<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1998
REGISTRATION NO. 333-44349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
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:
DENNIS C. SULLIVAN, ESQ.
SULLIVAN & CROMWELL
1701 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20006
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS [IRIDIUM LOGO]
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
11 1/4% SENIOR NOTES, SERIES C
11 1/4% SENIOR NOTES, SERIES C/EN
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
IRIDIUM FACILITIES CORPORATION
------------------------
OFFER TO EXCHANGE
$1,000 IN PRINCIPAL AMOUNT OF 11 1/4% SENIOR NOTES DUE 2005, SERIES C/EN FOR
EACH
$1,000 IN PRINCIPAL AMOUNT OF OUTSTANDING 11 1/4% SENIOR NOTES DUE 2005, SERIES
C
------------------------
Iridium Operating LLC, a Delaware limited liability company ("Iridium"), and
Iridium Capital Corporation, a Delaware corporation ("Capital," and together
with Iridium, the "Issuers"), as joint and several obligors, hereby offer, upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer") to exchange an aggregate principal amount of up to $300,000,000 of
11 1/4% Senior Notes due 2005, Series C/EN (the "Exchange Notes") of the
Issuers, which will be registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which this
Prospectus constitutes a part, for a like principal amount of 11 1/4% Senior
Notes due 2005, Series C (the "Original Notes" and, together with the Exchange
Notes, the "Notes") of the Issuers with the holders (the "Note Holders")
thereof.
Upon consummation of the Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all material respects (including principal
amount, interest rate, the date from which interest accrues, maturity and
ranking) to the terms of the Original Notes for which they may be exchanged,
except that the Exchange Notes will be freely transferable by holders thereof
(except as provided below). The Exchange Notes will be issued without any
covenant regarding exchange or registration under the Securities Act. The
Exchange Notes will be issued under the indenture governing the Original Notes
for which they may be exchanged (as supplemented, the "Indenture"). The Exchange
Notes will be, and the Original Notes are, senior obligations of the Issuers
ranking pari passu in right of payment to all other existing and future senior
Indebtedness (as defined) of the Issuers, other than Indebtedness that is
expressly subordinated to the Notes. Subject to certain limitations set forth in
the Indenture, Iridium and its Subsidiaries (as defined) may incur other senior
Indebtedness, including Indebtedness that is secured by the assets of Iridium
and its Subsidiaries. The Notes will be effectively subordinated to any secured
Indebtedness of the Issuers to the extent of the value of the assets securing
such Indebtedness. The Exchange Notes will be, and the Original Notes are, fully
and unconditionally guaranteed, on an unsecured senior basis, by Iridium Roaming
LLC ("Roaming"), 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). 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. As of April 1, 1998, in addition to the $300 million
principal amount of the Original Notes, the Iridium Parties had outstanding (i)
approximately $350 million of senior secured Indebtedness and (ii) approximately
$1,085 million of unsecured senior Indebtedness ranking pari passu with the
Original Notes. In addition, as of April 1, 1998, Iridium had approximately $285
million of Indebtedness that is subordinated to the Original Notes. See "Use of
Proceeds," "Risk Factors -- Significant Additional Funding Needs," "-- Ranking
of the Notes" and "Description of Notes."
(Continued on next page)
SEE "RISK FACTORS" ON PAGE 18 FOR A DESCRIPTION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is April 16, 1998
<PAGE> 3
Interest on the Exchange Notes will, and interest on the Original Notes
does, accrue at the rate of 11 1/4% per annum. Interest on the Notes is payable
in cash semi-annually on January 15 and July 15 of each year. The Exchange Notes
will be, and the Original Notes are, redeemable at the option of either Issuer,
in whole or in part, at any time on or after July 15, 2002 at the redemption
prices set forth herein, together with, as applicable, accrued and unpaid
interest, if any, and Liquidated Damages (as defined), if any, to the redemption
date. At any time on or prior to 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 111.250% of the principal amount of any
Notes being redeemed plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of redemption; provided that at least 66 2/3% of the original
aggregate principal amount of the Notes being redeemed must remain outstanding
after each such redemption. See "Description of Notes -- Optional Redemption."
Upon the occurrence of a Change of Control (as defined), each Note Holder may
require the Issuers to repurchase all or a portion of such Note Holder's Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the purchase date. See
"Description of Notes -- Change of Control."
The Original Notes were issued and sold on October 17, 1997 pursuant to an
offering (the "Original Offering") of the Original Notes. Such sales were not
registered under the Securities Act in reliance upon the exemptions provided by
Section 4(2), Rule 144A and Regulation S of the Securities Act. Accordingly, the
Original Notes may not be reoffered, resold or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Based upon interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") issued to third parties, the Issuers believe that
the Exchange Notes to be issued pursuant to the Exchange Offer in exchange for
the Original Notes may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is (i) an "affiliate" of an
Iridium Party within the meaning of Rule 405 under the Securities Act, (ii) a
broker-dealer who acquired Original Notes exchanged for such Exchange Notes
directly from an Issuer or (iii) a broker-dealer who acquired Original Notes as
a result of market making or other trading activities) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding with any person to
participate in, a distribution of such Exchange Notes. Each holder of the
Original Notes wishing to accept the Exchange Offer must represent to the
Iridium Parties in the Letter of Transmittal (i) that Exchange Notes will be
acquired in the ordinary course of such holder's business; (ii) that such holder
has no arrangement or understanding to distribute the Exchange Notes and (iii)
that such holder is not an affiliate of an Iridium Party. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where such Original Notes were acquired by such broker-dealer as a result of
market making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Original
Notes where such Original Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Iridium Parties
have agreed that, for a period not to exceed 180 days after the Expiration Date
(as defined), they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." Any Note
Holder that is unable to rely upon such interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a resale transaction, including (absent an exemption) that
resales be made pursuant to an effective registration statement that includes
the selling security holder information required by Item 507 of Regulation S-K.
See "The Exchange Offer -- Terms and Conditions of the Letter of Transmittal."
The Original Notes and the Exchange Notes constitute new issues of
securities with no established trading market. Any Original Notes not tendered
and accepted in the Exchange Offer will remain outstanding. To the extent that
Original Notes are tendered and accepted in the Exchange Offer, a holder's
ability to sell untendered, and tendered but unaccepted, Original Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Original Notes will continue to be subject to the existing restrictions on
transfer thereof and the Issuers will have no further obligation to such holders
to provide for the registration under the Securities Act of the Original Notes,
except under certain limited circumstances. See "Exchange and Registration
Rights Agreement." No assurance can be given as to the liquidity of the trading
market for either the Original Notes or the Exchange Notes.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Exchange Offer will
expire at 5:00 p.m., New York City time, on May 29, 1998, unless extended (the
"Expiration Date"). The date of acceptance for exchange of the Original Notes
(the "Exchange Date") will be the first business day following the Expiration
Date, upon surrender of validly tendered Original Notes. Original Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise such tenders are irrevocable.
The obligation of the Issuers to consummate the Exchange Offer is subject to
certain conditions. See "The Exchange Offer -- Conditions to the Exchange
Offer." The Issuers reserve the right to terminate or amend the Exchange Offer
at any time prior to the Expiration Date upon the occurrence of any such
condition.
<PAGE> 4
AVAILABLE INFORMATION
The Iridium Parties have filed with the Commission a Registration Statement
on Form S-4 (the "Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to in the Registration Statement are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
Iridium is a wholly owned subsidiary of Iridium LLC, a Delaware limited
liability company ("Iridium LLC" or "Parent"). As a result of an initial public
offering (the "IWCL IPO") of the Class A Common Stock (the "Class A Common
Stock"), par value $0.01 per share, of Iridium World Communications Ltd.
("IWCL"), the publicly held member of Parent, and the use of the net proceeds
thereof to purchase Class 1 Interests (as defined) of Parent, on June 13, 1997,
Parent became subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). As a result of the Asset Drop-Down Transaction (as defined), pursuant to
which Parent transferred substantially all of its assets and liabilities to
Iridium (including its obligations with respect to the 13% Senior Notes due
2005, Series A/EN (the "Series A Notes"), the 14% Senior Notes due 2005, Series
B/EN (the "Series B Notes" and, together with the Series A Notes, the "Initial
Senior Notes") and the Original Notes), Iridium became subject to the periodic
reporting and other informational requirements of the Exchange Act. Periodic
reports, proxy statements and additional information filed with the Commission
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Commission maintains a Web site at http://www.sec.gov that contains
information regarding registrants that file electronically with the Commission.
The Iridium Parties have agreed that, notwithstanding that they may not be
required to be or remain subject to the reporting requirements of 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."
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
i
<PAGE> 5
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.
* * *
IRIDIUM and Iridium Logo are registered trademarks and servicemarks of
Iridium IP LLC, a wholly owned subsidiary of Iridium.
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 Original Notes, and the Parent was released from
such liabilities. Pursuant to the indentures relating to the Initial Senior
Notes and the Original Notes, Iridium has been substituted for Parent, and
Parent has been released from all obligations under those indentures and under
the Initial Senior Notes and the Original 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."
* * *
In this Prospectus, references to "dollars" and "$" are United States
dollars.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ANY OF THE IRIDIUM PARTIES. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE EXCHANGE NOTES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATIONS THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF ANY OF THE IRIDIUM PARTIES SINCE THE DATE HEREOF.
ii
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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Available Information....................................... i
Forward Looking Information................................. i
Asset Drop-Down Transaction................................. ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 18
Ownership Structure and Strategic Investors................. 48
Use of Proceeds............................................. 50
Capitalization.............................................. 51
The Exchange Offer.......................................... 52
Selected Financial Data..................................... 61
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 62
Business.................................................... 67
Regulation of Iridium....................................... 88
Principal Contracts for the Development of the IRIDIUM
System.................................................... 96
Certain Matters Regarding Relationship Among IWCL, Parent
and Iridium............................................... 104
Management.................................................. 109
Interest Ownership of Certain Beneficial Owners and
Management................................................ 120
Certain Relationships and Related Transactions of Iridium... 121
Parent's Investors, Number of Class 1 Interests Owned,
Percentage Ownership and Principal Gateway Service
Territories............................................... 125
Description of Parent Limited Liability Company Agreement... 130
Description of Iridium Operating LLC Limited Liability
Company Agreement......................................... 137
Description of Other Indebtedness........................... 142
Description of Notes........................................ 148
Exchange and Registration Rights Agreement.................. 180
Tax Considerations.......................................... 182
Plan of Distribution........................................ 182
Validity of the Securities.................................. 183
Experts..................................................... 183
Glossary.................................................... 184
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto included elsewhere in this Prospectus. Holders and
prospective Holders are urged to read this Prospectus in its entirety. See
"Glossary" for definitions of certain terms used in this Prospectus.
IRIDIUM
Iridium 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 Original Notes are, and the Exchange
Notes will be, the joint and several obligations of Iridium and Capital (the
"Issuers"), although Capital did not receive any of the net proceeds on the
Original Notes. Capital has no assets and does not conduct any operations. The
Original Notes are, and the Exchange 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
1
<PAGE> 8
available or accessible. The IRIDIUM System architecture and Iridium voice,
data, facsimile and paging services ("Iridium World 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 42 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 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
2
<PAGE> 9
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.
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."
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<PAGE> 10
Iridium subscriber equipment will support voice, data and paging services.
Iridium expects that portable, hand-held Iridium phones will be manufactured by
at least two experienced suppliers, Motorola and Kyocera Corporation
("Kyocera"), both of which have hand-held Iridium phones under development. The
phones are expected to be available in satellite-only and "multi-mode" models.
The multi-mode phone being developed by Motorola uses changeable terrestrial
radio cassettes ("TRCs") which can be inserted into the phone. TRCs will be
developed for most major terrestrial wireless protocols so that with a single
multi-mode phone and the appropriate TRCs, a subscriber will be able to access
the IRIDIUM System and most major terrestrial wireless systems. Kyocera's
multi-mode phone is expected to be configured as a satellite phone casing into
which terrestrial wireless phones using different protocols can be inserted. The
Iridium belt-worn pager, to be manufactured by Motorola, will have the
capability to receive alphanumeric messages virtually anywhere in the world.
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
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 telecommunications provider
and the licensing authority are the same entity, a pricing strategy that takes
into account the "dial-up" alternatives allows Iridium to respond to concerns
that Iridium will capture the local monopoly provider's long-distance revenues
by undercutting terrestrial "dial-up" rates.
For 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
4
<PAGE> 11
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.
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. 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.
STRATEGIC INVESTOR GROUP AND IWCL
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
$3.26 billion in Iridium (directly or indirectly through Parent), including
equity, debt, guarantees and the Reserve Capital Call (as defined). These
investments represent approximately 74% of Iridium's projected total funding
needs through September 23, 1998, the date on which Iridium expects to commence
commercial operations, and approximately 62% 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
5
<PAGE> 12
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 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, the IWCL IPO was consummated, whereby IWCL
issued 12,000,000 shares of its Class A Common Stock and applied the net
proceeds of approximately $225 million to purchase 12,000,000 Class 1 Interests
in 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 1, 1998, Motorola had launched 58 Iridium satellites
in 12 separate launches. Motorola has informed Iridium that two of those 58
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 two
satellites and that such loss will not affect the scheduled completion date for
commercial service in September 1998. Motorola's current launch plans
contemplate three more launches of 14 Iridium satellites by May 1998, which
would complete the expected constellation of 66 satellites in mission orbit with
4 spare satellites in a lower parking orbit. 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 Master Control Facility 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 ten locations. However, two gateways are significantly behind
schedule with equipment procurement for their gateways. Motorola has produced a
functional, unminiaturized prototype of the Iridium phone, and Motorola has
produced a functional prototype of the Iridium belt-worn pager. Iridium has also
made substantial progress in the development of its Iridium business support
systems, which will be used for the provision of its billing and customer
support functions. See "Risk Factors" for a description of the risks that could
impair the ability of Iridium to commence commercial operations on schedule in
September 1998.
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<PAGE> 13
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, 50 additional administrations
have 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 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.
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<PAGE> 14
- 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 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 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.
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<PAGE> 15
SOURCES AND USES OF FUNDS BY IRIDIUM
The following table describes the currently estimated sources and uses of
funds by Iridium from inception of its predecessor through September 23, 1998
(the date on which Iridium expects to commence commercial operations).
Significant additional funds will be needed to cover Iridium's cash needs prior
to its expected generation of positive cash flow from operations. The projection
of total sources and total uses of funds is forward looking and could vary,
perhaps substantially, from actual results, due to events outside Iridium's
control, including unexpected costs and unforeseen delays. See "Risk
Factors -- Risk of Error in Forward Looking Statements."
PRE-OPERATIONAL PERIOD(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES OF FUNDS
----------------
<S> <C>
Secured Bank Facility(2)............ $ 715
The Notes(3)........................ 293
The Units and Series B Notes(4)..... 745
Guaranteed Bank Facility(5)......... 445
14 1/2% Senior Subordinated Notes
due in 2006....................... 238
Series A Class 2 Interests of
Parent(6)......................... 31
Class 1 Interests of Parent(7)...... 1,951
------
Total Pre-operational
Sources...................... $4,418
======
Additional Amounts Available Under
Secured Bank Facility............. $ 35
</TABLE>
<TABLE>
<CAPTION>
USE OF FUNDS
------------
<S> <C>
Space System Contract(8)............ $3,450
Terrestrial Network Development
Contract(9)....................... 151
Business Support Systems and other
Expenditures(10).................. 177
Net Interest and Financing
Costs(11)......................... 253
Net Expenses and Working
Capital(12)....................... 387
------
Total Pre-operational Net
Uses......................... $4,418
======
</TABLE>
- ---------------
(1) Assumes that the IRIDIUM System will commence commercial operations on
September 23, 1998. Iridium anticipates total cash needs of $5.3 billion
(net of assumed revenues following commencement of commercial operations)
through year-end 1999, the last year in which Iridium projects negative
cash flow and a net increase in year-end borrowings. Many factors,
including Iridium's ability to generate significant revenues, could affect
this estimate. See "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Iridium currently
expects to satisfy its additional funding requirements through the
incurrence of debt. Iridium 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."
(2) As of April 1, 1998 Iridium had drawn $350 million under 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 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.
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<PAGE> 16
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. 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 "Description of
Other Indebtedness."
(3) Reflects the net proceeds to Parent from the issuance of the Original Notes
in the Original Offering, after deducting the expenses of the Original
Offering and the discount to the Initial Purchasers.
(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, and (ii) $500,000,000
aggregate principal amount of Series B Notes. See "Description of Other
Indebtedness."
(5) As of April 1, 1998, Iridium had drawn $285 million 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 each of the Initial Senior Notes and the
Original Notes was used to permanently reduce the Guaranteed Bank Facility
from $750 million 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. Pursuant to a Memorandum of Understanding, dated July 11, 1997,
between Parent and Motorola and modified to apply to Iridium in connection
with the Asset Drop-Down Transaction (the "Motorola MOU"), Motorola agreed
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 has conditionally agreed that
Motorola will guarantee up to $350 million of additional Indebtedness
(including principal and interest) of Iridium under the Guaranteed Bank
Facility or another credit agreement with identical terms (the "Motorola
Additional Guarantee"), provided that borrowings under such additional
Indebtedness are made prior to February 28, 1999. For a description of the
Motorola MOU and the Motorola Additional Guarantee see "Certain
Relationships and Related Transactions of Iridium -- Motorola Related
Matters -- Motorola MOU and Agreement Regarding Guarantee." There can be no
assurance that the bank lenders would agree to increase the amount of their
commitments under the Guaranteed Bank Facility in respect of the Motorola
Additional Guarantee. See "Description of Other Indebtedness."
(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 $49 million due from South Pacific
Iridium Holdings Limited ("SPI"), an affiliate of P.T. Bakrie
Communications Corporation, an Indonesian corporation, pursuant to a
definitive
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<PAGE> 17
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 $48.8 million
becomes due on May 15, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(8) As of March 1, 1998, $2.96 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 1, 1998, $145 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 1, 1998, $99 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.
(12) Comprised of operating expenses of $607 million and net of interest income
of $18 million and working capital of $202 million.
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<PAGE> 18
THE EXCHANGE OFFER
The Exchange Offer......... The Issuers are offering to exchange (the "Exchange
Offer") up to $300,000,000 aggregate principal
amount of 11 1/4% Senior Notes due 2005, Series
C/EN (the "Exchange Notes"), which have been
registered under the Securities Act, for up to
$300,000,000 aggregate principal amount of
outstanding 11 1/4% Senior Notes due 2005, Series C
(the "Original Notes"). Upon consummation of the
Exchange Offer, the terms of the Exchange Notes
will be substantially identical in all material
respects (including principal amount, interest
rate, maturity and ranking) to the terms of the
Original Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Notes will be freely transferable by
holders thereof except as provided herein (see "The
Exchange Offer -- Terms of the Exchange" and
"-- Terms and Conditions of the Letter of
Transmittal"). The Exchange Notes will be issued
without any covenant regarding exchange or
registration under the Securities Act.
Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Original Notes may be
offered for resale, resold and otherwise
transferred by holders thereof (other than any
holder which is (i) an "affiliate" of an Iridium
Party within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired
Original Notes exchanged for such Exchange Notes
directly from an Iridium Party or (iii)
broker-dealers who acquired Original Notes
exchanged for such Exchange Notes as a result of
market making or other trading activities) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holders are not engaged in, and do not intend to
engage in, and have no arrangement or understanding
with any person to participate in, a distribution
of such Exchange Notes. Each holder of the Original
Notes wishing to accept the Exchange Offer must
represent to the Iridium Parties in the Letter of
Transmittal (i) that Exchange Notes will be
acquired in the ordinary course of such holder's
business; (ii) that such holder has no arrangement
or understanding to distribute the Exchange Notes
and (iii) that such holder is not an affiliate of
an Iridium Party. See "The Exchange Offer -- Terms
and Conditions of the Letter of Transmittal."
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Original Notes,
where such Original Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes.
See "Plan of Distribution."
Minimum Condition.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Original
Notes being tendered for exchange.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on May 29, 1998 unless extended
(the "Expiration Date").
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<PAGE> 19
Exchange Date.............. The first date of acceptance for exchange for the
Original Notes will be the first business day
following the Expiration Date upon surrender of
validly tendered Original Notes.
Conditions to the Exchange
Offer.................... The obligation of the Issuers to consummate the
Exchange Offer is subject to certain conditions.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Issuers reserve the right to
terminate or amend the Exchange Offer at any time
prior to the Expiration Date upon the occurrence of
any such condition.
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Original Notes not accepted
for any reason will be returned without expense to
the tendering holders thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer.
Procedures for Tendering
Original Notes........... To participate in the Exchange Offer, holders of
Original Notes must tender by (a) book-entry
transfer pursuant to the procedures set forth under
"The Exchange Offer -- How to Tender" or (b)
forwarding certificates representing such Original
Notes with the Letter of Transmittal. Holders who
are participants in DTC (as defined) tendering by
book-entry transfer must execute such tender
through the DTC's ATOP (as defined) procedures. A
holder using ATOP should transmit its acceptance to
DTC on or prior to the Expiration Date. DTC will
verify such acceptance, execute a book-entry
transfer of the tendered Original Notes into the
Exchange Agent's account at DTC and then send to
the Exchange Agent confirmation of such book-entry
transfer, including an Agent's Message (as defined)
confirming that DTC has received an express
acknowledgment from such holder that such holder
has received and agrees to be bound by the Letter
of Transmittal and that the Iridium Parties may
enforce the Letter of Transmittal against such
holder. The book-entry confirmation (as defined)
must be received by the Exchange Agent in order for
the tender relating thereto to be effective.
If the tender is not made through ATOP,
certificates for such Original Notes, as well as
the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any
required signature guarantees, and any other
documents required by the Letter of Transmittal,
must be received by the Exchange Agent at its
address set forth in the Letter of Transmittal on
or prior to the Expiration Date in order for such
tender to be effective. See "The Exchange
Offer -- How to Tender."
Letters of Transmittal and certificates
representing Original Notes should not be sent to
any of the Iridium Parties. Such documents should
only be sent to the Exchange Agent. Questions
regarding how to tender and requests for
information should be directed to the Exchange
Agent. See "The Exchange Offer -- Exchange Agent."
