> 467,395
<BONDS> 1,327,590
0
0
<COMMON> 2,059,421
<OTHER-SE> (427,884)
<TOTAL-LIABILITY-AND-EQUITY> 3,642,587
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 296,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (293,401)
<INCOME-TAX> 0
<INCOME-CONTINUING> (293,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (293,401)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