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<PAGE> 20
Federal Income Tax
Consequences............. The exchange of Original Notes for Exchange Notes
by Note Holders should not constitute a taxable
exchange for federal income tax purposes, and
holders should not recognize any taxable gain or
loss or any interest income as a result of such
exchange. See "Tax Considerations."
Effect on Holders of
Original Notes............. As a result of the making of this Exchange Offer,
and upon acceptance for exchange of validly
tendered Original Notes pursuant to the terms of
this Exchange Offer, the Iridium Parties will have
fulfilled a covenant contained in the Exchange and
Registration Rights Agreement (the "Exchange and
Registration Rights Agreement"), dated as of
October 17, 1997, among Iridium LLC ("Iridium LLC"
or "Parent"), Capital, IP, Roaming, Chase
Securities Inc. and Merrill Lynch, Pierce, Fenner
and Smith Incorporated (the "Initial Purchasers")
and, accordingly, the holders of the Original Notes
will have no further registration or other rights
under the Exchange and Registration Rights
Agreement, except under certain limited
circumstances. See "Exchange and Registration
Rights Agreement." Holders of the Original Notes
who do not tender their Original Notes in the
Exchange Offer will continue to hold such Original
Notes and will be entitled to all the rights and
limitations applicable thereto under the indenture,
dated as of October 17, 1997, among Parent,
Capital, IP, Roaming, and State Street Bank and
Trust Company, as Trustee (the "Trustee"), relating
to the Original Notes and the Exchange Notes (as
supplemented, including (i) by the first
supplemental indenture, dated as of December 18,
1997, among the Iridium Parties and the Trustee
giving effect to the substitution of Iridium for
Parent and (ii) by the second supplemental
indenture, dated as of February 28, 1998 adding
Facilities as a Guarantor Subsidiary, the
"Indenture"). All untendered, and tendered but
unaccepted, Original Notes will continue to be
subject to the restrictions on transfer provided
for in such Original Notes and the Indenture. To
the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market,
if any, for the Original Notes could be adversely
affected. See "Risk Factors -- Consequences of
Failure to Exchange."
TERMS OF THE NOTES
The Exchange Offer applies to $300,000,000 aggregate principal amount of
the Original Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Original Notes except that the Exchange Notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof. The Exchange Notes will be issued without any
covenant regarding exchange or registration under the Securities Act. The
Exchange Notes will evidence the same debt as the Original Notes and will be
entitled to the benefits of the Indenture. See "Description of Notes."
Issuers.................... Iridium Operating LLC (as successor to Parent), a
Delaware limited liability company ("Iridium"), and
Iridium Capital Corporation, a Delaware
corporation. As a result of the Asset Drop-Down
Transaction and the related supplemental indenture,
Iridium has
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<PAGE> 21
been substituted for Parent, and Parent has been
released from all obligations, under the Indenture
and the Notes.
Maturity Date.............. July 15, 2005.
Principal Amount of
Notes...................... $300,000,000.
Interest Payment Dates..... Interest on the Notes will accrue from October 17,
1997 at an annual rate of 11 1/4%. Interest on each
Note will be payable semi-annually in arrears on
January 15 and July 15 of each year.
Security................... None.
Optional Redemption........ Except as described below, the Issuers may not
redeem the Notes prior to July 15, 2002. On or
after such date, either Issuer may redeem the
Notes, in whole or in part, at any time at the
redemption prices set forth herein, together with
accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption.
At any time and from time to time on or prior to
July 15, 2000, either Issuer may, subject to
certain requirements, redeem in the aggregate up to
33 1/3% of the original aggregate principal amount
of the Notes with the cash proceeds to Iridium of
one or more Equity Offerings (as defined) at a
redemption price equal to 111.250% of the principal
amount of the Notes being redeemed, plus accrued
and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption; provided that at
least 66 2/3% of the original aggregate principal
amount of 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 and Liquidated Damages, if any, to
the purchase date. However, certain highly
leveraged transactions may not be deemed to be a
Change of Control, including, without limitation,
transactions with affiliates which comply with the
other covenants included in the 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 -- Subsidiary Guarantees" and
"-- Certain Covenants -- Future Guarantor
Subsidiaries."
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<PAGE> 22
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 April
1, 1998, in addition to the $300 million principal
amount of the Original Notes, the Iridium parties
had outstanding (i) approximately $350 million of
senior secured Indebtedness and (ii) approximately
$1,085 of unsecured senior Indebtedness (including
the Initial Senior Notes and borrowings of $285
million under the $450 Guaranteed Bank Facility)
ranking pari passu with the Original Notes. In
addition, as of April 1, 1998, Iridium had
approximately $285 million of Indebtedness that is
subordinated to the Original Notes. See "Use of
Proceeds," "Description of Other Indebtedness" and
"Risk Factors -- Significant Additional Funding
Needs."
Restrictive Covenants...... The Indenture limits (i) the incurrence of
additional Indebtedness by Iridium and the
Restricted Subsidiaries (as defined); (ii) the
payment of dividends on, and redemption of, Capital
Stock (as defined) of Iridium and the Restricted
Subsidiaries and the redemption of certain
Subordinated Obligations (as defined) of Iridium
and the Restricted Subsidiaries; (iii) certain
other restricted payments, including certain
investments; (iv) sales of assets and Restricted
Subsidiary stock; (v) certain transactions with
affiliates; (vi) the sale or issuance of capital
stock of Restricted Subsidiaries; (vii) the
creation of liens; (viii) the lines of business in
which Iridium and the Restricted Subsidiaries may
operate; and (ix) consolidations, mergers and
transfers of all or substantially all of the
Issuers' assets. The 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."
Registration Rights........ Pursuant to the Exchange and Registration Rights
Agreement (as defined), the Iridium Parties have
agreed (i) to file a registration statement within
90 days after the Issue Date (as defined) with
respect to an offer to exchange the Original Notes
(the "Exchange Offer") for a series of notes of the
Issuers with terms substantially identical in all
material respects to the Original Notes (the
"Exchange Notes") and (ii) to use their reasonable
efforts to cause the registration statement to be
declared effective by the Commission within 180
days after the Issue Date. In certain
circumstances, the Iridium Parties will be required
to provide a shelf registration statement to cover
resales of the Notes by certain holders. The
Registration Statement of which this Prospectus
forms a part was filed on January 15, 1998 to
fulfill the
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<PAGE> 23
Iridium Parties' obligations under clause (i) of
the preceding sentence, and the sole purpose of the
Exchange Offer is to fulfill the obligations of the
Iridium Parties with respect to the Exchange and
Registration Rights Agreement. If the Issuers and
the Guarantor Subsidiaries do not comply with their
obligations under the Exchange and Registration
Rights Agreement, the Issuers will pay Liquidated
Damages to each Holder of Original Notes as and to
the extent described therein. See "Exchange and
Registration Rights Agreement."
Transfer Restrictions;
Absence of a Public Market
for the Notes............ The Original Notes have not been registered under
the Securities Act and are subject to restrictions
on transferability and resale. The Original Notes
are new securities and there is currently no
established market for them. If issued, the
Exchange Notes generally will be freely
transferable (subject to the restrictions discussed
elsewhere herein) but will be new securities for
which there initially will be no market.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Original Notes or, if issued, the Exchange Notes.
The Original Notes are eligible for trading in the
PORTAL market. The Initial Purchasers have advised
the Issuers that they currently intend to make a
market in the Original Notes and, if issued, the
Exchange Notes. However, they are not obligated to
do so, and any market making with respect to the
Original Notes or, if issued, the Exchange Notes
may be discontinued without notice. The Issuers do
not intend to apply for listing of the Original
Notes or, if issued, the Exchange Notes on any
national securities exchange or for their quotation
through the Nasdaq National Market (the "NNM").
RISK FACTORS
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY HOLDERS OF
NOTES IN CONNECTION WITH THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON
PAGE 18.
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<PAGE> 24
RISK FACTORS
The following risk factors, in addition to the other information contained
elsewhere in this Prospectus, should be carefully considered by holders of the
Original Notes in connection with the Exchange Offer.
DEVELOPMENT STAGE COMPANY; ABSENCE OF REVENUES
Iridium is a development stage enterprise with no operating history.
Prospective investors have no operating and financial data about the IRIDIUM
System on which to base an evaluation of the IRIDIUM System's performance and an
investment in the Notes. Through March 1, 1998, Iridium had realized cumulative
net losses of approximately $557 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 1, 1998, Iridium had incurred expenditures totaling $2.96 billion to
Motorola under the Space System Contract and expenditures totaling $145 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 $4.4
billion through September 23, 1998, the date on which Iridium expects to
commence commercial operations, and $5.3 billion (net of assumed revenues
following commercial activation) through year-end 1999, the last year in which
Iridium projects negative cash flow and a net increase in year-end borrowings.
As of March 1, 1998, Iridium had indirectly received net proceeds of $1.940
billion from equity investments in Parent and has the right to receive the
approximately $49 million due from SPI pursuant to the terms of a definitive
purchase agreement. At April 1, 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 each of the Initial Senior Notes and the Original Notes) Guaranteed
Bank Facility and $350 million under the $1 billion Secured Bank Facility.
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 has
conditionally agreed that, after giving effect to all permanent reductions in
the Guaranteed Bank Facility resulting from senior note offerings, Motorola will
guarantee up to $350 million of additional Indebtedness (including principal and
interest) under the Guaranteed Bank Facility or another credit facility with
identical terms, provided that borrowings under such additional Indebtedness are
made on or prior to February 28, 1999. The Guaranteed Bank Facility matures 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 (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 "Description of
Other Indebtedness."
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<PAGE> 25
As of April 1, 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." Assuming approximately $445 million of
borrowings under the Guaranteed Bank Facility and $715 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.
RISK OF HIGHLY LEVERAGED CAPITAL STRUCTURE
Iridium is a development stage company with a highly leveraged capital
structure and expects to incur substantial additional Indebtedness, including
secured indebtedness. As of April 1, 1998, in addition to the $300 million
principal amount of the Original Notes, the Iridium Parties had outstanding (i)
approximately $350 million of senior secured Indebtedness pursuant to the
Secured Bank Facility and (ii) approximately $1,085 million of unsecured senior
Indebtedness (including the Initial Senior Notes and borrowings of $285 million
under the $450 million Guaranteed Bank Facility) ranking pari passu with the
Original Notes. In addition, as of April 1, 1998, Iridium had approximately $285
million of Indebtedness that is subordinated to the Original Notes. 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
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
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 Indebted-
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<PAGE> 26
ness" and "Description of Notes -- Certain Covenants -- Limitation on
Indebtedness" and "-- Limitation on Liens."
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."
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 "Prospectus
Summary -- Sources and Uses of Funds by Iridium" (other than historical
information) and the statements therein and elsewhere that 1999 is the last year
in which Iridium expects negative cash flow and a net increase in year-end
borrowings and as to projected additional capital needs after the commencement
of commercial operations, are forward looking statements which may turn out to
be inaccurate for the reasons described in the preceding paragraph and are also
based upon a number of assumptions. One or more of these assumptions is likely
to be incorrect. The projected financial information assumes, among other
things, that: (i) the IRIDIUM System will become commercially operational 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
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<PAGE> 27
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 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 "Prospectus Summary" and under "Business -- The Iridium Market," and
in addition to the information set forth above, prospective investors are
cautioned that such statements are based exclusively upon market analysis
conducted by Iridium. Market analysis, including use of market research, by its
nature does not lend itself to mathematical certainty, since it is based upon
respondents' assertions rather than actual purchase decisions. 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
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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 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 1, 1998, Motorola had launched 58 Iridium satellites in 12
separate launches. Motorola has informed Iridium that two of those 58 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 two satellites and
that such loss will not affect the scheduled date for commencement of commercial
operations in September 1998. Motorola's current launch plans contemplate three
more launches of 14 satellites by May 1998, which would complete the expected
constellation of 66 satellites in mission orbit with 4 spare satellites in a
lower parking orbit. 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 three launch service providers -- Boeing,
Khrunichev and China Great Wall -- are able to provide launch services as
currently planned. Further, no assurance can be given that anomalies such as
occurred with respect to the two 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.
Boeing uses its Delta II launch vehicle to launch Iridium satellites.
Following a 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
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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
completed by the commencement of commercial operations, which could have a
material adverse effect upon Iridium. In particular, the China gateway has not
commenced equipment procurement and the Middle East-Africa gateway is
significantly behind schedule with its equipment procurement. 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, or
entering into alternative arrangements with, Motorola. 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. Because
there is no current market for Iridium World Services and subscriber equipment,
the financial incentive for manufacturers to produce
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significant quantities of subscriber equipment in advance is limited. While
Iridium generally does not expect to act as a distributor of subscriber
equipment or derive any significant income from the sale of subscriber
equipment, it is contemplating a pre-commercial operation order of phones to
facilitate the initial availability of such equipment. There can be no assurance
that Iridium will place a pre-commercial operation order of phones. If Iridium
places such a pre-commercial operation order, Iridium will bear the risk that it
will be unable to resell the phones that it commits to purchase or that it will
be unable to do so at prices that will allow it to recoup its payments to the
manufacturer(s). Moreover, there is a risk that demand for Iridium 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
pre-commercial operation order of phones and the cost of any such subsidization
could be significant. Iridium's current projected funding needs do not reflect
any costs associated therewith.
TECHNOLOGY AND TECHNOLOGY IMPLEMENTATION RISKS; INABILITY TO FULLY TEST PRIOR TO
SPACE DEPLOYMENT; 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. 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.
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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 unminiaturized
prototype of the hand-held phone and a functional prototype of the belt-worn
pager. However, there can be no assurance that Motorola, Kyocera or any other
manufacturer will be able to develop on a timely basis, or at all, portable,
hand-held phones or belt-worn pagers that meet Iridium's expectations and which
can be mass produced at economical prices. See "-- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Reliance on Motorola, Gateway Owners and Other Third Parties."
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 20% to
30% above the retail roaming prices for terrestrial-based voice calling options
that travelling 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."
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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 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
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income from the sale of Iridium subscriber equipment. See "-- Potential for
Delay and Cost Overruns -- Development, Manufacture and Distribution of
Subscriber Equipment." Based on information received from Motorola, Iridium
expects that Motorola's version of the multi-mode portable, hand-held phones
will have an initial retail price of approximately $3,000, including 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 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 20% to 30% above the retail prices
for terrestrial-based voice calling options that travelling 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 20, 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 Iridium 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
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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.
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, Khrunichev and
China Great Wall for launch services. These launch service providers have from
time to time experienced launch failures. There can be no assurance that
Iridium's satellites will be successfully deployed in a timely manner or that
launch failures, whether or not deploying Iridium satellites, will not occur and
materially and adversely affect Iridium. The risk of a material and adverse
effect associated with an Iridium launch failure is exacerbated by the fact that
each launch vehicle will contain multiple satellites.
The launch of the first five Iridium satellites occurred on May 5, 1997 on
a 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 a 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
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 1, 1998, Motorola had launched 58 Iridium satellites in 12
separate launches. Motorola has informed Iridium that two of those 58 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 two 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 two 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.
Khrunichev provides launch services for Iridium using the Proton launch
vehicle. In December 1997, there was a failure of Khrunichev's Proton launch
vehicle in connection with the AsiaSat 3 mission that failure analysis
determined was attributable to a failure of turbo pump seals. In November 1996,
there was a failure with Khrunichev's Proton launch vehicle in connection with
the Mars 96 mission that the failure analysis determined was attributable to
faulty guidance and control commands from the Mars 96 spacecraft. In addition,
Khrunichev experienced launch failures in February 1996 and May 1993. 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.
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Impact of Excusable Delays
The terms of the Space System Contract provide that Motorola will bear the
responsibility of launching the satellites that comprise the space segment.
Nevertheless, Iridium retains the risk of cost overruns and delays associated
with excusable delays, including delays in launch provider schedules due to
prior delays of launches of non-IRIDIUM satellites, and the risk of economic
damage due to any delay or reduced performance beyond the limited remedies
provided by the Space System Contract. Following the January 1997 launch failure
involving the 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 all three launch
providers -- Boeing, Khrunichev 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 and Khrunichev are located in China and Russia,
respectively. Changes in laws, treaties, trade agreements, governmental policies
or political leadership in the United States, China, Russia or Kazakhstan, where
Khrunichev's launch facilities are located, could affect the political or
economic relationship between these countries and, as a result, could affect the
cost, availability, timing or overall advisability of utilizing these launch
services providers. In addition, the use of these launch services providers
requires various approvals from the government of the United States under the
United States Arms Export Control Act and the Export Administration Act. See
"Regulation of Iridium." There can be no assurance that 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, Khrunichev and China Great Wall being
able to provide launch services on a timely basis.
LIMITED LIFE OF SATELLITES; COST OF MAINTAINING THE SPACE SEGMENT; RISK OF
SATELLITE FAILURE OR DAMAGE
A significant portion of Iridium's tangible assets will be represented by
the satellites in the space segment. Iridium's business plan currently assumes
that the satellites will have a useful life of five years from their respective
launch dates. There can be no assurance that any satellite will actually 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
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satellites are significant. Iridium has entered into an Operations and
Maintenance Contract with Motorola which provides for the operation and
maintenance of the space segment for its first five years of operation at an
aggregate cost to Iridium of approximately $2.88 billion, assuming the space
segment is delivered in September 1998 and assuming no excusable delay occurs.
Iridium has the option to extend the Operations and Maintenance Contract for an
additional two years for additional aggregate payments aggregating $1.33 billion
(based on the same assumption) and assuming no excusable delay occurs. Under the
Operations and Maintenance Contract, Iridium will bear the risk of damage to
satellites by the acts of third parties (including but not limited to the
degradation or complete loss of any satellite due to contact with space debris
of any size or character). See "Principal Contracts for the Development of the
IRIDIUM System -- Operations and Maintenance Contract." Satellites operating in
the low earth orbit region, such as the Iridium satellites, face a higher risk
of damage from space debris than satellites operating in geostationary orbit. As
with any satellite system, the Iridium satellites face risk of damage from
meteor and solar storms, which are recurring phenomena. The potential for damage
from meteor and solar storms is difficult to quantify. Iridium has obtained
insurance to cover certain of these risks, but there can be no assurance that
such insurance will provide adequate mitigation in the event of a loss. Iridium
also bears the risk of damage to person or property resulting from the survival
of any portion of a satellite following planned or unplanned reentry. Motorola
believes that the likelihood of such damage is 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. Motorola has
informed Iridium that, as of April 1, 1998, two of the 58 satellites launched as
of that date were not functioning and will not become part of the constellation,
but that Iridium will not bear the financial impact of the loss of the two
satellites and that such loss will not affect the scheduled date for
commencement of commercial operations September 1998. 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.
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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 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
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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."
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) Saudi Arabia (Jeddah) 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 Posts and Telecommunications (the "MPT") to proceed
with the establishment of a testing gateway for Iridium in China. The MPT will
be primarily responsible for construction, management and operation of the
gateway, and arrangements are being made between China Aerospace and the MPT to
take advantage of that decision. 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, 51 countries or territories have given all
or a substantial portion of the authorizations necessary to operate the IRIDIUM
System in their territory. The 51 countries and territories are: United States,
Italy, Argentina, Colombia, Honduras, Taiwan, Thailand, Malaysia, Guatemala,
Puerto Rico, Philippines, Finland, El Salvador, Brazil, Japan, South Korea,
Austria, Germany, Canada, Australia, Venezuela, Sweden, Norway, Iceland, Russia,
Uruguay, New Zealand, Chile, Senegal, Morocco, Afghanistan, Panama, San Marino,
Maldives, 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 and Svalbard & Jan Mayen. 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.
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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 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."
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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 completed 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 observe in the 1.6 GHz band, there can be no
assurance that these coordinations will be concluded successfully or in a timely
manner.
COMPETITIVE RISKS; FACTORS AFFECTING IRIDIUM'S COMPETITIVE POSITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and in other countries. The uncertainties and risks created
by this competition are intensified by the continuous technological advances
that characterize the industry, regulatory developments which affect competition
and alliances between industry participants. While no single wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will serve this market in some
fashion in the future. Iridium believes that its most likely direct competition
will come from the planned 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 these two CDMA systems reduces the possibility that only one
CDMA system will become operational in the 1610-1621.35 MHZ frequency band
adjacent to the IRIDIUM System's frequency assignment. This in turn reduces the
likelihood that the FCC will increase the frequency assignment for the IRIDIUM
System. In addition, MCHI's and Constellation's licenses may make it more
difficult for CDMA based global systems to meet the protection levels required
for GLONASS, either in the United States, Russia or elsewhere. An inability to
meet these levels might lead to requests to reassign the CDMA systems to higher
frequencies within the 1610-1626.5 MHZ allocation to protect GLONASS. This
development might in turn reduce the amount of spectrum available to Iridium.
Furthermore, the possibility that two more CDMA systems may become operational
may increase the risk of harmful interference into the IRIDIUM System's MSS
downlinks.
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
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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. Three other proposed MSS systems, ICO, Globalstar and Odyssey, 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 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
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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, 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
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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 11 gateways. Motorola has committed to deliver
the gateway equipment for these gateways including voice functionality by
September 1998 although, in certain circumstances such as a gateway's failure to
perform its payment obligations or comply with import license requirements and
beneficial occupancy dates, the relevant contracts permit Motorola to delay
delivery or cancel the agreement. 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 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
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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 1, 1998, Iridium had incurred $2.96
billion of this amount, and all but $150 million of this price is required to be
paid by Iridium before the space segment is determined to be fully operational.
Furthermore, Motorola's aggregate liability under the Space System Contract and
related contracts with Iridium in the event the system is not operational is
subject to the Motorola Liability Limitations (defined below) and in no event is
Motorola required under the contract to refund amounts previously paid by
Iridium to Motorola. In addition, subject to certain exceptions, Iridium bears
the risk, including additional costs, if any, resulting from excusable delays
under the Space System Contract, as well as certain of the risks of loss for
satellites once placed in orbit. Following the January 1997 launch failure
involving the 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 all three launch
providers -- Boeing, Khrunichev 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 1, 1998, Motorola had launched 58 Iridium satellites in 12
separate launches. Motorola has informed Iridium, however, that two of the 58
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 two
satellites and that such loss will not affect the scheduled date for
commencement of commercial operations 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
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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.
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,
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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.
Countries in the Asia Pacific region, including Japan, Korea and Indonesia,
have recently experienced weaknesses in their currency, banking and equity
markets. 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
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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 representation 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
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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 (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
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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."
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.
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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 governmental enforcement or
administrative authorities. This process may result in delays in securing
approval, where necessary, to offer, grant or exercise rights, or may result in
restrictions or prohibitions on the offer, grant or exercise of such exclusive
rights. It also could adversely affect the ability of Iridium to operate or to
obtain necessary licenses or otherwise to conduct business in one or more areas
of the world.
RISKS ASSOCIATED WITH GROWTH
While there can be no assurance that customer acceptance of and
satisfaction with Iridium 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 Exchange Notes will be, and the Original Notes are, senior obligations
of the Issuers. The Exchange Notes will, and the Original Notes do, rank pari
passu in right of payment to 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 are and 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 Original Notes are, and the Exchange 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 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 April 1, 1998, in addition to the $300 million principal amount of
the Original Notes, the Iridium Parties had outstanding (i) approximately $350
million of senior secured Indebtedness pursuant to the Senior Bank Facility and
(ii) approximately $1,085 million of unsecured senior Indebtedness (including
the Initial Senior Notes and borrowings of $285 million under the $450 million
Guaranteed Bank Facility) ranking pari passu with the Original Notes. In
addition, as of April 1,
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1998, Iridium had approximately $285 million of Indebtedness that is
subordinated to the Original Notes. 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.
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 Exchange 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 Exchange 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.
45
<PAGE> 52
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 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 Original Notes have not been registered under the Securities Act and
are subject to restrictions on transferability and resale. The Original Notes
are new securities and there is currently no established market for them. If
issued, the Exchange Notes generally will be freely transferable (subject to the
restrictions discussed elsewhere herein) but will be new securities for which
there initially will be no market. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Original Notes or, if issued,
the Exchange Notes. The Original Notes are eligible for trading in the PORTAL
market. Although the Initial Purchasers 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 Initial Purchasers. In addition,
such market making activity may be limited during the pendency of the Exchange
Offer or the effectiveness of a shelf registration statement in lieu thereof.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Notes and, if issued, the Exchange 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 prices 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
46
<PAGE> 53
and the market for securities of other companies in similar businesses. The
Issuers do not intend to apply for listing of the Original Notes or, if issued,
the Exchange Notes on any national securities exchange or for their quotation
through the NNM.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who do not exchange their Original Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Original Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Issuers do
not intend to register the Original Notes under the Securities Act. In addition,
any holder of Original Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. To the extent Original Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Original Notes not tendered could be adversely affected. No holder of an
Original Note shall be entitled to receive any Liquidated Damages with respect
to such Original Note, if a holder of such Original Note was, at any time while
the Exchange Offer was pending, eligible to exchange, and did not validly
tender, such Original Note for a freely transferable corresponding Exchange Note
in such Exchange Offer. See "The Exchange Offer" and "Exchange and Registration
Rights Agreement."
47
<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 SETTING FORTH OWNERSHIP OF IRIDIUM LLC, ITS STRATEGIC INVESTORS AND ITS
SUBSIDIARIES]
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
48
<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 Original Notes are,
and the Exchange Notes will be, the joint and several obligations of Iridium and
Capital, although Iridium received all of the net proceeds of the Original
Notes. Capital has no significant assets and does not conduct any operations.
IP, a Delaware limited liability company and a wholly owned subsidiary of
Iridium, holds the worldwide trademark registrations for Iridium. Roaming, also
a Delaware limited liability company and a wholly owned subsidiary of Iridium,
is the entity that enters into roaming agreements for ICRS on behalf of Iridium.
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 $3.26 billion in Parent, including equity, debt and guarantees,
representing approximately 74% of Iridium's projected total funding needs
through September 23, 1998, the date on which Iridium expects to commence
commercial operations, and approximately 62% of Iridium's projected total
funding needs through the end of 1999, the last year in which Iridium expects
negative cash flow and a net increase in year-end borrowings. See "Prospectus
Summary -- Sources and Uses of Funds by Iridium." Iridium believes that its
ability to develop and commercialize the IRIDIUM System and to compete in the
highly competitive wireless telecommunications market is greatly enhanced by the
technical expertise, regulatory experience, project management skills,
distribution capacity and market presence of its strategic investors.
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 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
49
<PAGE> 56
European telecommunications company, has been allocated a gateway service
territory consisting of countries in Western Europe, including Belgium, Denmark,
France, Greece, Italy, Luxembourg, the Netherlands and Switzerland. o.tel.o
communications GmbH & Co., a provider of mobile and satellite communications in
Germany and an indirect subsidiary of VEBA AG, one of the largest corporations
in Germany, has been allocated a gateway service territory consisting of
countries in or near Europe, including Austria, Bulgaria, the Czech Republic,
Finland, Germany, Hungary, Ireland, Israel, Norway, Poland, Portugal, Romania,
Spain, Sweden, Slovakia, Ukraine and the United Kingdom. SK Telecom, a provider
of cellular and paging services, has been allocated the gateway service
territory consisting of North Korea and South Korea. Pacific 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 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 subscriber equipment for use with the IRIDIUM System. See
"Parent's Investors, Number of Class 1 Interests Owned, Percentage Ownership and
Principal Gateway Service Territories."
USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange pursuant to the
Exchange Offer. Iridium will pay the expenses of the Exchange Offer, estimated
to be approximately $400,000. The net proceeds to Parent from the Original
Offering were approximately $293 million. Approximately $205 million of such net
proceeds were used to permanently reduce the Guaranteed Bank Facility to $450
million (which correspondingly reduced the Motorola Guarantee) and the remaining
$88 million of such net proceeds were used primarily for milestone payments
under the Space System Contract and the Terrestrial Network Development Contract
and to a lesser extent for other general corporate purposes. Prior to such uses,
Parent repaid amounts outstanding under the revolving Guaranteed Bank Facility
and invested the remainder in short-term investment grade debt securities. See
"Prospectus Summary -- Sources and Uses of Funds by Iridium." For a discussion
of the term of, and the interest rates applicable to, the Guaranteed Bank
Facility, see "Description of Other Indebtedness -- Guaranteed Bank Facility."
50
<PAGE> 57
CAPITALIZATION
The following table sets forth the capitalization of Iridium as of December
31, 1997. Iridium is the successor to Parent. On December 18, 1997, pursuant to
the Asset Drop-Down Transaction, Parent transferred substantially all of its
assets and liabilities to Iridium. See "Parent's Ownership Structure and
Strategic Investors -- Asset Drop-Down Transaction."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Secured Bank Facility....................................... $ 350,000
Guaranteed Bank Facility.................................... 210,000
13% Senior Notes due 2005, Series A......................... 276,439(1)
14% Senior Notes due 2005, Series B......................... 477,849(1)
11 1/4% Senior Notes due 2005, Series C..................... 300,000(2)
14 1/2% Senior Subordinated Notes due to Parent's Members in
2006...................................................... 273,302
Member's Interest........................................... 2,059,421
Deficit accumulated during the development stage............ (427,241)
Adjustment for minimum pension liability.................... (643)
----------
Total member's equity............................. 1,631,537
----------
Total capitalization.............................. $3,519,127
==========
</TABLE>
- ---------------
(1) 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.
(2) Represents the aggregate principal amount of the Original Notes.
51
<PAGE> 58
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Original Notes were originally issued and sold on October 17, 1997.
Such sales were not registered under the Securities Act in reliance upon the
exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. Pursuant to an Exchange and Registration Rights Agreement
entered into in connection with the sale of the Original Notes, the Iridium
Parties have agreed to file with the Commission a registration statement (an
"Exchange Offer Registration Statement") relating to an exchange offer (a
"Registered Exchange Offer") pursuant to which other series of notes of the
Issuers (the Exchange Notes) would (i) be covered by such Exchange Offer
Registration Statement, (ii) contain terms which are identical in all material
respects to the terms of the respective Original Notes, except as set forth in
this Prospectus, and (iii) be offered in exchange for Original Notes tendered at
the option of the holders thereof. The Registration Statement of which this
Prospectus is a part is an Exchange Offer Registration Statement within the
meaning of the Exchange and Registration Rights Agreement, and the Exchange
Offer constitutes a Registered Exchange Offer within the meaning of the Exchange
and Registration Rights Agreement. The sole purpose of the Exchange Offer is to
fulfill the obligations of the Iridium Parties with respect to the Exchange and
Registration Rights Agreement. See "Exchange and Registration Rights Agreement."
If (i) because of any change in law or applicable interpretations thereof
by the Commission, the Issuers determine upon the advice of their outside
counsel that they are not permitted to effect the Exchange Offer as contemplated
by the Exchange and Registration Rights Agreement, (ii) any Original Notes
validly tendered pursuant to the Exchange Offer are not exchanged for Exchange
Notes within 30 days after the commencement of the Exchange Offer, (iii) either
Chase Securities Inc. or Merrill Lynch, Pierce, Fenner and Smith Incorporated,
as Initial Purchasers of the Original Notes so requests within 90 days after the
consummation of the Exchange Offer with respect to Original Notes that were not
eligible to be exchanged for Exchange Notes in the Exchange Offer and are then
held by it following the consummation of the Exchange Offer, (iv) any applicable
law or interpretations do not permit any holder of Original Notes to participate
in the Exchange Offer, (v) any holder of an Original Note that participates in
the Exchange Offer notifies Iridium within 20 business days after the
consummation of the Exchange Offer that it did not receive freely transferable
Exchange Notes in exchange for validly tendered Original Notes or (vi) the
Issuers so elect, then the Iridium Parties will use their reasonable efforts to
file as promptly as practicable with the Commission a shelf registration
statement (the "Shelf Registration Statement") on the terms set forth in the
Exchange and Registration Rights Agreement to cover resales of Transfer
Restricted Securities (as defined) from time to time by such holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement and who agree in writing to be
bound by all provisions of the Exchange and Registration Rights Agreement
(including certain indemnification obligations). For purposes of the foregoing,
"Transfer Restricted Securities" means each Original Note until (i) the date of
which such Original Note has been exchanged for a freely transferable
corresponding Exchange Note in the Exchange Offer, (ii) the date on which such
Original Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, or (iii) the
date on which such Original Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act. In the event that (i) the Iridium Parties have failed to file
the Exchange Offer Registration Statement or, if applicable, the Shelf
Registration Statement, (ii) the Exchange Offer Registration Statement, or, if
applicable, the Shelf Registration Statement, has not been declared effective by
the Commission, or (iii) the Exchange Offer has not been consummated or the
Exchange Offer Registration Statement or the Shelf Registration Statement ceases
to remain effective or usable, in each case within specified time periods, the
Iridium Parties will be obligated to pay Liquidated Damages with respect to
certain remaining Transfer Restricted Securities. See "Exchange and Registration
Rights Agreement."
52
<PAGE> 59
TERMS OF THE EXCHANGE
The Issuers hereby offer to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal accompanying this
Prospectus (the "Letter of Transmittal") $1,000 in principal amount of Exchange
Notes for each $1,000 in principal amount of Original Notes. The terms of the
Exchange Notes are identical in all material respects to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes will generally be freely transferable by holders
thereof. The holders of the Exchange Notes (as well as remaining holders of any
Original Notes (except in the limited case of any obligation relating to a Shelf
Registration Statement, as discussed above)) will not be entitled to exchange or
registration rights under the Exchange and Registration Rights Agreement. See
"Exchange and Registration Rights Agreement." The Exchange Notes will evidence
the same debt as the Original Notes and will be entitled to the benefits of the
Indenture pursuant to which such Notes were issued. See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Original Notes being tendered for exchange.
Based on interpretations by the Commission set forth in no-action letters
issued to third parties, the Issuers believe that Exchange Notes issued pursuant
to the Exchange Offer in exchange for the Original Notes may be offered for
resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of an Iridium Party within the meaning of
Rule 405 under the Securities Act, (ii) a broker-dealer who acquired such
Original Notes directly from an Iridium Party or (iii) broker-dealers who
acquired such Original Notes as a result of market making or other trading
activities) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes are acquired
in the ordinary course of such holders' business, and such holders are not
engaged in, and do not intend to engage in, and have no arrangement or
understanding with any person to participate in, a distribution of such Exchange
Notes. Each holder of the Original Notes wishing to accept the Exchange Offer
must represent to the Iridium Parties in the Letter of Transmittal (i) that
Exchange Notes will be acquired in the ordinary course of such holder's
business; (ii) that such holder has no arrangement or understanding to
distribute the Exchange Notes and (iii) that such holder is not an affiliate of
an Iridium Party. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where such Original Notes were acquired
by such broker-dealer as a result of market-making activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." The Letter of Transmittal states that by so
acknowledging, and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Issuers have agreed that they will make this Prospectus
available to be used in connection with any such resale by all persons subject
to the prospectus delivery requirements of the Securities Act for such period of
time as such persons must comply with such requirements in order to resell
Exchange Notes; provided that (i) in the case where such prospectus and any
amendment or supplement thereto must be delivered by a broker-dealer receiving
Exchange Notes in exchange for Original Notes acquired for its own account as a
result of market-making activities or other trading activities (an "Exchanging
Dealer"), such period shall be the lesser of 180 days and the date on which all
Exchanging Dealers have sold all Exchange Notes held by them and (ii) the
Issuers shall make such prospectus and any amendment or supplement thereto
available to any broker-dealer for use in connection with any resale of any
Exchange Notes for a period of not less than 90 days after the consummation of
the Exchange Offer. Any holder that cannot rely upon such interpretations must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
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<PAGE> 60
Tendering holders of Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Original Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on May 29, 1998, unless the Issuers
in their sole discretion extend the period during which the Exchange Offer is
open, in which event the term "Expiration Date" means the latest time and date
on which the Exchange Offer, as so extended by the Issuers, expires. The Issuers
reserve the right to extend the Exchange Offer at any time and from time to time
prior to the Expiration Date by giving written notice to State Street Bank and
Trust Company (the "Exchange Agent") and by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release to the Dow Jones News Service. During any extension of the
Exchange Offer, all Original Notes previously tendered pursuant to the Exchange
Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Issuers expressly reserve the right to (i) terminate the
Exchange Offer and not accept for exchange any Original Notes for any reason,
including if any of the events set forth below under "-- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Issuers and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Original Notes. If any such termination or
amendment occurs, the Issuers will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the
Original Notes as promptly as practicable. Unless the Issuers terminate the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date,
the Issuers will exchange the Exchange Notes for the Original Notes on the
Exchange Date.
If the Issuers waive any material condition to the Exchange Offer, or amend
the Exchange Offer in any other material respect, and if at the time that notice
of such waiver or amendment is first published, sent or given to holders of
Original Notes in the manner specified above, the Exchange Offer is scheduled to
expire at any time earlier than the expiration of a period ending on the fifth
business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Issuers to record holders of Original Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Original Notes.
HOW TO TENDER
The tender to the Issuers of Original Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Issuers in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
General Procedures. Except as set forth below, in order for Original Notes
to be validly tendered pursuant to the Exchange Offer, a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or, in the case of a book-entry tender, an Agent's Message
(as defined) in lieu of the Letter of Transmittal, and any other required
documents, must be received by the Exchange Agent at its address set forth on
the back cover of this Prospectus and either (i) tendered Original Notes must be
received by the Exchange Agent, (ii) such Original Notes must be tendered
pursuant to the procedures for book-entry transfer set forth below and a
book-entry confirmation, including an Agent's Message if the tendering holder
has not delivered a Letter of Transmittal, must be received by the Exchange
Agent, in each case on
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<PAGE> 61
or prior to the Expiration Date, or (iii) the guaranteed delivery procedures set
forth below must be complied with. The term "book-entry confirmation" means a
timely confirmation of a book-entry transfer of Original Notes into the Exchange
Agent's account of DTC. The term "Agent's Message" means a message, transmitted
by DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, which acknowledgment states that such participant has
received and agrees to be bound by the Letter of Transmittal (including the
representations contained therein) and that the Iridium Parties may enforce the
Letter of Transmittal against such participant.
If tendered Original Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Original Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Original Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Issuers and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a firm (an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program (an "Eligible Program") within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Original Notes not exchanged are to
be delivered to an address other than that of the registered holder appearing on
the note register for the Original Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Original Notes should contact such holder promptly and instruct such
holder to tender Original Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Original Notes himself or herself, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such Original Notes, either make appropriate
arrangements to register ownership of the Original Notes in such beneficial
owner's name or follow the procedures described in the immediately preceding
paragraph. The transfer of record ownership may take considerable time.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Book-Entry Transfer. The Exchange Agent will establish an account with
respect to the Original Notes at The Depository Trust Company ("DTC") for
purposes of the Exchange Offer within two business days after the date of this
Prospectus. Any financial institution that is a participant in DTC's book-entry
transfer facility system may make a book-entry delivery of the Original Notes by
causing DTC to transfer such Original Notes into the Exchange Agent's account at
DTC in accordance with DTC's Authorized Tender Offer Program ("ATOP") procedures
for transfers. Such holder of Original Notes using ATOP should transmit its
acceptance on DTC on or prior to the Expiration Date (or comply with the
guaranteed delivery procedures set forth below). DTC will verify such
acceptance, execute a book-entry transfer of the tendered Original Notes into
the Exchange Agent's account at DTC and then send to the Exchange Agent
confirmation of such book-entry transfer, including an Agent's Message
confirming that DTC has received an express acknowledgment from such holder that
such holder has received and agrees to be bound by the Letter of Transmittal and
that the Iridium Parties may enforce the Letter of Transmittal against such
holder.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT
ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE
TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Original Notes to
reach the Exchange Agent before the
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Expiration Date, a tender may be effected if the Exchange Agent has received at
its office listed on the back cover hereof on or prior to the Expiration Date a
letter or facsimile transmission from an Eligible Institution setting forth the
name and address of the tendering holder, the names in which the Original Notes
are registered and, if possible, the certificate numbers of the Original Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within five trading days after the date of execution of such
letter or facsimile transmission by the Eligible Institution, the Original
Notes, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Original Notes being
tendered by the above-described method (or a timely book-entry confirmation) are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Issuers may, at their option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are being delivered
with this Prospectus and the related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Original Notes (or a timely book-entry confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Original Notes tendered pursuant to a Notice of Guaranteed Delivery or letter or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Original Notes (or a timely
book-entry confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Original Notes will be
determined by the Issuers, whose determination will be final and binding. The
Issuers reserve the absolute right to reject any or all tenders not in proper
form or the acceptances for exchange of which may, in the opinion of counsel to
the Issuers, be unlawful. The Issuers also reserve the absolute right to waive
any of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. None of the Issuers, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Issuers' interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Original Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Original Notes to the Issuers and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Original Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Original
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Original Notes, and that, when the same are accepted for exchange, the Issuers
will acquire good and unencumbered title to the tendered Original Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim. The Transferor also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Issuers to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Original Notes. The Transferor further agrees that acceptance of any
tendered Original Notes by the Issuers and the issuance of Exchange Notes in
exchange therefor shall constitute performance in full by the Iridium Parties of
their obligations under the Exchange and Registration Rights Agreement and that
the Iridium Parties shall have no further obligations or liabilities thereunder
(except in certain limited circumstances). All authority
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<PAGE> 63
conferred by the Transferor will survive the death or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By tendering Original Notes, the Transferor certifies (i) that it is not an
"affiliate" of any of the Iridium Parties within the meaning of Rule 405 under
the Securities Act, that it is acquiring the Exchange Notes offered hereby in
the ordinary course of such Transferor's business, that such Transferor has no
arrangement with any person to participate in the distribution of such Exchange
Notes and, if not a broker-dealer, the Transferor is not engaged in a
distribution of the Exchange Notes or (ii) that it is an "affiliate" (as so
defined) of an Iridium Party or of the Initial Purchasers and that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable to it, including (absent an exemption)
that resales be made pursuant to an effective registration statement that
includes the selling security holder information required by Item 507 of
Regulation S-K.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Original Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at its
address set forth on the back cover of this Prospectus. Any such notice of
withdrawal must specify the person named in the Letter of Transmittal as having
tendered Original Notes to be withdrawn, the certificate numbers of Original
Notes to be withdrawn, the principal amount of Original Notes to be withdrawn
(which must be an authorized denomination), a statement that such holder is
withdrawing his election to have such Original Notes exchanged, and the name of
the registered holder of such Original Notes, and must be signed by the holder
in the same manner as the original signature on the Letter of Transmittal
(including any required signature guarantees) or be accompanied by evidence
satisfactory to the Issuers that the person withdrawing the tender has succeeded
to the beneficial ownership of the Original Notes being withdrawn. The Exchange
Agent will return the properly withdrawn Original Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by the Issuers, and
such determination will be final and binding on all parties.
ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Original Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Issuers shall be deemed to have accepted for
exchange validly tendered Original Notes when, as and if an Issuer has given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Original
Notes for the purposes of receiving Exchange Notes from the Issuers and causing
the Original Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Original Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Original Notes. Original Notes
not accepted for exchange by the Issuers will be returned without expense to the
tendering holders (or in the case of Original Notes tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the procedures
described above, such non-exchanged Original Notes will be
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<PAGE> 64
credited to an account maintained with DTC promptly following the Expiration
Date) or, if the Issuers terminate the Exchange Offer prior to the Expiration
Date, promptly after the Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, no Iridium Party will be required to issue or guarantee
Exchange Notes in respect of any properly tendered Original Notes not previously
accepted and may terminate the Exchange Offer (by oral or written notice to the
Exchange Agent and by timely public announcement communicated, unless otherwise
required by applicable law or regulation, by making a release to the Dow Jones
News Service) or, at its option, modify or otherwise amend the Exchange Offer,
if (a) there shall be threatened, instituted or pending any action or proceeding
before, or any injunction, order or decree shall have been issued by, any court
or governmental agency or other governmental regulatory or administrative agency
or commission, (i) seeking to restrain or prohibit the making or consummation of
the Exchange Offer or any other transaction contemplated by the Exchange Offer,
(ii) assessing or seeking any damages as a result thereof, or (iii) resulting in
a material delay in the ability of the Issuers to accept for exchange or
exchange some or all of the Original Notes pursuant to the Exchange Offer; (b)
any statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer or
any of the transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority, agency
or court, domestic or foreign, that in the sole judgment of the Issuers might
directly or indirectly result in any of the consequences referred to in clauses
(a)(i) or (ii) above or, in the sole judgment of the Issuers, might result in
the holders of Exchange Notes having obligations with respect to resales and
transfers of Exchange Notes which are greater than those described in the
interpretations of the Commission referred to in this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or (c) a
material adverse change shall have occurred in the business, condition
(financial or otherwise), operations, or prospects of the Issuers.
The foregoing conditions are for the sole benefit of the Iridium Parties
and may be asserted by any of them with respect to all or any portion of the
Exchange Offer regardless of the circumstances (including any action or inaction
by any Iridium Party) giving rise to such condition or may be waived by the
Issuers in whole or in part at any time or from time to time in their sole
discretion. The failure by the Issuers at any time to exercise any of the
foregoing rights will not be deemed a waiver of any such right, and each right
will be deemed an ongoing right which may be asserted at any time or from time
to time. In addition, the Issuers have reserved the right, notwithstanding the
satisfaction of each of the foregoing conditions, to terminate or amend the
Exchange Offer.
Any determination by the Issuers concerning the fulfillment or
non-fulfillment of any conditions will be final and binding upon all parties.
In addition, the Issuers will not accept for exchange any Original Notes
tendered and no Exchange Notes will be issued in exchange for any such Original
Notes, if at such time any stop order shall be threatened or in effect with
respect to (i) the registration statement of which this Prospectus constitutes a
part or (ii) qualification under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act") of the applicable Indenture pursuant to which such
Original Notes were issued.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. Letters of Transmittal must be addressed to the
Exchange Agent at its address set forth on the back cover page of this
Prospectus.
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Delivery to an address other than as set forth herein, or transmissions of
instructions via a facsimile number other than the ones set forth herein, will
not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Iridium Parties have not retained any dealer-manager or similar agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Iridium
Parties will, however, pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Iridium Parties will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
Iridium and are estimated at approximately $400,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by any Iridium Party. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of any Iridium Party since the respective dates as of which information
is given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Original Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Issuers may, at
their discretion, take such action as it may deem necessary to make the Exchange
Offer in any such jurisdiction and extend the Exchange Offer to holders of
Original Notes in such jurisdiction. In any jurisdiction the securities laws or
blue sky laws of which require the Exchange Offer to be made by a licensed
broker or dealer, the Exchange Offer is being made on behalf of the Issuers by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
APPRAISAL RIGHTS
Holders of Original Notes will not have dissenters' rights or appraisal
rights in connection with the Exchange Offer.
FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes for Exchange Notes by holders should not be
a taxable exchange for Federal income tax purposes, and holders should not
recognize any taxable gain or loss or any interest income as a result of such
exchange.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Original Notes are urged to
consult their financial and tax advisors in making their own decisions on what
action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Original Notes pursuant to the terms of this Exchange Offer,
the Iridium Parties will have fulfilled a covenant contained in the terms of the
Exchange and Registration Rights Agreement. Holders of the Original Notes who do
not tender their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and limitations applicable
thereto, under the Indenture pursuant to which such Original Notes were issued.
Except in limited circumstances relating to rights to request a Shelf
Registration Statement, as discussed above, the exchange and registration
rights, and the right to receive Liquidated Damages, pursuant to the Exchange
and Registration Rights Agreement will cease to have further effect as a result
of the consummation of
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this Exchange Offer. See "Exchange and Registration Rights Agreement." All
untendered Original Notes will continue to be subject to the restriction on
transfer set forth in the Indenture pursuant to which such Original Notes were
issued. To the extent that Original Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Original Notes could be
adversely affected. See "Risk Factors -- Consequences of Failure to Exchange."
The Issuers may in the future seek to acquire untendered Original Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Issuers have no present plan to acquire any Original
Notes which are not tendered in the Exchange Offer.
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SELECTED FINANCIAL DATA
The following selected financial data of Iridium has been derived from the
consolidated financial statements of Iridium, and of the predecessor of Iridium
prior to July 29, 1993 (the "Initial Capital 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,
----------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 23,496 $202,391 $ 51,332 $ 1,889 $ 5,940
Restricted cash........................................... -- -- -- -- 350,220(5)
System under construction................................. 275,000 646,000 1,448,000 2,376,884 1,625,054
Property and equipment, net............................... 320 1,522 1,264 2,065 1,526,326
Total assets.............................................. 299,886 851,809 1,505,383 2,434,081 3,642,587
Long-term debt............................................ -- -- -- 735,904 1,537,590(6)
Total members' equity (deficit)........................... $294,308 $795,813 $1,404,610 $1,572,029 $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 borrowings under The
Secured Bank Facility. See note (5) above.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Iridium is currently devoting its entire efforts to commercializing and
establishing the IRIDIUM System. As such, Iridium's current principal activities
relate to managing the design, construction and development of the system and
preparing for its day-to-day operations. See "Business" and Iridium's
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 $4.4 billion. At year end 1996 and
1997, Iridium had expended approximately $2.40 billion (or 55%) and
approximately $3.42 billion (or 78%) of such $4.4 billion estimate. Iridium
estimates aggregate cash funding requirements of approximately $5.3 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 45%) and
approximately $3.42 billion (or 65%) of such $5.3 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 are forward looking and
could vary, perhaps substantially, from actual results 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 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
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and no excusable delays), in addition to the cost of certain spare satellites at
the completion of the contract. The payments increase each year, ranging from
quarterly payments of $129.4 million in 1998 to $157.4 million in 2003 to $171.4
million in 2005. If Iridium exercises its option to extend the Operations and
Maintenance Contract for an additional two years, the payments due for that two-
year extension are expected to aggregate approximately $1.33 billion (assuming
commencement of commercial operations on September 23, 1998 and no excusable
delays). The Terrestrial Network Development Contract provides for payments
aggregating approximately $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 1, 1998, Parent has incurred expenditures totaling $2.96
billion to Motorola under the Space System Contract in respect of completed
milestones and expenditures totaling $145 million under the Terrestrial Network
Development Contract. Based on estimates and the planned schedule as of March 1,
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................. 89 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." 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. 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 1, 1998, Iridium had indirectly received $1.940 billion from
equity investments in the Parent and has the right to receive $49 million due
from SPI pursuant to the terms of a definitive purchase agreement. At April 1,
1998, Iridium's Indebtedness equaled approximately $2.0 billion, including $1.1
billion in aggregate principal amount of Original Notes and 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 the Original Notes) and approximately
$350 million of borrowings under the $1 billion Secured Bank Facility.
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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, after giving effect to all permanent reductions in the Guaranteed
Bank Facility resulting from senior note offerings, Motorola will guarantee up
to $350 million of additional Indebtedness (including principal and interest)
under the Guaranteed Bank Facility or another credit facility on identical terms
(the "Motorola Additional Guarantee"), provided that borrowings under such
additional Indebtedness are made on or prior to February 28, 1999. Borrowings
under the Guaranteed Bank Facility mature 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 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 April 1, 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. $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." Assuming
approximately $445 million of borrowings under the Guaranteed Bank Facility and
$715 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.
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
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 78% of Iridium's estimate of its cash funding requirements through
the anticipated commencement of commercial operations (September 23, 1998) and
65% 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 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 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.
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 1, 1998, Motorola had launched 58 Iridium satellites in 12
separate launches. Motorola has informed Iridium that two of those 58 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 two satellites and
that such loss will not affect the scheduled date for commencement of commercial
operations 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 sub-
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scriber 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 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
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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 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.
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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 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 20, 1998, Roaming has entered into more than 90
roaming agreements. ICRS will permit subscribers to roam among terrestrial
wireless networks that have roaming agreements with Iridium, with Iridium
essentially acting as the customer's "home" system or as an interface between
the visited wireless network and the customer's home terrestrial wireless
network, even if the visited and home networks use differing cellular protocols
(e.g., IS-41, including AMPS, NAMPS and CDMA; and 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
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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 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 Mobile-Satellite Route Service
("AMS(R)S") in its authorized band. The IRIDIUM System is the only mobile
satellite system, licensed or in development, that can provide a
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communication capability that is truly global, while using spectrum already
allocated for AMS(R)S. Several parties filed comments with and have petitioned
the FCC to deny Motorola's application to provide AMS(R)S service. Among other
arguments, petitioners claim that the AMS(R)S proposal is inconsistent with
International Telecommunication Union and FCC rules and allocations. In addition
to FCC approval, approval is needed from the FAA, which must certify that the
avionics satisfy other international certification requirements. There can be no
assurance that the FCC application will be granted, or that the avionics
certification requirements will be satisfied at all, or in a timely fashion. See
"Regulation of Iridium -- Licensing Status." Assuming all necessary
authorizations are obtained, Iridium expects to provide both the FCC required
"safety" communications capabilities to the flightdeck and passenger
communications, including voice and facsimile. An individual aircraft may be
served by multiple satellite communications carriers.
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 42 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
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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 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 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 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
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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 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 20, 1998, Iridium and its gateway operators had agreements with more
than 80 such service providers.
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.
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 20%
to 30% above the retail prices for terrestrial-based voice calling options that
travelling 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 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.
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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 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
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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 master control facility is located in Virginia,
the back-up control facility is located in Italy, and the TT&C stations are
located in northern Canada and Hawaii, with an additional transportable
telemetry system currently located in Iceland. These facilities will manage the
performance and status of each of the individual satellites. The master control
facility will also manage the network by developing and distributing routing
tables for use by the satellites and gateways, directing traffic routing through
the network, and controlling cell formation by the satellites' main mission
antennas. In addition, the master control facility will manage the system
control segment itself by, for example, assigning earth terminals to satellites
and controlling data flow between the master and back-up control facilities.
Implementation of the Space Segment. The space segment of the IRIDIUM
System is being designed and constructed for Iridium by Motorola. See "Principal
Contracts for the Development of the IRIDIUM System."
As of April 1, 1998, Motorola had launched 58 Iridium satellites in 12
separate launches. Motorola has informed Iridium that two of those 58 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 two satellites and
that such loss will not affect the scheduled date for commencement of commercial
operations 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
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terrestrial facilities necessary to command the in-space movements of the
satellites, including the master control facilities and the associated TT&C
facilities.
Motorola has entered into subcontracts with suppliers for the provision of
major subsystems of the Space Segment. The principal Space Segment
subcontractors include:
Manufacturers
- Lockheed Martin Corporation. Lockheed has designed and is manufacturing
the satellite bus. Lockheed is an investor in 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 Telecom Italia.
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 has
contracted to provide some of the launches for the initial deployment of
the space segment utilizing the Proton launch vehicle, which is expected
to launch seven Iridium satellites into orbit with each launch.
Khrunichev is an investor in 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 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,
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1997 (following successive postponements on May 2, May 3 and May 4 due to
weather conditions and a faulty warning light). Motorola has informed Iridium
that, 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 all three launch
providers -- Boeing, Khrunichev 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 1, 1998, Motorola had launched 58 Iridium satellites in 12 separate
launches. Motorola has informed Iridium that two of those 58 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 two satellites and that such
loss will not affect the scheduled completion date for commercial service in
September 1998. Motorola's current launch plans contemplate three more launches
of 14 satellites by May 1998, which would complete the expected constellation of
66 satellites in mission orbit with 4 spare satellites in a lower parking orbit.
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 -- Satellite Launch
Risks."
Following the initial deployment of the satellite constellation, launch
services will be required in connection with the maintenance of the system. This
will entail the placement into orbit of satellites for the replacement of failed
or degraded satellites originally placed into orbit as part of the deployment
mission. The maintenance mission for satellite launch services may be performed
by a number of launch systems. Motorola has conducted technical and commercial
discussions with a number of potential suppliers and has selected a Long March
2C/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.
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
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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 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 ten 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 not commenced equipment
procurement and the Middle East-Africa gateway is significantly behind schedule
with its equipment procurement. 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.
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
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of approximately $500. Iridium expects the price for subscriber equipment that
is manufactured by Kyocera to be similar to Motorola's.
Iridium does not currently intend to manufacture or distribute Iridium
subscriber equipment or derive any income from the sale of Iridium subscriber
equipment. See "Risk Factors -- Potential for Delay and Cost
Overruns -- Development, Manufacture and Distribution of Subscriber Equipment"
and "-- Consequences of Iridium Phone and Pager Characteristics on Customer
Acceptance." Such equipment is expected to be manufactured by existing
manufacturers of similar terrestrial subscriber equipment and to be distributed
by such manufacturers through gateway owners and operators, service providers
and other telecommunications equipment distributors. Iridium may, however, need
to take a greater role than currently expected in connection with the
distribution of Iridium subscriber equipment. That increased participation may
require that Iridium incur additional indebtedness or contingent purchase
obligations relating to Iridium subscriber equipment. Motorola has committed
substantial resources to develop, and plans to sell, Iridium subscriber
equipment including portable, hand-held phones and belt-worn pagers. Motorola
has informed Iridium that it has entered into a license agreement with Kyocera
relating to the basic intellectual property rights essential to develop and
manufacture personal voice subscriber equipment for use on the IRIDIUM System.
This license agreement does not obligate Kyocera to develop, manufacture or sell
any Iridium subscriber equipment. If other subscriber equipment manufacturers
wish to develop and sell Iridium subscriber equipment, they will be required to
enter into similar licensing agreements with Motorola. See "Principal Contracts
for the Development of the IRIDIUM System" for a description of Motorola's
agreement with Iridium to grant certain licenses for intellectual property
rights. See "Risk Factors -- Conflicts of Interest with Motorola."
The IRIDIUM System phones are still under development, although a
functional unminiaturized prototype has been developed. Motorola has informed
Iridium that the portable, hand-held phone that Motorola has been developing is
expected to be larger and heavier than today's pocket-sized, hand-held cellular
telephones and is expected to have a longer and thicker antenna than hand-held
cellular telephones. Motorola has informed Iridium that the pager Motorola will
develop is expected to be slightly larger than today's standard alphanumeric
belt-worn pagers. The unminiaturized prototypes have been built using the same
or similar components expected to be used in the production model of the Iridium
phone. The prototypes have been built in a larger housing to facilitate testing
and problem solving.
Business Support Systems
The IRIDIUM System will be capable of supporting basic "back office"
business functions required by Iridium, gateway operators, and service
providers, including a clearinghouse operated by Iridium to calculate the
amounts owed to and from Iridium and each gateway operator in order to determine
net settlements of such amounts among such entities. These business support
functions include service provision, customer service, and billing and
collection, as well as clearing and settlements. These functions will be
provided by means of computer and manual processes at each gateway and service
provider location and, most likely, at a central processing point. The gateway
owners and operators will be required to license or purchase software and
equipment in order to exchange information with the clearinghouse and to handle
settlements with service providers, inter-exchange service providers, government
entities and others. Iridium has proposed to develop, and to provide to the
gateways, some of the required software and hardware. In addition, the gateways
will have to enter into settlement agreements with service providers, on behalf
of Iridium, in order to account for and settle the 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."
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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 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 intends to develop TRCs compatible with most major
terrestrial wireless networks, although some (including CDMA) will be developed
and distributed after the commencement of commercial operations.
Iridium's business plan currently calls for roaming agreements with
wireless operators in more than 50 countries by the commencement of commercial
operations in September 1998 expanding to approximately 150 countries by 2002.
As of March 20, 1998, Roaming had entered into more than 90 roaming agreements.
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
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that the IRIDIUM System will commence commercial operations in September 1998 as
planned. See "Risk Factors -- Potential for Delay and Cost Overruns."
<TABLE>
<C> <S>
------------------------------------------------------------
1987: - IRIDIUM System conceived by Motorola
- Research and development begins
============================================================
1990: - Planned IRIDIUM System announced worldwide
- FCC license application filed
============================================================
1991: - Iridium, Inc. incorporated
============================================================
1992: - Global MSS spectrum allocated at WARC-92
- Experimental license granted by FCC
- Full scale research and development by Motorola, Lockheed
and Raytheon underway
============================================================
1993: - Stock purchase agreements executed covering $800 million
in equity commitments
- Space System Contract and Operations and Maintenance
Contract become effective
- Key subcontracts signed by Iridium and Motorola
- System procurement and build-out commenced
============================================================
1994: - IRIDIUM System preliminary design reviews completed
- Additional stock purchase agreements executed covering an
additional $798 million
- 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
- Master control facility substantially complete
- Offering of Series C Notes completed
- $1 billion Secured Bank Facility established
- Two-thirds of satellite launches completed
- Gateway construction expected to continue and initial
testing to begin
- 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
------------------------------------------------------------
</TABLE>
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<TABLE>
<C> <S>
------------------------------------------------------------
1998: - Satellite launches expected to be completed
- Gateway construction expected to be completed
- Subscriber trials expected to be completed
- Continued progress expected in obtaining service
providers, roaming agreements and L-band licenses
- Commercial operations expected to begin
------------------------------------------------------------
</TABLE>
COMPETITION
Certain sectors of the telecommunications industry are highly competitive
in the United States and other countries. The uncertainties and risks created by
this competition are intensified by the continuous technological advances that
characterize the industry, regulatory developments that affect competition and
alliances between industry participants. While no single existing wireless
communications system serves the global personal communications market today,
Iridium anticipates that more than one system will seek to serve this market in
some fashion in the future. Iridium believes that its most likely direct
competition will come from the planned ICO telecommunications service and from
one or more of the other FCC licensed MSS applicants -- Loral/Qualcomm
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
Inmarsat has announced plans for a 12-satellite, MEO system consisting of
ten operational and two spare satellites. This system is to operate in the 2 GHz
band and will be owned by a new Inmarsat affiliate, ICO. 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.
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Globalstar, a 48-satellite LEO system, has been proposed by Loral/Qualcomm.
It will offer both fixed and mobile telecommunications services. The Globalstar
system will employ CDMA digital modulation technology and Globalstar has
announced an expected in-service date 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.
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 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
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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.
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 provides one-way roaming 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
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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 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 April 1,
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 master control facility on a 10.4 acre parcel
of land in Loudoun County, Virginia, TT&C facilities on leased or licensed land
in Yellowknife and Iqualuit, Northwest Territories, Canada and Oahu, Hawaii and
the backup control facility 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.
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REGULATION OF IRIDIUM
TELECOMMUNICATIONS REGULATION AND SPECTRUM ALLOCATION: OVERVIEW
The allocation and use of the radio frequency spectrum for the provision of
communications services are subject to international and national regulation.
The implementation and operation of the IRIDIUM System, like those of all other
satellite and wireless systems, are dependent upon obtaining licenses and other
approvals.
The international regulatory framework for spectrum allocation and use is
established by the International Telecommunication Union ("ITU"). The ITU, which
is composed of representatives from most of the countries of the world, meets
officially at conferences known as World 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.
IRIDIUM SYSTEM LICENSING REQUIREMENTS
The IRIDIUM System is being built with the capability to link phones to
Iridium satellites using up to 10.5 MHz of spectrum in L-band frequencies from
1616-1626.5 MHz on a bi-directional time division basis, Earth-to-space and
space-to-Earth. The system will also be capable of operating "feeder" links in
the frequencies 19.4-19.6 GHz and 29.1-29.3 GHz (connecting satellites to ground
earth station gateway facilities) and intersatellite links in the frequencies
23.18-23.38 GHz (linking the satellites in the constellation to each other).
The licensing requirements for the IRIDIUM System include: (i) the FCC
license for the space segment; (ii) the licenses in each country where there is
a gateway or TT&C earth station; and (iii) the licenses in each country for the
Iridium subscriber equipment and service and for the use of required
frequencies. In addition, the IRIDIUM System must be coordinated with other
users of spectrum that have rights to use the same or adjacent frequencies to
the frequencies assigned to the IRIDIUM System. It is only necessary for one
country to license the space segment, which includes authorizing the
construction, launch, and operation of the satellites, including the use of the
intersatellite links and the operation of the primary satellite control center
in the country.
The gateway earth stations provide the feeder link between the satellite
network and the PSTNs around the world. Iridium expects that Iridium gateways
will be located in at least eleven different countries during the first years of
operation. A radio license to operate a gateway earth station in a significant
portion of the 29.1-29.3 GHz (Uplink) and 19.4-19.6 GHz (Downlink) frequency
bands must be issued by the appropriate governmental authority of each of the
countries in which an Iridium gateway is to be located. Similar authorizations
may be obtained in the United States and Canada to operate TT&C earth stations.
Each country in which Iridium intends to operate must authorize the use of
the frequencies linking the phones to the satellites, allowing communication
between end users and the satellite network. At a minimum, the IRIDIUM System
needs exclusive use of the frequencies 1621.35-1626.5 MHz for this purpose, with
authority to operate bi-directionally within that band. In order to operate 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
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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), Saudi Arabia
(Jeddah) 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, 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 Posts and Telecommunications (the "MPT") to proceed with the
establishment of a testing gateway for Iridium in China. The MPT will be
primarily responsible for construction, management and operation of the gateway,
and arrangements are being made between China Aerospace and the MPT to take
advantage of that decision. 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 1, 1998, 51 administrations which have given all or a
substantial portion of the authorizations necessary to operate the IRIDIUM
System in their territories. The 51 countries and territories are: United
States, Italy, Argentina, Colombia, Honduras, Taiwan, Thailand, Malaysia,
Guatemala, Puerto Rico, Philippines, Finland, El Salvador, Brazil, Japan, South
Korea, Austria, Germany, Canada, Australia, Venezuela, Sweden, Norway, Iceland,
Russia, Uruguay, New Zealand, Chile, Senegal, Morocco, Afghanistan, Panama, San
Marino, Maldives, 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 and Svalbard & Jan Mayen. 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
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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 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 applicants
have appealed the FCC decision which (i) found that they initially had failed to
establish the necessary financial qualifications, and gave them additional time
to demonstrate such qualifications; and (ii) granted licenses to the IRIDIUM
System and two other global MSS systems. The FCC subsequently waived the
financial qualification condition and granted these two applicants a license.
This appeal is being held in abeyance while the FCC considers applications for
review of its 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.
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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
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 recently
granted a license for the first IRIDIUM System gateway to be located in Tempe,
Arizona. Licenses have also been granted in the United States for authority to
construct and operate TT&C facilities in Arizona and Hawaii.
The United States license authorizing construction, launch and operation of
the space segment includes the use of 1621.35 to 1626.5 MHz radio frequency band
in the United States exclusively for the Iridium subscriber links. This
frequency assignment may be increased if no more than one CDMA satellite system
becomes operational in the adjacent frequency band. The FCC has issued a license
permitting 200,000 Iridium mobile phones to be used in the United States,
conditioned upon Motorola submitting a study showing its terminals will comply
with radiation hazard requirements. Iridium believes that Motorola will comply
with this requirement.
Licensing Outside the United States
In countries other than the United States, the remaining significant
regulatory steps include: (i) in each country in which a gateway or system
control terminal will be located, authorization to construct and operate those
facilities, including necessary gateway feeder link spectrum assignments, must
be obtained; (ii) in each country in which Iridium subscriber equipment will
operate, authority to market and operate that equipment with the IRIDIUM System,
and the use of the necessary user link spectrum, must be granted; and (iii)
coordination of the use of the frequencies to be used by the IRIDIUM System must
be achieved. As discussed under "-- General," applications for authorizations
for gateway, subscriber and TT&C facilities are in varying stages of processing
in countries other than the United States and there can be no assurance that
these applications will be granted or that sufficient spectrum for initial needs
will be assigned. Of the gateway and subscriber authorizations granted to date,
several have conditions attached to them concerning their operation and there
can be no assurance that these conditions will be satisfied. If
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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, 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
consultation with Intelsat and Inmarsat have been 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
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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. 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 agreements have been reached 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
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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 to be
implemented by the cellular industry. Discussions with the U.S. government are
ongoing to determine the extent of the IRIDIUM System's obligations and the
timing of the implementation of these requirements into the IRIDIUM System. It
is unknown whether an agreement will be reached with the U.S. government which
resolves these issues. Thus, there exists the possibility of a dispute over the
IRIDIUM System's obligations. See "-- Licensing Status" for a description of the
surveillance requirements of countries outside the United States.
UNITED STATES INTERNATIONAL TRAFFIC IN ARMS REGULATIONS; EXPORT ADMINISTRATIONS
ACT
The United States International Traffic in Arms Regulations under the
United States Arms Export Control Act authorize the President of the United
States to control the export and import of articles and services that can be
used in the production of arms. Among other things, these regulations limit the
ability to export certain articles and related technical data to certain
nations. The scope of these regulations is very broad and extends to certain
spacecraft, including certain satellites. Certain information involved in the
performance of Iridium's operations will fall within the scope of these
regulations.
The Export Administrations Act and the regulations thereunder control the
export and re-export of United States-origin technology and commodities capable
of both civilian and military applications (so-called "dual use" items). These
regulations may prohibit or limit export and re-export of certain
telecommunications equipment and related technology which are not affected by
the International Traffic in Arms Regulations by requiring a license from the
Department of Commerce before controlled items may be exported or re-exported to
certain destinations. Although these regulations should not affect Iridium's
ability to put the space segment in place, the export or re-export of Iridium
subscriber equipment as well as earth stations and related equipment and
technical data, may be subject to these regulations, if such equipment is
manufactured in the United States and then exported or re-exported. These
regulations may also affect the export, from one country outside the United
States to another, of United States-origin technical data or the direct products
of such technical data.
Motorola has obtained authorization to export the Iridium satellites,
including associated launch support equipment, currently scheduled to be
launched in Kazakhstan on Khrunichev's 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 one other competitive MSS system to operate in the
1610-1626.5 MHz band. This was the Globalstar system, proposed by Loral/Qualcomm
Partnership, L.P. ("Loral/Qualcomm"). The Globalstar and IRIDIUM System were the
only Big LEO systems initially licensed by the FCC. While
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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.
MCHI and Constellation have 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. These challenges include 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 a
petition for review of the FCC's interim decision to waive its financial
qualification rules and grant licenses to MCHI and Constellation.
Following the submission of updated financial information by MCHI and
Constellation to the FCC, by Orders released July 1, 1997, the FCC's
International Bureau granted licenses for the Ellipso system proposed by MCHI
and the Aries system proposed by Constellation. These Orders, which are subject
to review by the full Commission, increase to 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 these two 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
The IRIDIUM System is predicated upon an international dialing and
signaling model that treats the system as if it were a separate "country." Most
traffic moving to or from the Iridium network will be considered as
international traffic. The Iridium gateway serves as the link between the
IRIDIUM System and the PSTNs within the gateway territory. Consistent with this
"country" model, an Iridium gateway needs to route traffic between the IRIDIUM
System and the international PSTNs. For a country to send a call originating on
its PSTN to the IRIDIUM System, it must send the call to the nearest Iridium
gateway, which may be in a different country. Similarly, for the IRIDIUM System
to send an IRIDIUM System-originated call to a country's PSTN, it must send the
call through its gateway to the terminating PSTN. In both cases, Iridium
gateways need to interconnect to the PSTN. Thus, interconnection agreements need
to be established between the Iridium gateway operators and the local PSTN
operators in 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.
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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. Although there are numerous three-digit "country codes" still
available for allocation, until recently such codes have generally been granted
only to countries and to geographic areas, in order to conserve this limited
resource. The TSB is advised on international code issues by its Study Group 2,
which is composed primarily of representatives of telecommunications service
organizations and representatives of government administrations. Iridium applied
to the TSB for a country code for the IRIDIUM System. ICO, Globalstar and
Odyssey submitted requests for country code resources, as well.
In May 1996, Study Group 2 decided that these systems should share a
country code and allocated code "881" for this purpose. Each eligible system
will receive two values of the digit following the code 881. For example, the
IRIDIUM System will use codes 8816 and 8817, which will enable Iridium to
identify 200 million subscribers. The Director of the TSB will let each system
reserve its codes for testing and officially assign them later. Iridium has
already been advised by the Director of the TSB that codes have been 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 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. 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 (copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part).
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
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paid by Iridium to Motorola over approximately a five-year period upon the
completion of 47 performance milestones. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." This price is not
subject to change based upon inflation but is subject to certain other
adjustments. The Space System Contract generally requires that the Space Segment
must pass an acceptance plan demonstrating, among other things and as specified
therein, specified minimum performance coverage and capacity criteria by a
specified date (as extended for certain excusable delays) as a condition to
Iridium's obligation to accept the Space Segment and make the final contract
payment of $150 million. Following acceptance by Iridium, the coverage and
capacity performance level of the Space Segment will be governed by the
Operations and Maintenance Contract. In addition, the Space System Contract
provides that the warranty made by Motorola that the Space Segment will comply
with the requirements specified in the acceptance plan immediately upon
completion of the contract, but not thereafter, is in lieu of all other
warranties. The liability of Motorola to Iridium under the Space System Contract
is subject to certain limitations (discussed below).
The Space System Contract also requires Motorola to deliver the Satellite
Subscriber Unit (Voice) Interface Specification and the Space System Operations
Plan. The Satellite Subscriber Unit (Voice) Interface Specification was
delivered by Motorola and accepted by Iridium in October 1996. Motorola has also
agreed to license the rights to use the information in the Voice Encoding
Algorithm to the extent essential to implementation of the Satellite Subscriber
Unit (Voice) Interface Specification to telecommunications equipment
manufacturers on mutually acceptable terms and conditions (which may include
royalty payments), provided that the government of such manufacturer's country
has authorized the operation of the IRIDIUM System in that country. Motorola has
indicated to Iridium that it interprets the word "essential" as used in the
prior sentence to mean "technically essential." Iridium does not agree that this
qualification of the term "essential" can or should be implied from the
applicable language in the Space System Contract. In the Space System Contract
Motorola has agreed to design and make available to Iridium as proprietary
information: (i) the Gateway Interface Specification; (ii) the Paging Unit
Interface Specification; and (iii) the Satellite Communication Link Interface
Specification. Separate agreements have been and are expected to be entered into
between Motorola and other appropriate parties providing for the production and
sale of Iridium gateways, subscriber units and other components of the IRIDIUM
System. Motorola has also agreed to develop and sell Iridium gateway equipment,
phones, paging 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
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contract) in accordance with the terms of the contract as established by clear
and convincing evidence would permit Iridium to terminate the contract if
Motorola does not act to commence correction of that failure within 30 days
after receipt of notice from Iridium specifying that failure. Failure to
complete the final milestone by the scheduled completion date (as it may be
adjusted) may cause Motorola to forego all or a portion of the $150 million
final milestone payment. The final milestone payment is payable in full only if
Motorola completes the final milestone on the scheduled completion date (as that
date may have been extended under the contract). The payment will be reduced
ratably each day from $150 million to $115 million if completion of the final
milestone is delayed to December 23, 1998 or to the extent that the commitment
to deliver a specified number of gateways is not met. Thereafter, failure to
complete the final milestone will result in a monthly reduction of the remaining
$115 million ratably on a monthly basis from $115 million to zero if the final
milestone is delayed to on or after September 23, 1999. The final milestone
payment penalty is stated in the Space System Contract to be Iridium's exclusive
remedy for Motorola's failure to complete the final milestone on a timely basis,
except that, under certain circumstances, Iridium may declare Motorola in
default if the final milestone is not completed within 12 months of the
scheduled date (as that date may have been adjusted under the Space System
Contract).
Motorola will have no liability under the Space System Contract for
failures or delays in performance, including with respect to the failure to
complete the final milestone on a timely basis, to the extent that such failure
or delay results from an event that is an excusable delay or certain other
specified delays or occurrences. Further, milestone payments under the Space
System Contract will be adjusted to account for any additional costs incurred by
Motorola as a result of an excusable delay. An excusable delay is defined under
the Space System Contract to include any event beyond the reasonable control and
without the fault or negligence of Motorola and its subcontractors, which may
therefore limit the effect of the specified payment penalties. Delays in
launches of satellites caused by the actions or inactions of Motorola's launch
service subcontractors directly pursuant to their subcontracts with Motorola do
not constitute excusable delays under the contract. All other delays in the
launch of satellites arising for whatever reason not caused by Motorola would
constitute excusable delays under the contract, including delays in launches of
IRIDIUM satellites due to delays in prior launches scheduled for third parties.
Motorola has the burden of proving that an event constitutes an excusable delay.
In the event of an excusable delay, 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."
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Motorola has agreed under the Space System Contract that it, or one of its
wholly owned subsidiaries, shall use its reasonable best efforts to obtain all
permits, licenses and approvals required by the FCC or by any applicable United
States law or regulation, as well as obtain and coordinate the necessary orbital
locations and radio frequency spectrum, to construct, launch and operate the
Space Segment. Under the Space System Contract, Motorola is responsible for all
of its costs in applying for, obtaining and renewing these licenses and
approvals and Iridium is responsible for any other expenses of Motorola in
connection with the licenses and approvals. The Space System Contract provides
that Motorola must use its reasonable best efforts to apply for and obtain
appropriate authorization from the FCC to transfer such permits, licenses and
approvals to Iridium if Iridium so requests and is, in the written opinion of
Motorola's legal counsel, lawfully qualified to hold them. Motorola is not
entitled to any reimbursement by Iridium of its expenses in obtaining or
transferring the FCC permits, licenses and approvals.
In addition, the Space System Contract provides that Motorola will have no
liability to Iridium or its direct or indirect customers for any damages
resulting from any loss, destruction, degradation or failure of the Space
Segment or its subsystems to operate satisfactorily. Iridium has agreed in the
Space System Contract to indemnify Motorola and its affiliates without limit
against any and all claims by third parties caused by or arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium, except liabilities, losses and damages caused by the
willful misconduct or gross negligence of Motorola. Iridium has also granted
Motorola certain waivers of liability and has agreed to maintain at least $500
million of general liability insurance during the term of the Space System
Contract to cover certain third-party liability risks arising out of the
development, operation or use of any part of the Space Segment after passage of
title thereto to Iridium. The remedies of Iridium and Motorola specified in the
contract for a default under the contract are exclusive of all other remedies.
The Space System Contract provides that title and risk of loss or damage to
each individual satellite will pass to Iridium upon the arrival of each
satellite at its designated orbital location in the satellite constellation.
Title and risk of loss or damage of the System Control Segment shall pass to
Iridium upon the earlier of (i) Motorola's demonstration to Iridium of each
Constellation and System Control Segment facility's acceptance plan pursuant to
the Space System Contract or (ii) completion of Milestones 40 (backup control
facility integration and test complete) and 41 (master control facility
integration and test complete) in respect to each facility.
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 $178.8 million per quarter in 2006. Such payments during
the initial five-year term are expected to aggregate approximately $2.88
billion, subject to certain adjustments. In addition, Iridium has the option to
extend this contract for an additional two years with payments based upon the
quarterly payments specified above. Such payments for the two year extension are
expected to aggregate approximately $1.33 billion. In the event that completion
of the Space System Contract and, therefore, the commencement of the five year
period of the Operations and Maintenance Contract is delayed more that six
months for any reason other than causes within the
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reasonable control of Motorola, the specified quarterly payments shall be
adjusted to account for any additional costs incurred by Motorola.
Specifically, the Operations and Maintenance Contract requires Motorola to
provide the necessary labor to operate the system control segment facilities as
specified in the Space System Operations Plan and to control the satellites of
the satellite constellation and the day-to-day Space Segment management
functions, including the monitoring of the Space Segment interface with the
gateways, phones, paging units and MXUs. It also requires Motorola to exert its
best efforts to monitor, upgrade and replace the hardware and software of the
Space Segment, including the launch of additional satellites, as necessary to
maintain the Space Segment at specified minimum coverage and capacity factors.
In the event of any excusable delay, Motorola would be relieved of the
obligation to exert its best efforts to meet the specified factors, but would be
required to maintain the coverage and capacity factors at the best reasonable
level it can, and it would also be entitled to continued payment of the full
quarterly amounts under the contract and any additional costs it incurs as a
result of such excusable delay.
The Operations and Maintenance Contract provides that the title and risk of
loss or damage to each spare satellite passes to Iridium upon the earlier of its
arrival in low earth storage orbit or the date on which Motorola demonstrates to
Iridium the arrival of the satellite in its designated orbital location. The
Operations and Maintenance Contract provides for additional payments by Iridium
to Motorola (as much as $46 million per satellite) where satellites in low earth
orbit (including satellites in low earth orbit storage) are damaged by the acts
of third parties (as described therein, including contact with space debris) and
replaced by Motorola at the request of Iridium. If the cause of a partial or
complete degradation or inoperability of a satellite is not known to have been
caused by contact with an object in space, its loss will nonetheless be assumed
to have been caused by a third party (and its replacement cost therefore the
responsibility of Iridium rather than Motorola) if the evidence available to the
parties suggests to reasonable and prudent experts knowledgeable in the field of
spacecraft orbital operations and/or space debris that a space object (i.e.,
space debris) may have impacted a satellite and caused it to become partially or
completely inoperative. Iridium's cost for a replacement satellite will be $23
million in this circumstance rather than $46 million. Moreover, the effect of
damage to satellites by acts of third parties is to be disregarded 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
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each gateway and service provider location and which are necessary for the
gateways and service providers to operate with the IBSS and to perform essential
gateway and service provider back office business functions.
The Iridium component of the IBSS will be located and operated at Iridium
facilities in the United States. The gateway and service provider components
will be located throughout the world. The components will be connected by a
terrestrial data network and will operate together to support the functions of
the IBSS. The IBSS is to be deployed using both custom designed software and
currently existing software purchased from commercial vendors. Because
components of the IBSS will have to be deployed around the world, it will be
necessary to meet U.S. export requirements and import requirements of other
countries.
The contract with Andersen for the development of the IBSS has been entered
into at a fixed price of $43 million. Andersen has also agreed to perform
deployment and maintenance functions of the IBSS. Andersen and Iridium are
currently negotiating the terms and conditions for the deployment and
maintenance functions. An agreement for the incorporation of the changes
necessary to accommodate 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
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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.
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
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providers with established guidelines, and (vi) support Iridium-approved
positions at WRCs of the ITU.
Pursuant to the Gateway Authorization Agreements, Iridium agreed to provide
to each gateway operator, including each gateway operator's designated service
providers, continuous access to the Space Segment, commencing at such time as
the gateway operator's gateway has been constructed, tested and commissioned in
accordance with the Gateway Master Plan and is in full satisfactory compliance
with the IRIDIUM System Practices. The Gateway Authorization Agreements also
provide that each gateway operator will comply with 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.
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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."
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" 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.
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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 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
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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 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
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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 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 1, 1998, 20,625
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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 1, 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 1992. From March 1982 to December 1989, Mr. Dale served as Director of
Data Network Systems Development Laboratory for AT&T Bell Laboratories.
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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.
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
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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.
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,
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<PAGE> 119
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 Vice President of SK Telecom since 1994.
Prior thereto, Mr. Mok served as Senior Managing
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<PAGE> 120
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 Wire & Cable Co., Ltd., the Parent of Pacific
Iridium Telecommunications Corporation since 1986.
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<PAGE> 121
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.
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<PAGE> 122
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 & 1995 $190,000 $ 56,050 -- -- -- $ 4,500
Business Development
Mark Gercenstein.............. 1997 $210,613 $ 88,729 -- -- -- $ 4,750(c)
Vice President -- Business 1996 $201,692 $ 62,909 -- 45,000 -- $ 4,500
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 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 $13.33 per share. The options vest, pro rata, over a period of five
years. Vested options may be exercised at any time after a public offering. Dr.
Staiano's options will continue to vest even if his employment is terminated by
Iridium, other than
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<PAGE> 123
for cause, so long as he is not retained or employed by a competitor. Dr.
Staiano does not receive an annual bonus or participate in Parent's retirement
plans.
Option Grants
The following table sets forth the options granted for the fiscal year
ended December 31, 1997 for each named executive officer.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL
SECURITIES OPTIONS/SARS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION FOR
OPTIONS/ EMPLOYEES OF OPTION TERM(a)
SARS IN FISCAL BASE PRICE EXPIRATION -------------------------------
NAME GRANTED YEAR ($/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.
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>
SHARES
ACQUIRED
ON OPTIONS VALUE DATE OF MONTHS
NAME YEAR EXERCISE GRANTED REALIZED OPTION HELD
---- ---- -------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Edward F. Staiano.................. 1997 -- 750,000 -- 1/13/97 11
Robert W. Kinzie................... 1997 -- 90,000 -- 4/15/97 8
Mauro Sentinelli................... 1997 -- 75,000 -- 8/1/97 5
Leo Mondale........................ 1997 -- 67,500 -- 4/15/97 8
Mark Gercenstein................... 1997 -- 0 -- 1/1/96 23
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS/SAR
AT FISCAL YEAR-END(a) AT FISCAL YEAR-END(b)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward F. Staiano.................. 137,500 612,500 $5,018,750 $22,356,250
Robert W. Kinzie................... 46,500 133,500 1,697,250 4,872,750
Mauro Sentinelli................... 5,000 70,000 182,500 2,555,000
Leo Mondale........................ 26,250 86,250 958,125 3,148,125
Mark Gercenstein................... 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.
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<PAGE> 124
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
"Compensation 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. Staiano has one year of credited
service; 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
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<PAGE> 125
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 1, 1998, options covering 2,557,085
shares of Class A Common Stock had been granted. Options to purchase 482,154
shares of Class A Common Stock were vested at March 1, 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.
The right to exercise the options vests, pro rata, over a period of five
years, however, all options and stock appreciation rights become immediately
vested on a Change in Control (as defined in the Option Plan) and in the event
of a Change in Control, 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. A "Change in Control" is defined in the Option Plan as a sale by one or
more holders of 50% or more of the outstanding Class 1 Interests, other than in
connection with a Public Offering (as defined), to third parties who are not
holders of Class 1 Interests or affiliated with holders of Class 1 Interests and
following which the members of the Parent prior to the sale cease to constitute
a majority of the Parent Board.
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> 126
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 Telecom GmbH 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 pursuant to the
Option Plan. As of March 1, 1998, options covering an aggregate of 2,572,585
shares of Class A Common Stock had been granted under the Option Plan.
Options to purchase 482,487 shares of Class A Common Stock were vested at
March 1, 1998. See "Management -- Option Plan."
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF IRIDIUM
MOTOROLA RELATED MATTERS
Motorola is one of the world's leading providers of electronic equipment,
systems, components and services. Its products include two-way radios, pagers,
cellular telephones and systems, semiconductors, defense and aerospace
electronics, automotive and industrial electronics 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 Initial Senior Notes, Parent and
Motorola entered into a Memorandum of Understanding ("Motorola MOU") and amended
and restated the Original Agreement Regarding Guarantee (as so amended and
restated, the "Agreement Regarding Guarantee"). Pursuant to the Motorola MOU,
(i) Motorola agreed to consent to an amendment of the Guaranteed Bank Facility
(and to enter into related amendments to the Motorola Guarantee) in order to
extend the maturity of such Facility until after the Stated Maturity of the
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 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
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from $750 million to $655 million with the net proceeds of the Initial Senior
Notes offering; for the purposes of the Original Offering 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
Iridium to defer, at Iridium's option, payment of approximately $96 million
expected to be due to Motorola on September 30, 1998 and thereafter pursuant to
the Terrestrial Network Development Contract until after the Stated Maturity of
the 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 will waive certain
rights it holds in connection with the Series B and Series C Class 2 Interests
of Iridium (see "Description of Iridium LLC Limited Liability Company
Agreement"). In addition, in the Motorola MOU Parent agreed that, in certain
circumstances, it will not have outstanding at any time until the maturity of
the Guaranteed Bank Facility (as extended as discussed above) (i) in excess of
$1.7 billion in aggregate principal amount of borrowed money indebtedness that
is secured by assets of Parent; (ii) in excess of $1.25 billion in aggregate
principal amount (or initial gross proceeds in the case of any senior notes
issued at a discount) of senior notes (including the Initial Senior Notes and
the Notes), and (iii) total indebtedness for borrowed money (which shall consist
solely of amounts described in clauses (i) and (ii) above) in excess of $2.95
billion. Certain of the agreements of Motorola and Iridium in the Motorola MOU
are subject to conditions, including the consistency of definitive documents
with the Motorola MOU and the Agreement Regarding Guarantee. Motorola's
agreement to provide the Motorola Additional Guarantee is subject to the
condition that the Parent LLC Agreement be amended to provide Motorola with
additional governance rights if the Motorola Exposure exceeds $750 million. Some
of the obligations of Parent under the Motorola MOU were transferred to Iridium
pursuant to the Asset Drop-Down Transaction. In addition, the indebtedness for
borrowed money constraints described above apply to Parent, Iridium and
Iridium's subsidiaries on a consolidated basis.
Under the Agreement Regarding Guarantee (and after giving effect to the
transfer of obligations under the Asset Drop-Down Transaction), (i) Iridium is
obligated to reimburse Motorola for any payment required pursuant to the
Motorola Guarantee or the Motorola Additional Guarantee; provided, that if the
Guaranteed Bank Facility is accelerated as result of a Motorola-Based Default
(as defined in the Agreement Regarding Guarantee) such reimbursement will be
made on the same terms as provided in the Guaranteed Bank Facility or any other
relevant credit agreement; (ii) Iridium shall not, 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, (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).
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"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 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 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.
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.
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Each of o.tel.o communications GmbH & Co. and Nippon Iridium Corporation have
entered into a Gateway Authorization Agreement, pursuant to which they, or their
affiliates, will operate their respective Gateway service territory and provide
gateway services. In addition, o.tel.o communications GmbH & Co. and Nippon
Iridium Corporation will serve as service providers to their respective gateway
territory and, as such, will be entitled to payments associated with sales of
IRIDIUM Services.
Kyocera, an affiliate of Nippon Iridium Corporation, a holder of
approximately 11.2% of the Class 1 Interests, has entered into a license
agreement with Motorola with respect to the development and manufacture of
multi-mode phones for use with the IRIDIUM System. This license agreement does
not obligate Kyocera to develop, manufacture or sell any Iridium subscriber
equipment. Iridium expects that Kyocera will develop, manufacture and sell
multi-mode phones for use with the IRIDIUM System. Iridium intends to enter into
a contract with Motorola to cover the expenses associated with testing the
Kyocera subscriber equipment with the IRIDIUM System, estimated to be $12.2
million.
Certain of the directors of IWCL are, or have been within the past year,
executive officers of suppliers of 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 10, 1998:
<TABLE>
<CAPTION>
NUMBER OF
CLASS 1
INTERESTS PERCENTAGE PRINCIPAL GATEWAY
INVESTOR OWNED(1) OWNERSHIP(2) SERVICE TERRITORY
-------- ---------- ------------ -----------------
<S> <C> <C> <C>
IWCL............................ 12,008,812 8.50 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
including 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) 17.73 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
Telecommunications
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 region including
Australia and New Zealand
Sprint Iridium, Inc. ........... 5,250,000 3.72 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 PRINCIPAL GATEWAY
INVESTOR OWNED(1) OWNERSHIP(2) 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 1, 1998, SK Telecom and Sprint Iridium, Inc. each owned 15,256
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 10,365 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 a variety of wireless
telecommunications services to the Canadian market, including cellular, paging,
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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.
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
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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 Telecommunications Co.,
Ltd. has been allocated a gateway service territory consisting of Cambodia,
Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam.
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VEBACOM HOLDINGS, INC., a wholly owned subsidiary of o.tel.o communications
GmbH & Co., which is owned by VEBA Telecom GmbH and Lehman Brothers Bankhaus
Aktiengesellschaft (as a fiduciary). VEBA AG, the indirect owner of o.tel.o
communications GmbH & Co., together with its subsidiaries, is one of the largest
corporations in Germany. Its telecommunications branch offers a wide variety of
telecommunications services including mobile communications, satellite
communications services, network management, cable television and paging
services. Vebacom has been allocated a gateway service territory consisting of
countries in or near Europe including Austria, Bulgaria, the Czech Republic,
Finland, Germany, Hungary, Ireland, Israel, Norway, Poland, Portugal, Romania,
Spain, Sweden, Slovakia, Ukraine and the United Kingdom.
The following investors have not been allocated a gateway service
territory:
LOCKHEED MARTIN CORPORATION is a world leader in defense and space systems
technology, designing and producing military aircraft, missiles, electronic
systems and satellites, as well as providing a wide range of government and
commercial aeronautical, space, environmental and engineering services. Lockheed
Martin is a principal subcontractor to Motorola in the construction of Iridium
satellites.
RAYTHEON COMPANY is engaged in the conception, development, manufacture and
sale of electronic systems, equipment and components for government and
commercial use. Raytheon also has operations in aircraft products and energy and
environmental services. Raytheon is a principal subcontractor to Motorola in the
construction of the IRIDIUM System and is primarily responsible for providing
the main mission antennas for the satellites.
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DESCRIPTION OF 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. 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
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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 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 1, 1998 there
were 141,223,492 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.
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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 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
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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.
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
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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 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 -- 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
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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."
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:
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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 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
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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 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.
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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 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.
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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 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
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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.
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 non-transferring 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
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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 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.
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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 Capital, the investment banking
division of Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank
("Chase") as Administrative Agent, Barclays Bank PLC ("Barclays"), as
Documentation Agent, and certain other 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 April 1, 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 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. 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 prepayments result in equal
reductions of the term loan commitment of the Secured Facility Lenders, and then
equal reductions of the revolving loan commitments of the Secured Facility
Lenders.
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 "Reserve Capital Call"). 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
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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
additional conditions, including achievement of certain technical requirements
relating to the IRIDIUM System, receipt of certain key regulatory approvals and
evidence of satisfaction of minimum financing goals. As a condition to release
of the initial $350 million loan under the Secured Bank Facility, Iridium was
required to 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 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 1 of the Secured Bank Facility, became available in January, 1998 and
resulted in the release to Iridium of $350 million. Stage 2 of the Secured Bank
Facility, expected to become available on or about April 1, 1998, provides for
loans in a principal amount of up to an additional $200 million. Stage 3,
expected to become available on or about August 1, 1998, provides for loans in a
principal 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 and a
covenant to maintain committed or available funding sources through the term of
the Secured Bank Facility to meet Iridium's projected capital and operating
expenses.
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
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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, Motorola, certain of their
subsidiaries or certain other project parties; (iv) cross-default to other
indebtedness of Iridium, Motorola or certain of their subsidiaries in excess of
specified amounts; (v) final judgment with respect to Iridium, Motorola or
certain of their subsidiaries in excess of specified amounts; (vi) failure by
Iridium, Motorola, certain of their subsidiaries or 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 will be subject to cure periods to be specified. 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.
Chase Securities Inc., an Initial Purchaser, is an affiliate of Chase.
GUARANTEED BANK FACILITY
General. Iridium entered into a Credit Agreement, dated as of August 21,
1996, with Chase Securities Inc. and BZW, the investment banking division of
Barclays Bank PLC, as Global Arrangers, The Chase Manhattan Bank ("Chase") as
Administrative Agent, Barclays Bank PLC ("Barclays"), as Documentation Agent,
and certain other lenders (including Chase and Barclays, the "Guaranteed
Facility Lenders"), providing for a $750 million revolving credit facility (the
"Guaranteed Bank Facility"). As of April 1, 1998, Iridium had $285 million in
principal amount of borrowings outstanding under the Guaranteed Bank Facility.
Iridium used the proceeds of the Initial Senior Notes and Original Notes to
permanently reduce the bank commitments under the Guaranteed Bank Facility to
$450 million.
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 $750 million (inclusive of interest). The Motorola Guarantee
was issued under a guarantee agreement between Motorola and Chase as
Administrative Agent, dated as of August 21, 1996 (the "Guarantee Agreement").
Pursuant to the Motorola MOU, Iridium has agreed that the Guaranteed Bank
Facility (and therefore the Motorola Guarantee) 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
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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 and the
Original 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 Original Offering 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." Depending on market
conditions, Iridium may make additional senior note offerings in order to
further reduce the Guaranteed Bank Facility.
The Guarantee Agreement contains covenants by Motorola, including a
requirement to provide notice of defaults relating to Motorola and its
subsidiaries under the Guaranteed Bank Facility, and limitations on mergers,
liens and sale and leaseback transactions, the breach of which would cause an
event of default under the Guaranteed Bank Facility.
Pursuant to the Motorola MOU, Motorola has conditionally agreed that, after
giving effect to any permanent reduction in the Guaranteed Bank Facility
resulting from the proceeds of the offering of the Units and Series B Notes,
Motorola will guarantee up to an additional $350 million of borrowings made
prior to February 28, 1999 under the Guaranteed Bank Facility pursuant to the
Motorola Additional Guarantee at Iridium's option. See "Certain Relationships
and Related Transactions of Iridium -- Motorola Related Matters -- Motorola MOU
and Agreement Regarding Guarantee." Iridium has not requested that the
Guaranteed Bank Facility be increased by the amount of Motorola Additional
Guarantee.
Maturity. Borrowings under the Guaranteed Bank Facility mature in 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
commercializa-
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tion of the IRIDIUM System and related businesses. Through the Guarantee
Agreement, the Guaranteed Bank Facility also imposes covenants on Motorola.
Events of Default. The Guaranteed Bank Facility contains events of default
for (i) failure to pay principal, interest or other amounts due; (ii) breach by
Iridium or Motorola of its respective covenants; (iii) cross-default to other
indebtedness of Iridium or its subsidiaries or Motorola or certain of its
subsidiaries in excess of specified outstanding amounts; (iv) certain events of
bankruptcy, insolvency or reorganization affecting Iridium or its subsidiaries
or Motorola or certain of its subsidiaries; (v) final judgments against Iridium
or Motorola or certain of their subsidiaries in excess of specified amounts;
(vi) termination, repudiation or unenforceability of the Motorola Guarantee and
defaults under the Guarantee Agreement; and (vii) failure of Motorola to
maintain a direct and indirect ownership interest in 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,
and in connection with the offering of the Initial Senior Notes and the Motorola
MOU, Parent and Motorola amended and restated the Original Agreement Regarding
Guarantee (as amended and restated, the "Agreement Regarding Guarantee").
Pursuant to the Agreement Regarding Guarantee (and the transfer of obligations
under the Agreement Regarding Guarantee pursuant to the Asset Drop-Down
Transaction), Iridium has agreed to 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 will be made on the same terms
as provided in the Guaranteed Bank Facility. For further information regarding
the Original Agreement Regarding Guarantee, the Agreement Regarding Guarantee
and the Motorola MOU, including certain covenants of Iridium, the compensation
to Motorola for the Motorola Guarantee and amendments to the Guaranteed Bank
Facility and Motorola Guarantee, see "Certain Relationships and Related
Transactions of Iridium."
Chase Securities Inc., an Initial Purchaser, is an affiliate of Chase.
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.
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 is payable semi-annually in arrears
on January 15 and July 15 of each year, commencing January 15, 1998. Interest
accrues on the Series B Notes from the original date of issuance at an annual
rate of 14%. Interest is payable semi-annually in arrears on January 15 and July
15 of each year, commencing January 15, 1998.
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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, 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") and the indenture governing the Series
B Notes (the "Series B Indenture" and, together with the Series A Indenture, the
"Initial Senior Indentures") contain covenants and events of default
substantially identical to 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."
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 April 1,
1998 and will fully accrete to an aggregate face value of approximately $480
million on March 1, 2001.
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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 Original Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of October 17, 1997 (as supplemented, the "Indenture") among
the Iridium Parties and State Street Bank and Trust Company, as trustee (the
"Trustee"). A copy of the 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 Original Notes were, and the Exchange 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.
Pursuant to the Asset Drop-Down Transaction, substantially all of the
assets and liabilities of Parent were transferred to Iridium, including, without
limitation, all obligations of Parent under the Indenture and other obligations
with respect to the Notes. See "Ownership Structure and Strategic
Investors -- Asset Drop-Down Transaction." As a result of the Asset Drop-Down
Transaction and the related supplemental indenture with respect to the Notes
executed by Iridium, Parent and the trustee, Iridium has been substituted for
Parent, and Parent has been released from all obligations under the Indenture
and the Notes. Unless otherwise specified, the description of the notes set
forth below gives effect to the Asset Drop-Down Transaction and such
substitution.
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As of April 1, 1998, Iridium had no Subsidiaries other than Capital and the
Initial Guarantors. Capital is a co-issuer of the Notes. The Initial Guarantors
are Guarantor Subsidiaries (as defined). If Iridium creates or acquires any
Subsidiary in the future, such Subsidiary will be required to Guarantee the
Notes unless such Subsidiary is a Foreign Subsidiary or is designated by Iridium
as an Unrestricted Subsidiary in accordance with the Indenture. Any Unrestricted
Subsidiaries (including Foreign Subsidiaries designated as such) will not be
subject to the restrictive covenants contained in the Indenture.
TERMS OF THE NOTES
The Original Notes are, and the Exchange Notes will be, unsecured senior
obligations of the Issuers, limited to $300 million aggregate principal amount,
and will mature on July 15, 2005. Each Note will bear interest at a rate of
11 1/4% per annum from October 17, 1997 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 January 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 and Liquidated Damages, if
any, 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........................................................ 105.625%
2003........................................................ 102.813%
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 111.250%, plus accrued and unpaid interest and
Liquidated Damages, if any, 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.
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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 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, including guarantees under the
Secured Bank Facility, and is senior in right of payment to any existing and
future Subordinated Obligations of such Guarantor Subsidiary. Each Subsidiary
Guaranty also is effectively subordinated to any Secured Indebtedness of the
Guarantor Subsidiary to the extent of the value of the assets securing such
Indebtedness. See "Risk Factors -- Possible Unenforceability of Subsidiary
Guaranties."
As of April 1, 1998, in addition to the $300 million principal amount of
the Original Notes, the Iridium Parties had outstanding (i) approximately $350
million of senior secured Indebtedness and (ii) approximately $1,085 million of
unsecured senior Indebtedness (including the Initial Senior Notes and $285
million of borrowings under the $450 million Guaranteed Bank Facility) ranking
pari passu with the Original Notes. In addition, as of April 1, 1998, Iridium
had approximately $285 million of Indebtedness that is subordinated to the
Original Notes. 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 and IP, provided Subsidiary Guaranties on the Issue Date.
Facilities was formed after the issue date of the Original Notes and became a
Guarantor Subsidiary pursuant to the second supplemental indenture, dated as of
February 28, 1998. 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 or Liquidated Damages on the Notes, 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
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each Guarantor Subsidiary and (c) inure to the benefit of and be enforceable by
the Trustee, the Holders and their successors, transferees and assigns.
A Subsidiary Guaranty will be released upon (i) the sale of all of the
Capital Stock, or all or substantially all of the assets, of the applicable
Guarantor Subsidiary (in each case other than to Iridium or a Subsidiary of
Iridium), (ii) the designation by Iridium of the applicable Guarantor Subsidiary
as an Unrestricted Subsidiary, in each case in compliance with the 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 and Liquidated Damages, if any, to the date of
purchase (subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date), pursuant to the
offer described below and the other procedures set forth in the 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 Capital Stock
of Iridium held directly by Motorola to be reduced by more than 50% as
compared to its direct holding of Capital Stock in Iridium as of July 16,
1997 (in each such case without giving effect to any rights, warrants or
options to purchase Capital Stock of Iridium, unless exercised prior
thereto).
(b) the first day on which Iridium fails to own, of record and
beneficially, 100% of the Capital Stock of Capital (other than directors'
qualifying shares);
(c) any sale, lease, or other transfer (in one transaction or in a
series of related transactions) is made by Iridium or its Restricted
Subsidiaries of all or substantially all of the assets of Iridium and its
Restricted Subsidiaries to any Person (other than in connection with the
Asset Drop-Down Transaction); or
(d) the adoption of a plan relating to the liquidation or dissolution
of Iridium or Capital.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
result from (x) the acquisition by IWCL, Motorola or any wholly owned subsidiary
of Motorola of substantially all the assets of Iridium, (y) the Asset Drop-Down
Transaction or any transfer of assets or merger reversing the Asset-Drop-Down
Transaction or (z) the merger of Iridium with and into IWCL, Motorola or any
wholly owned subsidiary of Motorola. 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 and Liquidated Damages, if any, to the date of
purchase (subject to the right of Holders of record on a record date to receive
interest due on the relevant interest payment date); (2) the circumstances and
relevant facts regarding such Change of Control (including information with
respect to pro forma historical income, cash flow and capitalization, each after
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giving effect to such Change of Control); (3) the repurchase date (which will be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the instructions determined by the Issuers, consistent with
this covenant, that a Holder must follow in order to have its Notes or any
portion thereof purchased.
The Issuers will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached their
obligations described above by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Issuers and the Initial Purchasers. Management has no present intention and
is not aware that Motorola has any present intention to engage in a transaction
involving a Change of Control, although it is possible that the Issuers or
Motorola would decide to do so in the future. Subject to the limitations
discussed below, the Issuers or Motorola could, in the future, enter into
certain transactions, including dispositions, acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
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
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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 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 the
Exchange 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
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(x) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of Iridium, Capital and other Restricted
Subsidiaries that are Guarantor Subsidiaries outstanding on the date of
such Incurrence (without duplication and other than Indebtedness permitted
by clauses (i) through (ix) above or the first paragraph of this covenant)
does not exceed $100.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness Iridium, Capital and the other Restricted Subsidiaries are
permitted to Incur, Iridium, Capital or such Restricted Subsidiary, as the case
may be, will have the right, in Iridium's sole discretion, to classify such item
of Indebtedness at the time of its Incurrence and will only be required to
include the amount and type of such Indebtedness under the clause permitting the
Indebtedness as so classified.
Limitation on Restricted Payments. (a) Iridium will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(i) declare or pay any dividend or make any distribution on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the 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
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first date on which the Notes are assigned an Investment Grade Rating by
both Rating Agencies;
(B) the aggregate Net Cash Proceeds received by Iridium from the
issuance or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issuance or sale to a
Restricted Subsidiary and other than an issuance or sale to an employee
stock ownership plan or to a trust established by Iridium or any
Restricted Subsidiaries for the benefit of their employees);
(C) the amount by which Indebtedness of Iridium is reduced on the
balance sheet of Iridium upon the conversion or exchange (other than by
a Restricted Subsidiary) subsequent to the Issue Date of any
Indebtedness of Iridium convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of Iridium (less the amount of any cash,
or the fair value of any other property or assets of Iridium or any
Restricted Subsidiary, distributed by Iridium upon such conversion or
exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to Iridium or any Restricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to Iridium's equity
interest in such Subsidiary) of the fair market value of the net assets
of an Unrestricted Subsidiary (as determined by the Board of Directors
in the manner described in paragraph (c) below) at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum does not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by Iridium or any Restricted Subsidiary
in such Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, Iridium may
(i) subject to clause (vii) below, pay any dividend on Capital Stock
of any class within 60 days after the declaration thereof if, on the date
when the dividend was declared, Iridium could have paid such dividend in
accordance with the foregoing provisions;
(ii) repurchase any Capital Stock from Persons who were formerly
officers, managers or employees of Iridium or any of its Subsidiaries (or
from IWCL in connection with or relating to a repurchase by IWCL of its
Capital Stock from such Persons), provided, however, that the aggregate
amount of all such repurchases made pursuant to this clause (ii) will not
exceed $2.0 million, plus the aggregate cash proceeds received by Iridium
since 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 Iridium is treated as a partnership for U.S.
federal income tax purposes and after such period to the extent relating to
the liability for such period, make distributions in respect of members' or
partners' income tax liability with respect to Iridium (whether directly
incurred or indirectly incurred after the Asset Drop-Down Transaction) in
an amount not to exceed the Tax Amount;
(v) make distributions to IWCL to pay IWCL's ordinary and reasonable
operating expenses related to Iridium, as set forth in an Officers'
Certificate delivered to the 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
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Call (see "Description of Iridium LLC Limited Liability Company
Agreement -- Capital Contributions; Reserve Capital Call");
(vii) make any Restricted Payment by exchange for, or out of the
proceeds of the substantially concurrent sale of, or capital contribution
in respect of, Capital Stock of Iridium (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary of Iridium or an
employee stock ownership plan or to a trust established by Iridium or any
of its Subsidiaries for the benefit of their employees);
(viii) make any Restricted Payment pursuant to the Interest Exchange
Agreement, the Share Issuance Agreement, the Master Subscription Agreement
or the Management Services Agreement; and
(ix) make other Restricted Payments in an aggregate amount not to
exceed $10.0 million.
Any Restricted Payment made pursuant to clauses (ii), (iii), (iv), (vii),
(viii) and (ix) of the immediately preceding paragraph will be excluded from the
calculation of the aggregate amount of Restricted Payments made since the Issue
Date; provided, however, that the Net Cash Proceeds from the issuance of Capital
Stock pursuant to clauses (ii) and (vii) of the immediately preceding paragraph
will be excluded from the calculation of amounts under clause (B) of the second
preceding paragraph. A dividend or distribution by a Restricted Subsidiary in
respect of its Capital Stock will only be deemed to be a Restricted Payment to
the extent such dividend or distribution is paid to entities other than Iridium
and the Restricted Subsidiaries.
(c) The net proceeds from the issuance of shares of Capital Stock upon
conversion of Indebtedness will be deemed to be an amount equal to (i) the
accreted value of such Indebtedness on the date of such conversion and (ii) the
additional consideration, if any, received by Iridium upon such conversion
thereof, less any cash payment on account of fractional shares. The amount of
all Restricted Payments (other than cash) will be the fair market value
(evidenced by a resolution of the Board of Directors determined in good faith
and set forth in an Officers' Certificate delivered to the 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
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substantially similar to those set forth in the 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 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
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determined by the Board of Directors in good faith and evidenced by a
resolution filed with the Trustee;
(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 and
liquidated damages thereon, if any, to the date of purchase, and, to the
extent required by the terms thereof, any other Indebtedness of Iridium or
a Restricted Subsidiary that ranks pari passu with the Notes at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest and liquidated damages thereon, if any, to the date of purchase
and (3) third, to the extent of any remaining Net Available Proceeds after
application of clauses (1) and (2) above, to the repayment of other
Indebtedness of Iridium or Indebtedness of a Restricted Subsidiary, to the
extent permitted under the terms thereof. To the extent any Net Available
Proceeds remain after such uses, Iridium and the Restricted Subsidiaries
may use such amounts for any purposes not prohibited by the Indenture.
Notwithstanding the foregoing, (x) these provisions will not apply to any
Asset Disposition which constitutes a transfer, conveyance, sale, lease or
other disposition of all or substantially all of Iridium's or a Guarantor
Subsidiary's properties or assets as described under "-- Merger and
Consolidation" and (y) Iridium will not be required to repurchase or redeem
Notes pursuant to clause (2) above until Net Available Proceeds from all
Asset Dispositions in the aggregate, less any amounts invested within 180
days of such dispositions (or committed by such 180th day for investment
pursuant to a written agreement which commits such investment within 180
days after the date of such agreement) in a Related Business and any
amounts applied pursuant to clause (1) above and any amounts previously
applied pursuant to clause (1), (2) or (3) above, are greater than $10.0
million.
(b) The Issuers will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuers will comply
with the applicable securities laws and regulations and will not be deemed to
have breached their obligations described under this covenant by virtue thereof.
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
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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 Parent LLC Agreement).
In addition, if such Affiliate Transaction is an Asset Disposition involving any
Affiliate or Related Person of Iridium (other than Iridium or a Wholly-Owned
Restricted Subsidiary) for an aggregate consideration in excess of $25.0
million, a fairness opinion to the effect that such transaction is fair (from a
financial point of view) to Iridium or the Restricted Subsidiary, as applicable,
must be obtained from an Independent Financial Advisor or, with respect to
telecommunications-related matters, a recognized expert in the satellite
telecommunications industry.
(b) The provisions of the foregoing paragraph (a) will not apply to:
(i) employee benefit or compensation arrangements entered into in the
ordinary course of business and approved by the Board of Directors;
(ii) transactions solely between or among Iridium and the Restricted
Subsidiaries;
(iii) Restricted Payments permitted by the covenant described under
"-- Limitation on Restricted Payments";
(iv) Investments by IWCL, an Affiliate or Related Person of Iridium or
Capital in the Capital Stock (other than Disqualified Stock) of Iridium or
any Restricted Subsidiary; and
(v) a transaction pursuant to an Existing Affiliate Agreement,
including any amendments thereto entered into after the Issue Date,
provided that the terms of any such amendment are not, taken as a whole,
less favorable to Iridium than the terms of the relevant agreement prior to
such amendment.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Iridium will not, and will not permit any Restricted Subsidiary
to, issue, transfer, convey, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary or securities convertible or exchangeable into
Capital Stock of a Restricted Subsidiary to any person other than Iridium,
Capital or a Wholly-Owned Restricted Subsidiary except (i) in a transaction
consisting of a sale of all the Capital Stock of such Restricted Subsidiary and
that complies with the provisions described under "-- Limitation on Sales of
Assets and Subsidiary Stock" to the extent such provisions apply; (ii) if
required, the issuance, transfer, conveyance, sale or other disposition of
directors' qualifying shares or of interests required to be held by foreign
nationals, in each case to the extent mandated by applicable law; (iii) in a
transaction in which, or in connection with which, Iridium or a Restricted
Subsidiary acquires at the same time sufficient Capital Stock of such Restricted
Subsidiary to at least maintain the same percentage ownership interest it had
prior to such transaction; (iv) any grant, establishment or exercise of any Lien
permitted under the covenant described under "-- Limitation on Liens"; and (v)
Disqualified Stock of a Restricted Subsidiary Incurred to Refinance Disqualified
Stock of such Restricted Subsidiary; provided, however, that the amounts of the
redemption obligations of such Disqualified Stock may not exceed the amounts of
the redemption obligations of, and such Disqualified Stock will have redemption
obligations no earlier than those required by, the Disqualified Stock being
Refinanced.
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.
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(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 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.
In addition, for so long as any Notes remain outstanding, unless the
Issuers are subject to Section 13 or 15(d) of the Exchange Act, the Issuers will
furnish to the Holders and to prospective investors in the Notes, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
The foregoing will not require Capital or any Guarantor Subsidiary to file,
provide or furnish with or to any Person any report or information separate from
any report or information filed, provided or furnished by Iridium to the extent
Capital or any Guarantor Subsidiary would not be required to do so under Section
13 or 15(d) of the Exchange Act or pursuant to Rule 144A(d)(4) under the
Securities Act.
Future Guarantor Subsidiaries. Iridium will cause each Subsidiary created
or acquired after the Issue Date (other than an Unrestricted Subsidiary or a
Foreign Subsidiary) to execute and deliver to the 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.
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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 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 provided that Parent could, within six months of the Issue
Date, convey or transfer in one transaction or a series of related transactions,
all or substantially all its assets to a Wholly-Owned Restricted Subsidiary of
Iridium upon compliance with clauses (i) and (v) of the preceding paragraph (and
without complying with clauses (ii) through (iv), inclusive, of the preceding
paragraph). On December 18, 1997, Parent transferred substantially all of its
assets and liabilities to Iridium pursuant to the Asset Drop-Down Transaction.
See "Ownership Structure and Strategic Investors -- Asset Drop-Down
Transaction."
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
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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.
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 or Liquidated Damages, if
any, 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
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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 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 and Liquidated Damages, if any, 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 Liquidated Damages, if any, and interest on all
the Notes will become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holders. Under certain
circumstances, the Holders of a majority in principal amount of the 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 and Liquidated Damages, if any, or interest when
due, no Holder may pursue any remedy with
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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 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 or Liquidated
Damages on any such Note, (iii) reduce the principal of or extend the Stated
Maturity of any such Note, (iv) reduce the premium payable upon the redemption
of any such Note or change the time at which any such Note may be redeemed as
described under "-- Optional Redemption" above, (v) make any such Note payable
in money other than that stated in such Note, (vi) impair the right of any
Holder to receive payment of principal of and premium, Liquidated Damages and
interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (vii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions or (viii) make any change in
any related Subsidiary Guaranty that would adversely affect the Holders.
Without the consent of any Holder, the Issuers and 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 (as contemplated under "-- Merger and
Consolidation" in connection with the Asset Drop-Down Transaction or otherwise),
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
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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. A supplemental
indenture was executed and delivered by Iridium and the Trustee in connection
with (and to give effect to) the Asset Drop-Down Transaction.
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.
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 Liquidated Damages, if any, and interest on the Notes to redemption
or maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
holders of the Notes will not recognize
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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.
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 Agreement Regarding Guarantee
between Iridium and Motorola, dated as of August 21, 1996, as amended and
restated as of July 11, 1997, and as further amended from time to time.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition (collectively, any "disposition") by Iridium or any Restricted
Subsidiary (including any disposition by means of a consolidation, merger or
similar transaction) but excluding a disposition by a Restricted Subsidiary to
Iridium or a Wholly-Owned Restricted Subsidiary or by Iridium to a Wholly-Owned
Restricted Subsidiary of (i) shares of Capital Stock of a Restricted Subsidiary,
(ii) all or substantially all of the assets of Iridium or any Restricted
Subsidiary representing a division or line of
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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.
"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.
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"Commercial Activation" means the date on which Iridium commences generally
available commercial service on the IRIDIUM System.
"Commission" means the Securities and Exchange Commission and any successor
agency.
"Consolidated Cash Flow" of Iridium means for any period the Consolidated
Net Income of Iridium and the consolidated Restricted Subsidiaries for such
period increased by (i) Consolidated Interest Expense of Iridium and the
consolidated Restricted Subsidiaries for such period, plus (ii) Consolidated
Income Tax Expense of Iridium and the consolidated Restricted Subsidiaries for
such period, plus (iii) the consolidated depreciation and amortization expense
included in the income statement of Iridium and the consolidated Restricted
Subsidiaries for such period (including any depreciation of any asset that
represents depreciation in respect of previously capitalized interest), plus
(iv) other non-cash charges of Iridium and the consolidated Restricted
Subsidiaries for such period deducted from consolidated revenues in determining
Consolidated Net Income for such period, minus (v) non-cash items of Iridium and
the consolidated Restricted Subsidiaries for such period which increased
consolidated revenues in determining Consolidated Net Income for such period,
minus (vi) the consolidated amortization expense related to payments made by
Iridium and the Restricted Subsidiaries to Motorola pursuant to the Operations
and Maintenance Contract included in the income statement of Iridium and the
consolidated Restricted Subsidiaries for such period.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP or, so long as such Person is treated as a partnership or
other pass through entity for United States federal income tax purposes, the Tax
Amount paid by such Person during such period.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its consolidated
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of
Indebtedness discounts; (ii) any payments or fees with respect to letters of
credit, bankers' acceptances or similar facilities; (iii) fees with respect to
Interest Rate or Currency Protection Agreements; (iv) Preferred Stock dividends
of such Person (other than with respect to Disqualified Stock) declared and paid
or payable; (v) accrued Disqualified Stock dividends of such Person and all
Restricted Subsidiaries of such 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
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to the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments," there will be deducted from the consolidated net income of
Iridium and the Restricted Subsidiaries for such period an amount equal to the
Tax Amount paid by Iridium during such period.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person and its consolidated Restricted Subsidiaries determined on
a consolidated basis in accordance with GAAP, less amounts attributable to
Disqualified Stock of such Person; provided, however, that, with respect to
Iridium, adjustments following the date of the Indenture to the accounting books
and records of Iridium in accordance with Accounting Principles Board Opinions
Nos. 16 and 17 (or successor opinions thereto) or otherwise resulting from the
acquisition of control of Iridium by another Person will not be given effect to.
"Debt to Capital Ratio" means on any date of determination for Iridium and
its Restricted Subsidiaries, on a consolidated basis, the ratio (expressed as a
percentage) of Outstanding Indebtedness on such date to Total Invested Capital
on such date.
"Debt to Cash Flow Ratio" means on any date of determination (the
"Determination Date") for Iridium and its Restricted Subsidiaries, on a
consolidated basis, the ratio of Outstanding Indebtedness on the Determination
Date to Consolidated Cash Flow for the four most recently completed fiscal
quarters immediately preceding the Determination Date (the "Measurement Period")
determined on a pro forma basis as if any Indebtedness to be Incurred had been
Incurred and the proceeds thereof had been applied on the first day of the
Measurement Period; provided, however, that in making such computations, (i) the
Consolidated Interest Expense attributable to interest on any proposed
Indebtedness bearing a floating interest rate will be computed on a pro forma
basis as if the rate in effect on such Determination Date had been the
applicable rate for the entire Measurement Period, (ii) the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility will be computed based upon the average daily balance of such
Indebtedness during such Measurement Period, (iii) in the event Iridium or any
of its Restricted Subsidiaries has made asset dispositions or acquisitions of
assets not in the ordinary course of business (including acquisitions of other
Persons by merger, consolidation or purchase of Capital Stock) or has repaid
Indebtedness or Incurred additional Indebtedness during or after such
Measurement Period, such computation will be made on a pro forma basis as if the
asset dispositions, acquisitions, repayment or incurrence had taken place on the
first day of such Measurement Period, (iv) the net proceeds of the Indebtedness
to be Incurred will be deemed to have been applied on the first day of such
Measurement Period to acquire direct obligations of the United States government
having a maturity most closely approximating the maturity of the Indebtedness to
be incurred (or Indebtedness incurred during or after such Measurement Period);
provided, however, that the adjustment in this clause (iv) will not be made if,
and to the extent, that application of such net proceeds has otherwise been
fully reflected in the computation, and (v) the actual application of the net
proceeds of Indebtedness Incurred during or after such Measurement Period will
be given pro forma effect as if such application had taken place on the first
day of such Measurement Period.
"Default" means an event that is, or after the passing of time or the
giving of notice or both would be, an Event of Default.
"Disposition" means (i) the sale, transfer or other conveyance by Motorola
or any of its Subsidiaries (other than to a wholly owned subsidiary of Motorola)
of (a) Iridium's membership interests or (b) equity interests in any entity (an
"intermediate entity") which owns, directly or indirectly, Iridium's membership
interests or (ii) the issue and sale by any such intermediate entity of its
equity securities to one or more third parties if and to the extent the proceeds
of such issue and sale are distributed by such intermediate entity to Motorola
or any of its Subsidiaries.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder
thereof), or upon the happening of any event, (i) matures or is mandatorily
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redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is
convertible or exchangeable for Indebtedness or Disqualified Stock, or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the earlier of the Stated Maturity of the Notes or the date
on which no Notes remain outstanding. Disqualified Stock does not include any
Capital Stock that is not otherwise Disqualified Stock if by its terms the
holders have the right to require the issuer to repurchase such stock upon a
Change of Control (or upon events substantially similar to a Change of Control).
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500 million or its equivalent in
foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act)) respectively, at the time as of which any investment or rollover therein
is made.
"Equity Offering" means an offering made on a primary basis of Capital
Stock (other than Disqualified Stock) of IWCL or Iridium that results in Net
Cash Proceeds to IWCL or Iridium, as the case may be, provided, however, if any
such offering is an offering of the Capital Stock of IWCL only the Net Cash
Proceeds thereof that are contributed to Iridium will be taken into
consideration for the purposes of this definition.
"Event of Default" has the meaning set forth under "-- Defaults" above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act) and the rules and regulations thereunder.
"Exchange Notes" as used in this "Description of Notes" section means any
notes issued in exchange for Notes pursuant to the Exchange and Registration
Rights Agreement.
"Exchange Offer Registration Statement" means the registration statement to
be filed by the Issuers and any Guarantor Subsidiaries with the Commission with
respect to an offer to exchange the Notes for another series of notes of the
Issuers with substantially identical terms to the Notes.
"Existing Affiliate Agreements" means (i) the Space System Contract, (ii)
the Terrestrial Network Development Contract, (iii) the Operations and
Maintenance Contract, (iv) the Agreement Regarding Guarantee, (v) the Master
Subscription Agreement, (vi) the Interest Exchange Agreement, (vii) the Share
Issuance Agreement, (viii) the Management Services Agreement, (ix) the Motorola
MOU and any subordination agreement contemplated thereunder, (x) the agreement
or agreements among Iridium, Motorola and other parties thereto providing for
the development, manufacture and sale of individual subscriber equipment to be
used in the IRIDIUM System, which agreement or agreements will be executed and
delivered after the Issue Date as a condition to borrowings under the Secured
Bank Facility and (xi) any other agreements with Affiliates or related Person of
Iridium, existing on the Issue Date and listed on a schedule to the 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
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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 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
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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.
"Initial Senior Notes" means the $300 million in aggregate principal amount
of 13% Senior Notes due 2005, Series A and the $500 million in aggregate
principal amount of 14% Senior Notes due 2005, Series B issued by Iridium and
Capital on July 16, 1997 and guaranteed by Roaming, Facilities and IP.
"Interest Exchange Agreement" means the Interest Exchange Agreement among
Iridium 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 reasona-
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ble 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 Management Services Agreement
between Iridium and IWCL, dated as of June 9, 1997, as amended from time to
time.
"Marketable Securities" means: (i) Government Securities; (ii) any time
deposit account, money market deposit and certificate of deposit maturing not
more than 270 days after the date of acquisition issued by, or time deposit of,
an Eligible Institution; (iii) commercial paper maturing not more than 270 days
after the date of acquisition issued by a corporation (other than an Affiliate
of Iridium) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc. or "A-1"
or higher according to Standard & Poor's Ratings Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptances or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than
seven days for Government Securities entered into with an Eligible Institution;
and (vi) any fund investing exclusively in investments of the types described in
clauses (i) through (v) above.
"Master Subscription Agreement" means the Agreement between Iridium and
IWCL, dated as of June 30, 1997 and as may be amended from time to time,
pursuant to which IWCL has agreed to sell shares of its Class B Common Stock in
connection with the Global Ownership Program. See "Certain Matters Regarding
Relationship 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 Memorandum of Understanding, dated as of July 11,
1997, between Iridium and Motorola, as amended from time to time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Marketable Securities received (including by way of sale or discounting
of a note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiror of Indebtedness
or other obligations relating to such properties or assets) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes (including taxes payable upon payment or other distribution of funds
from a foreign subsidiary to Iridium or another
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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 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.
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"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, the
Secretary or any Assistant Secretary of Iridium.
"Officers' Certificate" means a certificate signed by two Officers.
"Operations and Maintenance Contract" means the IRIDIUM System Operations
and Maintenance Contract between Iridium and Motorola, dated as of July 29,
1993, as amended from time to time.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the 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 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";
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(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;
(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
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(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 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.
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"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
Iridium and IWCL, dated as of June 9, 1997, as amended from time to time.
"Significant Subsidiary" means a Restricted Subsidiary that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act as in effect on the Issue Date.
"Space System Contract" means the Iridium Space System Contract between
Iridium and Motorola, dated as of July 29, 1993, as amended from time to time.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of either Issuer (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. Iridium's 14 1/2% Senior Subordinated Notes due 2006 will be
Subordinated Obligations.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
combined voting power of the outstanding Voting Stock of which is owned,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person or
(ii) any other Person (other than a corporation) in which such Person, or one or
more other Subsidiaries of such Person or such Person and one or more other
Subsidiaries of such Person, directly or indirectly, has at least a majority
ownership and power to direct the policies, management and affairs thereof.
"Subsidiary Guaranty" means any Guarantee of the 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 Iridium to its members under the Parent LLC Agreement. Notwithstanding
anything to the contrary, Tax Amount will not include taxes resulting from
Iridium's reorganization as or change in the status to a corporation.
"Terrestrial Network Development Contract" means the Terrestrial Network
Development Contract between Iridium and Motorola, entered into in June 1995, as
amended from time to time.
"Total Invested Capital" means, as of any date of determination, the sum of
(a) Total Pro Forma Consolidated Indebtedness as of such date and (b) $1.982
billion plus the aggregate proceeds received by Iridium or any Restricted
Subsidiary in respect of the issuance of Capital
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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
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,
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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.
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
The following summary of the material provisions of the Exchange and
Registration Rights Agreement does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all of the provisions of the
Exchange and Registration Rights Agreement. A copy of the Exchange and
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part and is available upon request to
Iridium at 1575 Eye Street N.W., Washington, D.C. 20005, Attention: Secretary.
The Iridium Parties and the Initial Purchasers are parties to the Exchange
and Registration Rights Agreement, dated October 17, 1997, entered into in
connection with the issuance of the Original Notes. Pursuant to the Exchange and
Registration Rights Agreement, the Iridium Parties are obligated to (i) file
with the Commission on or prior to 90 days after the Issue Date (provided that
if the 90th day is not a business day, the first business day thereafter) a
registration statement on Form S-1 or Form S-4, if the use of such form is then
available (the "Exchange Offer Registration Statement"), relating to a
registered exchange offer (the "Registered Exchange Offer") for the Notes under
the Securities Act and (ii) use their reasonable efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
no later than 180 days after the Issue Date (provided that if the 180th day is
not a business day, the first business day thereafter) and to consummate the
Registered Exchange Offer no later than 210 days after the Issue Date (provided
that if the 210th day is not a business day, the first business day thereafter).
As soon as practicable after the effectiveness of an Exchange Offer Registration
Statement, the Issuers will offer to the holders of Transfer Restricted
Securities (as defined) who are not prohibited by any law or policy of the
Commission from participating in the Registered Exchange Offer the opportunity
to exchange their Transfer Restricted Securities for a new issue of notes (the
"Exchange Notes") that are identical in all material respects to the Notes being
exchanged (except that the Exchange Notes will not contain terms with respect to
transfer restrictions). Pursuant to the Exchange and Registration Rights
Agreement, the Iridium Parties agreed to use their reasonable efforts to keep
the Registered Exchange Offer open for not less than 20 business days (or
longer, if required by applicable law or otherwise extended by an Iridium Party
at its option) after the date notice of the Registered Exchange Offer is mailed
to the holders of the Notes.
The Registration Statement of which this Prospectus is a part is an
Exchange Offer Registration Statement within the meaning of the Exchange and
Registration Rights Agreement, and the Exchange Offer constitutes a Registered
Exchange Offer within the meaning of the Exchange and Registration Rights
Agreement. The sole purpose of the Exchange Offer is to fulfill the obligations
of the Iridium Parties with respect to the Exchange and Registration Rights
Agreement. Each party tendering Original Notes for exchange under the Exchange
Offer agrees that the acceptance of such Original Notes by the Issuers and the
issuance of Exchange Notes in exchange therefor shall constitute performance in
full by the Iridium Parties of their obligations under the Exchange and
Registration Rights Agreement and that the Iridium Parties shall have no further
obligations or liabilities thereunder (except in the limited case of any
obligation relating to a Shelf Registration Statement, as discussed herein).
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If (i) because of any change in law or applicable interpretations thereof
by the Commission, the Issuers determine upon the advice of their outside
counsel that they are not permitted to effect the Registered Exchange Offer as
contemplated by the Exchange and Registration Rights Agreement, (ii) any Notes
validly tendered pursuant to the Exchange Offer are not exchanged for Exchange
Notes within 30 days (such period to be extended if the above-referenced 20
business day period is extended pursuant to applicable law) after the
commencement of the Registered Exchange Offer, (iii) any Initial Purchaser so
requests within 90 days after the consummation of the Registered Exchange Offer
with respect to Notes that were not eligible to be exchanged for Exchange Notes
in the Registered Exchange Offer and are then held by it following the
consummation of the Registered Exchange Offer, (iv) any applicable law or
interpretations do not permit any holder of Notes to participate in the
Registered Exchange Offer, (v) any Holder that participates in the Registered
Exchange Offer notifies Iridium within 10 days after the consummation of the
Registered Exchange Offer that it did not receive freely transferable Exchange
Notes in exchange for validly tendered Notes or (vi) the Issuers so elect, then
the Iridium Parties will file with the Commission a shelf registration statement
(the "Shelf Registration Statement") on the terms set forth in the Exchange and
Registration Rights Agreement to cover resales of Transfer Restricted Securities
from time to time by such holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement and who agree in writing to be bound by all provisions of
the Exchange and Registration Rights Agreement (including certain
indemnification obligations). For purposes of the foregoing, "Transfer
Restricted Securities" means each Original Note until (i) the date on which such
Original Note has been exchanged for a freely transferable corresponding
Exchange Note in the Registered Exchange Offer, (ii) the date on which such
Original Note has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, or (iii) the
date on which such Original Note is distributed to the public pursuant to Rule
144 under the Securities Act or is saleable pursuant to Rule 144(k) under the
Securities Act.
Unless the Registered Exchange Offer would not be permitted by applicable
law or a policy of the Commission, the Iridium Parties will be required pursuant
to the Exchange and Registration Rights Agreement to commence the Registered
Exchange Offer and to use their reasonable efforts to consummate the Registered
Exchange Offer within 30 days (such period to be extended if the
above-referenced 20 business day period is extended pursuant to applicable law)
after the effective date of the Exchange Offer Registration Statement. If
applicable, the Iridium Parties will use their reasonable efforts to file the
Shelf Registration Statement with the Commission on or prior to 60 days after
such filing obligation arises as specified in the Exchange and Registration
Rights Agreement, to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 60 days after such filing is made,
and to keep the Shelf Registration Statement effective for a period of two years
after the Issue Date. If (a) the Iridium Parties fail to file any of the
Registration Statements required by the Exchange and Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
Registration Statements is not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the Iridium Parties fail to consummate the Registered Exchange Offer within
30 days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Exchange and Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Iridium Parties will be obligated to pay liquidated damages
to each Holder of Original Notes, with respect to the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to $.05 per week per $1,000 principal amount of the Original Notes held by
such Holder. Such damages, together with damages accrued by Iridium pursuant to
the next succeeding sentence, are collectively referred to herein as "Liquidated
Damages." The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Original
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Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50
per week per $1,000 principal amount of Original Notes. All accrued Liquidated
Damages will be paid to the Holder in the same manner as interest payments on
the Notes on semi-annual payment dates which correspond to interest payment
dates for the Notes. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Each holder of Original Notes who wishes to exchange Original Notes for
Exchange Notes in the Exchange Offer will be required to make the
representations specified in the Exchange and Registration Rights Agreement,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the Original Notes or
Exchange Notes, (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of an Iridium Party or, if such holder is an affiliate, that it
will comply with the registration and delivery requirements of the Securities
Act to the extent applicable, (iv) if such holder is not a broker-dealer, that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes, and (v) if such holder is a broker-dealer, that it will receive
Exchange Notes for its own account in exchange for Original Notes that were
acquired as a result of market-making activities or other trading activities and
that it will deliver a Prospectus in connection with any resale of such Exchange
Notes.
Holders of the Original Notes will be required to make certain
representations to the Iridium Parties (as described above and in the Exchange
and Registration Rights Agreement) in order to participate in the Registered
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Original
Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth in the preceding paragraphs. A
holder who sells Original Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Exchange and
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations). Notwithstanding the foregoing, no holder
of Transfer Restricted Securities shall be entitled to receive any Liquidated
Damages with respect to such Transfer Restricted Securities, if a holder of such
Transfer Restricted Securities was, at any time while a Registered Exchange
Offer (including the Exchange Offer) was pending, eligible to exchange, and did
not validly tender, such Transfer Restricted Securities for freely transferable
corresponding Exchange Notes in such Registered Exchange Offer.
TAX CONSIDERATIONS
For United States federal income tax purposes, the exchange of Original
Notes for Exchange Notes pursuant to the Registered Exchange Offer should not be
a taxable exchange. As a result, (i) a Holder should not recognize taxable
income or loss as a result of exchanging Original Notes for Exchange Notes
pursuant to the Exchange Offer; (ii) the holding period of the Exchange Notes
should include the holding period of the Original Notes exchanged therefore; and
(iii) the adjusted tax basis of the Exchange Notes should be the same as the
adjusted tax basis of the Original Notes exchanged therefor immediately before
such exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer, where such Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes
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received in exchange for existing Notes where such existing Notes were acquired
as a result of market-making activities or other trading activities. The Issuers
have agreed that, for a period of up to 180 days after the Expiration Date, it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
September 9, 1998, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
None of the Iridium Parties will receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer for the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a Prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Iridium Parties will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Iridium Parties have agreed to pay all
expenses incident to the Exchange Offer (including the reasonable expenses of
one counsel for the Holders of the Notes) other than commissions or concessions
of any brokers or dealers and will indemnify the Holders of the Notes (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
VALIDITY OF THE SECURITIES
The validity of the Exchange Notes and the Guarantee of the Initial
Guarantors offered hereby will be passed on for the Iridium Parties by Sullivan
& Cromwell, New York, New York.
EXPERTS
The consolidated financial statements of Iridium, 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.
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GLOSSARY
Aeronautical
Mobile-Satellite Route
Service("AMS(R)S")....... aviation communications services for safety and
non-safety purposes
"AMPS"..................... Advanced Mobile Phone Service -- a transmission
protocol used by some cellular operators primarily
in the Americas
"antenna beams"............ tightly focused radio beams transmitted by the
Iridium satellites
"Big LEO".................. LEO MSS systems operating in the bands 1610-1626.5
MHz/2483.5-2500 MHz
"bps"...................... bytes per second
"CDMA"..................... Code Division Multiple Access -- a transmission
protocol used by some cellular networks that is
derived from spread spectrum techniques of the
military
"clearinghouse
functions"................. expected to be performed by Iridium, clearinghouse
functions will include preparation of master
billing tapes, administration of the subscriber
numbering plan and settlement activities
"coordination"............. the process of negotiation and agreement between
ITU member nations by which cases of potential
harmful interference by services duly authorized by
ITU member nations are resolved
"co-rotating orbital
planes".................... immediately adjacent orbital paths
"cross-link antennas"...... antennas used by the satellites to communicate with
one another
"dB"....................... decibel -- a unit used to express relative
difference in power
"earth terminals".......... land based units which communicate with the Iridium
satellite constellation
"excusable delay".......... has the meaning assigned thereto in the Space
System Contract
"ELVs"..................... expendable launch vehicles
"FCC"...................... the United States Federal Communications Commission
"feeder links"............. communications links between gateways and
satellites used to relay message data; these links
use the K-Band on the IRIDIUM System; sometimes
referred to as "gateway links"
FDMA/TDMA.................. Frequency Division Multiple Access/Time Division
Multiple Access -- a transmission protocol used by
some cellular networks
"gateways"................. terrestrial interconnection points between the
Iridium satellite constellation and PSTNs
"gateway links"............ communications links between gateways and
satellites used to relay message data; these links
use the K-Band on the IRIDIUM System; sometimes
referred to as "feeder links"
"GEO"...................... geostationary earth orbit
"GHz"...................... gigahertz -- one billion cycles per second
"global roaming"........... the ability to travel worldwide, subject to certain
limitations, and receive and make telephone calls
from a handheld mobile phone
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"GMPCS".................... Global Mobile Personal Communication Services
"GMSS"..................... Global Mobile Satellite Services
"GSM"...................... Global System for Mobile Communications -- a
transmission protocol used by cellular networks
including most of Europe and parts of Asia
"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 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)
"master control
facility".................. the primary facility from which the Iridium
constellation of satellites and the IRIDIUM System
are managed
"MEO"...................... medium earth orbit
"MHz"...................... megahertz -- one million cycles per second
"MSS"...................... mobile satellite services
"multi-mode phone"......... a phone designed to operate both with a terrestrial
wireless system and with the IRIDIUM System;
Motorola is designing a multi-mode phone which,
through the use of interchangeable TRCs will work
with various different terrestrial wireless
networks
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"MXU"...................... multiplex units which contain numerous channels to
be used for communications between a terrestrial
telephone system and the Iridium satellite
constellation
"near polar orbit"......... a flight path which generally follows the earth's
longitudinal lines and crosses both poles during
each orbit
"Operations and Maintenance
Contract"................ the Operations and Maintenance Contract, effective
July 1993, between Iridium and Motorola, as amended
from time to time
"orbital plane"............ generally, the flight path of a satellite
"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
"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
186
<PAGE> 193
"TDMA"..................... Time Division Multiple Access -- a transmission
protocol used by some terrestrial wireless networks
"telemetry"................ the science of automatic measurement and
transmission of data from remote sources for
recording and analysis
"Terrestrial Network
Development Contract".... the Terrestrial Network Development Contract,
entered into in June 1995, between Iridium and
Motorola, as amended from time to time
"TRCs"..................... Terrestrial Radio Cassettes being designed by
Motorola for use with multi-mode phones to permit
those phones to operate with one or more
terrestrial wireless protocols
"TT&C"..................... tracking, telemetry and command
"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
187
<PAGE> 194
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> 195
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> 196
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> 197
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
YEAR ENDED DECEMBER 31, JUNE 14, 1991
---------------------------- (INCEPTION) THROUGH
1995 1996 1997 DECEMBER 31, 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> 198
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> 199
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> 200
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> 201
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 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-
F-8
<PAGE> 202
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-9
<PAGE> 203
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
F-10
<PAGE> 204
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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
F-11
<PAGE> 205
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-12
<PAGE> 206
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-13
<PAGE> 207
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-14
<PAGE> 208
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $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
F-15
<PAGE> 209
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-16
<PAGE> 210
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
F-17
<PAGE> 211
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table describes the funded status of the plans at December
31, 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>
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
F-18
<PAGE> 212
IRIDIUM OPERATING LLC
(A WHOLLY-OWNED SUBSIDIARY OF IRIDIUM LLC)
(A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-19
<PAGE> 213
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 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>
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-20
<PAGE> 214
IRIDIUM OPERATING LLC
IRIDIUM CAPITAL CORPORATION
IRIDIUM ROAMING LLC
IRIDIUM IP LLC
IRIDIUM FACILITIES CORPORATION
[IRIDIUM LOGO]
The Exchange Agent for the Exchange Offer is
STATE STREET BANK AND TRUST COMPANY
Facsimile Transmissions:
(617) 664-5371
(Eligible Institutions Only)
<TABLE>
<S> <C>
By Registered or Certified Mail By Hand or Overnight Delivery
Corporate Trust Department Corporate Trust Department, Fourth Floor
Post Office Box 778 Two International Plaza
Boston, Massachusetts 02102-0078 Boston, Massachusetts 02102-0078
</TABLE>
New York Drop Location
State Street Bank and Trust Company, N.A.
61 Broadway
Concourse Level, Corporate Trust Window
New York, New York 10006
FOR INFORMATION CALL:
(800) 531-0368
UNTIL SEPTEMBER 9, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE
REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 215
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Capital, which is a Delaware corporation, is empowered by the Delaware
General Corporation Law, subject to the procedures and limitations stated
therein, to indemnify any person against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with any threatened, pending or completed action, suit or
proceeding in which such person is made a party by reason of his being or having
been a director, officer, employee or agent of Capital. The statute provides
that indemnification pursuant to its provisions is not exclusive of other rights
of indemnification to which a person may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors, or otherwise. The
Certificate of Incorporation and by-laws of Capital provide for indemnification
of the directors and officers of such entities to the full extent permitted by
the Delaware General Corporation Law.
Pursuant to the 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, with respect to such proceeding, had no reasonable
cause to believe such person's conduct was unlawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
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 "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").
</TABLE>
II-1
<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
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.*
3.5 Amended and Restated Limited Liability Company Agreement of
Iridium IP LLC.*
3.6 Limited Liability Company Agreement of Iridium Operating
LLC.*
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.*
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.
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.*
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.*
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.*
</TABLE>
II-2
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
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.*
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 Form
S-1.
10.2 Form of amended and restated Management Services Agreement
between IWCL, Iridium LLC and Iridium Operating LLC.*
10.3 Form of 1997 Subscription Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.4 to the Form
S-1.
10.4 Space System Contract between Iridium LLC and Motorola, Inc.
effective July 29, 1993, as amended and conformed on January
14, 1997: Incorporated by reference to Exhibit 10.6 to the
Form S-1.+
10.5 Communications System Operations & Maintenance Contract
between Iridium LLC and Motorola, Inc. effective July 29,
1993, as amended and conformed on January 14, 1997:
Incorporated by reference to Exhibit 10.7 to the Form S-1.+
10.6 Terrestrial Network Development Contract between Iridium LLC
and Motorola, Inc. effective January 1, 1993, as amended and
conformed on January 14, 1997: Incorporated by reference to
Exhibit 10.8 to the Form S-1.+
10.7 Amendment No. 3 to the Terrestrial Network Development
Contract between Iridium LLC and Motorola, Inc. effective
June 20, 1997: 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 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 Form S-1.+
10.10 14 1/2% Senior Subordinated Discount Notes Due 2006 of
Iridium: Incorporated by reference to Exhibit 10.11 to the
Form S-1.
10.11 Form of Warrant issued in respect of 14 1/2% Senior
Subordinated Discount Notes: Incorporated by reference to
Exhibit 10.13 to the Form S-1.
10.12 Warrant to purchase Series M Class 2 Interests dated July
29, 1993, as amended: Incorporated by reference to Exhibit
10.13 to the Form S-1.
10.13 Form of Gateway Authorization Agreement: Incorporated by
reference to Exhibit 10.14 to the Form S-1.
10.14 Guaranteed Bank Facility: Incorporated by reference to
Exhibit 10.15 to the Form S-1.
10.15 Amendment dated December 19, 1997 to Guaranteed
Bank Facility: Incorporated by reference to Exhibit 10.15 to
the 1997 Form 10-K.
10.16 Motorola Agreement regarding Guarantee: Incorporated by
reference to Exhibit 10.16 to the Form S-1.
10.17 Amended and Restated Agreement regarding Guarantee:
Incorporated by reference to Exhibit 10.17 to the 1997 Form
S-4.
</TABLE>
II-3
<PAGE> 218
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
10.18 Memorandum of Understanding with Motorola, Inc: Incorporated
by reference to Exhibit 10.18 to the 1997 Form S-4.
10.19 Form of Share Issuance Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.17 to the Form
S-1.
10.20 Purchase Agreement in respect of Series C Notes, dated
October 9, 1997.*
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 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.
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.*
10.26 Consent of Arthur Andersen LLP to Contract Assignment.*
10.27 Consent of Motorola Inc. to Contract Assignment.*
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.
</TABLE>
II-4
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
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.
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.
12 Statement Regarding Computation of Ratios.*
21 Subsidiaries of the Registrants.*
23.1 Consent of KPMG Peat Marwick LLP.**
23.2 Consent of Sullivan & Cromwell: contained in Exhibit 5.
24 Power of Attorney: Contained on signature pages.
25.1 Statement on Form T-1 of Eligibility of Trustee respecting
the Series A Indenture: Incorporated by reference to Exhibit
25.1 to the 1997 Form S-4.
25.2 Statement on Form T-1 of Eligibility of Trustee respecting
the Series B Indenture: Incorporated by reference to Exhibit
25.2 to the 1997 Form S-4.
25.3 Statement on Form T-1 of Eligibility of Trustee respecting
the Series C Indenture.*
27 Financial Data Schedule*
99.1 Form of Letter of Transmittal and Notice of Guaranteed
Delivery.*
99.2 Form of Letter to Clients.*
99.3 Form of Letter to Nominees.*
</TABLE>
- ---------------
* Filed previously.
** Filed herewith.
+ Confidential treatment previously granted in connection with the Form S-1 or
the 1997 Form S-4.
++ Management Compensation Plan.
(b) Financial Statement Schedules:
All schedules have been omitted because they are not applicable or not
required or the required information is included in the financial statements or
notes thereto.
ITEM 22. UNDERTAKINGS.
The Registrants hereby undertake:
(1) To file, during any period in which they offer or sell securities,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
II-5
<PAGE> 220
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-6
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 14, 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
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 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 14, 1998
- ------------------------------------------------ (Sole Member of Iridium Roaming
Robert W. Kinzie LLC and Iridium IP LLC)
/s/ EDWARD F. STAIANO acting chief executive officer of April 14, 1998
- ------------------------------------------------ Iridium Roaming LLC and Iridium IP
Edward F. Staiano LLC
/s/ ROY GRANT acting chief financial officer of April 14, 1998
- ------------------------------------------------ Iridium Roaming LLC and Iridium IP
Roy Grant LLC
</TABLE>
II-7
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 14, 1998.
IRIDIUM OPERATING LLC
By: /s/ ROBERT W. KINZIE
-----------------------------------
Robert W. Kinzie
Chairman
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 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 14, 1998
- ------------------------------------------------
Robert W. Kinzie
/s/ EDWARD F. STAIANO Vice Chairman and Chief Executive April 14, 1998
- ------------------------------------------------ Officer, Iridium Operating LLC
Edward F. Staiano
/s/ ROY GRANT Vice President and Chief Financial April 14, 1998
- ------------------------------------------------ Officer, Iridium Operating LLC
Roy Grant
Director April , 1998
- ------------------------------------------------
Aburizal Bakrie
* Director April 14, 1998
- ------------------------------------------------
Hasan M. Binladin
* Director April 14, 1998
- ------------------------------------------------
Ulf Bohla
Director April , 1998
- ------------------------------------------------
Gordon J. Comerford
* Director April 14, 1998
- ------------------------------------------------
Atilano de Oms Sobrinho
* Director April 14, 1998
- ------------------------------------------------
Robert A. Ferchat
* Director April 14, 1998
- ------------------------------------------------
Alberto Finol
Director April , 1998
- ------------------------------------------------
Edward Gams
* Director April 14, 1998
- ------------------------------------------------
Kazuo Inamori
Director April , 1998
- ------------------------------------------------
Georg Kellinghusen
* Director April 14, 1998
- ------------------------------------------------
S. H. Khan
</TABLE>
II-8
<PAGE> 223
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
Director April , 1998
- ------------------------------------------------
Anatoli I. Kiselev
* Director April 14, 1998
- ------------------------------------------------
Richard L. Lesher
Director April , 1998
- ------------------------------------------------
John F. Mitchell
* Director April 14, 1998
- ------------------------------------------------
Jung L. Mok
Director April , 1998
- ------------------------------------------------
Giuseppe Morganti
Director April , 1998
- ------------------------------------------------
J. Michael Norris
* Director April 14, 1998
- ------------------------------------------------
Yusai Okuyama
Director April , 1998
- ------------------------------------------------
John A. Richardson
Director April , 1998
- ------------------------------------------------
John M. Scanlon
* Director April 14, 1998
- ------------------------------------------------
Theodore H. Schell
* Director April 14, 1998
- ------------------------------------------------
William A. Schreyer
* Director April 14, 1998
- ------------------------------------------------
Sribhumi Sukhanetr
* Director April 14, 1998
- ------------------------------------------------
Tao-Tsun Sun
* Director April 14, 1998
- ------------------------------------------------
Yoshiharu Yasuda
Director April , 1998
- ------------------------------------------------
Wang Mei Yue
* By /s/ F. THOMAS TUTTLE
-----------------------------------------
Attorney-in-fact
</TABLE>
II-9
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 14, 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
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 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 14, 1998
- ------------------------------------------------ Officer, Iridium Capital
Edward F. Staiano Corporation and Iridium Facilities
Corporation
/s/ ROY GRANT Chief Financial Officer, Iridium April 14, 1998
- ------------------------------------------------ Capital Corporation and Iridium
Roy Grant Facilities Corporation
/s/ ROBERT W. KINZIE Director, Iridium Capital April 14, 1998
- ------------------------------------------------ Corporation and Iridium Facilities
Robert W. Kinzie Corporation
</TABLE>
II-10
<PAGE> 225
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
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 "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.*
3.5 Amended and Restated Limited Liability Company Agreement of
Iridium IP LLC.*
3.6 Limited Liability Company Agreement of Iridium Operating
LLC.*
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.*
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.
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.*
</TABLE>
II-11
<PAGE> 226
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
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.*
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.*
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.*
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 Form
S-1.
10.2 Form of amended and restated Management Services Agreement
between IWCL, Iridium LLC and Iridium Operating LLC.*
10.3 Form of 1997 Subscription Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.4 to the Form
S-1.
10.4 Space System Contract between Iridium LLC and Motorola, Inc.
effective July 29, 1993, as amended and conformed on January
14, 1997: Incorporated by reference to Exhibit 10.6 to the
Form S-1.+
10.5 Communications System Operations & Maintenance Contract
between Iridium LLC and Motorola, Inc. effective July 29,
1993, as amended and conformed on January 14, 1997:
Incorporated by reference to Exhibit 10.7 to the Form S-1.+
10.6 Terrestrial Network Development Contract between Iridium LLC
and Motorola, Inc. effective January 1, 1993, as amended and
conformed on January 14, 1997: Incorporated by reference to
Exhibit 10.8 to the Form S-1.+
10.7 Amendment No. 3 to the Terrestrial Network Development
Contract between Iridium LLC and Motorola, Inc. effective
June 20, 1997: 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 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 Form S-1.+
10.10 14 1/2% Senior Subordinated Discount Notes Due 2006 of
Iridium: Incorporated by reference to Exhibit 10.11 to the
Form S-1.
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<C> <S>
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 Form S-1.
10.12 Warrant to purchase Series M Class 2 Interests dated July
29, 1993, as amended: Incorporated by reference to Exhibit
10.13 to the Form S-1.
10.13 Form of Gateway Authorization Agreement: Incorporated by
reference to Exhibit 10.14 to the Form S-1.
10.14 Guaranteed Bank Facility: Incorporated by reference to
Exhibit 10.15 to the Form S-1.
10.15 Amendment dated December 19, 1997 to Guaranteed
Bank Facility: Incorporated by reference to Exhibit 10.15 to
the 1997 Form 10-K.
10.16 Motorola Agreement regarding Guarantee: Incorporated by
reference to Exhibit 10.16 to the Form S-1.
10.17 Amended and Restated Agreement regarding Guarantee:
Incorporated by reference to Exhibit 10.17 to the 1997 Form
S-4.
10.18 Memorandum of Understanding with Motorola, Inc: Incorporated
by reference to Exhibit 10.18 to the 1997 Form S-4.
10.19 Form of Share Issuance Agreement between IWCL and Iridium
LLC: Incorporated by reference to Exhibit 10.17 to the Form
S-1.
10.20 Purchase Agreement in respect of Series C Notes, dated
October 9, 1997.*
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 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.
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.*
10.26 Consent of Arthur Andersen LLP to Contract Assignment.*
10.27 Consent of Motorola Inc. to Contract Assignment.*
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.
</TABLE>
II-13
<PAGE> 228
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
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.
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.
12 Statement Regarding Computation of Ratios.*
21 Subsidiaries of the Registrants.*
23.1 Consent of KPMG Peat Marwick LLP.**
23.2 Consent of Sullivan & Cromwell: contained in Exhibit 5.
24 Power of Attorney: Contained on signature pages.
25.1 Statement on Form T-1 of Eligibility of Trustee respecting
the Series A Indenture: Incorporated by reference to Exhibit
25.1 to the 1997 Form S-4.
25.2 Statement on Form T-1 of Eligibility of Trustee respecting
the Series B Indenture: Incorporated by reference to Exhibit
25.2 to the 1997 Form S-4.
25.3 Statement on Form T-1 of Eligibility of Trustee respecting
the Series C Indenture.*
</TABLE>
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<PAGE> 229
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S>
27 Financial Data Schedule*
99.1 Form of Letter of Transmittal and Notice of Guaranteed
Delivery.*
99.2 Form of Letter to Clients.*
99.3 Form of Letter to Nominees.*
</TABLE>
- ---------------
* Filed previously.
** Filed herewith.
+ Confidential treatment previously granted in connection with the Form S-1 or
the 1997 Form S-4.
++ Management Compensation Plan.
II-15
<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 14, 1998
